CORPORATION TAX-COLLECTION FROM ASSETS.

Corporations engaged in business after the approval of the corporationtax law of August 5, 1909 (36 Stat. 112), but dissolved prior to December 31, 1909, are liable to the tax imposed under section 38 of that act. Assets of a corporation are subject to a lien for the payment of taxes provided the corporation has not been dissolved and all its assets distributed prior to the time the list of assessments came into the hands of the collector.

Where the corporation is dissolved before the taxes become due, and no lien attaches to the assets of a corporation, as in the case first above referred to, the tax imposed may be collected by the Government by pursuing the assets into the hands of the stockholders, in the same manner as any other creditor might obtain satisfaction of his debt.

DEPARTMENT OF JUSTICE,

April 2, 1910.

SIR: Your letter of March 26, 1910, was received. You state therein that a corporation, which was engaged in business on August 5, 1909, and for some time thereafter, but prior to December 31, 1909, became legally dissolved in compliance with the provisions of the statutes of the State under which it was organized, contends that it is not liable for the excise tax created by section 38 of the revenue act of August 5, 1909, and you ask my opinion upon the following questions:

First. Whether or not such corporation is liable for the excise tax created by said section 38 of the act of August 5, 1909.

Second. If so liable, whether a lien exists on the assets. of said corporation to secure the payment of said tax, and, incidentally, when the lien attaches to the property of a corporation, joint stock company, or association liable for taxes under said act; and

Third. If no such lien exists by what method the tax can be collected from such corporation.

In answer to these questions I will say:

** *

1. In the first clause of section 38, act of August 5, 1909 (36 Stat. 112), it is provided "that every corporation now or hereafter organized under the laws of the United States or of any State * * * shall be subject to pay annually a special excise tax with respect to the carrying

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on or doing business by such corporation * * * * equivalent to one per centum of the entire net income over and above five thousand dollars received by it from all sources during such year." That is, the tax is payable annually, and it is imposed" with respect to the carrying on or doing business by such corporation," and the amount of tax is fixed at 1 per centum upon its net income above $5,000 received during such year-that is, the year during which the business is transacted with reference to which the tax is imposed. By the third paragraph it is provided that the income of the corporation shall be computed for the year ending December 31, 1909, and for each calendar year thereafter. Therefore the assessment of the tax is always for the year preceding its collection and not for the year within which the collection is made, and the present assessment is for the year 1909. It follows, therefore, that any corporation which was engaged in business after the approval of the act on August 5, 1909, is amenable to this tax.

2. It will be observed that there is no express provision in this act which creates a lien upon the property of the corporation, joint stock company, or association to secure the payment of the tax. However, by section 3186, Revised Statutes, as amended by the act of March 1, 1879 (20 Stat. 331), it is provided generally with reference to internal revenue taxes that "if any person liable to pay any tax neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the United States from the time when the assessment list was received by the collector, except when otherwise provided, until paid, with the interest, penalties, and costs that may accrue in addition thereto, upon all property and rights belonging to such person;" and in the eighth paragraph of said section 38, act of August 5, 1909, it is provided that "all laws relating to the collection, remission, and refund of internal-revenue taxes, so far as applicable to and not inconsistent with the provisions of this section, are hereby extended and made applicable to the tax imposed by this section." The method of assessing the tax and collecting the same, as provided for in the act itself and in the general statutes, appears to be as follows: On or before March 1 of each year returns are required to be made by the corporations, joint

stock companies, and associations liable for the tax to the collector of internal revenue of the district in which they have their principal places of business. These returns are forwarded by the collector to the Commissioner of Internal Revenue, who shall make the assessments thereon. By section 3183, Revised Statutes, the duty of collecting all taxes in their respective districts is imposed by law on the collectors or their deputies, and by section 3184 it is provided that the collector shall in person, or by deputy, within ten days after receiving any list of taxes from the Commissioner of Internal Revenue, give notice to each person liable to pay any taxes stated therein, specifying the manner in which such notice shall be given. And in the fifth paragraph of section 38 of the act of 1909 it is provided that assessments shall be made, and the several companies liable to the tax shall be notified of the amount for which they are liable on or before the 1st day of June of each successive year. Therefore it is the duty of the Commissioner of Internal Revenue to send to each collector a list of the companies liable for the tax in his district, showing the amounts for which they are liable, within such time that the collector may give the required notice to such companies on or before the 1st day of June, and upon such lists the collections are made. These are the only lists which by statute are required to be sent to the collectors; and under the provision of section 3186, Revised Statutes, as amended, which is above quoted, the lien is fixed upon the assets of the corporation when this list comes into the collector's hands. Therefore if the corporation in question had distributed all of its assets and had become dissolved in the manner provided for by law prior to December 31, 1909, then when the list of assessments came into the hands of the collector there was neither corporation nor assets, and nothing upon which the lien could attach, and consequently no lien exists to secure the payment of the taxes.

