L.V. Castle Inv. Group, Inc. v. C.I.R.

• Decision Date: 26 September 2006
• Docket Number: No. 05-13267.,05-13267.
• Citation: 465 F.3d 1243
• Parties: L.V. CASTLE INVESTMENT GROUP, INC., Lake View Nutrition Consulting Services, Inc., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

465 F.3d 1243

L.V. CASTLE INVESTMENT GROUP, INC., Lake View Nutrition Consulting Services, Inc., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 05-13267.

United States Court of Appeals, Eleventh Circuit.

September 26, 2006.

Alexander Zouzoulas, Orlando, FL, for Petitioners-Appellants.

Robert W. Metzler, Carol A. Barthel, Samuel A. Lambert, U.S. Dept. of Justice, Tax Div., App. Sec., Washington, DC, for CIR.

Petition for Review of a Decision of the United States Tax Court.

Before MARCUS, WILSON and COX, Circuit Judges.

WILSON, Circuit Judge:

Appellants L.V. Castle Investment Group, Inc. ("L.V. Castle") and Lake View Nutrition Consulting Services, Inc. ("Lake View") appeal the Tax Court's decision stating that it did not have jurisdiction to entertain Appellants' petition contesting a deficiency found against L.V. Castle after L.V. Castle's dissolution. Because L.V. Castle did not have the legal capacity to file a petition and because the IRS has not filed a notice of transferee liability against Lake View, we AFFIRM.

I. Background

L.V. Castle was an Illinois Corporation. On October 1, 1996, the Illinois Secretary of State dissolved L.V. Castle because it failed to file an annual report and because it failed to pay the annual franchise tax. At the time of L.V. Castle's dissolution, Lake View was its sole shareholder and successor to its assets. Pursuant to Tax Court Rule 60(c), Illinois state law determines L.V. Castle's capacity to litigate. The relevant Illinois statutes provide that the Illinois Secretary of State may administratively dissolve any corporation if, inter alia, the corporation "has failed to file its annual report ... and pay its franchise tax ...." 805 Ill. Comp. Stat. 5/12.35(a). A corporation's dissolution "terminates its corporate existence and a dissolved corporation shall not thereafter carry on any business except that necessary to wind-up and liquidate its business and affairs." Id. 5/12.30. Furthermore, the Illinois statutes make it plain that any "action or other proceeding" to defend the company's interests must be commenced within the state's five year corporate wind-up period. Id. 5/12.80. L.V. Castle's wind-up period expired on October 1, 2001.

In July 1997, the IRS sent L.V. Castle a notice indicating that L.V. Castle had failed to file an income tax return for the period ending June 30, 1996. Nearly four years later, on June 14, 2001, L.V. Castle belatedly filed the requested tax return. On June 9, 2004, the IRS sent L.V. Castle a notice of deficiency under 26 U.S.C. § 6212,¹ which disallowed certain deductions for its 1996 taxable year. The notice further explained that L.V. Castle was liable for delinquency and accuracy related penalties, plus interest. Both the issuance of the notice of deficiency and the filing of the petition challenging the deficiency occurred in 2004, well beyond the October 1, 2001 deadline.

On September 13, 2004, a petition in the names of L.V. Castle and Lake View was filed in the Tax Court under 26 U.S.C. § 6213² to redetermine L.V. Castle's deficiency. The Commissioner filed a motion to dismiss for lack of jurisdiction. The Commissioner argued that L.V. Castle lacked the capacity to petition the Tax Court because, under Illinois law, L.V. Castle was dissolved and its ability to commence new proceedings had expired in 2001 (after the conclusion of Illinois' five year wind-up period). He also argued that Lake View could not maintain the petition pursuant to I.R.C. § 6213(a) and Tax Court Rule 34(b) because the Commissioner had not issued it either a notice of deficiency or a notice of transferee liability.

Appellants opposed the motion, arguing that the filing of L.V. Castle's tax return constituted an "action or other proceeding" under Illinois law that would toll the expiration of the corporate wind-up period. Alternatively, Appellants argued that Lake View was the real party in interest, and as such, should be allowed to maintain the petition in the Tax Court. The Tax Court agreed with the government and granted the Commissioner's motion in an order of dismissal.

II. Standard of Review

We have jurisdiction over this appeal under 26 U.S.C. § 7482(a), which specifies that we review Tax Court decisions "in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury." 26 U.S.C. § 7482(a)(1). Accordingly, we review de novo the Tax Court's interpretations of the Internal Revenue Code and state law. Shepherd v. Comm'r, 283 F.3d 1258, 1260 n. 1 (11th Cir.2002); Fabry v. Comm'r, 223 F.3d 1261, 1263 (11th Cir. 2000); Cox v. Comm'r, 121 F.3d 390, 391 (8th Cir.1997).

