Brannon's of Shawnee, Inc. v. Comm'r of Internal Revenue

• Decision Date: 06 November 1978
• Docket Number: Docket No. 10546-75
• Citation: 71 T.C. 108
• Parties: BRANNON'S of SHAWNEE, INC., PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

71 T.C. 108

BRANNON'S of SHAWNEE, INC., PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 10546-75

United States Tax Court

Filed November 6, 1978.

Petitioner, an Oklahoma corporation, merged into another Oklahoma corporation on Sept. 25, 1972. Respondent mailed a notice of deficiency to petitioner on Sept. 10, 1975. On Dec. 10, 1975, petitioner filed its petition with this Court. The parties executed a stipulated decision which was entered by the Court on Dec. 22, 1976. On Nov. 28, 1977, petitioner filed a motion to vacate the decision on the ground that this Court lacked jurisdiction. Petitioner's motion for special leave to file a motion to vacate our decision was granted on Mar. 30, 1978. Held, the Tax Court had jurisdiction in this case, and therefore the decision entered was valid. Held, further, petitioner's motion to vacate the decision will be denied. Tom G. Parrott, T. Ray Phillips III, Donald C. Gaston, and Donald B. Nevard, for the petitioner.

James D. Thomas, for the respondent.

DAWSON, Judge:

This matter is before the Court on petitioner's motion filed pursuant to Rule 162, Tax Court Rules of Practice and Procedure, to vacate the decision entered in this case on December 22, 1976. Petitioner was previously granted special leave to file its motion to vacate at 69 T.C. 999 (1978). At issue is whether the Tax Court lacked jurisdiction of this case because the petition was filed and decision stipulated by a corporate petitioner which had merged into another corporation 3 years earlier.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

During the taxable years ended August 31, 1967, through August 31, 1971, inclusive, Brannon's of Shawnee, Inc. (hereinafter the petitioner), was an Oklahoma corporation with its principal place of business located at Shawnee, Okla. Petitioner filed United States Corporation Income Tax Returns for the taxable years ended August 31, 1967, August 31, 1968, August 31, 1970, and August 31, 1971, on January 26, 1968, January 20, 1969, May 19, 1971, and April 6, 1972, respectively.

Petitioner was a closely held family business engaged in grocery and food operations. The directors of petitioner were W. R. Brannon, Wanda Brannon, his wife, and Don R. Brannon. W. R. Brannon was elected president of the petitioner at the time of its formation on September 28, 1964, and has been the only person to serve as president. Subsequent to July 14, 1971, the sole shareholder of petitioner was W. R. Brannon.

In April 1972, the Internal Revenue Service, Oklahoma District, began field audit procedures for the tax years ended August 31, 1967, 1968, 1970, and 1971. Shortly thereafter, on September 25, 1972, the petitioner merged into Brannon's No. 7 (hereinafter the successor). The successor, organized in January 1969, was also a closely held family corporation. The directors of the successor were W. R. Brannon, Wanda Brannon, his wife, and Don R. Brannon. W. R. Brannon has been the president of the successor corporation since its formation.

Petitioner did not notify the Office of the District Director for the District of Oklahoma of the merger nor did that Office become aware of the merger until late 1975. Petitioner's ended August 31, 1972, while marked “Final Return” and containing all relevant merger documents, was not requisitioned or transmitted to the Office of the District Director for the District of Oklahoma until December 11, 1975. The petitioner, however, through its president, W. R. Brannon, and Donald Criswell, a C. P. A. who was given a power of attorney by W. R. Brannon to represent the petitioner, continued to actively negotiate with the Internal Revenue Service. On May 17, 1973, the District Director mailed the petitioner a 30-day letter, together with an examination report prepared by Revenue Agent Dale Billy. On January 15, 1974, petitioner filed a protest, signed by W. R. Brannon, against the examination report. During this period consents fixing period of limitation upon assessment of income tax were signed by “W. R. Brannon, President” and were Revenue at Oklahoma City, Okla. The last consent, filed on January 17, 1975, extended the period of assessment for all tax years in controversy to December 31, 1975. On September 10, 1975, respondent mailed a notice of deficiency to petitioner. Petitioner, by its attorneys Kornfeld, McMillin, Phillips & Upp, filed a petition with this Court on December 10, 1975. The counsel representing petitioner in the instant case had also represented the successor corporation since its formation. The petitioner first raised the issue of capacity in its reply to the answer filed in this case. Nonetheless, pursuant to an agreement between the parties, a decision was entered on December 22, 1976, in the amounts originally determined by the respondent, as follows:

That there are deficiencies in income taxes due from the petitioner for the taxable year ended August 31, 1967; August 31, 1968; August 31, 1970; and August 31, 1971, in the amounts of $12,327.18; $8,298.39; $2,510.51 and $19,870.41, respectively.

