Condo v. Comm'r of Internal Revenue , Docket No. 6803-76.

• Decision Date: 31 October 1977
• Docket Number: Docket No. 6803-76.
• Citation: 69 T.C. 149
• Parties: ARMEN B. CONDO, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

69 T.C. 149

ARMEN B. CONDO, PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 6803-76.

United States Tax Court

Filed October 31, 1977.

On Apr. 26, 1976, respondent sent a notice of deficiency to the Condo Corp., a corporation organized under the laws of California. Since Dec. 15, 1969, the corporate rights, powers, and privileges of the Condo Corp. have been suspended under California law due to its failure to pay the State franchise tax. Such suspension renders it incapable under California law to sue or defend against a suit. Held, the Condo Corp. lacks the capacity to litigate in this Court under Rule 60(c), Tax Court Rules of Practice and Procedure. Armen B. Condo, pro se.

Timothy L. Nelson, for the respondent.

WILBUR, Judge:

Respondent determined a deficiency against the A. B. Condo Corp. for the taxable year 1973 in the amount of $7,982.

This case is presently before us on respondent's motion to dismiss for lack of jurisdiction. This motion requires us to determine whether or not the A. B. Condo Corp. has the capacity to engage in litigation in this Court.¹

FINDINGS OF FACT

Armen B. Condo (hereinafter Armen) is president of and sole shareholder in the A. B. Condo Corp. (hereinafter Condo Corp.). Armen and the Condo Corp. have identical addresses, 8932 Skiff Circle, Huntington Beach, Calif. 92646.

Respondent's notice of deficiency, dated April 26, 1976, was addressed to “A. B. Condo Corporation.” When Armen saw this notice, he believed that since the Condo Corp. was dormant, he was the corporation and the deficiency notice was applicable to him as such.

The petition is captioned, “Armen B. Condo, Petitioner.” Above the caption is typed “A. B. Condo Corporation” and the Condo Corp.‘s address. The petition requests “a redetermination of the deficiency set forth by the Commissioner of Internal Revenue in his notice of deficiency” which is appended to the petition.

Paragraph I of the petition describes petitioner as an individual. Paragraph II states that “The notice of deficiency (see Exhibit ‘A’) was mailed to petitioner.” It was Armen's intention in filing the petition herein to contest the deficiency sent by respondent to the Condo Corp.

The Condo Corp. was organized under the laws of California. Since December 15, 1969, its corporate rights, powers, and privileges have been suspended pursuant to California Revenue & Taxation Code sections 23301 et seq. (West 1970).

OPINION

We must decide whether the Condo Corp., to which the deficiency notice was addressed, has the capacity to litigate in this Court.

The capacity of a corporation to litigate in the Tax Court is governed by Rule 60(c), Tax Court Rules of Practice and Procedure, which provides, inter alia:

The capacity of a corporation to engage in such litigation shall be determined by the law under which it was organized.* * *

The comments to this rule note that it is derived from rule 17(b) of the Federal Rules of Civil Procedure. Although it has no counterpart in the prior Tax Court Rules of Procedure, Federal courts in general,² and this Court in particular,³ have long followed this rule in determining the capacity of a corporation to litigate in a Federal court. “ Rule 60(c) merely codified the existing practice of this Court.” Dillman Bros. Asphalt Co. v. Commissioner, 64 T.C. 793, 795 (1975).

Since the Condo Corp. was organized under the laws of California, we look to the laws of that State in determining its capacity to litigate. California Revenue & Taxation Code section 23301 (West supp. 1976) provides the following penalty for those corporations which fail to pay their State taxes within a specified period:

Except for the purpose of amending the articles of incorporation to set forth a new name, the corporate powers, rights and privileges of a domestic taxpayer shall be suspended

Further, California Revenue & Taxation Code section 23302 (West 1970) provides that:

The Franchise Tax Board shall transmit the name of such delinquent taxpayer to the Secretary of State, and the suspension or forfeiture herein provided for shall thereupon become effective and the certificate of the Secretary of State shall be prima facie evidence of such suspension or forfeiture.

Respondent has presented a certificate of filing and suspension from the secretary of state of the State of California certifying that on December 15, 1969, the Condo Corp. was suspended pursuant to these statutes. The corporation has not been reinstated. Therefore the corporate powers, rights, and privileges of the Condo Corp. have been, and remain, suspended.

