25 T.C. 656">*657 Respondent determined that petitioner is liable to the extent of $ 53,611.68, plus statutory interest, as transferee of assets of River Mills, Inc., for deficiencies of that corporation in excess profits tax for 1944 and income and excess profits tax for 1945.

The questions presented are: Is petitioner a transferee of assets of River Mills, Inc.; and, if so, does the statute of limitations bar the assessment and collection of any liability due from her as such transferee for unpaid deficiencies of River Mills, Inc., for the years 1944 and 1945?

FINDINGS OF FACT.

A stipulation and supplemental stipulation of facts filed by the parties are incorporated herein by reference.

Theophile Guerin and petitioner were married in 1934 and were husband and wife at all times material to this proceeding. Petitioner's name prior to this marriage was Aurore B. Benoit and she continued to use it thereafter. She and her husband have maintained separate bank accounts since their marriage. He had three sons1955 U.S. Tax Ct. LEXIS 1">*4 by a prior marriage.

River Mills, Inc., was a corporation organized under the laws of the State of Rhode Island, engaged in the manufacture and sale of woolen yarn. Theophile Guerin was president and petitioner was secretary-treasurer and office manager of the corporation. They were also members of its board of directors. She had been his employee for many years prior to their marriage.

The corporate income and excess profits tax returns for the taxable years 1944 and 1945 and the corporate income tax return for the taxable year 1946 of River Mills, Inc., were filed with the then collector of internal revenue for the district of Massachusetts. The returns for 1944 and 1945 were filed on March 15, 1945, and March 15, 1946, respectively.

25 T.C. 656">*658 The stock of Guerin Fabrics, Inc., was entirely owned from the time of its organization until sometime in 1946 by River Mills, Inc.

In December 1945, the stock of River Mills, Inc., was held as follows:

1955 U.S. Tax Ct. LEXIS 1">*5 Petitioner had acquired some of her stock prior to her marriage to Theophile Guerin, and had paid for all of her stock with her own funds.

The preferred stock was entitled to cumulative dividends at the rate of 8 per cent. As of December 31, 1945, the dividends were 5 years in arrears.

Theophile Guerin, the president and principal stockholder of River Mills, Inc., was 71 years old in 1945. Sometime during the year 1945, he decided to retire and wind up the affairs of River Mills, Inc., and he informed petitioner of his decision.

At separate meetings held December 20, 1945, the shareholders and directors of River Mills, Inc., authorized the sale of its machinery and equipment and certain other assets for $ 160,000. Petitioner attended both meetings in her respective capacities of shareholder and director.

The sale was made in December 1945, and thereafter River Mills, Inc., did not engage in the manufacture of woolen yarn.

A special meeting of the board of directors of River Mills, Inc., was held on January 28, 1946, which was attended by all the directors including petitioner, who kept the minutes. At the meeting it was voted to sell the stock of Guerin Fabrics, Inc., and that1955 U.S. Tax Ct. LEXIS 1">*6 stock was subsequently sold during that year.

The balance sheet of River Mills, Inc., as of December 31, 1945, reflected the following:

25 T.C. 656">*659 The sales, cost of goods sold, gross profit, and net income of River Mills, Inc., as reported on its returns for the taxable years 1944, 1945, and 1946 were as follows:

The inventories of River Mills, Inc., at1955 U.S. Tax Ct. LEXIS 1">*7 the end of the taxable years 1944 and 1945 were $ 87,885.59 and $ 28,711.75, respectively.

In December 1945, after the fixed assets of River Mills, Inc., had been sold, Theophile Guerin withdrew $ 100,000 from the corporation and loaned this amount to Maurice O. Guerin, one of his sons. Petitioner knew about this withdrawal, and she was afraid that she was going to lose the money she had invested in the stock of River Mills, Inc. For about a month and a half thereafter she kept insisting that she be paid for her stock. Her husband urged her to wait until the corporation was dissolved. On February 1, 1946, he deposited in his personal checking account at the Union Trust Company, Woonsocket, Rhode Island (carried in the name of "Theophile Guerin, Aurore B. Benoit, Attorney" and hereinafter called the Guerin account), a check of River Mills, Inc., in the amount of $ 75,000. Prior to this deposit the balance in the Guerin account amounted to $ 36,892.55. The $ 75,000 withdrawal was charged on the books of River Mills, Inc., to notes receivable from Theophile Guerin.

