Opinion ID: 415638
Heading Depth: 1
Heading Rank: 6

Heading: security's tax liability

Text: 68 We now turn to the final questions raised by this appeal, which concern the validity of the tax assessments levied against Security by the IRS. Security argues that the assessments are faulty for two reasons. Security first asserts that the deficiencies were assessed against it for the wrong taxable years. In addition, Security claims that it is not liable for any tax owed by Southern and Standard because it is not a transferee within the meaning of section 6901; Security further contends that the transferee liability forms signed by Ourso are invalid. For these reasons, Security claims that it is entitled to its refund regardless of whether Southern and Standard must include their policyholders surplus accounts in taxable income. We shall address each of these arguments in turn.
69 Section 815(d)(2)(A) provides that, if for any taxable year [a life insurance company] is not an insurance company, it must include its policyholders surplus account in its computation of taxable income for the last preceding taxable year for which it was a life insurance company. I.R.C. Sec. 815(d)(2)(A). The IRS issued deficiency notices as to Southern for its taxable year 1970 and as to Standard for its taxable year 1971. Security contends that these deficiencies were improperly assessed, arguing that 1970 was not the last year for which Southern was an insurance company and that 1971 was not the last year for which Standard was an insurance company. We find Security's argument to be without merit. 70 The definition of insurance company found in the pertinent regulations provides as follows: 71 The term insurance company means a company whose primary and predominant business activity during the taxable year is the issuing of insurance or annuity contracts or the reinsuring of risks underwritten by insurance companies. Thus, though its name, charter powers, and subjection to state insurance laws are significant in determining the business which a company is authorized and intends to carry on, it is the character of the business actually done in the taxable year which determines whether a company is taxable as an insurance company under the Internal Revenue Code. 72 Treas.Reg. Sec. 1.801-3(a). See also Industrial Life Insurance Co. v. United States, 344 F.Supp. 870, 875 (D.S.C.1972), aff'd 481 F.2d 609 (4th Cir.1973); Cardinal Life Insurance Co. v. United States, 300 F.Supp. 387, 391-92 (N.D.Tex.1969). 73 An examination of the character of the business actually done by Southern in 1971 and by Standard in 1972 refutes Security's contention that they were insurance companies for those years. Southern transferred all its assets to OIC on January 5, 1971 and filed its Final Return on June 12, 1971, for its taxable year 1970. No further income tax returns were filed by Southern. In the case of Standard, the transfer of assets was completed on December 31, 1971. Standard's Final Return, for its taxable year 1971, was filed on April 24, 1972, and no other income tax returns were ever filed on its behalf. Neither Southern in 1971 nor Standard in 1972 were engaged in issuing insurance or annuity contracts or the reinsuring of risks underwritten by insurance companies. See Treas.Reg. Sec. 1.801-3(a). Thus, we hold that Southern and Standard were not insurance companies for income tax purposes during 1970 and 1971, respectively, and that the notices of deficiency were issued for the proper taxable years.
74 Security finally presses two additional bases for its position that it is not liable for any additional tax owed by Southern and Standard as a result of the inclusion of their policyholders surplus accounts in income. First, Security contends that it is not a transferee of Southern or Standard within the meaning of section 6901 and therefore was not the proper party against whom any transferee liability should have been assessed. Second, Security claims that the undated transferee liability forms purporting to impose such liability upon Security were executed after the statute of limitations had expired and consequently are invalid. We cannot agree with either of these contentions. 75 Security's attempt to deny transferee status in this case 16 is disingenuous at best. Ourso, as president of Security, executed two transferee agreements on revised Internal Revenue Service Forms 2045 in consideration of the IRS not making assessments of deficiency against OIC. In the transferee agreements, Security admitted that it was the transferee of assets from Southern and Security by way of OIC; furthermore, Security assumed and agreed to pay any federal income tax determined to be owed by Southern for 1970 and Security for 1971. Security is bound by these transferee agreements and may not now renounce its assumptions of transferee liability. It is as clear as words can make it that Security assumed Southern's and Standard's tax liability, and Security is estopped from contending otherwise. Turnbull, Inc. v. Commissioner, 373 F.2d 91, 94 (5th Cir.1967); see also West Texas Refining & Development Co. v. Commissioner, 68 F.2d 77, 81 (10th Cir.1933). 76 Finally, we reject Security's suggestion that the undated transferee agreements are invalid because they were executed after the statute of limitations had expired. 17 The running of the statute of limitations is an affirmative defense that may be raised by a transferee to defeat transferee liability, 9 J. Mertens, supra, Sec. 53.47 (citing cases), and the party asserting the bar of the statute of limitations has the burden of proof on that issue. Id. At trial, the IRS agent involved in the matter testified that he mailed the transferee agreements to Ourso on March 22, 1973, and that they were executed and returned to him before April 10, 1973. Record on Appeal, Vol. III at 278-79. The only other testimony on point was offered by Ourso himself. At first, Ourso had no recollection of the date the documents were signed. Id. at 96-97. Later, however, in response to his counsel's leading question, he related the date of his signing of the transferee liability documents to the date of the actual payment of the deficiencies, in the fall of 1975. Id. at 316. Ourso's testimony is far too tenuous to satisfy Security's burden of establishing a statute of limitations defense, particularly in light of the government's evidence to the contrary. Accordingly, we conclude that Security has failed to carry its burden of proof on the statute of limitations defense. We hold, therefore, that Security, as transferee of Southern and Standard, is liable for the tax deficiencies assessed in connection with the inclusion of the policyholders surplus accounts in income.