products or otherwise, and the Company hereby agrees to undertake, pay, satisfy and discharge all the lawful debts of the Vendor, including the reasonable expenses of the Vendor incurred and to be incurred in connection with the pending reorganization, and to indemnify the Vendor its successor and assigns against all actions, claims and demands in respect thereof.

5. Said shares of stock shall be deemed to be and are hereby declared to be full-paid shares and not liable to any further call, and the holders of such stocks shall not be liable to any further payment thereon.

6. The delivery of certificates for such shares to the Vendor or parties designated by it and their respective receipts for the same, shall be a full discharge of each of the parties hereto to the extent thereof.

7. The Vendor covenants and agrees with the Company that it is the lawful owner of the property hereby agreed to be sold; that the same is free from all incumbrances; that they have a good right to sell the same; and that the Vendor will warrant and defend the same against the lawful claim and demands of all persons.

8. The Vendor further covenants and agrees that it will from time to time, at the request and cost of the Company, execute and do all such further instruments, assurances and things as shall be reasonably required by the Company to vest in it the property hereby agreed to be sold and to give to each the full benefit of this agreement.

9. Such sale shall take effect on and as of the First day of October, 1919, whereupon possession of the tangible property above mentioned shall be delivered to the Company and on and after which day certificates of stock shall be issued as hereinabove provided.

IN WITNESS WHEREOF, the parties have caused this instrument to be signed by their respective Presidents, and their corporate seals to be hereunto affixed and attested by their respective Secretaries, the day and year first above written.

The following persons were officers and directors of the West Virginia corporation at the time of such transfer and at dissolution: H. E. Field, president; C. C. Woods, secretary and treasurer; and H. E. Field, H. C. Ogden, J. M. Sanders, Henry G. Stifel, C. H. Copp, Robert Hazlett, C. C. Woods, Henry M. Russell, J. E. Stevenson, B. W. Peterson, and Friend Cox, directors.

The following named persons were officers and directors of the petitioner at the date of the transfer to it of the assets of the West Virginia corporation: George W. Field, president; C. C. Woods, secretary and treasurer; and George W. Field, Chester W. Hendrix, Kent B. Hall, C. C. Woods, Henry M. Russell, T. C. Ward, Robert Hazlett, Rodney S. Crawford, Arnold G. Stifel, directors.

On October 7, 1919, George W. Field resigned as president and H. E. Field was elected as his successor.

In arriving at the stipulation filed in appeal of the West Virginia corporation, Docket No. 19096, another proceeding before the Board, the respondent conceded a loss to the West Virginia corporation on the transfer of its assets to the petitioner as shown by a schedule in respondent's files, which is as follows:

On April 13, 1920, the board of directors of the West Virginia corporation adopted the following resolution:

Upon motion duly made, seconded and carried, the following resolution was adopted:

RESOLVED, That the Wheeling Mold & Foundry Company, a corporation created and organized under the laws of the State of West Virginia, does hereby discontinue business as a corporation and surrenders to said state its charter and corporate franchises. The Board of Directors will proceed to convert the property, choses in action and all assets of this corporation into cash, and pay off and discharge all its debts, liabilities and obligations; and, after fully discharging all such debts, liabilities and obligations, divide the remainder among the stockholders pro rata with their several holdings of stock, but no such payment shall be made to any stockholder until after the publication of the notice hereinafter provided.

RESOLVED, second, That the president of this corporation cause notice of the adoption of the foregoing resolution to be published in some newspaper of general circulation, published near the principal office or place of business of this corporation, once a week for four successive weeks; and that he certify these resolutions to the Secretary of State of the State of West Virginia, and deliver to him a certificate showing the publication of said notice, as provided by law.

OPINION.

MCMAHON: We are here called upon to determine whether the petitioner is liable as a transferee for the taxes of the West Virginia corporation for the year 1919. The parties are in agreement that the entire amount of $48,077.86, determined by the Board in Docket No. 19096 as the amount of unpaid taxes due from the West Virginia corporation for the year 1919, is in controversy. The respondent has proceeded against the petitioner under section 280 and contends that the petitioner is liable both at law and in equity. The petitioner does not question the correctness of the tax liability of the West Virginia corporation, but contends that it is not liable for such tax liability as a transferee either at law or in equity.

In a transferee proceeding before this Board the burden is upon the respondent to show that the petitioner is liable as a transferee. Section 912 of the Revenue Act of 1924, as amended by section 602 of the Revenue Act of 1928.1

In support of his contention that petitioner is liable in equity for the liabilities of the West Virginia corporation, respondent cites Signal Gasoline Corp., 25 B. T. A. 532; Waterproofed Products Co., 25 B. T. A. 648; and West Texas Refining & Development Co., 25 B. T. A. 1254. Those cases, however, are not in point. In Signal Gasoline Corp., supra, and in Waterproofed Products Co., supra, the transferor corporations received in exchange for their assets only stock of the transferee corporations. In West Texas Refining & Development Co., supra, the transferee corporation transferred to the transferor corporation in exchange for assets, both cash and stock, but the cash was insufficient to satisfy the liabilities of the transferor. Each of the above cases cited by respondent was decided primarily upon the well established principle that a creditor may not be forced to give up tangible assets as security for his debt and thereafter look for payment to shares of corporate stock.

In the instant proceeding, the stipulated facts show that the petitioner, in consideration of the transfer of the assets of the West Virginia corporation to it, transferred to the West Virginia corporation, stock, cash, and demand notes of the total value of $2,631,308. Of this amount $1,300,000 was cash. The petitioner, also in consideration of such transfer, assumed liabilities of the West Virginia corporation in the amount of $1,009,693.91.

