Opinion
No. 10.
December 8, 1930.
Appeal from the United States Board of Tax Appeals.
Petition by Charles D. Jaffee, opposed by the Commissioner of Internal Revenue, to review a decision of the United States Board of Tax Appeals in the matter of a deficiency in petitioner's income and profits taxes for the fiscal years ending in 1919 and 1920.
Order affirmed.
The petition was brought by Charles D. Jaffee to review an order entered November 29, 1929, determining deficiencies in income and profits taxes for the fiscal years ending October 31, 1919, and October 31, 1920, against Schwartz Jaffee, Inc., a dissolved New York corporation, and assessing them against the petitioner who, as a stockholder in the corporation, received, on distribution of corporate assets, liquidating dividends in excess of the amount of the deficiency taxes.
Schwartz Jaffee, Inc., was a corporation organized under the laws of New York in 1918. On March 2, 1922, its board of directors, consisting of the petitioner, who was then, and throughout its corporate existence had been, its treasurer, and three others, duly adopted a resolution setting forth that in its opinion it was advisable to dissolve the corporation forthwith in the manner prescribed by section 221 of the General Corporation Law of New York (Consol. Laws, c. 23). Thereafter, the necessary additional steps were taken to dissolve the corporation in accordance with the New York law, and the certificate of dissolution was filed in the office of the secretary of state March 8, 1922. On the same day a certificate in duplicate to that effect was issued from that office, and the corporation went into liquidation, for which purpose only it continued in existence. The only formal meeting of the board of directors was on April 4, 1922, when it was voted to authorize certain banks to make payments from funds of the corporation only upon checks "when signed jointly by the President, Mr. Julius Schwartz, and the Treasurer, Mr. C.D. Jaffee."
The powers and duties of the board of directors during liquidation are as shown by the following excerpts from the General Corporation Law of New York:
"§ 221. Dissolution of Stock Corporation before Expiration of Time Limit. Any stock corporation, except a moneyed or a railroad corporation, may be dissolved before the expiration of the time limited in its certificate of incorporation or in its charter as follows: * * *
"2. The secretary of state shall thereupon issue to such corporation, in duplicate, a certificate of the filing of such papers and that it appears therefrom that such corporation has complied with this section in order to be dissolved, and one of such duplicate certificates shall be filed by such corporation in the office of the clerk of the county in which such corporation has its principal office; and thereupon such corporation shall be dissolved and shall cease to carry on business, except for the purpose of adjusting and winding up its business. The board of directors shall cause a copy of such certificate to be published at least once a week for two weeks in one or more newspapers published and circulating in the county in which the principal office of such corporation is located, and at the expiration of such publication, the said corporation by its board of directors shall proceed to adjust and wind up its business and affairs with power to carry out its contracts and to sell its assets at public or private sale, and to apply the same in discharge of debts and obligations of such corporation, and, after paying or adequately providing for the payment of such debts and obligations, to distribute the balance of assets among the stockholders of said corporation, according to their respective rights and interests.
"3. Said corporation shall nevertheless continue in existence for the purpose of paying, satisfying and discharging any existing debts or obligations, collecting and distributing its assets and doing all other acts required in order to adjust and wind up its business and affairs, and may sue and be sued for the purpose of enforcing such debts or obligations, until its business and affairs are fully adjusted and wound up."
In section 222 of that statute (as added by Laws 1922, c. 125), it is provided that "the directors, or a majority of them at any time surviving and acting, may petition for their discharge and for the appointment of a receiver to adjust and wind up the then remaining affairs and business of the corporation, and in such case, the court may discharge the directors from their trust and from further duties and responsibilities thereunder, and may appoint a receiver. * * *"
During 1924 and 1925, Charles D. Jaffee was engaged in business in New York with Louis Jaffee, at 45 West Eighteenth street, and Julius Schwartz with Harry H. Schwartz, at the office which had formerly been occupied by Schwartz Jaffee, Inc., at 880 Broadway, when in business. Jacob P. Haff, who had been the comptroller of Schwartz Jaffee, Inc., was employed by the Jaffees at 45 West Eighteenth street. It appeared from the uncontradicted testimony of Harry H. Schwartz, that, whenever letters were received at the former offices of Schwartz Jaffee, Inc., relative to tax matters, they were sent to Mr. Haff at the Jaffee office, who had instructions to send them to the liquidating accountants who were handling the federal income tax matters, and that Touche, Niven Co., of New York were liquidating agents. He also testified without objection that the action of the board of directors appointing them liquidating agents was taken, he thought, March 8th.
