Case Name: Allegheny Broadcasting Corporation, Transferee, Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Tax Court
Jurisdiction: United States
Decision Date: 1949-04-04
Citations: 12 T.C. 552
Docket Number: Docket No. 18513
Parties: Allegheny Broadcasting Corporation, Transferee, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: TueneR, Disney, and LeMire, JJ., agree with this dissent.
Reporter: Reports of the Tax Court of the United States
Volume: 12
Pages: 552–560

Head Matter:
Allegheny Broadcasting Corporation, Transferee, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket No. 18513.
Promulgated April 4, 1949.
L. W. Echéis, Esq., for the petitioner.
Stanley L. Drexler, Esq., for the respondent.

Opinion:
OPINION.
Black, Judge:
The Commissioner determined deficiencies in the excess profits tax of KQY Broadcasting Co., transferor of $1,236.81 for the calendar year 1944 and $32,421.17 for the period January 1 to February 28,1945. In a statement attached to the deficiency notice the Commissioner stated, among other things, as follows:
The records of this office indicate that the assets of KQY Broadcasting Company were transferred to you on or about February 28,1945.
The above-mentioned amounts represent your liability as a transferee of assets of the KQY Broadcasting Company for deficiencies of income and excess profits tax due from the KQV Broadcasting Company for the taxable year ended December 31, 1944 and for the period January 1, 1945 to February 28, 1945.
The petitioner assigns no error as to the deficiency for the year 1944. The petitioner assigns error as to respondent's' determination for 1945, as follows:
(a) Respondent erred in determining that the taxable year of KQV Broadcasting Company, a Pennsylvania corporation now dissolved, was the period from January 1, 1945 to February 28, 1945, rather than the calendar year 1945.
(b) Respondent erred in determining that the excess profits tax of KQV Broadcasting Company for the taxable year ended December 31, 1945 should be computed by annualizing the income for the period from January 1, 1945, to February 28, 1945.
Petitioner concedes that it is liable as transferee for any deficiencies in the excess profits tax liability of KQY which may be determined by the decision of this Court.
The facts have been stipulated and are adopted as our findings' of fact. They may be summarized as follows:
Petitioner Allegheny Broadcasting Corporation is a corporation organized and existing under the laws of the Commonwealth of Pennsylvania and has its principal office in Pittsburgh, Pennsylvania.
The KQV Broadcasting Co. (hereinafter called KQY) was a corporation organized and existing under the laws of the Commonwealth of Pennsylvania and is now dissolved. For several years prior to February 28, 1945, KQY owned and operated a radio broadcasting station in Pittsburgh having call letters KQY and known as Kadio Station KQV.
KQV's Federal income, declared value excess profits, and excess profits tax returns for the taxable year 1945 were filed with the collector of internal revenue for the twenty-third collection district of Pennsylvania, at Pittsburgh, Pennsylvania, on March 8, 1946. In those returns KQY reported United States corporation income tax liability for the taxable year 1945 in the amount of $18,526.43, excess profits tax liability in the amount of $2,373.40, and no liability for declared value excess profits tax. The taxes so reported were paid to the collector within the time prescribed by law. Substantially all of the deficiency in excess profits tax which respondent has determined for 1945 resulted from the fact that he determined that KQV was taxable as a corporation only for the period from January 1 to February 28, 1945, rather than for the entire calendar year 1945 and that the excess profits net income of KQV accrued during the period of two months should be annualized and the excess profits tax thereon computedNmder section 711 (a) (8) (A) of the Internal Revenue Code and section 35.711 (a)-4 of Regulations 112. Other adjustments made by respondent in the notice of deficiency are not in dispute.
In November 1944 petitioner, with the permission of the Federal Communications Commission (hereinafter referred to as the FCC) acquired all of the issued and outstanding capital stock of KQV. Immediately upon such acquisition the directors of petitioner, desiring to avoid unnecessary expenses of operation of Radio Station KQV through a wholly owned subsidiary corporation, determined to apply to FCC for permission to acquire direct ownership of Radio Station KQV, and in the latter part of November 1944 application for such permission was filed with the FCC. On December 19,1944, the secretary-treasurer of KQV, anticipating that such permission would shortly-be granted, that petitioner would then be in a position to effect a complete liquidation of KQV, and that KQV should then be formally dissolved under the Pennsylvania corporation law, requested, in writing, issuance of clearance certificates by the Departments of State, Revenue, and Labor & Industry of the Commonwealth of Pennsylvania, such certificates (showing that KQV was not indebted to the commonwealth) being required to be filed with the dissolution papers before dissolution would be permitted by the Department of State of the Commonwealth of Pennsylvania. In January 1945 the Department of Labor & Industry wrote to counsel for KQV acknowledging receipt of the written request for clearance certificate and advising that an audit of KQV's account, which would require a month to six weeks, would be necessary before a clearance certificate could be issued. No action was taken by the Department of' Revenue in response to the request.
