David Dung Le, M.D., Inc. v. Commissioner

114 T.C. No. 18UNITED STATES TAX COURT
DAVID DUNG LE, M.D., INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13702-99. Filed April 18, 2000.
R moves the Court to dismiss this case for lack of
jurisdiction, alleging that P, a corporation organized
under California law, lacked the capacity to file the
petition instituting this action. On Apr. 1, 1991, the
State of California Franchise Tax Board (the Board)
suspended P’s corporate powers, rights, and privileges
for failure to pay State income taxes, and the Board
did not relieve P of that suspension until (and
effective) Feb. 28, 2000. R issued P a notice of
deficiency on July 1, 1999, and P filed the subject
petition with the Court on Aug. 12, 1999.
Held: We shall grant R’s motion; under applicable
State law: (1) P lacked the power to initiate a
lawsuit during the time it was suspended, and (2) that
power was not returned to P until after the applicable
90-day period in which it was required to file a
petition with this Court.
- 2 -
Wayne Hagendorf, for petitioner.
David R. JoJola and Igor S. Drabkin, for respondent.
OPINION
LARO, Judge: Respondent moves the Court to dismiss this
case for lack of jurisdiction, arguing that petitioner lacked the
capacity to file the subject petition with the Court because
petitioner’s corporate powers, rights, and privileges were under
suspension when the petition was filed. Petitioner objects
thereto, arguing primarily that: (1) Its suspension was
improper, and (2) the fact that its status was recently revived
means that it may maintain this action. Petitioner also argues
that respondent has waived the right to assert the jurisdictional
issue.
We shall grant respondent's motion. Unless otherwise
indicated, section references are to the applicable provisions of
the Internal Revenue Code. Rule references are to the Tax Court
Rules of Practice and Procedure.
Background
David Dung Le, a.k.a David Van Le, incorporated petitioner
under the laws of the State of California on or about December
22, 1982, using the name Dung Van Le, a medical corporation. On
April 1, 1991, pursuant to applicable State law, see Cal. Rev. &
- 3 -
Tax. Code secs. 23301 and 23302 (West 1992 & Supp. 1999), the
State of California Franchise Tax Board (the Board) suspended
petitioner’s corporate powers, rights, and privileges for failure
to pay State income taxes. The State of California secretary of
state certified through a document entitled “DOMESTIC CORPORATION
CERTIFICATE OF FILING AND SUSPENSION” that petitioner’s corporate
powers, rights, and privileges were suspended on April 1, 1991,
and that they continued to be suspended as of February 15, 2000.
On February 28, 2000, the Board issued to petitioner a
“CERTIFICATE OF REVIVOR” providing in relevant part that
petitioner, effective February 28, 2000, “has been relieved of
suspension * * * and is now in good standing with the Franchise
Tax Board.”
On July 1, 1999, respondent issued petitioner a notice of
deficiency. Petitioner, through its counsel, Wayne Hagendorf,
filed its petition with the Court on August 12, 1999. On the
date of filing, petitioner’s mailing address and principal place
of business were in Houston, Texas.
Discussion
We must decide whether we have jurisdiction to decide this
case. We are a legislatively created (Article I) Court, and, as
such, our jurisdiction flows directly from Congress. See
Freytag v. Commissioner, 501 U.S. 868, 870 (1991); Kelley v.
Commissioner, 45 F.3d 348, 351 (9th Cir. 1995), affg. T.C. Memo.
- 4 -
1990-158; Neilson v. Commissioner, 94 T.C. 1, 9 (1990); Naftel v.
Commissioner, 85 T.C. 527, 529 (1985); see also sec. 7442.
Whether we have jurisdiction to decide a matter is an issue that
a party, or this or an appellate court sua sponte, may raise at
any time. The failure to question our jurisdiction is not a
waiver of the right to do so, for if we lack jurisdiction over an
issue, we do not, and never did, have the power to decide it.
See Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de
Guinee, 456 U.S. 694, 702 (1982); see also Brown v. Commissioner,
78 T.C. 215, 217-218 (1982), and the cases cited therein.
Jurisdiction must be shown affirmatively, and petitioner, as
the party invoking our jurisdiction in the case at bar, bears the
burden of proving that we have jurisdiction over its case. See
Fehrs v. Commissioner, 65 T.C. 346, 348 (1975); Wheeler's
Peachtree Pharmacy, Inc. v. Commissioner, 35 T.C. 177, 180
(1960); National Comm. to Secure Justice, Etc. v. Commissioner,
27 T.C. 837, 839 (1957). In order to meet its burden, petitioner
must establish affirmatively all facts giving rise to our
jurisdiction. See Wheeler's Peachtree Pharmacy, Inc. v.
Commissioner, supra at 180; Consolidated Co. v. Commissioner, 15
B.T.A. 645, 651 (1929). Petitioner must establish that: (1)
Respondent issued to it a valid notice of deficiency, and (2) it,
or someone authorized to act on its behalf, filed with the Court
a timely petition. See Rule 13(a), (c); Monge v. Commissioner,
- 5 -
93 T.C. 22, 27 (1989); Fehrs v. Commissioner, supra at 348;
National Comm. to Secure Justice, Etc. v. Commissioner, supra at
839. See generally sec. 6213(a) (a taxpayer such as petitioner
must file with the Court a petition for redetermination within 90
days from the date of the notice of deficiency).
The fact that respondent issued to petitioner a valid notice
of deficiency is not in dispute. The parties focus on the second
requirement; i.e., a timely petition. Given the fact that
respondent issued the notice of deficiency to petitioner on July
1, 1999, petitioner, to invoke our jurisdiction, must have caused
a proper petition to be filed with the Court on or before
September 29, 1999. See sec. 6213(a). It is not enough that
petitioner may have simply caused to be forwarded to this Court
within the statutory period a petition for filing. In regard to
a corporate taxpayer such as petitioner, a proper filing requires
that the taxpayer tendering (or causing to be tendered through an
agent) a petition to the Court for filing must have the capacity
to engage in litigation in this Court. See Rule 60(c); see also
Brannon’s of Shawnee, Inc. v. Commissioner, 71 T.C. 108, 111
(1978); Condo v. Commissioner, 69 T.C. 149, 151 (1977); Wheeler's
Peachtree Pharmacy, Inc. v. Commissioner, supra at 180; National
Comm. to Secure Justice, Etc. v. Commissioner, supra at 839.
Whether a corporation has the capacity to engage in
litigation in the Tax Court is determined by applicable State
- 6 -
law, which, in this case, is the law of California. See Rule
60(c); see also Brannon’s of Shawnee, Inc. v. Commissioner, supra
at 111; Condo v. Commissioner, supra at 151. On the basis of our
review of that law, we conclude that petitioner lacked the
requisite capacity to litigate as of the date of the petition.
See Condo v. Commissioner, supra; Rosa v. Commissioner, T.C.
Memo. 1996-322; see also Community Elec. Serv., Inc. v. National
Elec. Contractors Association, Inc., 869 F.2d 1235 (9th Cir.
1989). The following three sections of the California annotated
code are relevant to our determination:
§ 23301. Delinquency; suspension or forfeiture of
corporate powers, etc.
Except for the purposes of filing an application
for exempt status or amending the articles of
incorporation as necessary either to perfect that
application or to set forth a new name, the corporate
powers, rights and privileges of a domestic taxpayer
may be suspended, and the exercise of the corporate
powers, rights and privileges of a foreign taxpayer in
this state may be forfeited, if any of the following
conditions occur:
(a) If any tax, penalty, or interest, or any
portion thereof, that is due and payable under Chapter
4 (commencing with Section 19001) of Part 10.2, or
under this part, either at the time the return is
required to be filed or on or before the 15th day of
the ninth month following the close of the income year,
is not paid on or before 6 p.m. on the last day of the
12th month after the close of the income year.