On February 1, 1946, petitioner endorsed over to Theophile Guerin the 374 shares of preferred stock and 16 shares 1955 U.S. Tax Ct. LEXIS 1">*8 of common stock of River Mills, Inc., held by her. This stock was paid for by check No. 2580 dated February 1, 1946, drawn on the Guerin account in the amount of $ 53,611.68, payable to the order of petitioner and signed 25 T.C. 656">*660 "Theophile Guerin." ¹ This was the only amount petitioner ever received for her stock interest in River Mills, Inc.

The stock of River Mills, Inc., was transferable only on the books of the company. The stock certificate books of the company do not reflect a transfer of stock by petitioner to Theophile Guerin.

Petitioner, as a stockholder of River Mills, Inc., 1955 U.S. Tax Ct. LEXIS 1">*9 signed a waiver of notice of a special meeting of stockholders to be held December 12, 1946.

The minutes of the special meeting of stockholders held on December 12, 1946, stated that it was held at the home of Theophile Guerin; that all of the stockholders were present in person; and that the meeting was called to order by Theophile Guerin, president; and that the minutes were kept by A. B. Benoit, secretary. At the meeting, it was unanimously voted that the corporation distribute all of its assets as a final dividend in complete liquidation and complete cancellation or redemption of its outstanding shares of stock pro rata among all the stockholders of the corporation; that the president and treasurer of the corporation be authorized to sign, seal, acknowledge, and deliver to the stockholders any instrument or instruments necessary to transfer to them the assets of the corporation subject -- to the extent of the value of the property and assets received by each -- to all debts, obligations, or liabilities, fixed or contingent, of the corporation; that the corporation be dissolved in accordance with the laws of Rhode Island; that the treasurer be authorized to admit the allegations1955 U.S. Tax Ct. LEXIS 1">*10 contained in the petition for dissolution and join in the prayer thereof; and that the directors and officers of the corporation be authorized to take whatever action was necessary in the premises.

Petitioner, as a director of River Mills, Inc., signed a waiver of notice of a special meeting of the board of directors to be held December 12, 1946.

The minutes of the special meeting of directors held on December 12, 1946, stated that it was held at the home of Theophile Guerin; that all of the directors were present in person; and that the minutes were kept by A. B. Benoit, secretary. At that meeting the actions and authorizations voted for at the stockholders' meeting held that same day were unanimously voted for by the directors.

On December 13, 1946, Theophile Guerin filed a petition for dissolution of River Mills, Inc., in the Superior Court of Rhode Island. The petition alleged, inter alia, that all of the debts, including Federal 25 T.C. 656">*661 taxes of River Mills, Inc., had been paid and that all of the remaining assets of the corporation had been distributed to the shareholders of record.

On the same day, River Mills, Inc., filed its answer to the petition for dissolution. 1955 U.S. Tax Ct. LEXIS 1">*11 The answer admitted all the allegations of the petition and joined in the prayer thereof. The answer was signed by petitioner as treasurer of River Mills, Inc.

On December 18, 1946, the Superior Court entered its decree dissolving River Mills, Inc., without appointment of a receiver.

There is no record in the files of the Commissioner of Internal Revenue of the receipt of a notice of the adoption of a resolution or plan for the dissolution or liquidation of River Mills, Inc., which was required by section 148 (d) of the Internal Revenue Code of 1939.

