Court Opinion

ID: 9651289
Source: CourtListenerOpinion
Date Created: 2023-08-23 16:12:40.765738+00
Date Added: 2024-06-11T13:25:44.413737
License: Public Domain

HUXMAN, Circuit Judge
(concurring).
I concur in the conclusion of Judge BRATTON that the Tax Court was warranted in treating the transaction as a sale by the corporation, and therefore concur in his opinion. In addition to what Judge BRATTON has said, there are, however, some additional observations which influence me in reaching this conclusion.
A liquidating proceeding is a method of closing out a corporate business and distributing its net assets to the stockholders, the owners of the same. But such a distribution does not result in a liquidating dividend merely because it is made in a corporate liquidation proceeding. If the corporation in liquidation sells its assets, pays its debts, and distributes the net balance to the stockholders, it is chargeable with' any profits from the sale.
We must look to the federal income tax law and the proper regulations promulgated thereunder to determine what constitutes a liquidating dividend for income tax purposes. Treasury Regulation 111, Sec. 29.22 (a)-20, in part provides that: “No gain or loss is realized by a corporation from the mere distribution of its assets in kind in partial or complete liquidation, however they may have appreciated or depreciated in value since their acquisition.” To constitute a liquidating dividend there must be a distribution of property in kind. Under this regulation the corporation could have transferred all of its assets in kind to its stockholders in liquidation and no income tax would have accrued against the corporation even though it were done for the express purpose of preventing the accrual of a tax. But apparently there were claims outstanding against the corporation which had to be paid from the proceeds of the sale, and thus only the remaining proceeds could be distributed to the stockholders. This did not constitute a liquidating dividend as defined by the regulation.
In addition to other facts and circumstances relied upon by the Tax Court with relation to the dealings between Powell and Ross, it relied upon the waiver of notice of the special meeting of the Board of Directors of June 6, 1944, and upon the resolutions adopted at that meeting in reaching its conclusion that the transaction was in fact a sale by the corporation and' that Powell was appointed agent for the purpose of selling the corporate assets, paying its debts, and distributing the net assets to the stockholders. It is, however, true, as pointed out, that these proceedings *517for some reason were not introduced in evidence and were therefor improperly considered by the Tax Court, and may not be urged here in support of its findings. But respondent’s Exhibit A, dated June 10, 1944, and designating Powell the stockholders’ liquidating agent to receive the corporate assets, points the same way. So far as material, it reads as follows:
“We, the undersigned, being stockholders of The Wichita Terminal Elevator Company, a corporation of Wichita, Kansas, in the process of dissolution, do hereby appoint, constitute, and designate L. H. Powell of Wichita, Kansas, our agent and attorney in fact for the purpose of acting for us in connection with the winding up of the affairs of the said The Wichita Terminal Elevator Company, a corporation in the process of dissolution, and we hereby authorize the said L. H. Powell to take and receive from the said corporation, deeds, bills of sale, and other instruments of conveyance, and transfer to him, individually, or to a nominee designated by him, for the purpose of converting said assets in cash, and with the authority:
“(1) To transfer, convey to, or vest in any purchaser of any real, personal, or mixed property so coming into the hands of said liquidating agent;
“(2) To sell, transfer, and convey upon such terms, at such prices, and under such conditions as said liquidating agent may determine advantageous, any and/or all of the real, personal, and mixed property coming into such liquidating agent’s hands;
“(3) To pay any necessary expenses in connection with the winding- up of the affairs of said dissolved corporation, including revenue stamps, recording fees, accounting fees, legal fees, and all other expenses as such liquidating agent, and to pay any valid claims against the dissolved corporation and collect and receive any claims due said corporation;
“(4) To, from time to time, make distribution to the stockholders of said corporation, in percentages that the number of shares held by each bears to the total of four thousand shares in said corporation.”
Looking to the real intent and purpose of Exhibit A and considering it as a part of the plan of liquidation, the conclusion is justified that although Powell was designated liquidating agent for the stockholders, he was in fact liquidating agent for the corporation, with power to sell its assets, convert them into cash, pay its debts and liabilities, and deliver the net proceeds to the stockholders. It was the corporation that was being liquidated, and not the stockholders. When he was directed to collect claims due thé corporation and pay all valid claims against it, he was acting in the interest of the corporation. In order to carry out the mandate to pay all claims against-the corporation, he was authorized to sell its property which came into his possession, and in Paragraph 4 he was directed to make distribution to the stockholders. This can mean only when he had sold all the property and had paid from the proceeds of such sale all the debts and claims against the corporation, he was then to pay the net proceeds to the stockholders.
An analysis of Exhibit A emphasizes the statement in Judge Bratton’s opinion that, considered in their entirety, all the steps taken were merely integral parts of-a unified operation having for its goal the sale and passage of title of the assets of the corporation through a conduit, Powell, called liquidating agent for the stockholders, to the ultimate purchasers.