(b) If any tax, penalty, or interest, or any
portion thereof, due and payable under Chapter 4
(commencing with Section 19001) of Part 10.2, or under
this part, upon notice and demand from the Franchise
Tax Board, is not paid on or before 6 p.m. on the last
- 7 -
day of the 11th month following the due date of the
tax. [Cal. Rev. & Tax. Code sec. 23301 (West Supp.
1999).]
§ 23302. Forfeiture or suspension of powers, rights and
privileges
(a) Forfeiture or suspension of a taxpayer's
powers, rights, and privileges pursuant to Section
23301 * * * shall occur and become effective only as
expressly provided in this section in conjunction with
Section 21020, which requires notice prior to the
suspension of a taxpayer's corporate powers, rights,
and privileges.[1]
* * * * * * *
(c) The Franchise Tax Board shall transmit the
names of taxpayers to the secretary of state as to
which the suspension or forfeiture provisions of
Section 23301 * * * are or become applicable, and the
suspension or forfeiture therein provided for shall
thereupon become effective. The certificate of the
secretary of state shall be prima facie evidence of the
suspension or forfeiture. [Cal. Rev. & Tax. sec. 23302
(West 1992).]
§ 23305a. Certificate of revivor; clearance of
corporate name; reinstatement; prima facie evidence
1
Cal. Rev. & Tax. Code sec. 21020 (West 1992) provides:
§ 21020. Suspension under bank and corporation tax law;
preliminary notice; mailing
For the purposes of Part 11 (commencing with
Section 23001) of Division 2 only, a taxpayer shall not
be suspended pursuant to Section 23301 * * * unless the
Board has mailed a notice preliminary to suspension
which indicates that the taxpayer will be suspended by
a date certain pursuant to Section 23301 * * *. The
notice preliminary to suspension shall be mailed to the
taxpayer at least 60 days before the date certain.
- 8 -
Before the certificate of revivor is issued by the
Franchise Tax Board, it shall obtain from the secretary
of state an endorsement upon the application of the
fact that the name of the taxpayer then meets the
requirements of subdivision (b) of Section 201 of the
Corporations Code [rules concerning clearance of
corporate name] in the case of a domestic taxpayer * *
*. Upon the issuance of the certificate by the
Franchise Tax Board the taxpayer therein named shall
become reinstated but the reinstatement shall be
without prejudice to any action, defense or right which
has accrued by reason of the original suspension or
forfeiture * * *. The certificate of revivor shall be
prima facie evidence of the reinstatement and the
certificate may be recorded in the office of the county
recorder of any county of this state. [Cal. Rev. & Tax.
Code sec. 23305a (West 1992).]
The Supreme Court of California construes Cal. Rev. & Tax.
Code secs. 23301 and 23302 (West 1992 & Supp. 1999) to mean that
a corporation may not prosecute or defend an action during the
period that it is suspended for failure to pay taxes. See United
States v. 2.61 Acres of Land, 791 F.2d 666 (9th Cir. 1985); Reed
v. Norman, 309 P.2d 809 (Cal. 1957), and the cases cited therein;
see also Grell v. Laci Le Beau Corp., 73 Cal. App. 4th 1300, 1306
(1999) (unless one of the exceptions set forth in Cal. Rev. &
Tax. Code sec. 23301 (West Supp. 1999) applies, a “suspended
corporation is ‘disqualified’ from exercising any right, power or
privilege.”). The purpose of that rule, the Supreme Court of
California has stated, is to "prohibit the delinquent corporation
from enjoying the ordinary privileges of a going concern, in
order that some pressure will be brought to bear to force the
- 9 -
payment of taxes." Boyle v. Lakeview Creamery Co., 68 P.2d 968,
969-970 (Cal. 1937); see Peacock Hill Association v. Peacock
Lagoon Constr. Co., 503 P.2d 285, 286 (Cal. 1972); see also
Benton v. County of Napa, 226 Cal. App. 3d 1485, 1490 (1991)
(“The purpose of the suspension of corporate power is to induce
the payment of taxes.”).