Such was the state of affairs on December 23, 1924, when a revenue agent called on Mr. Haff with a waiver to be executed by Schwartz Jaffee, Inc., to extend the time within which the first taxes here involved might be assessed. Haff took the waiver to the petitioner, who signed it in behalf of Schwartz Jaffee, Inc. Haff then sent it to the liquidating agents, where the seal of the corporation was affixed. It was then sent to the Commissioner, signed by him, and filed. As filed, the word "Treasurer" appeared after the name of Jaffee, who testified that he did not put it there, and the record does not disclose who did or when it was done. The waiver follows:
"New York City, Dec. 23/24.
"Income and Profits Tax Waiver."In pursuance of the provisions of existing Internal Revenue Laws, Schwartz Jaffee, Inc., a taxpayer of New York, New York, and the Commissioner of Internal Revenue, hereby consent to extend the period prescribed by law for a determination, assessment and collection of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year ended October 31, 1919, under the Revenue Act of 1924, or under prior income, excess-profits, or war-profits tax Acts, or under Section 38 of the Act entitled `An Act to Provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes,' approved August 5, 1909. This waiver is in effect from the date it is signed by the taxpayer and will remain in effect for a period of one year after the expiration of the statutory period of limitation within which assessment of taxes may be made for the year or years mentioned, or the statutory period of limitation as extended by Section 277(b) of the Revenue Act of 1924, or by any waivers already on file with the Bureau.
"[Signed] Schwartz Jaffee, Inc., Taxpayer, "By Charles D. Jaffee, Treasurer. "D.H. Blair, Commissioner. "[Seal of Schwartz Jaffee.]"
On a date the Board found to be December 20, 1925, Mr. Jaffee, for Schwartz Jaffee, Inc., and the Commissioner signed two additional waivers. One further extended the time for assessment of the 1919 taxes, and the other extended the time for assessment of the 1920 taxes. Otherwise they are alike. One follows:
"In pursuance of the provisions of existing Internal Revenue Laws, Schwartz Jaffee, Inc., a taxpayer of New York, N.Y., and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the fiscal year ended October 31, 1919, under existing revenue acts, or under prior revenue acts.
"This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board.
"[Signed] Schwartz Jaffee, Inc., Taxpayer, "By C.D. Jaffee, Treasurer. "D.H. Blair, Commissioner. "[Seal of Schwartz Jaffee.]"
None of the other directors of Schwartz Jaffee, Inc., knew that Charles D. Jaffee signed any waivers, nor did he have any express authority from the board to sign them.
The Commissioner made the deficiency assessments against Schwartz Jaffee, Inc., in April, 1926, for the fiscal years ending October 31, 1919, and October 31, 1920, and a deficiency letter was mailed the taxpayer on May 26, 1926. A deficiency letter was mailed the petitioner on February 18, 1927.
Collection of the taxes is sought from the petitioner as a transferee of Schwartz Jaffee, Inc., under section 280 of the Revenue Act of 1926 (26 USCA § 1069). The applicable portions of the statute follow:
"Sec. 280. (a) 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 title (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) 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 title or by any prior income, excess-profits, or War-Profits Tax Act. * * *
"(b) The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows:
"(1) Within one year after the expiration of the period of limitation for assessment against the taxpayer; or
"(2) If the period of limitation for assessment against the taxpayer expired before the enactment of this Act but assessment against the taxpayer was made within such period — then within six years after the making of such assessment against the taxpayer, but in no case later than one year after the enactment of this Act."
Harry T. Lore, of Washington, D.C. (Harvey L. Rabbitt, of Washington, D.C., of counsel), for petitioner.
G.A. Youngquist, Asst. Atty. Gen., J. Louis Monarch and Helen R. Carloss, Sp. Assts. to Atty. Gen., C.N. Charest, Gen. Counsel, Bureau of Internal Revenue, and Allin H. Pierce, Sp. Atty., Bureau of Internal Revenue, both of Washington, D.C., for respondent.
Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.
The petitioner claims that all waivers signed by Charles D. Jaffee are invalid because he was not shown to have had authority to execute them in behalf of the taxpayer, Schwartz Jaffee, Inc. As the statutory period within which the assessment could be made had expired before April, 1926, it is apparent that, if the waivers are invalid, the assessment was void.