From time to time Theophile Guerin and petitioner, purporting to act for River Mills, Inc., and the Commissioner of Internal Revenue executed agreements extending the time within which the Commissioner might assess against River Mills, Inc., income and excess profits taxes for the taxable years 1944 and 1945. All of these agreements bore the seal of River Mills, Inc. The dates of execution of the agreements, the time to which the period for assessment was extended, the person signing, and the capacity in which he or she purported to sign, were as follows:

1955 U.S. Tax Ct. LEXIS 1">*12 A statutory notice of deficiency was sent to River Mills, Inc., by registered mail on August 14, 1951. The deficiencies as determined by the Commissioner were in income and excess profits taxes as follows:

River Mills, Inc., did not file a petition for redetermination of said deficiencies with the Tax Court of the United States. On January 25 T.C. 656">*662 11, 1952, deficiencies and interest thereon to that date were assessed against River Mills, Inc., as follows:

Petitioner reported the receipt of $ 53,611.68 from the disposition of the River Mills, Inc., stock held by her on her individual income tax return for the taxable year 1946.

Theophile Guerin reported the receipt of $ 355,950.45 from the disposition of the River Mills, Inc., stock held by him on his individual income tax return for the taxable year 1946. On his individual1955 U.S. Tax Ct. LEXIS 1">*13 income tax return for the taxable year 1947, Theophile Guerin did not report any receipts from the disposition of his stock of River Mills, Inc.

On December 31, 1946, there were two checking accounts in the name of River Mills, Inc., in the Fall River National Bank, Fall River, Massachusetts. The credit balance in one of these accounts on that date amounted to $ 13,229.67 and in the other $ 82,903.90. The amount in the first account was withdrawn by checks issued prior to June 11, 1947, and the amount in the second account was withdrawn by checks issued prior to February 4, 1950. The petitioner and her husband were the only persons authorized to make withdrawals from these accounts.

On June 29, 1953, the Commissioner of Internal Revenue sent to the petitioner by registered mail a notice of liability for $ 53,611.68 plus statutory interest in respect of the deficiencies of River Mills, Inc., determined to be due from petitioner as transferee of River Mills, Inc.

OPINION.

Petitioner urges that the respondent has failed to establish that she has any liability in law or in equity as the transferee of property of River Mills, Inc., for deficiencies in tax of that corporation for 19441955 U.S. Tax Ct. LEXIS 1">*14 and 1945. She contends that on February 1, 1946, she sold her stock in River Mills, Inc., to her husband for $ 53,611.68; that he paid for it by check drawn on his own account; that the stock certificates evidencing her shares were transferred to him; that at the time of the sale there was no definite plan that the corporation be liquidated or dissolved; and that she received no assets from it as a transferee in liquidation or otherwise. She also contends that, even if it be assumed that the purchase price of her stock came from the 25 T.C. 656">*663 corporation, there is no basis for transferee liability because the respondent has not proved that it was rendered insolvent by reason of any transfer to her, and has failed to show that there are any unpaid deficiencies in tax for the years 1944 and 1945. In the alternative, she urges that assessment of any liability against her as transferee of the assets of River Mills, Inc., is barred by the statute of limitations.

The respondent contends that the payment to petitioner of $ 53,611.68 was a distribution by River Mills, Inc., in liquidation of its stock; that it was one of a series of such distributions which by December 12, 1946, left the1955 U.S. Tax Ct. LEXIS 1">*15 corporation without assets to pay subsequently assessed deficiencies in income and excess profits taxes for 1944 and 1945; and that petitioner is, therefore, a transferee of assets of River Mills, Inc., and is liable for the deficiencies to the extent of the assets received by her, $ 53,611.68. He also contends that the statute of limitations does not bar the assessment and collection of any amount due from petitioner as transferee.

