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ax Court of the United States.
DIAMOND GARDNER CORPORATION, TRANSFEREE, PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
38 T.C. 875
Docket No. 80632.
Filed September 17, 1962.
*875 Thomas N. Tarleau, Esq., and Melvin Cornfield, Esq., for the
petitioner.
Henry G. Nagel, Esq., for the respondent.
Held, where taxpayer transferred assets after the period of limitation for
assessment of taxes, transferee, petitioner, was not liable as transferee
under section 311, I.R.C. 1939, upon its assumption contract, made at the
time of the transfer, wherein it 'assumes all of the liabilities of
(transferor).'
*876 OPINION.
MULRONEY, Judge:
The respondent determined that petitioner is liable as transferee of the
assets of General Package Corporation for the income tax due from that
corporation for the year 1951 in the amount of $102,489.46, plus interest.
The issue is whether petitioner, which acquired the assets and assumed the
liabilities of the transferor, is liable as transferee for taxes of the
transferor that were barred by the statute of limitations at the time of
transfer.
All of the facts were stipulated and they are so found.
Diamond Gardner Corporation, hereinafter called petitioner, was incorporated
under the laws of the State of Delaware, and its chief executive offices are
in New York, New York.
General Package Corporation was incorporated under the laws of the State of
Delaware, with its chief executive office in Chicago, Illinois. On July 16,
1953, Shellmar Products Corporation changed its name to General Package
Corporation.
Shellman products Corporation filed its tax return for the calendar year
1951 on March 17, 1952, with the district director of internal revenue at
Columbus, Ohio. The amount of tax shown on the return as filed was
understated by the amount of $102,489.46. The full amount thereof, together
with statutory interest, remains unpaid. Shellmar Products Corporation
(later General Package Corporation) did not at any time file a consent form
extending the statute of limitations, nor was any deficiency in tax for the
calendar year 1951 assessed against it, nor was it notified prior to the
running of the period of limitations for assessment that such deficiency
assessment was either proposed or had been determined upon, and the statute
of limitations for assessment of the 1951 income or excess profits tax
against Shellmar Products Corporation (later General Package Corporation)
was not at any time waived or tolled in such or in any other way.
On March 17, 1955, the period of limitation for assessment of taxes against
General Package Corporation for the calendar year 1951 expired.
Under a 'Plan and Agreement of Reorganization' between the Diamond Match
Company and General Package Corporation, the petitioner on May 31, 1955,
purchased all the assets and assumed all the liabilities and obligations of
General Package Corporation in exchange for 935,042 shares of common stock
of the petitioner. The document by which petitioner assumed these
liabilities and obligations states, in part, as follows:
ASSUMPTION OF LIABILITIES AND OBLIGATIONS
The Diamond Match Company, pursuant to Section 2(d) of Article III of a Plan
and Agreement of Reorganization between The Diamond Match Company and
General Package Corporation dated March 7, 1955, hereby assumes all of *877
the liabilities of General Package Corporation and agrees to indemnify and
hold harmless General Package Corporation from any and all liability of
every nature and description, and The Diamond Match Company undertakes to
perform all obligations to be performed by General Package Corporation from
and after the date hereof under any contracts or agreements of any kind,
specifically excepting, however, from the terms of this assumption and
undertaking any liability of General Package Corporation under stock options
granted by it to certain of its officers and employees on September 24,
1953.
The assets received by petitioner in the above transfer with General Package
Corporation had a value in excess of the aforesaid tax deficiency of
$102,489.46, plus interest.
Pursuant to the reorganization agreement, General Package Corporation
liquidated and dissolved and distributed the common stock of petitioner,
received on the sale of its assets, to stockholders in cancellation of the
outstanding shares of common stock of General Package Corporation on May 31,
1955.
Petitioner executed qualified consent on Form 977 accepted by the assistant
regional commissioner, appellate, of the Chicago region on the dates shown
below, extending the period during which petitioner's transferee liability
might be assessed to the dates shown below:
Date accepted . Statute of limitations
.. . . . . . . . . . extended to-
Feb. 15, 1956 . . . June 30, 1957
Mar. 25, 1957 . . . June 30, 1958
May 21, 1956 . . . .June 30, 1959
Each such consent provided, among other things: 'This consent shall have no
force or effect if it is determined that the assessment of additional taxes
for the period in question is barred by the statute of limitations at the
date this consent is signed.'
On March 4, 1959, the respondent mailed to the petitioner a deficiency
notice to the effect that the income tax return of Shellmar Products
Corporation for the calendar year 1951 disclosed a deficiency of
$102,489.46, plus interest, due to an adjustment in net income from
$6,009,896.75 to $6,153,321.31 (by adding $164,576.64 in unallowable
deductions and additional income and subtracting $21,152.08 of additional
deductions and nontaxable income), and that such deficiency would be
assessed against petitioner as transferee of General Package Corporation.
Respondent's entire argument is outlined in his brief, as follows:
It is respondent's contention that the taxpayer's unpaid taxes became a
legal and technical 'liability' on the date its return was filed. Although
the respondent can no longer assess and collect this amount from the
taxpayer without it resulting in a technical overpayment because of the
running of the statute of limitations, the underlying 'liability' has not
been extinguished and remains in existence for any and all other purposes.
Thus, when petitioner agreed to assume 'all obligations and liabilities' of
the taxpayer, this outstanding 'liability'*878 fell directly within the
all-inclusive language used in the assumption contract entered into at arms
length by the petitioner with the taxpayer.
Therefore, since respondent can proceed as a third party beneficiary under
local law, and because all the other elements of transferee liability at law
are met in this case, petitioner should be held liable as transferee of the
assets of the taxpayer to the extent of $102,489.46, plus interest.
Respondent is seeking to hold petitioner liable as transferee under section
311 of the Internal Revenue Code of 1939[FN1] (made applicable here by
section 7851(a) of the Internal Revenue Code of 1954).
It has been held that the statutory transferee liability can be founded on a
transferee's assumption contract that accompanies the transfer of assets.
Helvering v. Wheeling Mold & Foundry Co., 71 F.2d 749; California Iron Yards
Corp. v. Commissioner, 82 F.2d 776; Continental Baking Co. v. Helvering, 75
F.2d 243.[FN2]
The statute quoted above neither create
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