Banana Moon Trust v. Commissioner ( 2000 )

BANANA MOON TRUST, J.C. CHISUM, TRUSTEE, AND PURPLE PASSION TRUST, J.C. CHISUM, TRUSTEE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Banana Moon Trust v. Commissioner

No. 514-99

United States Tax Court

T.C. Memo 2000-73; 2000 Tax Ct. Memo LEXIS 80; 79 T.C.M. (CCH) 1601;

March 3, 2000, Filed

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An order of dismissal for lack of jurisdiction granting respondent's motion will be entered.

Jimmy C. Chisum, for petitioners.

Richard A. Rappazzo, for respondent.

Chiechi, Carolyn P.

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CHIECHI

MEMORANDUM OPINION

CHIECHI, JUDGE: This case is before the Court on respondent's motion to dismiss for lack of jurisdiction (respondent's motion). We shall grant respondent's motion.

BACKGROUND

For purposes of respondent's motion, the parties do not dispute the following factual allegations that are part of the record. At all relevant times, each petitioner was a trust engaged in business in the State of Arizona.

Petitioner Banana Moon Trust filed a Federal income tax return for estates and trusts, Form 1041 (return), for 1995 which was signed by Jimmy C. Chisum (Mr. Chisum) as the fiduciary or officer representing the fiduciary. Banana Moon Trust's 1995 return did not contain the name of the trustee or any information that would enable respondent to determine who the trustee was.

Petitioner Purple Passion Trust filed a return for 1995 which was signed by Mr. Chisum as the fiduciary or officer representing the fiduciary. That return did not contain the name of the trustee or any information that would enable respondent to determine who the trustee was.

Upon commencement of the examination of each petitioner, respondent requested complete copies of the trust documents relating to each such petitioner as well as other information. Each petitioner refused to provide respondent with the trust documents and other information requested.

Although neither petitioner provided respondent with the documentation and other information requested, respondent's examining agent obtained from an unrelated third-party financial institution what appear to be the governing trust documents for petitioner Banana Moon Trust and the governing trust documents for petitioner Purple Passion Trust. Those governing trust documents pertaining to each petitioner appear to be identical except for the name of each petitioner reflected therein.

The respective governing trust documents relating to petitioners state that they are "executed under the laws of the Constitution for the United States of America and the Constitution for the State of Nevada". Those documents identify the original trustee of each petitioner as Sugartree, LLC. The respective governing trust documents relating to petitioners further provide in pertinent part:

     1. The Anglo-Saxon Common Law Irrevocable Pure

   Trust for Asset Protection Purposes, also known as an

   Asset Protection Trust, created by this Contract and

   Indenture on this 30th day of September, 1994, is

   authorized to exist and function by and through its

   Board of Trustees (hereinafter referred to as the

   Board) pursuant to all of the conditions contained

   herein, with certain assets to be administered by the

   Trustee for the benefit of the Holders of Capital Units

   (hereinafter referred to as Beneficiaries) represented

   by Certificates of Beneficial Interest, in accordance

   with the unalienable Anglo-Saxon Common Law rights

   afforded to man. * * *

           *   *   *   *   *   *   *

     6. This Trust shall be originally domiciled in

   the State of Nevada, and shall be interpreted and

   construed under the Constitution of the United States

   and the laws of the State of Nevada. The domicile, and

   thereby the controlling interpretational laws under

    which the Trust shall be construed, may be changed to

   any other State or Nation as shall be deemed prudent,

   wise, necessary, or appropriate by the Board [of Trustees].

           *   *   *   *   *   *   *

       14. The Creator shall appoint a Fiduciary to serve as

   "Protector" of the Beneficiaries. The Protector shall be an

   independent third party with no obligations to any other party

   to this Trust. The Protector shall have the power to remove any

   Trustee who violates any term or condition of this Trust

   agreement, or is in breach of any Anglo-Saxon Common Law Trustee

   duty, and shall have the power to appoint a Successor Trustee to

   fill any vacancy which occurs for any reason.

