Vahlco Corp. v. Comm'r of Internal Revenue
| Decision Date | 15 October 1991 |
| Docket Number | 26672-88,26832-88,26833-88.,Docket No. 26600-88 |
| Citation | 97 T.C. No. 29,97 T.C. 428 |
| Parties | VAHLCO CORPORATION, SUCCESSOR TO VAHLSING MANAGEMENT CONSULTANTS, INC., ET AL., 1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
HELD, a corporation which had its privileges and charter forfeited under Texas statutes for failure to file a franchise tax report and pay franchise tax and was denied right to sue or defend in Texas courts lacked capacity to bring petitions in this Court, and therefore cases filed by such corporation are dismissed for lack of jurisdiction. F. H. Vahlsing, Jr., pro se.
William R. Leighton, for the respondent.
This case is before us on respondent's motion to dismiss for lack of jurisdiction filed in each of the above-entitled cases on the ground that at the time of the filing of the petition in each case Vahlco Corporation (Vahlco) lacked the capacity to bring an action in this Court.
By notices of deficiency each dated August 2, 1988, respondent determined a deficiency in the income tax of Vahlco for its fiscal year ended March 31, 1970, and deficiencies of Vahlco as successor to each of three other corporations for years ending in 1967, 1968, and 1969. A petition in each case was filed by Vahlco and signed by Mr. F.H. Vahlsing, Jr., as president of Vahlco in October 1988. Each petition alleged that petitioner, Vahlco, is a corporation organized and existing under the laws of the State of Texas with its principal office in McAllen, Texas. In his answer to each petition, respondent admitted the allegation that petitioner, Vahlco, is a corporation organized and existing under the laws of the State of Texas.
These cases were initially set for trial in February 1990 and on petitioner's motion were continued. In the motion for continuance signed by Mr. F.H. Vahlsing, Jr., as former president of former Vahlco, the statement is made that Vahlco ceased to exist as of February 21, 1983. The cases were again set for trial on March 18, 1991. There was a motion by petitioner to continue, which was denied, and trial of the cases was scheduled for March 21, 1991. When the cases were called for trial, respondent filed a motion to dismiss for lack of jurisdiction in each of these cases. In each of the motions respondent alleged that the charter of Vahlco had been forfeited on February 21, 1983, because the corporation had failed to file a current year franchise tax report or to pay its franchise tax after its right to do business had been forfeited for failure to file a franchise tax report or pay franchise tax. Respondent also alleged in each motion to dismiss for lack of jurisdiction that Vahlco's rights under the Texas Business Corporation Act Annotated article 7.12 (West 1980), had expired at the time the petitions were filed, but on brief abandoned that argument and relied solely on the ground for dismissal for lack of jurisdiction based on the provisions of Texas Tax Code Annotated, sections 171.251, 171.252, and 171.309 (West 1982). 2 Since the facts with respect to the jurisdiction of this Court in each case are the same and petitioner in each case is purported to be Vahlco, the cases were consolidated for hearing, briefing, and opinion on respondent's motions to dismiss for lack of jurisdiction. The hearing on the merits of the cases was continued and an evidentiary hearing held on respondent's motions to dismiss.
The facts insofar as relevant to respondent's motions show that in the early 1970s respondent commenced an investigation of Vahlco's corporate Federal income tax returns and the corporate returns of the corporations to which it was successor for the years 1967 through 1970. The files with respect to these cases were sent to the office of a conferee of the appeals division of respondent's office in 1973 and remained in that office until the date of the issuance by respondent of the notices of deficiency on August 2, 1988. During this period of time a number of consents fixing the period of limitations on assessment of liability were executed on behalf of Vahlco both with respect to its own tax liability and the tax liability of the various corporations to which it was successor. Most of these extensions of time were executed by Mr. F.H. Vahlsing, Jr., as president of Vahlco. In 1978 Mr. F.H. Vahlsing, Jr., was president and a director of Vahlco. At the time of the hearing on respondent's motion, Mr. Vahlsing was not a shareholder of Vahlco, and the record does not show whether he was ever a stockholder of Vahlco.
Vahlco was formed in 1959 or 1960 by Mr. F.H. Vahlsing. Upon the death of his father, Mr. F.H. Vahlsing, Jr., became president of Vahlco. The directors of Vahlco had not met subsequent to 1978. All the assets of Vahlco were subject to a court foreclosure proceeding in 1978, and since that proceeding, Vahlco has completely ceased to conduct business of any type.