3. Notwithstanding the fact that the particular method of collecting this excise tax is prescribed in the statute, yet such remedy is not exclusive, and the Government may resort to the common-law method of collecting the same. Such was the holding of the Supreme Court of the United

States in Dollar Savings Bank v. United States (19 Wall. 227, 240), with reference to the collection of a tax under an act which levied & tax of 5 per cent. on all dividends in scrip or money declared due to stockholders, policy holders, or depositors as part of the earnings, income, or gains of any bank, trust company, savings institution, and of any insurance company. The dissolution of a corporation does. not extinguish its liabilities; and through courts of equity creditors may pursue its assets into the hands of any person who is not a bona fide purchaser. (Mumma v. Potomac Company, 8 Pet. 281, 286; Curran v. Arkansas, 15 Howard 304, 307; Railroad Company v. Howard, 7 Wall. 392, 410; Scammon v. Kimball, 92 U. S. 362, 367.)

In Railroad Company v. Howard the court said:

"Assets derived from the sale of the capital stock of the corporation, or of its property, become, as respects creditors, the substitutes for the things sold, and as such they are subject to the same liabilities and restrictions as the things sold were before the sale, and while they remained in the possession of the corporation. Even the sale of the entire capital stock of the company and the division of the proceeds of the sale among the stockholders will not defeat the trust nor impair the remedy of the creditors, if any debts remain unpaid, as the creditors in that event may pursue the consideration of the sale in the hands of the respective stockholders, and compel each one, to the extent of the fund, to contribute pro rata toward the payment of their debts out of the moneys so received and in their hands."

If the corporation in question engaged in business after the approval of the act of August 5, 1909, then it was liable for the tax, though it may not have become due until after the corporation was dissolved; and the Government may collect the tax by pursuing the assets of the corporation into the hands of the stockholders, in the same manner as that by which any other creditor might obtain. satisfaction of his debt.

Respectfully,

GEORGE W. WICKERSHAM,

The SECRETARY OF THE TREASURY.

PORTO RICO-LEGALITY OF BOND ISSUE.

The issuance of bonds by the insular government of Porto Rico for the purpose of constructing roads and bridges, as provided by an act of the legislative assembly of Porto Rico, approved March 10, 1910, not being in excess of 7 per cent of the aggregate tax valuation of its property, is legal.

DEPARTMENT OF JUSTICE,

April 15, 1910.

SIR: I have the honor to acknowledge the receipt of your letter of April 1, instant, inclosing copy of an act of the legislative assembly of Porto Rico, approved March 10, 1910, authorizing the government of Porto Rico to issue bonds for the purpose of constructing roads and bridges, and requesting an opinion as to the legality of this issue and as to the form of the bond.

By the act of Congress, "An act temporarily to provide. revenues and a civil government for Porto Rico, and for other purposes," approved April 12, 1900 (31 Stat. 77), it was provided, section 32:

"That the legislative authority herein provided shall extend to all matters of a legislative character not locally inapplicable, etc., etc."

And in section 38 it was enacted:

"taxes and assessments on property, and license fees for franchises, privileges, and concessions may be imposed for the purposes of the insular and municipal governments, respectively, as may be provided and defined by act of the legislative assembly; and when necessary to anticipate taxes and revenues, bonds and other obligations may be issued by Porto Rico or any municipal government therein as may be provided by law to provide for expenditures authorized by law, and to protect the public credit,

* * * Provided, however, That no public indebtedness of Porto Rico or of any municipality thereof shall be authorized or allowed in excess of seven per centum of the aggregate tax valuation of its property.'

By an act of the legislative assembly of Porto Rico, "An act to authorize the issuance by the Insular Government of Porto Rico of bonds to the amount of one million dollars, and for other purposes," approved March 8, 1906