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PHILLIPS ET AL. v. COMMISSIONER INTERNAL REVENUE

decided: May 25, 1931.

PHILLIPS ET AL., EXECUTORS
v.
COMMISSIONER OF INTERNAL REVENUE



CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.

Hughes, Holmes, Van Devanter, McReynolds, Brandeis, Sutherland, Butler, Stone, Roberts

Author: Brandeis

[ 283 U.S. Page 591]

 MR. JUSTICE BRANDEIS delivered the opinion of the Court.

In 1919, the Coombe Garment Company, a Pennsylvania corporation, distributed all of its assets among its stockholders, and then dissolved. Thereafter, the Commissioner of Internal Revenue made deficiency assessments against it for income and profits taxes for the years 1918 and 1919. A small part of these assessments was collected leaving an unpaid balance of $9,306.36. I. L. Phillips of New York City, had owned one-fourth of the company's stock and had received $17,139.61 as his distributive dividend. Pursuant to § 280 (a) (1) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 61, the Commissioner sent due notice that he proposed to assess against, and collect from, Phillips the entire remaining amount of the deficiencies. No notice of such deficiencies was sent

[ 283 U.S. Page 592]

     to any of the other transferees, and no suit or proceedings for collection was instituted against them. Upon petition by Phillips' executors for a redetermination, the Board of Tax Appeals held that the estate was liable for the full amount. 15 B. T. A. 1218. Its order was affirmed by the United States Circuit Court of Appeals for the Second Circuit. 42 F.2d 177. Because of conflict in the decisions of the lower courts*fn1 a writ of certiorari was granted. 282 U.S. 828.

Stockholders who have received the assets of a dissolved corporation may confessedly be compelled, in an appropriate proceeding, to discharge unpaid corporate taxes. Compare Pierce v. United States, 255 U.S. 398. Before the enactment of § 280 (a) (1), such payment by the stockholders could be enforced only by bill in equity or action at law.*fn2 Section 280 (a) (1) provides that the liability of the transferee for such taxes may be enforced in the same manner as that of any delinquent taxpayer.*fn3

The procedure prescribed for collection of the tax from a stockholder is thus the same as that now followed when payment is sought directly from the corporate taxpayer. This procedure is now generally known, and some parts of it will later be considered in detail. As applied directly to the taxpayer, its constitutionality is not now assailed. Compare Old Colony Trust Co. v. Commissioner, 279 U.S. 716. But it is contended that to apply it to stockholder transferees violates several constitutional guaranties; that

[ 283 U.S. Page 593]

     additional obstacles are encountered if it is applied to transfers made before the enactment of § 280 (a) (1); that the specific liability here sought to be enforced is governed by the law of Pennsylvania and barred by its statute of limitations; and that, in no event, can the stockholder be held liable for more than his pro rata share of the unpaid corporate tax.

First. The contention mainly urged is that the summary procedure permitted by the section violates the Constitution because it does not provide for a judicial determination of the transferee's liability at the outset. The argument

[ 283 U.S. Page 594]

     is that such liability (except where a lien had attached before the transfer) is dependent upon questions of law and fact which have heretofore been adjudicated by courts; that to confer upon the Commissioner power to determine these questions in the first instance, offends against the principle of the separation of the powers; and that the inherent denial of due process is not saved by the provisions for deferred review in a suit to recover taxes paid, or, in the alternative, for an immediate appeal to the Board of Tax ...


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