On September 15, 1982, Vahlco's right to do business was forfeited for failure to file a franchise tax report and pay franchise taxes and on February 21, 1983, the Secretary of State of the State of Texas forfeited Vahlco's corporate charter. The forfeiture of Vahlco's charter states as follows:
CAME to be considered on the date shown hereon, forfeiture of the Charter or the Certificate of Authority of the following corporation; the Secretary of State finds and determines the following:
+--------------------------------------------------+
¦ ¦ ¦ ¦CERTIFICATE/¦
+------------------+--------+---------+------------¦
¦ ¦CHARTER ¦RTDB ¦ ¦
¦ ¦ ¦CHARTER ¦ ¦
+------------------+--------+---------+------------¦
¦CORPORATION NAME ¦NO. ¦FORFEITED¦FORFEITED ¦
+------------------+--------+---------+------------¦
¦Vahlco Corporation¦162815-0¦09/15/82 ¦02/21/83 ¦
+--------------------------------------------------+
That the Comptroller of Public Accounts has notified this office that said corporation has failed to file a current year franchise tax report to establish the existence of assets from which a judgment for the franchise taxes, penalties and court costs may be satisfied.
That the Comptroller of Public Accounts has further stated that the said corporation has failed or refused to revive its right to do business prior to the first day of January next succeeding the date of forfeiture of its right to do business as provided by law.
IT IS THEREFORE ORDERED that the Charter or Certificate of of the above named corporation be and the same is hereby forfeited without judicial ascertainment and made null and void, and that the proper entry be made upon the permanent files and records of such corporation to show such forfeiture as of the date hereof.
When Vahlco's privileges were forfeited on September 15, 1982, for failure to file a franchise tax report and pay franchise taxes, it ceased to have any rights of access to the courts of the State of Texas, and when its corporate charter was forfeited by the Secretary of State of the State of Texas on February 21, 1983, it had no privileges as a Texas corporation except for the purpose of having its charter and right to do business reinstated. See Tex. Tax Code Ann. sec. 171.313 (West 1982).
In M & M Constr. Co. v. Great American Ins. Co., 747 S.W. 2d 552, 554 (Tex. Ct. App. 1988), the court pointed out that Texas Tax Code Annotated, section 171.252, prohibits a corporation whose charter has been forfeited for nonpayment of franchise taxes from suing in the courts of Texas. The court further pointed out that the purpose of the statute is to encourage corporations to pay their taxes and that a corporation whose charter has been forfeited may obtain reinstatement of its charter and privileges by paying its delinquent taxes, together with any penalties or interest thereon, and that once a corporation pays its taxes the reinstatement of its charter will relate back and “revive whatever rights the corporation had at the time the suit was filed.” 747 S.W. 2d 555. A number of other Texas cases reach this same result. See Speier Tire Co. v. Tom Benson Chevway Rental & Leasing, Inc., 643 S.W. 2d 772 (Tex. Ct. App. 1982), and Acme Color Art Printing Co. v. Brown, 488 S.W. 2d 507 (Tex. Ct. App. 1972). The Texas cases are clear that while a corporation's right to do business and charter are forfeited and not reinstated the corporation cannot bring a suit in the State courts of Texas.
Farris v. Sambo's Restaurants, Inc., 498 F. Supp. 143 (N.D. Tex. 1980), was a suit filed in a United States District Court based on diversity of citizenship. The court held in that case that the lack of capacity of a corporation to sue or be sued in the State courts of Texas was determinative of its rights in a Federal court in a diversity of citizenship case. In coming to this conclusion, the court recognized that “The Texas franchise tax provisions are revenue measures only, and are designed simply to penalize domestic and foreign corporations which accrue tax liability and fail to pay the taxes due or fail to file the required reports.” Farris v. Sambo's Restaurants, Inc., supra at 147. Nevertheless, the court concluded that until its forfeiture of right to sue and be sued in Texas was remedied, it could not resort to use of the Federal courts in a diversity case. Waggener Paint Co. v. Paint Distributors, Inc., 228 F.2d 111, 113 (5th Cir. 1955), involved a corporation incorporated in another State which had its right to do business in Texas suspended. In that case the court stated with respect to transactions within a State which had suspended the rights of a foreign corporation including denying it access to the State courts, that a suit with respect to intrastate transactions could not be maintained in a Federal court since where “a state court is not open to such a suit, a Federal court will not be.” See also Purcel v. Wells, ...
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Rosa v. Commissioner, Docket No. 22753-95.
...it likewise did not possess the capacity to litigate in this Court under Rule 60(c). For similar holdings, see Vahlco Corp. v. Commissioner [Dec. 47,688], 97 T.C. 428 (1991) (petition filed by corporation suspended pursuant to Texas State law dismissed for lack of jurisdiction); Padre Islan......