Union Oil Co. of California v. Comm'r of Internal Revenue

• Decision Date: 28 July 1993
• Docket Number: No. 24054–90.,24054–90.
• Citation: 101 T.C. No. 8,101 T.C. 130
• Parties: UNION OIL COMPANY OF CALIFORNIA, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

101 T.C. 130

101 T.C. No. 8

UNION OIL COMPANY OF CALIFORNIA, Petitioner,

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 24054–90.

United States Tax Court

July 28, 1993.

Barry S. Andrews, Joseph A. Householder, Los Angeles, CA and Michael R.H. Post, Washington, DC, for petitioner.

Alan Summers and Joyce Sugawara, San Francisco, CA, for respondent.

OPINION

WRIGHT, Judge:

This matter is before the Court on petitioner's Motion to Vacate Decision of this Court entered on December 1, 1992, pursuant to a stipulation of the parties. For the reasons set forth herein, we hold that the Court has jurisdiction over this matter and that petitioner's motion to vacate the decision of this Court entered on December 1, 1992, must be denied. The pertinent facts are not in dispute.

Petitioner was incorporated under the laws of California on October 17, 1890, and was, until April 25, 1983, the top-tier corporation of a group of affiliated corporations, which included more than 80 subsidiaries. As the common parent, petitioner timely filed consolidated Federal income tax returns for taxable years 1975, 1976, and 1978. On April 25, 1983, petitioner was a party to a reverse acquisition specified in section 1.1502–75(d)(3)(i), Income Tax Regs. The plan of reorganization included two other corporations: (1) Unocal Corp. (Unocal), a Delaware corporation organized on March 18, 1983, and wholly owned by petitioner; and (2) Union Merger Corp. (Union Merger), a California corporation organized by Unocal on March 21, 1983, which was the wholly owned subsidiary of Unocal. On April 25, 1983, Union Merger merged into petitioner; each share of Union Merger's stock held by Unocal was converted into a share of petitioner's stock, each share of petitioner's stock, except those now held by Unocal, was converted into a share of Unocal, and the shares of Unocal held by petitioner were canceled. References to the “Union Group” means the group of affiliated corporations controlled by petitioner prior to the merger and then by Unocal after the merger.

As a result of the April 25, 1983, reorganization, Unocal became the common parent of the Union Group, and petitioner became a wholly owned subsidiary of Unocal. Beginning with taxable year 1983, Unocal has filed consolidated returns on behalf of the Union Group. In March 1985, Unocal filed an Application for Automatic Extension of Time to File Corporation Income Tax Return (Form 7004) for the taxable year ended December 31, 1983. On a statement attached to Form 7004, Unocal notified respondent that a merger and reorganization had occurred on April 25, 1983, and that petitioner had become a wholly owned subsidiary of Unocal.

Petitioner's existence did not terminate under California law during the reorganization or at any time thereafter. From April 25, 1983, to the present time, petitioner has continued as the principal domestic operating company of the Union Group, has retained many of its assets, and has utilized the same offices and mailing address in Los Angeles, California, as Unocal. From September 23, 1985, to the present time, petitioner has conducted its business operations as “d.b.a. Unocal”. From 1983 to the present, the individuals who have served as chairmen of the board of directors, chief executive officers, directors, comptrollers, treasurers, general counsel, general tax counsel, and numerous other top-level positions for petitioner have served in those same capacities or held those same positions with Unocal.

On several occasions both before and after the reorganization on April 25, 1983, the general manager of petitioner's tax department, L.D. Lawrence, executed Forms 872 extending the date by which respondent could issue notices of deficiency to the Union Group for taxable years 1976 through 1981; ¹ these forms identified “Union” as the taxpayer. On several occasions after the merger, petitioner's manager of its income tax division, T.L. Funk, executed Forms 872 for the Union Group for taxable years 1976 through 1982; ² these forms identified “Union” as the taxpayer. On December 13, 1985, petitioner's general tax counsel, L.L. Wilson, executed a Form 872, which identified “Union” as the taxpayer, extending the date by which respondent could issue notices of deficiency to the Union Group for taxable years 1976 through 1982 until September 30, 1986.

