23 T.C. 954">*954 The respondent has determined liability for income tax and additions to tax against petitioner, as transferee, for the years and in the amounts as follows: 23 T.C. 954">*955

The single issue presented is whether petitioner is liable as transferee of Lila G. Husted, who died November 30, 1947, or as transferee of the estate of Lila G. Husted, deceased, and, if so, to what extent.

FINDINGS OF FACT.

The stipulated facts are found accordingly.

Petitioner is an individual and resident of Detroit, Michigan.

Lila G. Husted, a citizen of the United States, died testate November 30, 1947, at the age of 84 years, at Morpeth, Ontaria Province, Canada, where she had resided since 1944. She filed no Federal income tax returns for the taxable years 1944, 1945, and 1946, nor for the period January 1, 1947, until her death in that year. Prior to 1944 she resided in Detroit, Michigan.

Upon the death of her husband in April 1942, Lila G. Husted, sometimes hereinafter referred to as the1955 U.S. Tax Ct. LEXIS 232">*235 decedent, acquired sole ownership of a retail shoestore in downtown Detroit, Michigan, known as the Health Spot Shoe Shop. At that time the decedent was 79 years of age and had taken a relatively inactive interest in the business. In August 1942 the decedent appointed petitioner, a man of some 40 years' experience in the shoe business, as manager of the shoestore. This relationship between the decedent as proprietor and petitioner as manager continued through June 10, 1947.

The Health Spot Shoe Shop sold only corrective shoes manufactured by the Health Spot Shoe Company under an exclusive franchise granted by the latter. The franchise for the exclusive right to sell the shoes in downtown Detroit was terminable upon 30 days' notice by either party. The Health Spot Shoe Company did all of the accounting, bookkeeping, and banking for Health Spot Shoe Shop.

In the early part of 1947 petitioner became dissatisfied with his position as manager of the business and was considering seeking other employment because he felt that his job offered no future security. The decedent, who had moved to Canada in 1944 and had visited the business infrequently thereafter, had been well satisfied1955 U.S. Tax Ct. LEXIS 232">*236 with petitioner's management and was concerned over the possibility of petitioner's leaving the business. The decedent had been advised by George E. Musebeck, president of Health Spot Shoe Company, which had some 1,500 other franchises, that because of the excellent location of the business in downtown Detroit it would be advantageous to 23 T.C. 954">*956 continue operation of the business. In view of the decedent's advanced years Musebeck encouraged the decedent to keep petitioner as manager and to make him a part owner of the business.

On June 11, 1947, the decedent and petitioner entered into a written agreement. Recited therein as the motivating factors causing its execution were that Lila G. Husted, owner of Health Spot Shoe Shop, being of advanced age and no longer able to engage actively in the business, desired to enter into an arrangement which would provide an income for her remaining years and that the petitioner was desirous of insuring his future by obtaining an interest in the business. The parties agreed to form a co-partnership to be known as "Health Spot Shoe Shop" which was to continue until the death of the decedent. Each party was to contribute $ 1,000 cash as capital1955 U.S. Tax Ct. LEXIS 232">*237 for carrying on the business. The agreement also provided that in consideration of the decedent's assigning all of her right, title, and interest in and to the stock, furniture, and fixtures, and other personal property of the shoe business owned by her to the partnership, petitioner assumed and agreed to pay one-half of the indebtedness then outstanding to the shoe manufacturer, Health Spot Shoe Company, which was stated to be the sum of $ 7,500, and all other accounts payable owed by the decedent in connection with the business. All the net profits thereof were to be divided equally between the decedent and petitioner with the provision that the decedent's withdrawals were to be limited to $ 100 weekly, the balance to be paid to a trustee to be used for discharging all debts and obligations incurred by decedent prior to the date of the agreement. It was further agreed that petitioner should have full charge and complete management of the affairs of the shoestore and that the only interest of the decedent was to share in the profits. Upon the death of the decedent her interest in the partnership would cease and all property thereof would be the sole property of the petitioner1955 U.S. Tax Ct. LEXIS 232">*238 as survivor.

On July 6, 1947, petitioner and decedent received a letter from Health Spot Shoe Company which provided in pertinent part as follows:

We wish to acknowledge the receipt of your partnership agreement dated the 11th day of June, 1947. We note from the agreement that each of you is to have an undivided one-half interest in the business as long as Mrs. Husted lives and that the present indebtedness to the Health Spot Shoe Shop is to be your joint obligation.