The doctrine that the assets of a corporation are a trust fund for the benefit of creditors applies only where the withdrawal of assets from the corporation renders it insolvent. In McDonald v. Williams, 174 U. S. 397, the Supreme Court stated:

When a corporation is solvent, the theory that its capital is a trust fund upon which there is any lien for the payment of its debts has in fact very little foundation. No general creditor has any lien upon the fund under such circumstances, and the right of the corporation to deal with its property is absolute so long as it does not violate its charter or the law applicable to such corporation.

In Fogg v. Blair, 133 U. S. 534, the Supreme Court stated in part: That doctrine [the trust fund doctrine] only means that the property must first be appropriated to the payment of the debts of the company before any portion of it can be distributed to the stockholders; it does not mean that the property is so affected by the indebtedness of the company that it cannot be sold, transferred, or mortgaged to bona fide purchasers for a valuable

1 Sec. 912. In proceedings before the Board the burden of proof shall be upon the Commissioner to show that a petitioner is liable as a transferee of property of a taxpayer, but not to show that the taxpayer was liable for the tax.

consideration, except subject to the liability of being appropriated to pay that indebtedness. Such a doctrine has no existence.

To the same effect see also Jones v. Bailey, 242 Fed. 255; United States v. Armstrong, 26 Fed. (2d) 227; Joseph A. Steinle, 19 B. T. A. 325; Samuel Keller, 21 B. T. A. 84; affirmed in Commissioner v. Keller, 59 Fed. (2d) 499; Charles Havard, 25 B. T. A. 1161; M. H. Graham, 26 B. T. A. 301; and Western Union Telegraph Co., 27 B. T. A. 265. Here the West Virginia corporation was not insolvent after the transfer. The actual cash paid by the petitioner to the West Virginia corporation was in the amount of $1,300,000, which was more than sufficient to pay the then liabilities of the West Virginia corporation as recorded on its books and the taxes here involved. No creditor of the West Virginia corporation was forced to look to corporate stock for his security, as was the case in the authorities cited by the respondent, but could look to actual cash.

We are not here concerned with the liability of the stockholders of the West Virginia corporation for these taxes of the West Virginia corporation. Those stockholders are not before us.

In the instant proceeding, there is no indication whatsoever that the transaction was consummated for the purpose of perpetrating a fraud upon creditors. See Joseph A. Steinle, supra. While it is true that the petitioner was organized for the purpose of acquiring the assets and business of the West Virginia corporation, the evidence does not establish that the petitioner was not a bona fide purchaser, for value, of the assets of the West Virginia corporation. Under the facts we conclude that the petitioner is not liable in equity as a transferee for the unpaid taxes of the West Virginia corporation.

We now turn to a consideration of the respondent's contention that petitioner is liable at law for the taxes due from the West Virginia corporation.

In the contract between the petitioner and the West Virginia corporation there was the following provision:

4. As the balance of the consideration for the said sale, the Company [petitioner] hereby assumes and hereby agrees to undertake and carry out all contracts of the Vendor in connection with its business in force at the time of this sale whether for the purchase of materials and supplies or for the sale of manufactured products or otherwise, and the Company hereby agrees to undertake, pay, satisfy and discharge all the lawful debts of the Vendor, including the reasonable expenses of the Vendor incurred and to be incurred in connection with the pending reorganization, and to indemnify the Vendor, its successors and assigns against all actions, claims and demands in respect thereof.

It is claimed by the respondent that under this provision, the petitioner is liable at law for the taxes of the West Virginia corporation for the year 1919.

The agreement, which was effective as of October 1, 1919, was entered into on October 7, 1919, at which time the calendar year 1919 had not expired, and apparently neither party to the contract considered the question of Federal taxes, since such taxes are not mentioned in the agreement. As appears from the resolution of dissolution of the West Virginia corporation, it recognized that there were some debts, liabilities and obligations remaining for it to pay, in addition to those assumed by petitioner. It will be noted from the quoted portion of the contract that this petitioner assumed only "lawful debts". Under such an assumption, the petitioner can not be held liable for taxes of the West Virginia corporation. It is well settled that a tax is not a "debt." In Meriwether v. Garrett, 102 U. S. 472, 513, it is stated in part:

* Taxes are not debts. It was so held by this court in the case of Oregon v. Lane County, reported in 7th Wallace. Debts are obligations for the payment of money founded upon contract, express or implied. Taxes are imposts levied for the support of the government, or for some special purpose authorized by it. The consent of the taxpayer is not necessary to their enforcement. They operate in invitum. *

See also to the same effect In re Duryee, Bankrupt, 2 Fed. 68; Western Union Telegraph Co., supra, and cases cited in 37 Cyc. 710. Furthermore, the stipulation sets forth the amount of $1,009,693.91 as the amount of liability of the West Virginia corporation which the petitioner assumed. In such stipulation it is specifically stated that the figure $1,009,693.91 did not include any liability of the West Virginia corporation for Federal income taxes for the year 1919. Since the evidence establishes that the petitioner did not assume in its contract any liability for the Federal taxes of the West Virginia corporation for the year in question, this second issue must be resolved against the respondent, upon whom rests the burden of proof in this respect.

We hold that the petitioner is not liable, either at law or in equity, for the Federal tax liability of the West Virginia corporation for the year 1919.

Judgment of no liability will be entered.

JOHN E. GREENAWALT, PETITIONER, V. COMMISSIONER OF
INTERNAL REVENUE, RESPONDENT.

Docket No. 50793. Promulgated March 15, 1933.

The petitioner is not entitled to the maximum earned income credit provided for in section 31 (a) of the Revenue Act of 1928 in respect of royalties, computed upon a per ton basis, received under certain contracts with licensees embodying the use of patents relating to the process of sintering.