The Supreme Court of California summarized the effects of a corporate suspension in Reed v. Norman, 48 Cal.2d 338, 343, 309 P.2d 809, 812 (1957):

On the issue of suspension of the corporation for failure to pay franchise tax, it is true that under the corporation law, Rev. & Tax. Code, sections 23301, 23302, supra, the corporation may not prosecute or defend an action, nor appeal from an adverse judgment in an action while its corporate rights are suspended for failure to pay taxes, Boyle v. Lakeview Creamery Co., 9 Cal. 2d 16, 68 P.2d 968; Ocean Park Bath House & Amusement Co. v. Pacific Auto Part Co., 37 Cal. App. 2d 158, 98 P. 2d 1068; Baker v. Ferrel, 78 Cal. App. 2d 578, 117 P. 2d 973; Fidelity Metals Corp. v. Risley, 77 Cal. App. 2d 377, 175 P. 2d 592.* * *

Therefore, the Condo Corp. lacks the capacity both to sue and to defend against a suit in a State court. Alhambra-Shumway Mines v. Alhambra Gold Mine Corp., 155 Cal. App.2d 46, 317 P.2d 649 (3d Dist. Ct. App. 1957), appeal dismissed 356 U.S. 583 (1958); Graceland v. Peebler, 50 Cal. App.2d 545, 123 P.2d 527 (2d Dist. Ct. App. 1942).

Recently a Federal court has considered the effect of a corporate suspension under these statutes on the capacity of a corporation to litigate in a Federal court. Mather Construction Co. v. United States, 201 Ct. Cl. 219, 475 F.2d 1152 (1973), involved a corporate plaintiff seeking to recover money ordered paid from an escrow of its funds upon the request and authorization of the Department of the Air Force and the Federal Housing Administration. The court dismissed the plaintiff under Court of Claims rule 61(b)—-which is identical on this point to Rule 60(c), Tax Court Rules of Practice and Procedure—-because the plaintiff was a California corporation suspended under the same statues by which Condo Corp. is suspended. The court concluded that the corporation lacked the capacity to sue under the law of the State in which it was organized, and therefore also lacked the capacity to litigate in a Federal court. Cf. Weinstock v. Sinatra, 379 F. Supp. 274 (C.D. Cal. 1974).

We conclude, therefore, that under Rule 60(c), Tax Court Rules of Practice and Procedure, the Condo Corp. does not possess the capacity to litigate the issue of its liability in this Court because it does not possess the capacity to litigate “by the law under which it was organized.” Our conclusion is in accord with previous interpretations of this rule. In both Dillman Bros. Asphalt Co. v. Commissioner, 64 T.C. 793 (1975), and Great Falls Bonding Agency, Inc. v. Commissioner, 63 T.C. 304 (1974), this Court considered the capacity of dissolved corporations to litigate. The State laws under which both corporations had been organized provided that dissolved corporations could file suit only within 2 years after dissolution. We held that, where the petition had been filed more than 2 years after dissolution, the corporations did not possess the capacity to challenge the deficiencies in this Court.

Whether such a corporation has the capacity to then petition this Court is another question. Our Rule 60(c) says that the answer to that question is to be determined by the law under which it was organized. Here, that means Illinois law, and, as is shown above, that law, statutory and decisional, is clear that the petitioner does not have capacity to maintain this case. While Rule 60(c) for the first time articulates the principle therein set forth, the practice in this Court has followed that principle from the beginning. * * * (Great Falls Bonding Agency, Inc. v. Commissioner, supra at 306.)

Even before the adoption of Rule 60(c) we looked to State law to determine the capacity of corporations to litigate. While several cases arose involving dissolved corporations,⁴ we have found only three involving suspended corporations. In Lang Body Co. v. Commissioner, 16 B.T.A. 728 (1929), the Board found that a suspended Ohio corporation had capacity to litigate because under Ohio law, unlike the California statute involved herein, suspended corporations were de facto corporations and the directors of such corporations were authorized to sue for and recover corporate debts and property. In Premier Packing Co. v. Commissioner, 12 B.T.A. 637 (1928), respondent moved to dismiss alleging that petitioner had been dissolved and therefore the wrong persons had signed the petition on its behalf. The Board held that the corporation had been suspended rather than dissolved and therefore that California's laws as to the rights of dissolved corporations to sue did not apply. It is clear from the opinion that the capacity of suspended corporations was assumed and not considered as an issue.

The following year, in California Iron Yards Co. v. Commissioner, 15 B.T.A. 25 (1929), affd. 47 F.2d 514 (9th Cir. 1931), this issue was directly raised. Petitioner was a California corporation suspended under what was then the California Political Code section 3669(c)(2):

After six o'clock p.m. of the Saturday preceding the first Monday in March of any year, the corporate rights, privileges and powers of every domestic corporation which has failed to pay said (franchise or other) tax and money penalty shall, from and after said hour of said day, be suspended, and incapable of being exercised for any purpose or in any manner, except to defend any action brought in any court against such...