Harold Patz Trust v. Comm'r of Internal Revenue

• Decision Date: 20 December 1977
• Docket Number: Docket No. 5954-76.
• Citation: 69 T.C. 497
• Parties: HAROLD PATZ TRUST, CLIFFORD PATZ and HOWARD PATZ, TRUSTEES, and DARRELL PATZ TRUST, CLIFFORD PATZ and HOWARD PATZ, TRUSTEES, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

69 T.C. 497

HAROLD PATZ TRUST, CLIFFORD PATZ and HOWARD PATZ, TRUSTEES, and DARRELL PATZ TRUST, CLIFFORD PATZ and HOWARD PATZ, TRUSTEES, PETITIONERS

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 5954-76.

United States Tax Court

Filed December 20, 1977.

By their terms, trust A terminated on Mar. 17, 1974, and trust B on Mar. 4, 1976. Trust A distributed all its assets on Dec. 31, 1974. No evidence was presented as to whether trust B retained assets after its termination. On Mar. 30, 1976, respondent sent a notice of deficiency to the trusts in care of their final trustees at their last known address. Held, the deficiency notices were valid under sec. 6212. Held, further, after a trust distributes its assets it ceases to exist and the former trustees no longer have authority under State law to represent it in litigation, therefore the final trustees of trust A do not have capacity to litigate in the Court under Rule 60(c), Tax Court Rules of Practice and Procedure, and the former trustees of trust B have not proven that they have capacity to litigate herein under that rule. Main-Hammond Land Trust v. Commissioner, 17 T.C. 942 (1951), affd. 200 F.2d 308 (6th Cir. 1952), and Fancy Hill Coal Works v. Commissioner, 2 B.T.A. 142 (1925), followed. Robert E. Nelson, for the petitioners.

Joseph R. Peters and Joseph T. Chalhoub, for the respondent.

WILBUR, Judge:

This case is before us on respondent's motion to dismiss for lack of jurisdiction upon the ground that the petition was not filed by the proper parties as required by Rule 60(c).¹ In addition, petitioners question the validity of the deficiency notices issued herein.

FINDINGS OF FACT

Petitioners are two intervivos trusts, the Harold Patz Trust (hereinafter Harold Trust) and the Darrell Patz Trust (hereinafter Darrell Trust), established by instruments dated January 1, 1955. The trustees during 1972 were Clifford Patz (hereinafter Clifford) and Howard Patz (hereinafter Howard). Both the trustees and trust beneficiaries reside in Pound, Wis.

The trustees of the Harold Trust filed Federal income tax returns for the trust for the years 1972 through 1974. By its terms the Harold Trust terminated on March 17, 1974, and all its assets were distributed on December 31, 1974.

The trustees of the Darrell Trust filed Federal income tax returns for the trust for the years 1972 through 1975. By its terms the trust terminated on March 4, 1976.

The trustees of neither trust sent respondent a notice of their fiduciary relationship qualifying under section 6903 or a notice that their fiduciary relationship had been terminated prior to the filing of the petition herein.

On March 30, 1976, respondent determined a $29,347.99 deficiency in Federal income taxes against the Darrell Trust for 1972. The deficiency notice was addressed to “Darrell Patz Trust/Mr. Howard Patz, Trustee.” That same day respondent determined a $29,322.04 deficiency in Federal income taxes against the Harold Trust for 1972. The deficiency notice was addressed to “Harold Patz Trust/Mr. Clifford Patz, Trustee.”

On June 28, 1976, a petition contesting these deficiencies was filed in this Court. The petition was signed by Clifford and Howard as cotrustees of the Harold Trust and Darrell Trust. Respondent filed a motion to dismiss for lack of jurisdiction. A hearing was held on the motion in Milwaukee, Wis., after which the parties submitted briefs supporting their positions.

OPINION

We are presented here with two issues for our determination: (1) Are the notices of deficiency which were sent to petitioners valid? (2) If the deficiency notices were valid, do the trustees have capacity to litigate in this Court?