We have in the record a certificate from the California
secretary of state attesting that petitioner’s powers, rights,
and privileges were suspended on April 1, 1991, and that they
continued to be suspended as of February 15, 2000. Petitioner
does not dispute that the certificate means what it says but
argues that its suspension should be given no effect because, it
claims, the suspension was “improper” either ab initio or at
least beginning in 1993. Petitioner asserts that the suspension
was improper at the start because, it claims, it never received
the notice required under Cal. Rev. & Tax. Code sec. 23302(a)
(West 1992). Petitioner claims that it first learned of its
suspension on February 22, 2000, from respondent’s counsel.
Alternatively, petitioner asserts, its suspension became improper
in 1993. In support of this assertion, petitioner tendered to
the Court as an exhibit a statement (the Statement) from the
Board to petitioner indicating that petitioner’s income tax
account for its tax year ended December 31, 1993, had a credit
balance from April 15, 1993, through November 14, 1995. The
- 10 -
Statement also indicates that, on November 15, 1995, the Board
recorded to petitioner’s tax account for 1993: (1) A $1,666
proposed assessment for that year which became final on that day,
and (2) $2,834 of penalties and $56.07 of interest for that year.
The Statement provides that, as of November 27, 1995, petitioner
owed the Board $2,860.23 in income tax, penalties, and interest
for its 1993 income tax year. Petitioner concludes from the
Statement that it owed the Board no income taxes from April 15,
1993, through November 15, 1995, and, hence, it should not have
been suspended between those dates.
We are unpersuaded by petitioner’s argument that its
suspension was improper either ab initio or beginning in 1993.
The certificate of the secretary of state provides clearly that
petitioner’s corporate powers, rights, and privileges were
suspended at least through the period from April 1, 1991, through
February 15, 2000, and the Board’s certificate of revivor states
just as clearly that petitioner’s rights, powers, and privileges
were only restored effective February 28, 2000. Petitioner does
not adequately dispute this prima facie evidence. Even assuming
that the certificate of the secretary of state is not conclusive,
an assumption that we make with much reservation, we give little
weight to petitioner’s bald assertion that it never received the
notice required under the statutory scheme. Nor do we believe
that the Statement supports petitioner’s assertion that it owed
- 11 -
the Board nothing from April 15, 1993, through November 15, 1995.
The Statement refers only to petitioner’s 1993 tax year and does
not otherwise indicate whether petitioner owed the Board any
amount for prior years. On the basis of the two certificates, we
conclude that petitioner was “suspended” on the date that Mr.
Hagendorf filed a petition with this Court on its behalf and at
all times through September 29, 1999, the date on which the 90-
day period under section 6213(a) expired. Accordingly, we hold
that petitioner lacked the capacity under California law to
validate that petition as a legal filing and that it lacked the
authority to cause Mr. Hagendorf to file a valid petition on its
behalf. Cf. Rule 41(a) (“No amendment [to a pleading] shall be
allowed after expiration of the time for filing the petition * *
* which would involve conferring jurisdiction on the Court over a
matter which otherwise would not come within its jurisdiction
under the petition as then on file.”).
Nor are we persuaded by petitioner’s argument that the
current reinstatement of its powers as of February 28, 2000,
means that it can continue to litigate this case. In Condo v.
Commissioner, 69 T.C. 149, 151 (1977), we dismissed the case for
lack of jurisdiction because the corporate taxpayer did not have
the capacity to litigate under Rule 60(a). The taxpayer, like
petitioner, was a California corporation under suspension due to
its failure to pay State income/franchise tax. We noted with
- 12 -
respect to the taxpayer that “The corporation has not been
reinstated. Therefore, the corporate powers, rights, and
privileges of the * * * [taxpayer] have been, and remain,
suspended.” Id. at 151-152. Subsequently, in a setting
“virtually identical” to Condo, we dismissed the case for lack of
jurisdiction, noting that the corporate taxpayer “has offered no
evidence that its corporate powers have been reinstated.” Rosa
v. Commissioner, T.C. Memo. 1996-322. Petitioner asserts that
California law allows it to maintain a lawsuit brought while it
was under suspension, as long as its powers are reinstated while
the lawsuit is ongoing.