On February 27,1945, FCC granted permission for transfer of the operating license and assets of Radio Station KQV from KQV to petitioner and on February 28, 1945, the transfer was. effected. All the assets of KQV were transferred to petitioner and petitioner assumed all of its liabilities.
On April 30, 1945, upon being advised by a representative of the-Department of Labor & Industry who had conducted an audit of the unemployment compensation tax liability of KQV that KQV owed $700 in unemployment compensation taxes for prior years and interest and penalties thereon aproximating $237, KQV's secretary-treasurer submitted an offer to compromise the liability for interest and penalties at approximately 50 per cent of the face amount thereof. No action was taken by any of the Departments of the Commonwealth of Pennsylvania for several months thereafter and on December 1, 1945, the secretary-treasurer of KQV, in order to bring the matter to a head, again made written request for the issuance of clearance.certificates. On December 4,1945, the Department of Revenue wrote to counsel for KQV, advising that KQV's final corporation reports were being forwarded to the department's taxing unit for settlement and that, upon completion of the settlement and payment of any tax found to be due, the department would be in a position to issue a clearance certificate. On December 14, 1945, the Department of Labor & Industry wrote counsel for KQV acknowledging the request of December 1, 1945, for a clearance certificate and advising that issuance of such certificate was not in order because of the pendency of the offer in compromise, which had not received final action. On January 24, 1946, written inquiry was again made on behalf of KQV as to the status of the requests for clearance certificates from the Departments of Revenue and Labor & Industry. On J anuary 25,1946, the Department of Labor & Industry issued its clearance certificate to KQV and on January 30, 1946, the Department of Revenue advised that it had issued its clearance certificate on J anuary 21, 1946, and had sent the certificate to petitioner.
On February 8,1946, KQV filed with the Department of State of the Commonwealth of Pennsylvania its articles of dissolution and on the same date they were approved by the department and the department issued to KQV a certificate of dissolution.
In 1946 KQV filed an application for relief under section 722 of the Internal Revenue Code with respect to the taxable (calendar) year 1945. At the time of the hearing of this proceeding this application for relief had not been acted upon by the Bureau of Internal Revenue. Any recovery thereunder, if any, will inure to the benefit of petitioner, which became entitled to all of the assets of KQV by transfer on February 28, 1945.
KQV was in existence throughout the entire calendar year 1945 and was not dissolved until after December 31,1945.
There is but one issue to decide in this proceeding, and that is whether it was proper for the respondent to treat the 1945 excess profits tax return of the KQV Broadcasting Co., petitioner's transferor, as a return for a "short taxable year" covering the period from January 1 to February 28,1945, and determine its excess profits tax liability for that period under section 711 (a) (3) (A) of the Internal Revenue Code. The pertinent part of section 711 (a) (3) (A) is printed in the margin. The regulation applicable to the enforcement of section 711 (a) (3) (A) is section 35.711 (a)-4 of Regulations 112, as amended by T. D. 5388, approved July 7,1944.
In United States v. Kingman, 170 Fed. (2d) 408, the court, after a discussion of the provisions of section 35.711 (a)-4 of the regulations, to which we have above referred, said:
It is too plain for discussion that a corporation's taxable year covers twelve months if it remains in existence, and that it does not under this regulation go out of existence unless it ceases business, dissolves and retains no valuable claims on which it may sue after dissolution.
