of property and to the distribution of its avails and is doing only the acts necessary to continue that status. It has not maintained nor is it permitted to maintain an organization for the purpose of continued efforts in the pursuit of profit and gain.
The instant case is very close to Union Land & Timber Co. v. United States
, in which a corporation sought refund of a capital stock tax. The corporation had been in that business for several years with the usual broad charter powers and its main business had been the acquisition of turpentine lands. The activities after liquidation were described as follows by the court:
"An office at Mobile, Ala., was continued by the president of the corporation, assisted by one stenographer, designated as secretary.All other officials were dispensed with; and sustained and continued efforts from that time on prevailed to realize the best possible price for the lands owned by the corporation. In the course of so dealing some turpentine leases, or rights to extract turpentine from turpentine trees, were let; and of course efforts were made to get the best possible price for the fee to the lands owned. If offers for the lands or turpentine rights were considered inadequate they were refused and more advanced prices sought. The progress of disposition has been tedious and delayed. To dispose advantageously for creditors of a large acreage of turpentine lands at a time when the markets were depressed and demand therefor seriously curtailed has involved years of time and effort, and though the majority of the lands and rights have been sold there still remain holdings undisposed of."
In finding for the plaintiff taxpayer the court stated as follows:
A mere repetition of the application of the taxing act to varying conditions of fact, as reflected in numerous opinions of the courts, will serve no especial purpose. It is sufficient to observe that the issue is one of fact within the guiding principles of settled law. As said in the case of Von Baumbach v. Sargent Land Co., 242 U.S. 503, 516 [37 S. Ct. 201, 61 L. Ed. 460]: 'The fair test to be derived from a consideration of all of them is between a corporation which has reduced its activities to the owning and holding of property and the distribution of its avails and doing only the acts necessary to continue that status and one which is still active and is maintaining its organization for the purpose of continued efforts in the pursuit of profit and gain and such activities as are essential to those purposes.'
"We think this case comes squarely within the exception which exempts a liquidating corporation from the capital-stock tax. The defendant predicates a contrary opinion upon the fact that at times offers for lands were refused, and negotiations continued to obtain more; that turpentine rights were sometimes let, and finally that the inherent nature of the plaintiff's business was of necessity the doing of the very things it did do -- i.e., buy and sell land and turpentine rights, etc., for profit. The charter rights of the corporation disclose its purposes, and among them was the purchase and sale of lands and turpentine rights; but the continuance of these activities as a going concern, promoted for the purpose of paying dividends to its stockholders, and doing the same things to acquire sufficient funds to pay creditors are distinctly different. One contemplates the present and the future, looks toward an indefinite continuance of business activities. The other is predicated in this case largely upon the misfortunes of the past, and looks exclusively to a disposition to the best advantage of what the corporation has and discontinuing business. No business enterprise could discontinue advantageously without putting forth its best efforts to realize the greatest possible sum for its assets, and the mere fact that in the course of such a proceeding profits may at times be realized, though in this case none are proven, does not designate the transaction as 'doing business' within the intent of the taxing act.
"The plaintiff has not acquired additional lands, it has not paid dividends to stockholders, and all it has done is to dispose, as rapidly as mature judgment and the state of the market would warrant, of all of its tangible investments. Judgment will be awarded the plaintiff. It is so ordered."
The plaintiff during the years ending June 30, 1935, 1936, and 1937
was liquidating its assets and distributing same among those entitled thereto and it was not engaged in business and it was not subject to the capital stock tax levied and collected.
The defendant, William H. Kelly did not collect any of the taxes in dispute.
Conclusions of Law.
1.Plaintiff has failed to sustain its burden of proving that it was entitled to have its income tax liability determined under the provisions of the federal revenue laws applicable to insurance companies.
2. Plaintiff was not carrying on or doing business after March 6, 1933, however, it did not include this ground in its claim for refund and said ground will only be allowed as to the years ending June 30, 1935, June 30, 1936, and June 30, 1937, the years within the period of limitation.
3. In view of the fact none of the payments, the recovery of which is sought herein, were made to former Collector of Internal Revenue, William H. Kelly, the suit is dismissed as to him.