OPINION

The Tax Court is a court of limited statutory jurisdiction. Wheeler's Peachtree Pharmacy, Inc. v. Commissioner, 35 T.C. 177 (1960). Jurisdiction is predicated upon a final determination of a deficiency by the Internal Revenue Service, section 6212(a),¹ and a petition filed by the taxpayer against whom the deficiency is determined, within 90 days of the mailing of the deficiency notice. Secs. 6213 and 6214. Our rules, promulgated under section 7452, provide that “A case shall be brought by and in the name of the person against whom the Commissioner determined the deficiency.” Rule 60(a), Tax Court Rules of Practice and Procedure. This person must have capacity to file the petition. Rule 60(c). If a petitioner lacks capacity, this Court has held that it must dismiss the case for lack of jurisdiction. Condo v. Commissioner, 69 T.C. 149 (1977); Patz Trust v. Commissioner, 69 T.C. 497 (1977); Dillman Bros. Asphalt Co. v. Commissioner, 64 T.C. 793 (1975); Great Falls Bonding Agency, Inc. v. Commissioner, 63 T.C. 304 (1974).

The capacity of a corporate taxpayer is determined under Rule 60(c), Tax Court Rules of Practice and Procedure, which states that “The capacity of a corporation to engage in such litigation shall be determined by the law under which Oklahoma's Business Corporation Act² it lacked the capacity to both institute this proceeding and to enter into a stipulated decision with respondent. This lack of capacity, it contends, renders the stipulated decision void.³ Unlike previous cases in which prior to final decision this Court's jurisdiction has been challenged on the basis of lack of capacity, here we are asked to vacate a final decision.

In Brannon's of Shawnee, Inc. v. Commissioner, 69 T.C. 999 (1978), we held that we have jurisdiction to determine if we have jurisdiction at any time, be it before or after final decision is entered. In sum, we have, in keeping with the inherent power of all courts, the power to vacate a void decision.

A void judgment is one which, from its inception, is and forever continues to be absolutely null, without legal efficacy; ineffectual to bind parties or support a right; of no legal force and effect whatever, and incapable of confirmation, ratification or enforcement in any manner or to any degree. (7 J. Moore, Federal Practice, par. 60.25(2), p. 300 n. 29 (2d ed. 1978).)

A judgment is void if the Court lacks subject jurisdiction or, unless waived, personal jurisdiction over the parties. There are, however, certain quasi-jurisdictional matters which do not necessarily render a final judgment void, but merely erroneous. See, e. g., Lubben v. Selective Service System Local Board, No. 27, 453 F. 2d 645 (1st Cir. 1972).

As we have previously noted, lack of capacity has been dealt with by this Court only in a pre-final decision context. Under the Federal Rules of Civil Procedure⁴ and the Oklahoma Civil Procedure Law⁵ the failure of a defendant to raise the issue of lack of capacity by either motion or answer during the pendency of the proceeding results in a waiver of the issue. If it is raised, a case in both the Federal system and Oklahoma will be dismissed because of improper party. Thus, it is arguable that lack of capacity is not a jurisdictional defect that would render a decision void and permit us to review it under our inherent power to vacate void decisions.

Nonetheless, it appears that this Court has historically viewed capacity as a major element necessary to invoke its jurisdiction. Communist Party of the U. S. A. v. Commissioner, 38 T.C. 862 (1962), revd. 332 F.2d 325 (D.C. Cir. 1964); Wheeler's Peachtree Pharmacy, Inc. v. Commissioner, 35 T.C. 177 (1960); National Committee to Secure Justice in the Rosenberg Case v. Commissioner, 27 T.C. 837 (1957); Coca-Cola Bottling Co. v. Commissioner, 22 B.T.A. 686 (1931); Consolidated Companies, Inc. v. Commissioner, 15 B.T.A. 645 (1929). In S. Hirsch Distilling Co. v. Commisssioner, 14 B.T.A. 1073, 1078-1079 (1929), we noted that since a corporation had dissolved,

no legal entity remained to institute this proceeding. The attempt on the part of one of its former officers to institute a proceeding in its behalf has resulted in nothing since he could not by his own acts raise the dead * * * . Our determination of a deficiency under such circumstances would be a nullity, and accordingly, on our own motion, we hold that we have no jurisdiction. (Emphasis supplied.)

Likewise, in Hoj v. Commissioner, 26 T.C. 1074, 1076 (1956), the Court concluded that “the Tax Court would have no jurisdiction to bind the petitioners by any decision which it might enter on the merits.” In light of these opinions, and our more recent pronouncements in Condo v. Commissioner, supra; Dillman Bros. Asphalt Co. v. Commissioner, supra; and Great Falls Bonding Agency, Inc. v. Commissioner, supra, we hold that...