In August 1947 petitioner deposited $ 4,000 of his own funds with Health Spot Shoe Company in order to secure a 5 per cent discount on purchases of shoes for the partnership business. This sum was not carried on the partnership books as an asset or credited to petitioner's capital account until 1948, after the death of the decedent.

23 T.C. 954">*957 From June 11, 1947, until the decedent's death on November 30, 1947, petitioner managed the business and shared its profits with her pursuant to their agreement.

The net worth of Health Spot Shoe Shop on June 30, 1947, was $ 8,919.40. Although the books of account reflected assets of $ 19,279.21, of which $ 13,128 represented inventory for shoes, the inventory was overvalued in1955 U.S. Tax Ct. LEXIS 232">*239 the amount of $ 3,500. The liabilities were $ 6,859.81.

The net worth of Health Spot Shoe Shop on November 30, 1947, was $ 11,769.57. Although the books reflected assets of $ 23,254.70, of which $ 19,142.64 represented inventory for shoes, the inventory was overvalued by the amount of $ 3,500. The liabilities were $ 7,985.13.

For the years 1939 to 1947, inclusive, the net sales and net profit for Health Spot Shoe Shop were as follows:

Apart from her interest in Health Spot Shoe Shop, Lila G. Husted owned assets in both the United States and Canada. On November 30, 1947, the date of her death, the decedent owned the following assets:

1955 U.S. Tax Ct. LEXIS 232">*240 The insurance was a group life insurance contract with the Travelers Insurance Company, Hartford, Connecticut, proceeds of which were payable to the decedent's estate. The policy had no cash surrender value. Following decedent's death the proceeds were paid to the executors of her Canadian estate.

23 T.C. 954">*958 Lila G. Husted owned substantially the same property on June 11, 1947, with the exception of a summer cottage located at Rondeau Park, Ontario Province, Canada, which she owned on that date but which was sold later during the summer of 1947 for approximately $ 6,000. The promissory note, face value and interest, was worth $ 2,266.29.

On November 30, 1947, the estate of Lila G. Husted, deceased, was liable for Federal income tax, additions to tax for failure to file returns under section 291 (a), Internal Revenue Code of 1939, and interest, as follows:

Petitioner was appointed the1955 U.S. Tax Ct. LEXIS 232">*241 special administrator of Lila G. Husted's Michigan estate and filed Federal income tax returns on her behalf on September 24, 1948, for the taxable years 1944, 1945, and 1946. Petitioner was later appointed executor of her Michigan estate and filed a final Federal income tax return on November 30, 1948, for the period January 1, 1947, to November 30, 1947. All returns were filed with the collector of internal revenue for the district of Michigan, at Detroit.

Petitioner, as executor of decedent's Michigan estate, paid respondent the sum of $ 1,361.18, representing the value of the assets of that estate after payment of administration expenses of approximately $ 966.99.

On September 27, 1948, respondent filed a claim with the executors of the Canadian estate of Lila G. Husted, deceased, for unpaid United States individual income taxes, additions to the tax, and interest, in the total amount of $ 20,417.02. On May 11, 1949, the Canadian executors contested respondent's claim and respondent did not thereafter pursue his claim further.

No part of the liability of Lila G. Husted, deceased, for unpaid income taxes for the taxable years 1944, 1945, 1946, and for the period commencing January1955 U.S. Tax Ct. LEXIS 232">*242 1, 1947, and ending November 30, 1947, together with additions to tax and interest, has ever been paid, with the exception of the sum of $ 1,361.18 paid by her Michigan estate which reduced the 1945 income tax liability from $ 2,807.32 to $ 1,446.14.

On June 11, 1947, and November 30, 1947, Lila G. Husted transferred certain interests in Health Spot Shoe Shop to petitioner for which the latter paid no consideration.

23 T.C. 954">*959 By reason of such transfers to petitioner of interests in the business, Health Spot Shoe Shop, Lila G. Husted, on June 11, 1947, and November 30, 1947, became insolvent and without sufficient assets to satisfy her outstanding Federal tax liabilities.

OPINION.

