On November 14, 1945, the Dentons and Keane released Curtin from any and every claim they held against him. The Corporation also released Curtin from any and every claim held against him "with the exception of any sum due or hereafter to become due by reason of any undisclosed tax liability1953 U.S. Tax Ct. LEXIS 22">*31 by this corporation to the Federal Government."

The Corporation purchased Curtin's 24 shares of stock on November 13, 1945, for $ 12,516.57 and held them as treasury stock until January 14, 1946, when they were sold for $ 8,280 (20 shares to James and 4 shares to V. C. Hickey). No assets of the Corporation were transferred to the petitioners in connection with this transaction.

In December of 1946 an investigation was begun of the Corporation's tax returns for the fiscal years ended November 1943, 1944, 1945, and 1946. Certain concessions were made and adjustments of allowable compensation paid to officers agreed to, which resulted in the deficiencies here contested. On January 6, 1950, V. C. Hickey, then treasurer of the Corporation signed a waiver of restrictions on assessment and collection of deficiency in tax and acceptance of overassessment, consenting to the proposed adjustments. Thereafter additional income tax of $ 209.30 for the Corporation's fiscal year ended November 30, 1943, plus interest of $ 9.73, was assessed in April 1950; additional excess profits tax of $ 29,295.75 for the Corporation's fiscal year ended November 30, 1943, plus interest of $ 9,856.39, was assessed1953 U.S. Tax Ct. LEXIS 22">*32 in April 1950; additional excess profits tax of $ 16,216.08 for the Corporation's fiscal year ended November 30, 1944, plus interest of $ 4,496.32, was assessed in April 1950.

Consents to the extension of periods, within which assessments might be made of income and excess profits taxes of the Corporation for the fiscal years here in question, were signed by various corporate officers from time to time. These consents all bore the corporate seal. The period was thus extended to June 30, 1950.

John had severed all his connections with the Corporation by December 17, 1947, and James by October 28, 1948.

21 T.C. 295">*300 The deficiencies here in question did not appear on any 1945 financial statement of the Corporation and as late as November 30, 1947, had not appeared as liabilities on any financial statement of the Corporation.

On June 26, 1951, the Commissioner addressed letters to John and James giving notice that of the deficiencies determined against the Corporation, amounts aggregating the addressee's total liability as a transferee of the Corporation's assets would be assessed. The statement accompanying these notices in explanation of the adjustments made stated that for the year1953 U.S. Tax Ct. LEXIS 22">*33 ended November 30, 1943, the deduction "for officers' salaries has been decreased in the amount of $ 29,476.87" and for the following year stated that deduction "for amounts paid to three officers of the Corporation, in addition to their salaires, has been eliminated." This latter amount totaled $ 13,275.01. No allocation of the amounts disallowed among the compensation of the various officers was shown.

The Corporation did not contest the deficiencies determined against it, and on May 18, 1950, the Corporation mailed identical letters to the Dentons and to Keane and Curtin asking them to pay the deficiencies in accordance with their contract of November 13, 1945. John, through his attorney, denied liability by letter. The others either did not respond or denied liability over the telephone. None has paid any amount on account of the Corporation's tax deficiencies.

The Corporation has made periodic payments against its 1943 and 1944 deficiencies. As of October 30, 1952, these payments aggregated $ 10, 768.36. The unpaid balance as of that date with interest was $ 44,443.52.

The last financial statement of the Corporation prepared before the hearing of this proceeding and covering1953 U.S. Tax Ct. LEXIS 22">*34 the fiscal year ended November 30, 1951, showed the following assets: cash, $ 557.24, and accounts receivable, $ 14,102.09, or a total of $ 14,659.33.

OPINION.

At the outset we dispose of the petitioners' claim that the assessment of transferee liability against them was barred by the statute of limitations. The petitioners admit that the periods of limitation for assessment were extended by consents given by the Corporation and that the Corporation could not be heard to question the authority under which the consents were given. Nevertheless they argue that since the Corporation's board of directors did not expressly authorize the consents, they, the petitioners, not being in privity with the Corporation can here assert the lack of authority. We find no merit in this contention. We think the consents were properly executed by corporate officers. It is admitted their validity could not be questioned by the Corporation. Simply because at the 21 T.C. 295">*301 time the last consent was given the petitioners had severed their connections with the Corporation should not place them in position to escape the effect of those consents. This Court has held that the statute which provides that1953 U.S. Tax Ct. LEXIS 22">*35 the period of limitations for assessment of transferee liability shall be within 1 year after the expiration of the period of limitation for assessment against the taxpayer (see section 311 (b) (1)) means "the original period of limitation against the taxpayer as properly extended by consents." Rite-Way Products, Inc., 12 T.C. 475. We find nothing in the statute or the cases which would confine this construction of the statute only to transferees who happened to be in privity with the taxpayer at the time a consent was executed. The assessment of transferee liability against the petitioners is not barred by the statute of limitations.

We turn to the question of petitioners' liability as transferees in equity for unpaid taxes of the Corporation. The provision of the Internal Revenue Code providing for such liability is as follows:

SEC. 311. TRANSFERRED ASSETS.

(a) Method of Collection. -- The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this chapter1953 U.S. Tax Ct. LEXIS 22">*36 (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds):

(1) Transferees. -- The liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) imposed upon the taxpayer by this chapter.