           *   *   *   *   *   *   *

       16. The Board [of Trustees] shall have, except as

    modified by the terms of this Indenture and the Minutes

    of the Board interpreting the same, all of the powers

    of Trustees under the Anglo-Saxon Common Law, as well

    as those specified under the laws of the State of

    Nevada. * * *

           *   *   *   *   *   *   *

       33. The Trustee may be replaced in any of the

    following manners:

         A. Resignation. The Trustee may resign with

    or without cause at any time by sending a notice of his

    intention to do so to the Trust principle [sic] office

    by Certified Mail. However, such resignation shall not

    be effective unless and until such time as a Successor

    Trustee has accepted the appointment to assume the

    duties and responsibilities of Trustee on the expiration

    date of the outgoing Trustee, or thirty days after receipt of

    the resignation, whichever occurs first.

         B. Removal. Upon complaint for proper cause

    by any agent or person appointed by the Trust, the

    Protector shall appoint a Committee of Arbitrators

    (hereinafter referred to as the Committee), to investigate

    the complaint.

           *   *   *   *   *   *   *

          2. The Committee shall have the power,

   upon meeting, investigation, and a two-thirds (

           *   *   *   *   *   *   *

        C. Incapacitation. In the event the Trustee

   is unavailable to participate in the process of his

   removal or the selection of a Successor Trustee, the

   Protector shall have the authority to execute an affidavit,

   under oath, setting forth the unavailability of

   the Trustee. * * *

        D. Court Appointment. In the event it

   becomes necessary to litigate the removal of a Trustee

   and/or appointment of a Successor Trustee, the Trust,

   by and through its Beneficiaries, may apply to a court

   of competent jurisdiction for the appointment of a

   Successor Trustee.

The notice of deficiency (notice) issued to petitioner Banana Moon Trust for taxable years 1994 and 1995 was addressed as follows:

   BANANA MOON TRUST

   SUGARTREE LLC TTEE

   5804 WEST VISTA NO. 347

   GLENDALE, AZ 85301-1341

the notice issued to petitioner Purple Passion Trust with respect to taxable year 1995 was addressed as follows:

   PURPLE PASSION TRUST

   SUGARTREE LLC TTEE

   5804 WEST VISTA AVENUE NO. 347

   GLENDALE, AZ 85301-1341 040

Banana Moon Trust and Purple Passion Trust jointly filed a petition in this Court. That petition was signed on behalf of each petitioner by J.C. Chisum as "Trustee".

Respondent's motion contends in pertinent part:

     14. There is absolutely no evidence from which

   the Court can adduce that Mr. Chisum is the current

   trustee of either of the petitioner trusts.

     15. Petitioners have provided no evidence that

   the appointment of Mr. Chisum (as trustee) was valid or

   authorized under the terms of the respective trust

   indentures * * *.

     16. * * * petitioners have failed to demonstrate

   that Mr. Chisum was legally appointed as trustee of

   either of the petitioner trusts and therefore, [is]

   authorized to act on behalf of the petitioner trusts

   and bring the instant case before this Court. See T.C.

   Rule 60(c).

Petitioners filed a response to respondent's motion in which they ask the Court to deny that motion. That response asserts in pertinent part:

     3. The Respondent's objection goes to the management of the

   trusts, their internal affairs, concerns about their

   administration, the declaration of rights and the determinations

   of matters involving the trustees. As the Respondent concedes

   that these are "Arizona Trusts" * * *, this issue falls

   within the exclusive jurisdiction of the superior court here in

   the State of Arizona. See A.R.S. section 14-7201. At this

   point, this court is without jurisdiction to determine

   whether * * * Mr. Chisum is the duly authorized Trustee. The

   Petitioners need not remind the Court of the consequences of

   taking any action over which subject matter is completely

   lacking.

     4. Any objection the Respondent or Respondent's

   counsel has in this area must be taken up in the Superior Court

   here in Arizona, assuming of course the Respondent or

   Respondent's counsel has standing. The irony is of course, if

   Respondent or Respondent's counsel does take the matter up with

    the Superior Court, where the Respondent will have the burden of

   proof, and if the Superior Court finds that the Trusts

   are valid, then the Respondent will be barred by res

   judicata from asserting the sham trust claim that forms

   the basis for his deficiency determination.