Upon the dissolution of the corporation March 8, 1922, the winding up of its affairs devolved, under the New York law, upon its board of directors, and its corporate existence was continued only for that purpose until, in so far as could be, whatever was due it was collected, its debts paid, and any property remaining was distributed according to law. City of New York v. N.Y. S.B.F. S.T. Co., 231 N.Y. 18, 131 N.E. 554, 16 A.L.R. 1059. While it is true that the directors must act as a board, there is no reason whatever to prevent them so acting in the appointment of agents to perform the detail work involved in winding up the affairs of the corporation. This, indeed, would be the only feasible way for them to act in many, probably most, instances.
While there was no express authorization of Charles D. Jaffee by the board to sign the waivers in behalf of the corporation, the record does show that Touche, Niven Co. were authorized by the board to handle federal tax matters, and clearly the adjustment of taxes was one of the things necessary to the winding up of the corporate business and within the scope of action of the board of directors. After Jaffee signed these waivers, the liquidating agents affixed the corporate seal to them. They acquiesced in what he had done without protest or objection. The corporation got whatever benefit might result from a more careful audit by the bureau, and the corporation, together with its board of directors, received whatever advantage was thereby to be gained. When the first waiver was signed, the government gave up the right it then had to assess the 1919 taxes within the statutory period, and when the last waivers were signed it gave up the right it then had to assess the 1920 taxes before the limitation of the statute had run. The board of directors could not, as it did, turn over its tax matters to agents authorized to handle them and by shutting its eyes avoid the consequences of what the agent did, learned or acquiesced in within the scope of its authority.
Beyond question an agent duly authorized to handle federal tax matters was authorized to execute waivers in furtherance of such business [compare Liberty Baking Co. v. Heiner (C.C.A.) 37 F.2d 703] and notice to it that Charles D. Jaffee had executed the waivers was shown when it appeared that, after he signed them, the waivers were sent to the tax agents who had the corporate seal and attached it to them. Under such circumstances, of course, notice to the agents was notice to the principal (Jefferson County National Bank v. Dewey et al., 197 N.Y. 14, 90 N.E. 113; Armstrong v. Ashley, 204 U.S. 272, 27 S. Ct. 270, 51 L. Ed. 482; Smith et al. v. Ayer et al., 101 U.S. 320, 25 L. Ed. 955); and the signing of these waivers by Jaffee was not only thus acquiesced in [see U.S. v. Kemp (C.C.A.) 12 F.2d 7] by the board of directors through its agents, but the agents actually participated in the execution of which his signing was a part. The waivers are as valid as though executed by the board of directors.
The petitioner claims, however, that, as the last two waivers, as distinguished from the first which extend the time both for assessment and collection, extended the time for assessment only, the time limited for collection has expired. These waivers were received at the Treasury Department December 31, 1925, and signed by the Commissioner. At that time the Revenue Act of 1924 was in effect; no assessment had been made; the statutory period for assessment of the earlier taxes, as extended by the waiver, had not expired; and the time for assessment of the later taxes, unextended by waiver, had not expired. The waivers extended the time for assessment to December 31, 1926. Assessment was made in April, 1926. The government accordingly had six years from that date in which to collect. Revenue Act of 1924, c. 234, § 278(d), 43 Stat. 299 (26 US CA § 1061 note); Revenue Act of 1926, c. 27, § 278(d), 44 Stat. 59 (26 USCA § 1061); Revenue Act of 1928, c. 852, § 506(a), 45 Stat. 870 (26 USCA § 1061); Florsheim Bros. Co. v. U.S., 280 U.S. 453, 50 S. Ct. 215, 74 L. Ed. 542.
In Joy Floral Co. v. Commissioner, 58 App. D.C. 277, 29 F.2d 865, it was held that a waiver executed after the statutory period had run would not serve, but here the waivers were executed before the statutory period, in one instance, and in the other, before the statutory period as extended by a former waiver, had run.
The petitioner has also argued that section 280 of the Revenue Act of 1926, under which his liability as a transferee is asserted, is unconstitutional, but, in view of what we have recently said on that subject in Phillips v. Commissioner (C.C.A.) 42 F.2d 177, it is unnecessary to discuss it here.
The order of the Board is affirmed.