With respect to the first issue, the validity of the deficiency notices, section 6212(a) authorizes the mailing of a notice of deficiency “to the taxpayer by certified mail or registered mail.” Section 6212(b)(1) provides that such a notice “if mailed to the taxpayer at his last known address, shall be sufficient,” in the absence of a notice of fiduciary relationship given under section 6903. The deficiency notices herein were mailed to the last trustees of the Harold and Darrell Trusts. These persons obviously received the notices in time to file a timely petition with this Court. There is no indication whatsoever in the record that the notices were not sent to the “last known address” of the trusts.²

The fact that the trusts terminated prior to the mailing of the deficiency notices does not change this result. Section 6212(b)(1) authorizes notices to be sent in compliance with its terms regardless of whether the taxpayer is “deceased, or is under a legal disability, or, in the case of a corporation, has terminated its existence.” We have frequently upheld deficiency notices sent to taxpayers who were no longer in existence or under some legal disability when the notices were mailed.³

Petitioners also argue that the deficiency notices were invalid because the trusts were accumulation trusts, the incomes of which were deemed distributed under sections 665 through 669 when the trusts terminated prior to the sending of the deficiency notices. We need not, and do not decide whether petitioners correctly interpret the effect of sections 665 through 669 on their trusts. Whether the assets of the trusts are deemed distributed or distributed in fact is irrelevant in determining the validity of the deficiency notices. Furthermore, the mere absence of funds from which its tax liability may be satisfied does not render a proceeding to determine an entity's liability moot. Cf. Stanton v. Commissioner, 98 F.2d 739 (7th Cir. 1938), cert. denied 305 U.S. 650 (1938), affg. 34 B.T.A. 451 (1936). In short, we believe the validity of the notices must be determined under section 6212 and not under sections 665 through 669.

The principal issue for decision is whether petitioners possess capacity to litigate in this Court. This issue must be resolved by reference to Rule 60(c)⁴ which provides that:

The capacity of a fiduciary or other representative to litigate in the Court shall be determined in accordance with the law of the jurisdiction from which he derives his authority.

Respondent contends that under the law of Wisconsin, from which the trustees derive their authority, the trustees do not possess capacity to litigate. Petitioners, while admitting the applicability of Wisconsin law, contest this conclusion as to capacity.

Turning first to the Harold Trust, we hold that its trustees do not possess capacity to litigate because there exists no trust for them to represent. The Harold Trust terminated by its terms on March 17, 1974, and all of its assets were distributed on December 31, 1974. The Restatement of Trusts (Second), sec. 344 (1957), provides:⁵

When the time for the termination of the trust has arrived, the trustee has such powers and duties as are appropriate for the winding up of the trust.

Comment a. to section 344 states:

Although the time for the termination of the trust has arrived in accordance with the terms of the trust, the trustee does not thereby necessarily cease to be trustee, but he continues to be trustee until the trust is finally wound up. The period for winding up the trust is the period after the time for termination of the trust has arrived and before the trust is terminated by the distribution of the trust property. (Emphasis added.)

We have been cited to no authority suggesting that Wisconsin law diverges from the general rule of the Restatement, and the case appears to be quite the contrary. It is universally accepted that a fundamental prerequisite to the existence of a trust is a trust corpus consisting of real or personal property. Restatement, Trusts 2d, sec. 74 (1957). The Wisconsin Supreme Court has recognized this principle in stating that “some interest in property is necessary” to the existence of a trust. In re Martin's Trust Estate, 21 Wis.2d 334, 124 N.W.2d 297, 301 (1963). Accord, Christensen v. Commissioner, 40 T.C. 563 (1963) (discussing Wisconsin law). The principle is also implicit in Wisconsin's statutory definition of a “trustee” as “a person holding in trust title to or holding in trust a power over property.” Wis. Stat. Ann., sec. 701.01(5) (West 1976). While the petition herein was filed in 1976, the Harold Trust distributed all its property in 1974. From that point on it no longer existed as a trust because it lacked property, an element essential to the existence of any trust. Its former trustees cannot litigate herein since “the Tax Court has no jurisdiction to entertain a proceeding purporting to be brought by a nonexistent party.” National Committee to Secure Justice in the Rosenberg Case v. Commissioner, 27 T.C. 837, 839 (1957).

In two previous cases, which are factually indistinguishable from the present case, this Court has recognized the principle that trusts which distribute their assets thereafter cease to exist and no longer possess capacity to engage in litigation. In Fancy Hill Coal Works v. Commissioner, 2 B.T.A. 142 (1925), the petition on behalf of a dissolved common law trust (which had operated a business in such a manner as to be taxable as a corporation) was filed by its last operating trustee. The petition was dismissed on the ground that the last trustee of the dissolved trust lacked the authority to commence the action. More recently, in Main-Hammond Land Trust v. Commissioner, 17 T.C. 942 (1951), affd. 200 F.2d 308 (6th Cir. 1952), we held that a trust which had terminated its existence and distributed its assets prior to the issuance of a notice of deficiency could not litigate that deficiency in this Court. As we noted therein:

Under the laws of most states a corporation remains in existence for a period following its dissolution for the purpose of settling its affairs and retiring any outstanding indebtedness. However, there has been no authority cited, and we know of none, for the proposition that the same...