The issue presented is whether petitioner is liable as transferee of the assets of Lila G. Husted, deceased, for unpaid deficiencies in income tax, additions to tax, and interest, as set forth in our Findings of Fact. The extent of liability, if any exists, is limited to the value of the interest in the Health Spot Shoe Shop transferred to petitioner. J. Warren Leach, 21 T.C. 70; Scott v. Commissioner, 117 F.2d 36; Lillian Burke, 21 B. T. A. 45.1955 U.S. Tax Ct. LEXIS 232">*243 Petitioner concedes the liabilities of the transferor, but he denies that as a result of such transfers either the decedent or her estate was thereby rendered insolvent, an essential element of transferee liability. J. Warren Leach, supra;Ruth Halle Rowen, 18 T.C. 871, 881, reversed on other grounds, 215 F.2d 641. The burden of proof of such insolvency is on the respondent. Terrace Corporation, 37 B. T. A. 263; sec. 1119 (a), I. R. C. 1939.

Respondent contends that the date of the transfer of the business to petitioner was November 30, 1947, the date of the decedent's death. On that date her total Federal tax liability was $ 21,382.91. Petitioner, on the other hand, contends that the date of transfer was June 11, 1947, the date of the agreement between himself and the decedent. On that date the latter's Federal tax liability for 1944, 1945, and 1946 was $ 19,588.65. We think it clear from the agreement of June 11, 1947, and the acknowledgment thereof by Health Spot Shoe Company, that the transfer was effectuated partially on June 11, 1947, and partially on November1955 U.S. Tax Ct. LEXIS 232">*244 30, 1947. The question of the decedent's solvency must be viewed therefore as of both dates.

On each of the dates under consideration, Lila G. Husted, the decedent and transferor, owned assets located in both the United States and Canada. Petitioner contends that in order to determine the decedent's solvency all assets, regardless of location, must be considered. We do not agree. With the exception of the life insurance policy, which had no cash surrender value, all of the decedent's assets in the United States were located in Michigan. Respondent, in support of his position of insolvency, relies upon the Michigan Uniform Fraudulent Conveyances Act (Mich. Stat. Ann., Title 26, Ch. 261) ¹ and the 23 T.C. 954">*960 Bankruptcy Act (11 U.S. C. sec. 107 (1946 ed.)). ^{21955 U.S. Tax Ct. LEXIS 232">*245} In both acts it is provided that property exempt from execution is not to be considered in determining solvency in cases involving conveyances implied to be fraudulent.

We have found that as of June 30, 1947, the net worth of the business was $ 8,919.40. Therefore, the total assets owned by the decedent in the United States consisted of an undivided one-half interest in the business, Health Spot Shoe Shop, with a value of $ 4,459.70, and, in addition, a promissory note with interest of a value of $ 2,266.29, and a savings bond with a value of $ 20.25. These assets aggregated the sum of $ 6,746.24, which amount is clearly insufficient to meet the decedent's Federal tax liability at that time of $ 19,588.65.

On November 30, 1947, the decedent's United States1955 U.S. Tax Ct. LEXIS 232">*246 assets consisted of the same promissory note with interest of a value of $ 2,307.92 and the savings bond of $ 20.25, plus the proceeds of the insurance policy in the amount of $ 10,000. These assets aggregated the sum of $ 12,328.17, a sum clearly insufficient to meet the decedent's Federal tax liability at that date of $ 21,382.91.

The petitioner further argues that since transferee liability in equity is a secondary liability, and all reasonable possible remedies against the transferor must be first exhausted, the respondent has failed to do so by not pursuing his claim filed against the Canadian assets.

The record establishes that the respondent on September 27, 1948, filed a claim with the executors of the decedent's Canadian estate, which they contested, and no further action was taken by respondent. It is our opinion that the respondent is not required to pursue remedies, if any, in a foreign jurisdiction in order to have exhausted all remedies against the transferor in order to be permitted to impose transferee liability. It is generally recognized that courts as a matter of policy decline to enforce the penal or revenue laws of a foreign jurisdiction. See Moore v. Mitchell, 30 F.2d 600, 603,1955 U.S. Tax Ct. LEXIS 232">*247 affirmed on other grounds 281 U.S. 18">281 U.S. 18; United States v. Fairall, 16 F.2d 328; City of Regina v. McVey, 23 Ont. W. N. 32; Canada v. Schulze, 9 Scots L. T. 4. The tax treaty between the United States and Canada does not contain any provision recognizing the right of either country to enforce its tax liabilities within the jurisdiction of the other country.