III. Analysis

A. L.V. Castle did not have the capacity to petition the Tax Court to redetermine its deficiency.

Appellants argue that the solicitation or the filing of L.V. Castle's tax return prior to the expiration of Illinois' corporate wrap-up period constituted the proceeding that triggered the Tax Court's jurisdiction to entertain appellants' petition. Appellants rely upon American Police and Fire Foundation, Inc. v. Commissioner, 43 T.C.M. (CCH) 77 (1981). In that case, the Tax Court held that receipt within the corporate survival period of a notice of deficiency created jurisdiction: "[W]e believe that a proceeding had been commenced at least at the time of issuance of the statutory notice .... We need not decide whether a qualifying proceeding had commenced before that time." Id. (emphasis added). Appellants argue that the court's refusal to decide whether the qualifying proceeding had commenced prior to the issuance of the notice indirectly acknowledged that the expiration of a corporate wind-up period should not limit a corporate taxpayer's right to defend itself from a potentially erroneous tax determination. Appellants contend that this is particularly true where the petition challenging the determination could not be filed until after the survival period expired.

Appellants also rely upon Bahen & Wright, Inc. v. Commissioner, 176 F.2d 538, 539 (4th Cir.1949) (holding that sending a notice of tax deficiency within the three year state statutory wind-up period commenced a "proceeding" for purposes of invoking the Tax Court's jurisdiction); Bared & Cobo Co., Inc. v. Commissioner, 77 T.C. 1194, 1196, 1981 WL 10779 (1981) (holding that issuance of a notice of deficiency to a corporation three years after its dissolution was an "action or other proceeding" under Florida's corporate survival statute); and American Standard Watch Co., Inc. v. Commissioner, 229 F.2d 672, 674-75 (2d Cir.1956) (holding that filing a claim for a tax refund within the statutory survival period commenced the proceeding for jurisdictional purposes). Appellants conclude that they must be permitted to pursue their claim because they filed their tax return before the wind-up period expired. They argue that the district court has effectively allowed the IRS to take advantage of them by filing a notice of deficiency after the expiration of the wind-up period, during which L.V. Castle could have pursued its petition.

Appellants' argument fails, however, because Congress has expressly authorized the Commissioner to issue notices to defunct corporate taxpayers that can no longer legally contest the notice. Specifically, I.R.C. § 6212(b)(1) provides that "[i]n the absence of notice to the Secretary under section 6903 of the existence of a fiduciary relationship, notice of a deficiency in respect of [income] tax ... if [properly] mailed to the taxpayer ... shall be sufficient ... even if such taxpayer ..., in the case of a corporation, has terminated its existence." Additionally, the Tax Court has confirmed on numerous occasions that Congress has authorized the Commissioner through I.R.C. § 6212(b) to issue a notice of deficiency to a dissolved corporation, despite the fact that the corporation does not have the legal capacity to challenge the notice in the Tax Court. E.g., Bloomington Transmission Servs., Inc. v. Comm'r, 87 T.C. 586, 591, 1986 WL 22017 (1986) ("We recognize that our holding will leave petitioner in the anomalous position of being unable to defend against the determination, assessment, and possibly the collection of Federal tax. It was, however, petitioner's shareholder-officer's failure to file annual reports or pay franchise tax, or to cure the defects during either the 2 or 5-year `winding-up period.'"); Padre Island Thunderbird, Inc. v. Comm'r, 72 T.C. 391, 394-95, 1979 WL 3751 (1979); Condo v. Comm'r, 69 T.C. 149, 156, 1977 WL 3763 (1977); Dillman Bros. Asphalt Co. v. Comm'r, 64 T.C. 793, 796-97, 1975 WL 3023 (1975); Great Falls Bonding Agency, Inc. v. Comm'r, 63 T.C. 304, 306, 1974 WL 2622 (1974). The Tax Court has never found the filing of a return to "commence" a proceeding within the meaning of a statutory wind-up period, but it has dismissed for lack of jurisdiction a petition filed after the wind-up period in which a return had been filed before the wind-up period ended. Dillman Bros. Asphalt Co., 64 T.C. at 796; see also Malone & Hyde, Inc. v. Comm'r, 64 T.C.M. (CCH) 1309 (1992) (holding that audit of a tax return does not constitute an "action or proceeding" within the meaning of Delaware statute addressing the survival of any "action or proceeding" in a merger); Badger Materials, Inc. v. Comm'r, 40 T.C. 1061, 1062, 1963 WL 1445 (1963) ("[W]e ... do not regard the filing of an application for tentative carryback adjustment or the issuance of an informal conference letter as a `suit or other proceeding' within the purview of the Wisconsin statute.").

The cases Appellants rely upon are readily distinguishable. In Bahen & Wright, Inc., 176 F.2d at 539; Bared & Cobo Co., 77 T.C. at 1196; and American Police & Fire Foundation, Inc., 43 T.C.M. (CCH) 77, 1981 WL 11079 the courts held only that the issuance of a notice of deficiency constituted the commencement of a "proceeding" within the...