Corporation whose charter was suspended lacks capacity to file Tax Court petition.

The Tax Court held that a California corporation whose corporate charter was suspended at the time it filed a Tax Court petition (and was not reinstated until after expiration of the 90-day period for filing a petition under Sec. 6213) lacked the capacity to litigate before the court under Tax Court Rule 60(c), and dismissed the petition.

In David Dung Le, M.D., Inc., 114 TC No. 18, a California medical corporation had its corporate charter suspended on April 1, 1999 for nonpayment of state income taxes. On July 1, 1999, the IRS issued a deficiency notice to the corporation. The corporation's counsel filed a petition with the Tax Court on Aug. 12, 1999. The corporation's charter, however, was not revived until Feb. 28, 2000.

The Service moved to dismiss the petition on the ground that the Tax Court lacked jurisdiction; because its corporate privileges were suspended when the petition was filed, the corporation lacked the capacity to file the petition. The taxpayer argued that the revival of its status meant that it was entitled to maintain the action.

As a preliminary matter, the court explained that Tax Court Rule 60(c) requires that a taxpayer seeking to petition the court have the capacity to engage in litigation. The court further explained that whether a taxpayer possessed the requisite capacity was determined with reference to state law. Examining California law, the court concluded that the corporation lacked the necessary capacity. The court distinguished the present case from cases in which a petition was filed on time by an improper party and the proper party was given a reasonable time to ratify the petition. The court noted that, in ratification cases, the proper party had the capacity to file the petition at the time the petition was filed, while the corporation in the present case lacked the capacity to file a petition at the time of filing.

In so holding, the court also rejected the corporation's argument that revival of the corporation's powers during the litigation (but after the 90-day filing period under Sec. 6213), should allow it to continue to litigate the case. The fact that the corporation's status was not reinstated during the 90-day period was fatal, because California law did not operate to toll the filing period from running during the period of suspension.

FROM KENNETH S. SAVELL, J.D., LL.M., KPMG LLP, WASHINGTON, DC

Editor's note: Mr. Ely is the immediate past chair of the AICPA Tax Division's Relations with the IRS Committee. Ms. Butler and Mr. Oveson are committee members.