Petitioner concedes that KQV ceased business after petitioner took over all of its assets February 28,1945, but strongly contends that its existence did not cease at that time and that, on the contrary, it remained in existence throughout the year 1945, engaged in winding up certain necessary matters before it could be legally dissolved under the laws of the Commonwealth of Pennsylvania. Petitioner contends that, under such facts as we have in the instant case, the regulation which we have printed in the margin and which was discussed by the court in the Kingman case, supra, itself shows that section 711 (a) (3) (A) of the code has no application. Petitioner relies strongly on United States v. Kingman, supra. We think that case clearly supports petitioner. It is plain that KQV was not dissolved in 1945, nor could it have been dissolved under the laws of the Commonwealth of Pennsylvania. There were certain clearances as to its tax liabilities which it had to have from the state authorities before it could legally dissolve. These, although there was no lack of diligence on its part, it did not receive until in 1946. Soon after it did receive them, to wit, February 8, 1946, KQV dissolved and ceased to exist, except for certain limited purposes which the statutes of the Commonwealth of Pennsylvania grant to dissolved corporations for the purpose of winding up their affairs, such as the prosecution of claims, suing and being sued, etc.
Only recently, in Union Bus Terminal, Inc., 12 T. C. 197, we followed United States v. Kingman, supra, and held that the taxpayer in that case did not dissolve during the taxable year, and hence was not required to place its excess profits net income on an annual basis as required by section 711(a) (3) of the code. That case was decided after briefs in the instant case were filed. While there are some differences in the facts of the instant case from those which were present in Union Bus Terminal, Inc., we do not think those differences are sufficient to distinguish the two cases. The important fact in the Union Bus Terminal, Inc., case was that for adequate reasons, to wit, because it continued to hold certain properties which were not distributed to its sole stockholder in the year 1943 when it ceased business, it was not legally dissolved until after that year. The important fact in the instant case is that for adequate reasons KQV was not dissolved in 1945 when it ceased business. The reasons why it was not dissolved in 1945 are fully stated in the facts recited above and, while those reasons are different from those present in Union Bus Terminal, Inc., supra, we think they are just as adequate and that the two cases are, therefore, not distinguishable.
The cases relied upon by respondent in his brief in the instant case are in the main the same as those we distinguished in the Union Bus Terminal, Inc., case, namely, Kamin Chevrolet Co., 3 T. C. 1076; Pepsi Cola Co. v. Commissioner, 155 Fed. (2d) 921; and Economy Savings & Loan Co. v. Commissioner, 158 Fed. (2d) 472. For the same reasons that we distinguished those cases in Union Bus Terminal, Inc., supra, we distinguish them here. It is unnecessary to repeat those reasons.
Reviewed by the Court.
Decision will he entered under Bule 50.
SEC. 711. EXCESS PROFITS NET INCOME.
(a) • *•**••
(3) Taxable year less than twelve months.—
(A) General Rule. — If the taxable year is a period of less than twelve months the excess profits net income for such taxable year (referred to in this paragraph as the "short taxable year") shall be placed on an annual basis by multiplying the amount thereof by the number of days in the twelve months ending with the close of the short taxable year and dividing by the number of days in the short taxable year. The tax shall be such part of the tax computed on such annual basis as the number of days in the short taxable year is of the number of days in the twelve months ending with the close of the short taxable year.
Tax for Period of Less Than 12 Months. — (a) Methods of computing tax for short taxable year; allowance. — Section 711 (a) (3) provides rules, under a general rule and under an exception to such rule, which are applicable to short excess profits tax taxable years for the purpose of determining 12 months' experience and computing the tax for such years. A sjiort taxable year is any taxable period of less than 12 months. If the period from the date of incorporation of a corporation to the end of its first accounting period, or the period from the beginning of its last accounting period to the date it ceases operations and is dissolved, retaining no assets, is a period of less than 12 months, such period is a short taxable year. In every case of a short taxable year, whether of a type resulting from a change of accounting period or of a type described in the preceding sentence, the excess profits net income for a period of 12 months used for the purpose of computing the tax under this section shall be used for all other purposes under this subchapter (except as otherwise expressly provided) as the excess profits net income of the taxpayer for the short taxable year. The tax imposed by section 710 (a) (1) (A) for the short taxable year shall be computed under subsection (b) of this section, except as otherwise provided in subsection (c) of this section. The tax under section 710 (a) (1) (B) for a taxable year of less than 12 months is determined on the basis of the actual normal tax and surtax for the taxable year, and on the basis of the corporation surtax net income for such year computed for the period for which the return was made without placing the net income on an annual basis and with the proper adjustments under that section with respect to such year. [Italics supplied.]