23 T.C. 954">*961 We do not think that if respondent had attempted to pursue any remedies in the Canadian courts he would have met with any success. The courts do not require one to do a useless act. In the absence of any authority to the contrary, we hold that the respondent has sufficiently pursued all possible remedies against the transferor so as to enable him to proceed against this petitioner as transferee.

The respondent having established a prima facie case of transferee liability, the burden of going forward shifted to the petitioner to show affirmatively why he should not be held liable. Robinette v. Commissioner, 139 F.2d 285, certiorari denied 322 U.S. 745">322 U.S. 745, rehearing denied 322 U.S. 772">322 U.S. 772;1955 U.S. Tax Ct. LEXIS 232">*248 Commissioner v. Renyx, 66 F.2d 260; Fada Gobins, 18 T.C. 1159, affirmed per curiam 217 F.2d 952.

Petitioner contends that he paid a fair consideration for the interest in the Health Spot Shoe Shop which decedent transferred to him. In support thereof petitioner argues that his contributions of $ 1,000 and $ 4,000, his assumption of the debts of the business, and his contribution of services represent a fair and reasonable consideration paid. The record does not establish the payment of $ 1,000. It appears that the sum of $ 4,000 was deposited by petitioner in August 1947 in order to secure the benefit of purchase discounts. Obviously, that item cannot be treated as consideration paid to the decedent. Furthermore, the $ 4,000 was not carried on the partnership books as an asset nor credited to petitioner's capital account until 1948. Since the tangible assets of the business on June 30 and on November 30, 1947, greatly exceeded the liabilities owing on those dates, it seems clear that the assumption of the debts did not constitute any consideration paid to the decedent.

We are not 1955 U.S. Tax Ct. LEXIS 232">*249 impressed with petitioner's contention that his services as manager of the partnership constituted part of the consideration for the transfer of the assets by the decedent. The agreement of June 11, 1947, contains a provision to the effect that the decedent recognizes the deep obligation owed to the petitioner for past services and as a further consideration for the petitioner entering into the partnership agreement the decedent agreed to make a will leaving all of her real and personal estate with certain specified exceptions to the petitioner, and in default of so doing the petitioner was to receive additional compensation for services rendered of $ 2,000. For his services rendered to the partnership he was to receive 50 per cent of the profits and the decedent's remaining undivided half interest in the partnership business upon her death. Assuming that it was the intent of the parties that petitioner's services were to be considered as part consideration for the transfers, since the petitioner has offered no proof showing the value of such services, he has failed to meet his burden on that point. Cf. Margaret Wilson Baker, 30 B. T. A. 188; Fada 23 T.C. 954">*962 .1955 U.S. Tax Ct. LEXIS 232">*250 Accordingly, we hold and have found as a fact that the transfers were without consideration.

Finally, we consider the respondent's contention that the Health Spot Shoe Shop had a going concern goodwill value of $ 13,936.22 based upon the formula set forth in A. R. M. 34, 2 C. B. 31.

The valuation of goodwill presents a question of fact peculiar to each individual case. The decisions demonstrate that there is no fixed formula for valuation to be applied because a business has earnings in excess of a fair return upon the value of tangible assets.

The petitioner contends that the business had no goodwill. The business was a retail store conducted in the name of the Health Spot Shoe Shop under a limited franchise granted by the Health Spot Shoe Company, the manufacturer. The contract right was terminable by either party upon 30 days' notice. The earnings were dependent not only upon the terminable franchise but the personal qualifications of the individuals managing the business. The value of a contract right of limited duration and the qualifications of one or more individuals are no part of goodwill in the ordinary sense of the term. Maurice A. Mittelman, 7 T.C. 1162.1955 U.S. Tax Ct. LEXIS 232">*251 No goodwill has ever been carried on the balance sheet as an asset of the business. Furthermore, George E. Musebeck, president of the Health Spot Shoe Company which manufactured the shoes sold by the partnership, expressed the opinion that the business had no goodwill value. On the basis of this record we are convinced that the business in question had no goodwill value and have given no consideration to that item in evaluating the assets transferred.

Based upon all of the facts, we have found that the assets transferred to the petitioner consisted of one-half of the business on June 30, 1947, valued at $ 4,459.70, and the remaining one-half transferred on November 30, 1947, valued at $ 5,884.78, which aggregate the sum of $ 10,344.48. We hold that petitioner is liable as transferee to the extent of $ 10,344.48.

Decision will be entered under Rule 50.