     5. * * * In essence the factual claims raised by

   the Motion to Dismiss are inextricably intertwined with

   the facts going to the merits of the Commissioner's

   sham trust claim at issue in this case. If the Trusts

   are valid, then Mr. Chisum, under Arizona Law, will be

   presumed to be the duly authorized trustee, whether it

   is as a Trustee of a resulting trust, constructive

   trust or expressed [sic] trust. Therefore, the only

   course available to this Court is to defer consideration of the

   jurisdictional claims to the trial on the merits. Farr v. United

   States, 990 F.2d 451">990 F.2d 451, * * * [454] n.1 (9th Cir., 1993). Careau

  Group v. United Farm Workers [of Am.], 940 F.2d 1291">940 F.2d 1291, 1293 (9th

   Cir. 1991). See also Rosales v. United States, 824 F.2d

   799, 803 (9th Cir. 1987) ("A * * * [district] court may

   hear evidence and make findings of fact necessary to

   rule on the subject matter jurisdiction question prior

   to trial, IF THE JURISDICTIONAL FACTS ARE NOT INTERTWINED WITH

   THE MERITS.") (Emphasis added)

The Court held a hearing on respondent's motion, at which Mr. Chisum appeared on behalf of petitioners. ^{*90 of Arizona and the law}

   of Arizona for determining the real parties. * * *

           *   *   *   *   *   *   *

     There was [sic] subsequent items, subsequent

   trustee replacements that are not a part of the record.

   The role of protector that the Respondent brings up is

   only one of the methods of removal of a trustee. Any

   trustee has the authority and the power to resign at

   any time. * * *

Petitioners presented no additional contentions and proffered no evidence at the hearing on respondent's motion.

DISCUSSION

Rule 60 *91 a reasonable time

   has been allowed after objection for ratification by such party

   of the bringing of the case; and such ratification shall have

   the same effect as if the case had been properly brought by such

   party. * * *

           *   *   *   *   *   *   *

     (c) Capacity: * * * 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 such person's authority is derived.

The respective governing trust documents pertaining to petitioners suggest that each petitioner was organized as a trust under the laws of the State of Nevada. However, in petitioners' response to respondent's motion and at the hearing on that motion, Mr. Chisum asserted that the administration of each petitioner trust is governed by the laws of the State of Arizona and that the exclusive jurisdiction in determining the validity of the trust and of the trustee is in the Superior Court of the State of Arizona.

Assuming arguendo, as petitioners claim, that each petitioner is a trust, the administration of which is subject to the laws of the State of Arizona, under Arizona law, see Rule 60(c), a trustee has the power to commence litigation on behalf of a trust. Fehrs v. Commissioner, 65 T.C. 346">65 T.C. 346, 348 (1975); National Comm. to Secure Justice in the Rosenberg Case v. Commissioner, 27 T.C. 837">27 T.C. 837, 839 (1957), by establishing affirmatively all facts giving rise to our jurisdiction, see Wheeler's Peachtree Pharmacy, Inc. v. Commissioner, 35 T.C. 177">35 T.C. 177, 180 (1960); Consolidated Cos., Inc. v. Commissioner, 15 B.T.A. 645">15 B.T.A. 645, 651 (1929). In order to meet that burden, each petitioner must provide evidence establishing that Mr. Chisum has authority to act on its behalf. See National Comm. to Secure Justice in the Rosenberg Case v. Commissioner, supra 27 T.C. at 839-840;Coca-Cola Bottling Co. v. Commissioner, 22 B.T.A. 686">22 B.T.A. 686, 700 (1931). We reject petitioners' position that under Arizona law the validity of the purported appointment of Mr. Chisum as trustee of each petitioner falls within the exclusive jurisdiction of the courts of the State of Arizona.

On the record before us, we find that each petitioner has failed to establish that Mr. Chisum is authorized to act on its behalf.

Footnotes

• 1. At the hearing, the Court informed Mr. Chisum that its allowing him to appear at the hearing on behalf of each petitioner did not mean that the Court agreed that he in fact had the capacity to be appearing on their behalf.↩

• 2. All Rule references are to the Tax Court Rules of Practice and Procedure.↩

• 3. Assuming arguendo, as the respective governing trust documents pertaining to petitioners suggest, that each petitioner is a trust, the administration of which is subject to the laws of the State of Nevada, under Nevada law, see Rule 60(c), a trustee has the power to commence litigation on behalf of a trust if the trust instrument so provides. See Nev. Rev. Stat. Ann. secs. 163.260 and 163.375↩ (Michie 1993). The respective governing trust documents pertaining to petitioners stated in pertinent part that the board of trustees of each petitioner trust was to have "all of the powers of Trustees under the Anglo-Saxon Common Law, as well as those specified under the laws of the State of Nevada."

• 4. We have considered all of the contentions and arguments of petitioners that are not discussed herein, and we find them to be without merit and/or irrelevant.↩