The pertinent provisions of the Internal Revenue Code of 1939 relating to a transferee's liability for unpaid taxes of his transferor are set forth in the margin. ² The burden of proving such liability is upon the respondent. See sec. 1119, I. R. C. 1939; sec. 6902, I. R. C. 1954. In order to sustain this burden he had to establish that the petitioner received assets of River Mills, Inc.; and that it was insolvent at the time of the transfer or was made insolvent by the transfer, or that the transfer was one of a series of distributions in complete liquidation which left it insolvent and without means to pay its tax liability. See J. Warren Leach, 21 T.C. 70, 75. Cf. Botz v. Helvering, 134 F.2d 538, 5431955 U.S. Tax Ct. LEXIS 1">*16 (C. A. 2), affirming 45 B. T. A. 970, 976; Borall Corporation v. Commissioner, 167 F.2d 865, 870 (C. A. 2).

1955 U.S. Tax Ct. LEXIS 1">*17 In 1945, the petitioner's husband, the owner of 98.9 per cent of the outstanding common stock of River Mills, Inc., and 69.1 per cent of its outstanding preferred stock, apparently because of advanced age, decided to retire and wind up its affairs, and advised the petitioner 25 T.C. 656">*664 of his decision. In December 1945 the stockholders and directors authorized the sale of the fixed assets and they were sold. Thereafter the corporation ceased to carry on the business of manufacturing woolen yarn in which it had theretofore been engaged. In January 1946 the directors approved the sale of the capital stock of a subsidiary owned by it. The evidence discloses that in December 1945 when the fixed assets of the corporation were sold, petitioner's husband withdrew $ 100,000 and made a loan of this amount to Maurice O. Guerin, one of his sons; that petitioner was apprehensive that she might lose her investment in the corporation; that for about a month and a half she demanded of her husband that she be paid for her stock; and that he wanted to wait until the corporation was dissolved but finally acceded to her wishes. On February 1, 1946, he withdrew $ 75,000 from the corporation which1955 U.S. Tax Ct. LEXIS 1">*18 he deposited in his personal account, and on the same day he gave her a check on that account for $ 53,611.68, whereupon she endorsed her stock over to him. It appears from the evidence that the $ 53,611.68 received by petitioner equaled the sum of the par value of her preferred stock, arrears of dividends thereon, and the book value of her common stock on December 31, 1945.

It is apparent from the foregoing summary that we do not have here instances, as in cases cited by petitioner, where stockholders sold their stock prior to the liquidation of a corporation and the purchaser liquidated it and sold the assets ( Lester L. Robison, 22 B. T. A. 395, and J. T. S. Brown's Son Co., 10 T.C. 840), or where, after the stockholders of a corporation adopted a resolution authorizing its officers to sell any or all of its assets, and it had purchased from minority stockholders 60 of its outstanding 600 shares, it continued to engage in the business of manufacturing and selling at least one of its products for more than a year ( Charles Havard, 25 B. T. A. 1161). Prior to February 1, 1946, when petitioner1955 U.S. Tax Ct. LEXIS 1">*19 received $ 53,611.68 for her stock interest, the representatives of River Mills, Inc., had taken affirmative action "the normal and necessary result of which was the winding up of the corporate business." See W. E. Guild, 19 B. T. A. 1186, 1204. Its president and principal stockholder had decided to retire and wind up the corporate business, its fixed assets had been sold and others were in the process of being sold, and it had discontinued the business in which it had theretofore engaged. See James P. Gossett, 22 B. T. A. 1279, 1284-1285, affirmed 59 F.2d 365 (C. A. 4). It was in the process of liquidation and any distributions then or thereafter made to its stockholders were liquidating in character even though no resolution of liquidation or dissolution had been adopted by them. Cf. Holmby Corporation, 28 B. T. A. 1092, 1105, affirmed 83 F.2d 548, 550 (C. A. 9); Fred T. Wood, 27 B. T. A. 162, 166-167; Horn & 25 T.C. 656">*665 v. United States, 35 F. Supp. 89">35 F. Supp. 891955 U.S. Tax Ct. LEXIS 1">*20 (E. D., Penn.); W. F. Kennemer, 35 B. T. A. 415, 421, affirmed 96 F.2d 177 (C. A. 5).

