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House of Babes no longer had the note. Thus, the transfer left
House of Babes insolvent.
2. Petitioners' Other Contentions
Petitioners contend that, as shareholders, they are entitled
to a return of their capital in House of Babes even if respondent
establishes that they are liable as transferees. Petitioners
offer no authority to support their claim.
Petitioners contend that respondent could have collected the
tax liability from House of Babes. We disagree. The
Commissioner is not required to try to collect from a transferor
if it would be futile to do so. Flynn v. Commissioner, 77 F.2d
180, 183 (5th Cir. 1935), affg. Cleveland v. Commissioner, 28
B.T.A. 578 (1933); City Natl. Bank v. Commissioner, 55 F.2d 1073,
1073-1074 (5th Cir. 1932), affg. National Bank of Commerce v.
Commissioner, 19 B.T.A. 1080 (1930); Gumm v. Commissioner, 93
T.C. at 484; Kreps v. Commissioner, 42 T.C. 660, 671 (1964),
affd. 351 F.2d 1 (2d Cir. 1965). It would have been futile for
respondent to try to collect from House of Babes after August
1986 because House of Babes had no assets and no means of
generating income after August 1986.
Petitioners contend that respondent should have tried to
collect House of Babes' tax liability from House of Babes in 1986
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