We disagree with petitioner’s assertion. Petitioner’s
corporate status was not reinstated by the Board until 200 days
after the petition was filed, or, in other words, long after the
expiration of the 90-day period in which the petition was
required to be filed. See sec. 6213(a). The fact that
petitioner’s corporate status was not reinstated during that 90-
day period is fatal to petitioner in that California law does not
operate to toll a filing period from running during a period of
suspension. See Community Elec. Serv., Inc. v. National Elec.
Contractors Association, Inc., 869 F.2d 1235 (9th Cir. 1989). As
the California Court of Appeals has stated in an analogous
setting: “if an action is commenced during the period of
suspension and the corporate powers are revived after the
- 13 -
limitations period expires, the revival does not toll the running
of the limitations period.” Benton v. County of Napa, 226 Cal.
App. 3d 1485, 1491 (1991); accord ABA Recovery Servs., Inc. v.
Konold, 198 Cal. App. 3d 720 (1988); Welco Constr., Inc. v.
Modulux, Inc., 47 Cal. App. 3d 69, 73 (1975); see also Grell v.
Laci Le Beau Corp., 73 Cal. App. 4th 1300 (1999) (applicable
period of limitations was not tolled during the period in which
the corporation’s powers were suspended under Cal. Rev. & Tax.
Code sec. 23301 (West Supp. 1999)).
The facts of this case are similar to the case of Community
Elec. Serv., Inc. v. National Elec. Contractors Association,
Inc., supra. There, a California corporation (the plaintiff)
brought an antitrust lawsuit against certain defendants
challenging a provision of a collective bargaining agreement.
When the plaintiff filed the complaint with the court, its
corporate powers, rights, and privileges were suspended under
Cal. Rev. & Tax. Code sec. 23301 (West Supp. 1999).
Approximately 18 months later, the Board issued to the plaintiff
a certificate of revivor reinstating its corporate powers.
The U.S. District Court dismissed the case, holding that the
plaintiff lacked the capacity to file the underlying complaint by
virtue of its suspension. Further, the court held, the later
reinstatement of those powers was ineffective to validate the
filing of the complaint because the antitrust period of
- 14 -
limitations had expired before the powers were restored. The
Court of Appeals for the Ninth Circuit affirmed both of the
District Court’s holdings. As to the latter holding that the
plaintiff’s untimely revival did not give it the capacity to sue,
the Court of Appeals concluded that California law does not allow
the corporate reinstatement to validate retroactively the
plaintiff’s earlier filing. The expiration of the period of
limitations before plaintiff’s suspension was lifted acted as a
bar to the plaintiff’s maintaining the antitrust action.
We shall grant respondent’s motion to dismiss the petition
for lack of jurisdiction. In so doing, we are mindful that this
Court has held repeatedly that Rule 60(a) allows a petition filed
timely by an improper party to be continued in the name of the
proper party. See, e.g., Gray v. Commissioner, 73 T.C. 639, 648
(1980); Holt v. Commissioner, 67 T.C. 829, 832 (1977); Brooks v.
Commissioner, 63 T.C. 709, 714-715 (1975); see also Rule 60(a),
which provides:
A case timely brought shall not be dismissed on the
ground that it is not properly brought on behalf of a
party until 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.
Those cases are not pertinent to our decision herein. In
contrast to the taxpayers in those cases, petitioner did not have
the requisite capacity to bring an action in this Court when the
- 15 -
petition was first filed. Petitioner, therefore, neither was
authorized, nor could it have authorized another, to file a
timely petition in this matter. As a matter of fact, petitioner
was barred by applicable law from commencing a lawsuit in this
Court.
We have considered all remaining arguments and, to the
extent not addressed above, find them to be irrelevant or without
merit. To reflect the foregoing,
An appropriate order
of dismissal for lack of
jurisdiction will be
entered.