* * * *

Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax.

* * * *

(f) Definition of "Transferee". -- As used in this section, the term "transferee" includes heir, legatee, devisee, and distributee.

On the liability in equity phase of the case the Commissioner alleges that the Corporation transferred $ 4,650 to John as a dividend in 1943 and also transferred to him the following amounts as unreasonable salary: $ 10,387.88 in 1943, $ 6,391.69 in 1944 and $ 3,083.29 in 1945. With reference to James, like allegations are made, the amounts, however, being $ 3,000 as a dividend in 1943, and $ 5,105.67, $ 5,649.96, and $ 5,233.29 as unreasonable salary in the1953 U.S. Tax Ct. LEXIS 22">*37 years 1943, 1944, and 1945, respectively. It is further alleged that as a result of these transfers the Corporation was left without funds to pay its tax deficiencies and as of November 30, 1945, its assets were exceeded by its liabilities.

To hold a party liable as transferee in equity for a transferor's delinquent taxes it must be proved (1) that the alleged transferee received 21 T.C. 295">*302 assets of the transferor and (2) that the transferor was insolvent at the time of, or was rendered insolvent by, the transfer of assets. J. Warren Leach, 21 T.C. 70. Thus, a necessary item of proof for the years 1943 and 1944 is here lacking. We have no proof of insolvency of the Corporation in those years and to the contrary, have found as a fact that it was solvent. The payment of amounts in those years to the petitioners as compensation, even though unreasonable, did not render the Corporation insolvent. Accordingly, the petitioners cannot be held liable in equity for the amounts received by them from the Corporation in 1943 and 1944.

The year 1945 presents a little different problem, for by November 30, 1945, the Corporation had become insolvent. No determination1953 U.S. Tax Ct. LEXIS 22">*38 of deficiencies for that year was made by the Commissioner and his affirmative allegations that the amounts of $ 3,083.29 and $ 5,233.29 were received by John and James, respectively, as unreasonable salaries constitute new matters on which the Commissioner has the burden of proof. We do not think this burden has been met and we are unable to make findings that any portion of the salaries paid to the petitioners in 1945 was unreasonable. We hold that the petitioners are not liable as transferees in equity.

This leaves us with the problem of the petitioners' liability at law. To sustain his contention that the petitioners are so liable the Commissioner makes a two-pronged argument. First, he would base such liability on the contract executed on November 13, 1945, by the petitioners and Keane and Curtin whereby they agreed to pay a proportionate share of any "undisclosed" tax liabilities of the Corporation. Second, he argues that the petitioners became liable under Connecticut law by their conduct as directors of the Corporation in approving the purchase by the Corporation of its own shares while insolvent. ¹

1953 U.S. Tax Ct. LEXIS 22">*39 We think the Commissioner must fail in these arguments for the following reasons. The liability which is sought to be imposed on the petitioners is, in the words of section 311, "the liability at law * * * of a transferee of property of a taxpayer * * *" (Emphasis supplied). We take this to mean that in order to hold the petitioners liable at law as transferees there must be found some liability on their part which arose either by express agreement or by operation of law in connection with or because of the transfer to them of the taxpayer's 21 T.C. 295">*303 property. In Willard M. Whitney, 26 B. T. A. 212, it was said in regard to section 280, the predecessor of section 311, that before "the respondent may proceed under section 280 a person must be a transferee of property from the taxpayer in circumstances which make him liable at law or in equity for the tax." Cf. United States v. Scott, 167 F.2d 301. Such is not the situation here. No assets or property of the Corporation were transferred to the petitioners in connection with, in support of, or in consideration of their execution of the contract, the terms of 1953 U.S. Tax Ct. LEXIS 22">*40 which are set out in our findings. Neither did they receive any property of the Corporation in connection with the purchase of Curtin's shares by the Corporation. The purchase price in that transaction passed to Curtin and not to the petitioners. These transactions, the November 13, 1945, contract and the sale of stock to Curtin, were entirely unrelated to the transfers of property on which the Commissioner relies to measure the petitioners' liability, i. e., the alleged unreasonable salaries in 1943, 1944, 1945 and the dividend in 1943, and we do not think those transfers can be properly combined with either the contract or the Connecticut law in such a way that transferee liability at law will result. Perhaps the petitioners could be held for the Corporation's unpaid taxes in an action at law based either on the contract or the provisions of the Connecticut statute cited by the Commissioner. Cf. Commissioner v. Keller, 59 F.2d 499. Those questions we need not decide, for even were the petitioners so liable, their liabilities under the contract or the Connecticut law would not be those of a "transferee of property" within the meaning of section1953 U.S. Tax Ct. LEXIS 22">*41 311 as we construe it, and the summary collection procedure provided in that section would not be available to the Commissioner. M. H. Graham, 26 B. T. A. 301, appeal dismissed 63 F.2d 997. We hold that on the facts before us the petitioners are not liable at law as transferees of the Corporation's property.

In view of our disposition of the above questions it is not necessary to decide whether the Commissioner properly determined the deficiencies against the Corporation set out in our preliminary statement, the propriety of which determination is attacked by the petitioners.

Decision will be entered for the petitioners.