Opinion ID: 338452
Heading Depth: 1
Heading Rank: 2

Heading: Availability of All Companies' Assets

Text: 27 Some of the items seized by the Government were the property of LTD and CONSTRUCTION. The Government argues that these assets are available to satisfy the debts of INC either under a fraudulent transfer theory or upon the premise that the companies are alter egos of each other. Because of the conclusion we reach on the alter ego theory, we need not consider the fraudulent transfer theory. 28 The Parkhill companies argue that even assuming the findings upon which the master relied were correct, the Government failed as a matter of law to sustain its allegation that the companies were alter egos of each other. The basis for this argument is that the master did not find that the corporations had no business purpose. The companies rely on cases such as Moline Properties Inc. v. Commissioner, 319 U.S. 436, 63 S.Ct. 1132, 87 L.Ed. 1499 (1943), and National Carbide Corporation v. Commissioner, 336 U.S. 422, 69 S.Ct. 726, 93 L.Ed. 779 (1949), as well as others, which hold that for the purpose of determining taxes, corporate entities may not be disregarded even where a high degree of control is maintained by one over others if the corporations have a business purpose. These cases are inapposite because the Commissioner did not disregard the corporate entities in assessing taxes. The Commissioner argued, and the lower court found, that the corporate entities could be disregarded for the purpose of satisfying liabilities. This was not a tax theory but rather was a theory that was available to any creditor. 5 29 In Steven v. Roscoe Turner Aeronautical Corp., 324 F.2d 157, 160 (7th Cir. 1963), upon which the special master relied, this court stated the elements which must be present for one corporation to be held liable for the debts of another: 30 (C)ontrol by the parent to such a degree that the subsidiary has become its mere instrumentality; fraud or wrong by the parent through its subsidiary, e. g., torts, violation of a statute or stripping the subsidiary of its assets; and unjust loss or injury to the claimant, such as insolvency of the subsidiary. 31 We recently reaffirmed this holding in Bernardin, Inc. v. Midland Oil Corp., 520 F.2d 771 (7th Cir. 1975). Cf. Berger v. Columbia Broadcasting System, Inc., 453 F.2d 991, 995 (5th Cir. 1972), cert. denied, 409 U.S. 848, 93 S.Ct. 54, 34 L.Ed.2d 89. This theory has been applied in at least one tax case other than the present one. In Matter of H. G. Prizant & Co., 69-2 U.S.T.C. P 9592 (N.D.Ill.1969). 32 The master made many findings which properly support his conclusion that the companies were alter egos. He found that INC and CONSTRUCTION were wholly owned subsidiaries of LTD; the companies had identical officers and directors and were operated as one company; their president considered them as one; the companies had the same offices, the same telephone number, the same accounting service, the same employees, the same mailing address, and the same furniture while only LTD's name appeared on the door of the offices; INC's and CONSTRUCTION's paid-in capital was grossly inadequate; the companies failed to maintain their respective identities when dealing with third parties and failed to maintain customary formalities when dealing with each other; and during the period of 1967 through 1970 the only business of LTD and CONSTRUCTION was leasing equipment to INC, and neither CONSTRUCTION nor LTD produced revenues from third parties. These findings are very similar to the items which this court listed in Turner as factors which courts generally consider to determine if the requisite degree of control is being maintained so that one corporation may be considered an instrumentality of another. 324 F.2d at 161. 33 Further findings were made from which the special master could properly conclude that sufficient wrong had been committed for the corporate entities to be ignored; indeed, the special master concluded: A gross injustice would be done if the three Parkhill companies were not treated as one entity. He found that LTD took title to certain items of equipment although INC apparently paid the purchase price; the companies' president instructed an attorney by letter to take such steps as were necessary to show clear title to certain pieces of equipment in CONSTRUCTION although some of the pieces had been purchased by INC and some by LTD; sometime after that letter, a bill of sale was prepared dated March 15, 1968, purporting to transfer certain items of equipment for the stated consideration of $1.00 and other valuable consideration; 6 one of the items listed on the bill of sale was not manufactured until sometime in 1969; sometime after the letter a bill of sale dated October 15, 1969, was prepared which purported to convey the equipment listed in the bill of sale dated March 15, 1968, and four other items to CONSTRUCTION (From LTD) for the stated consideration of $1.00 and other valuable consideration; the equipment on the bill of sale dated October 15, 1969, included equipment purchased by INC which had a market value in excess of $900,000; the bills of sale dated March 15, 1968, and October 15, 1969, were not reflected upon any books, records, or tax returns of any of the three companies; and during the fourth quarter of 1969 INC's liabilities far exceeded its assets. 34 In light of these findings, we hold that the special master correctly applied the standards of Turner and therefore that his conclusion regarding the availability of the assets of LTD and CONSTRUCTION to satisfy the tax liability of INC must be upheld. 35 For the reasons given in this opinion the judgment of the district court is 36 AFFIRMED.