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adopt the approach used by the Court of Appeals over the approach
used by this Court in Jack’s Maintenance Contractors, Inc.7
Petitioners, of course, believe that Jack’s Maintenance
Contractors, Inc. was decided correctly by this Court and urge us
to follow it.8
Upon reconsideration of our opinion in Jack’s Maintenance
Contractors, Inc., and its reversal by the Court of Appeals, we
7 Respondent concedes that this Court is not bound by the
decision of the Court of Appeals for the Fifth Circuit, as the
appeals of the instant cases lie elsewhere. See Peat Oil & Gas
Associates v. Commissioner, 100 T.C. 271, 274 (1993), affd. sub
nom. Ferguson v. Commissioner, 29 F.3d 98 (2d Cir. 1994); Golsen
v. Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d 985
(10th Cir. 1971).
8 Petitioners also argue that HIF had a business purpose in
paying the legal fees because it was potentially liable, as a
transferee or successor of the sole proprietorship, for the
deficiencies and penalties resulting from the Hoods’ failure to
report income of the sole proprietorship.
We believe HIF’s exposure to transferee liability was
insignificant. Petitioners’ reliance on Bingham v. Goldberg.
Marchesano. Kohlman. Inc., 637 A.2d 81, 89-90 (D.C. 1994), for
the proposition that HIF would have been liable under State law
as a transferee of the sole proprietorship as a “mere
continuation” is misplaced. That case makes clear that under
District of Columbia law transferee liability is not imposed
under the “mere continuation” standard where the predecessor
remains in existence, as is the case here with Mr. Hood.
Moreover, Mr. Hood was able to, and in fact did, pay the
deficiencies and additions to tax posited as the basis for HIF’s
purported transferee liability.
In any event, any business purpose premised upon the
speculative possibility of HIF’s transferee liability pales in
comparison to the central business purpose argued in Jack’s
Maintenance Contractors, Inc. v. Commissioner, supra, and the
instant cases; namely, the benefit of staying in business.
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Last modified: May 25, 2011