Opinion
336-21
03-14-2022
Canyon Auto Spa Petitioner v. Commissioner of Internal Revenue Respondent
ORDER OF DISMISSAL
Mark V. Holmes Judge
This case is on the Court's April 4, 2022 trial calendar for Los Angeles, California and arises from deficiencies that date back to tax years 2015 and 2016. On January 10, 2022, respondent moved to dismiss the petition for lack of jurisdiction because petitioner lacked the capacity to file the petition with this Court when it began its case. Petitioner objected in a written response.
Background
Canyon Auto Spa is a California corporation that was suspended on October 1, 2019 for failure to pay state tax. The Commissioner issued the notice of deficiency that led to this case on November 4, 2020. Canyon Auto Spa filed its petition on January 26, 2021. It later paid its overdue state tax and was revived "as of January 22, 2022."
Analysis
Tax Court Rule 60(c) requires a taxpayer to have the legal capacity to engage in litigation in this Court. We determine a corporation's capacity to litigate by looking to the law of the state of its incorporation, which for Canyon Spa is California.
Respondent argues that because petitioner's powers, rights, and privileges were suspended on each and every day during the 90 days it had under the Code to file its petition, it lacked the capacity to litigate. He argues that this means we have no jurisdiction because the petition was not filed at a time Canyon Spa had the legal capacity to do so.
Respondent has precedent on his side. In Le v. Commissioner, 114 T.C. 268, 270-71 (2000), aff'd, 22 Fed.Appx. 837 (2001), a California corporation was suspended during the entire 90-day window during which it could file a petition. It filed its petition within those 90 days, but didn't get revived until afterward. We held that this meant "that petitioner lacked the capacity under California law to validate that petition as a legal filing," and dismissed the case for lack of jurisdiction. And we held the same thing in the same situation just a couple years ago in Timbron Int'l Corp. v. Commissioner, T.C. Memo. 2019-21 at *10.
Le is a precedential opinion and, as we did in Timbron, we must either follow or distinguish it.
Canyon Auto argues that:
• Requiring corporations to pay delinquent state taxes before challenging federal tax issues violates its rights to equal protection rights;
• Respondent violated the Taxpayer Bill of Rights because petitioner wasn't informed about this requirement before filing its petition to challenge the notice of deficiency; and
• California case law suggest that if a corporation's status is suspended comes to light during litigation, the normal practice is for the trial court to permit a short continuance to enable the suspended corporation to effect reinstatement to defend itself in court. See Schwartz v. Magyar House, Inc., 335 P.2d 487 (Cal. 1959).
None of these is persuasive. Canyon Auto cites the Equal Protection Clause, but fails to identify any impermissible classification between it and other petitioners. Our Rule 60 gives clear notice to litigants that they must have the legal capacity to sue and be sued when a petition is filed. And California law is clear that a corporation may not prosecute or defend an action when it's suspended for failure to pay taxes. See Cal. Rev. & Tax Codes §§ 23301 and 23302. It is also clear that revival of corporate powers isn't effective nunc pro tunc. See Cmty. Elec. Serv., Inc. v. Nat'l Elc. Contractors Ass'ns, Inc., 869 F.2d 1235, 1239-40 (9th Cir. 1989).
And, finally, we note that Canyon Spa did not ask for a short continuance during the 90-day period when it would have made a difference.
It is therefore
ORDERED that the respondent's January 10, 2022 motion to dismiss for lack of jurisdiction is granted.