We are not impressed by petitioner's contention that she sold her River Mills stock to her husband on February 1, 1946, and did not receive a distribution in liquidation of that corporation. It is clear that the payment of $ 53,611.68 to her on that date had its inception in her desire to receive what she deemed to be her interest in the corporation as soon as possible after her husband had decided to retire and wind up its affairs, and its fixed assets had been sold. Once it was determined that her interest in the corporation was worth $ 53,611.68 and her husband agreed to the payment of this amount, it was immaterial as far as he was concerned whether the corporation distributed it to her directly at that time in redemption of her stock, or whether he withdrew it from the corporation, paid it to her, and she endorsed her stock over to him. Whichever course was followed, his interest in the remaining assets would be the same. However, the fact that the latter course was followed rather than the former did not change what would have been1955 U.S. Tax Ct. LEXIS 1">*21 a distribution in liquidation into a bona fide sale of her stock to her husband. He was merely a conduit through which corporate funds passed on their way to her when the corporation was in the process of liquidation, and the substance of the transaction was that she received a liquidating distribution. Cf. Oscar G. Joseph, 32 B. T. A. 1192, 1201; Caire v. Commissioner, 101 F.2d 992 (C. A. 5).

When a corporation in the process of liquidation distributes its assets to its stockholders, leaving it without means to pay its tax liability, each stockholder is liable as a transferee to the extent of the value of the assets received by him, since a stockholder is not entitled to receive assets distributed in a corporate liquidation until all of the corporation's obligations to creditors are discharged. Benjamin E. May, 35 B. T. A. 84, 91, settled and remanded for entry of decision 94 F.2d 1017 (C. A. 5), 95 F.2d 1002 (C. A. 5); Updike v. United States, 8 F.2d 913, 917 (C. A. 8); Phillips v. Commissioner, 283 U.S. 589">283 U.S. 589.1955 U.S. Tax Ct. LEXIS 1">*22 While it is true, as petitioner urges, that the distribution to her of $ 53,611.68 did not render River Mills, Inc., insolvent at the time it was made, she nevertheless is liable as a transferee if that distribution was one of a series of distributions in liquidation which resulted in ultimate insolvency. Botz v. Helvering, supra, at p. 543; Borall Corporation v. Commissioner, supra, at p. 870. The respondent has proved that the distribution to her falls into this category. The balance sheet of the corporation as of December 31, 1945, shows net assets of $ 326,144.48. The corporation had income of $ 69,701.10 in 1946. Its assets available for distribution in 1946 were therefore approximately $ 395,845.58. Petitioner reported the receipt of $ 53,611.68 25 T.C. 656">*666 and her husband, in his 1946 return, reported the receipt of $ 355,950.45 from the disposition of his River Mills, Inc., stock. ³ In his 1947 return he did not report any receipts from that source. These returns indicate that all of the assets of the corporation were distributed to its stockholders during 1946, and this view finds support in a petition1955 U.S. Tax Ct. LEXIS 1">*23 for dissolution filed by petitioner's husband on December 13, 1946, which contains a sworn statement by him that all of the assets had been distributed to the stockholders -- which allegation was admitted in the answer to the petition signed by petitioner as treasurer of the corporation.

At the trial in the present case petitioner introduced in evidence two statements showing credit balances in two checking accounts in the name of River Mills, Inc., in the Fall River National Bank on and after December 31, 1946. The balance in one account on this date was $ 13,229.67, and in the other $ 82,903.90. The amount in the first1955 U.S. Tax Ct. LEXIS 1">*24 account was withdrawn by checks issued prior to June 11, 1947, and the amount in the second account was withdrawn by checks issued prior to February 4, 1950. Petitioner's counsel stated that these statements were offered in evidence to prove that River Mills, Inc., had assets for years after December 31, 1946.