On August 2, 1990, respondent issued a statutory notice of deficiency to petitioner for the Union Group for deficiencies in its income tax liabilities for taxable years 1975, 1976, and 1978. The notice of deficiency was mailed to petitioner at 1201 West 5th Street, Los Angeles, California 90017; on August 2, 1990, Unocal's address was the same. On October 26, 1990, a petition for redetermination of the deficiencies in income tax due from petitioner for 1976 and 1978 was filed by “Union Oil Co. of California, petitioner”.³ This Court entered a decision in this case on December 1, 1992, pursuant to a stipulation of the parties. On December 30, 1992, petitioner filed a motion to vacate this decision on the basis that we lack jurisdiction over the instant matter.

The jurisdiction of this Court is generally invoked by the timely filing of a petition by a taxpayer to whom a notice of deficiency is addressed. Sec. 6213(a).⁴ There are at least three prerequisites to this Court's exercise of jurisdiction: (1) A notice; (2) the determination of a deficiency in the notice; and (3) the transmittal or the notice to the taxpayer. Intervest Enterprises, Inc. v. Commissioner, 59 T.C. 91, 94 (1972). Petitioner argues that the petition herein must be dismissed because respondent failed to direct the notice determining deficiencies in the Union Group's income tax liabilities for the years at issue to the proper party. Specifically, petitioner maintains that the determination of deficiencies for the years at issue against petitioner as the common parent agent of the Union Group was erroneous because petitioner was not, pursuant to Southern Pacific Co. v. Commissioner, 84 T.C. 395 (1985), the agent authorized to act for the affiliated group with respect to matters concerning the premerger taxable years of the affiliated group.

In Southern Pacific Co., we held that the new common parent in a reverse acquisition as specified in section 1.1502–75(d)(3)(i), Income Tax Regs., succeeds the old common parent as the agent for the affiliated group for purposes of the issuance of notices of deficiency for years both before and after the reverse acquisition.⁵ Id. at 404. In Southern Pacific Co., a common parent corporation of an affiliated group organized a holding corporation and a subsidiary to the holding corporation. In November 1969, these three corporations engaged in a reverse acquisition specified by section 1.1502–75(d)(3)(i), Income Tax Regs. After this reorganization, the holding corporation became the new common parent of the affiliated group, and the old common parent ceased to exist. The affiliated group thereafter notified the Internal Revenue Service (IRS) that it wished to designate the subsidiary corporation as its agent pursuant to section 1.1502–77(d), Income Tax Regs. The IRS did not respond to that request, and on September 1, 1972, issued a notice of deficiency to the holding corporation as successor in interest to the old common parent for deficiencies in the income tax liabilities of the consolidated group for premerger years. The taxpayer filed a petition for redetermination with this Court and then a motion to dismiss for lack of jurisdiction on the basis that the notice of deficiency should have been issued to the designated subsidiary corporation.

We reached our decision in Southern Pacific Co. after analyzing the consolidated return regulations. Section 1.1502–77(a), Income Tax Regs, provides:

The common parent, for all purposes * * * shall be the sole agent for each subsidiary in the group, duly authorized to act in its own name in all matters relating to the tax liability for the consolidated return year. * * * For example, * * * notices of deficiencies will be mailed only to the common parent * * * [Emphasis added.]

In Southern Pacific Co., we recognized that section 1.1502–77(a), Income Tax Regs., is a general rule which provides that for any given year in which a consolidated return is filed, the entity that is the common parent for that particular year is the agent for the affiliated group with respect to any procedural matter that may arise in connection with the group's tax liability for that year. Id. at 401.

We further recognized in Southern Pacific Co. that if the old common parent ceases to exist after the filing of a consolidated return for a particular year, the affiliated group would be left with no agent to act on its behalf in any subsequent dispute over its liability for that particular year or for previous years. Id. at 401. We noted, however, that the consolidated return regulations address this problem in section 1.1502–77(d), Income Tax Regs., which provides the following:

(d) Effect of dissolution of common parent corporation. If the common parent corporation contemplates dissolution, or is about to be dissolved, or if for any other reason its existence is about to terminate, it shall forthwith notify the district director with whom the consolidated return is filed of such fact and designate, subject to the approval of such district director, another member to act as agent in its place to the same extent and subject to the same conditions and limitations as are applicable to the common parent. If the notice thus required is not given by the common parent, or the designation is not approved by the district director, the remaining members may, subject to the approval of such district director, designate another member to act as such agent, and notice of such designation shall be given to such district director. Until a notice in writing designating a new agent has been approved by such district...