Appeal from the District Court of the United States for the District of New Jersey; Guy L. Fake, Judge.
Before BIGGS, CLARK, and GOODRICH, Circuit Judges.
The present controversy arose from the assessment of a tax deficiency against a corporation for the fiscal years ended March 31, 1919, 1920 and 1921. The assessments were made after the corporation dissolved on July 10, 1922, and after waivers had been singed by one of the directors who served as a dissolution trustee. The validity of these waivers are in question.
We are constrained to disagree with the learned district judge who heard this case. He appears to have followed the early notions of the Board of Tax Appeals.*fn1 Originally, the Board seemed to go out of its way to set aside what are called for short "tax waivers".*fn2 Its opinion showed, in our judgment, the lack of a sound analysis of the question, and it has been in every instance overruled by the appropriate Circuit Court of Appeal. In fairness to the Board, however, it should be said that it has bowed gracefully to controlling authority.*fn3 The cases are collected in 5 Paul and Mertens, Law of Federal Income Taxation § 50.61 Corporation, § 50.64 Corporations in the Process of Dissolution, and in the 1939 Supplement thereto.*fn4
A "statute of repose" for tax claims is plainly wise. The taxpayer benefits by the act of grace*fn5 and the sovereign, of course, desires some limitation on its generous gift of the right to sue. A writer in the California Law Review confirms this thought.
"The soundness of this established legislative policy is not oipen to serious question. The reasons justifying statutes of repose in other fields are fully applicable to federal tax liabilities. Indeed, the very large number of persons affected by the various federal revenue acts, the vital importance of such liabilities in the budgets of business enterprises, and the consequences to taxpayers which may result from failure to compute correctly under a highly complex law and discharge in full their federal tax obligations, combine to make a statute of repose in favor of honest taxpayers a matter of well-nigh imperative necessity.From the point of view of the government, the fiscal desirability and advantage of a reasonable period of limitation on claims and suits for refund of taxes illegally or erroneously collected is too obvious to require comment." Kent, Mitigation of the Statute of Limitations in Federal Tax Cases, 27 California Law Review 109.
Like any other right, it need not be taken advantage of and so may be waived. This is true whether the grant be that of a general statute of limitations or the special condition of a revenue act.*fn6 A waiver may proceed from the high motive of paying even the slothful creditor or it may proceed from the low motive of desiring more time to cut something off the due bill. When the creditor is the Government, the nature of the abstraction seems to preclude altruism. Because of that, perhaps, experience shows a consistent and concerted effort to have these waivers declared nugatory.*fn7 If the taxpayer is disappointed, he inclines to ask back the extra time he wanted in the hope of consolation.
Where the waiver is that of a corporation, the most obvious defense turns upon its inability to act except through human agents. When the corporation is not in esse but on its death-bed, the matter becomes more complicated. It is governed by "local rules of property".*fn8 In New Jersey the directors of a corporation in process of dissolution become "trustees thereof"*fn9 and continue as such unless the Court of Chancery appoints receivers.*fn10 Their powers are broadly defined in the Act. The pertinent sentence reads:
"Upon the dissolution in any manner of any corporation, the directors shall be trustees thereof, with full power to settle the affairs, collect the outstanding debts, sell and convey the property and divide the moneys and other property among the stockholders, after paying its debts, as far as such moneys and property shall enable them." N.J.S.A. 14:13-5.
Liquidating directors are not trustees in the sense of the law of trusts. Professor Fletcher points this out.
"Although the statutes characterize the directors upon dissolution as trustees, they are not trustees of a trust in any true sense of the word. Nor are they officers of the court, but they are merely statutory liquidators. Nor are these statutory trustees receivers unless the statute clearly makes them so." 16 Fletcher, Cyclopedia Corporations § 8175 and authorities there cited.
There arises, then, no question of delegation of powers.*fn11
There is no doubt that the power to waive the statute of limitations in pursuance of tax adjustment is included in the statutory power of the corporation "to settle the affairs" and to "divide the moneys [etc.] after paying its debts." The cases are ...