We are not convinced that the fact that balances appeared in bank accounts in the name of River Mills, Inc., after December 31, 1946, is inconsistent with the sworn statement of petitioner's husband in the petition for dissolution that all of its assets had been distributed to its stockholders prior to that date. Petitioner and her husband were the only persons authorized to draw on the corporation's bank accounts. Petitioner testified that all she ever received for her stock interest was $ 53,611.68, and it well may be that her husband appropriated to himself the bank accounts as part of the assets he received in liquidation and treated them as his property prior to December 31, 1946, inasmuch as he had the power to withdraw the amounts in these accounts as and when he saw fit to do so. But even if it be assumed that the balances in these accounts were assets of River Mills, 1955 U.S. Tax Ct. LEXIS 1">*25 Inc., after December 31, 1946, and until they were withdrawn, we are unable to see how this would help the petitioner. Her liability as a transferee depended on the situation existing at the time of the completion of the series of distributions in complete liquidation of the corporation. And that event occurred at the very latest when the balances were finally withdrawn, not later than February 4, 1950. The corporation then had no credit balances in its name in any bank 25 T.C. 656">*667 account or any other assets, having previously made distributions to its stockholders, including petitioner, in liquidation of its stock which rendered it insolvent and unable to pay the deficiencies assessed. In such circumstances each stockholder is liable to the extent of the distribution received by him for the unpaid deficiencies even though that distribution may not have rendered the corporation insolvent, provided that the distribution was one of a series that ultimately did render the corporation insolvent. See W. S. Scamehorn, 27 B. T. A. 155; Botz v. Helvering, supra;Borall Corporation v. Commissioner, supra.1955 U.S. Tax Ct. LEXIS 1">*26

It is somewhat puzzling as to why the Commissioner has proceeded against petitioner for the full amount of her distribution, since her husband who was also a transferee had received the great bulk of the corporate assets and was therefore similarly liable for the taxes to the extent of such assets which he received. However, his liability as a transferee cannot relieve her of her transferee liability, see Phillips v. Commissioner, 283 U.S. 589">283 U.S. 589, 283 U.S. 589">604, although she may be entitled to contribution from him in a separate action. Cf. Phillips-Jones Corporation v. Parmley, 302 U.S. 233">302 U.S. 233; Estate of George L. Cury, 23 T.C. 305, 339.

Petitioner's contention that the respondent failed to prove one of the alleged elements of transferee liability, that the deficiencies in tax for the years 1944 and 1945 assessed against the transferor, River Mills, Inc., have not been paid, is without merit. Regardless of whether there is such burden of proof on the respondent in the circumstances of this case, it is clear to us on this record that the deficiencies have not been paid. The deficiencies were 1955 U.S. Tax Ct. LEXIS 1">*27 not assessed against River Mills, Inc., until January 11, 1952. The respondent has proved that for some years prior thereto the corporation had no assets. In these circumstances, we think it has been shown that these deficiencies have not been paid. See Commissioner v. Renyx, 66 F.2d 260, 261 (C. A. 2).

Petitioner contends finally that her liability as transferee is barred by the statute of limitations.

The pertinent provisions of the Internal Revenue Code of 1939 are the following:

SEC. 275. PERIOD OF LIMITATION UPON ASSESSMENT AND COLLECTION.

(a) General Rule. -- The amount of income taxes imposed by this chapter shall be assessed within three years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period.

SEC. 276. PERIOD OF LIMITATION UPON ASSESSMENT AND COLLECTION -- EXCEPTIONS

(b) Waiver. -- Where before the expiration of the time prescribed in section 275 for the assessment of the tax, both the Commissioner and the taxpayer have 25 T.C. 656">*668 consented in writing to its assessment after such time, the tax may be assessed at any time prior1955 U.S. Tax Ct. LEXIS 1">*28 to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

SEC. 311. TRANSFERRED ASSETS.

(b) Period of Limitation. -- The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows:

(1) In the case of the liability of an initial transferee of the property of the taxpayer -- within one year after the expiration of the period of limitation for assessment against the taxpayer;

* * * *