Zombies Can't File Tax Court Petitions

This post was originally published on Forbes Apr 1, 2015

Even people who believe that some people have risen from the dead (We are having a holiday about that this week), tend not to believe that it happens all that often.  This probably accounts for Professor Adam Chodrow's alarm that our legal and tax systems are ill-prepared for the coming Zombie Apocalypse.  Somebody dies, rises as a zombie and does stuff and then there is a cure found.  Is the stuff they did as a zombie, you know, stuff they did?

The funny thing is a question like this comes up about some people.  Just not human people.  It happens with corporations.   A corporation can have its rights suspended by the state where it was formed, but then have them restored.  At least in California, it is called being revived.  But what about things that were done during the suspension or as I like to call it the zombie phase?

A Real Gotcha!

Every once a while, the IRS will pull a real "gotcha" on a taxpayer.  That's what happened in the case of Medical Weight Control Specialist.  MWCS had a statutory notice of deficiency from the IRS covering 2009, 2010 and 2011.  The tax was just over a million with another 400 grand or so in penalties.  A statutory notice of deficiency is commonly known as "90 day letter".  That's because you have 90 days to file a petition with the Tax Court.  The petition keeps the wolf from the door as long as the Tax Court is wrestling with your case.  And sometimes, the Tax Court will decide that you don't really owe the tax.  It happens.

Usually when a company has a big federal income tax deficiency, that is not its only problem.  Such was the case with MWCS which also had unpaid California Franchise taxes.  The state has a collection tool unavailable to the IRS.  The state can suspend a corporation's corporate charter. That means the corporation is no longer a person that can bring a lawsuit.  Of course it has not entirely disappeared, since there may be assets in its name.  As a matter of fact MWCS had rolled along in the zombie state for quite a while.  Its corporate privileges were suspended in 2004.

The IRS notice of deficiency for 2009, 2010 and 2011 was mailed on May 22, 2013.  The petition was filed on June 17, 2013 (That was fast work.  They were not fooling around about the ninety days.).  Then comes the gotcha.

On April 28, 2014 IRS filed a motion to dismiss, because MWCS lacked the capacity to bring a lawsuit.  In May, the California Franchise Tax Board issued a "certificate of revivor" and certificate of "relief from contract voidablity".  But it was too late.

Unlike a traditional statute of limitations, the 90-day period of section 6213(a) generally cannot be tolled or extended.  Jurisdictional statutes such as section 6213(a) are conditions on the waiver of the Federal Government's sovereign immunity and must be strictly construed.  Section 6213(a) provides that a petition may be filed by the taxpayer during the 90-day period. Petitioner's suspension under Cal. Rev. & Tax. Code sec. 23301 deprived it of the capacity to sue under section 6213(a) and prevents its corporate revival from prejudicing respondent's defense of lack of subject matter jurisdiction.

Cases allowing revived corporations to continue prosecuting lawsuits filed at times when the corporations were suspended involve cases in courts of general jurisdiction and claims that were not barred by a statute of limitations or other statutory restriction.

Lastly, petitioner argues that public policy and equity compel a holding that would allow this case to go forward. However, this Court is a court of limited jurisdiction and, as such, it lacks general equitable powers. See Stovall v. Commissioner, 101 T.C. 140 (1993). We lack the authority to relieve petitioner from the clear jurisdictional requirement of section 6213(a).

Because petitioner lacked the capacity to petition this Court during the 90-day period provided by section 6213(a), this Court lacks jurisdiction over this case. Respondent's motion to dismiss for lack of jurisdiction will be granted.

It really doesn't seem fair, but as Reilly's First Law Of Tax Planning states - It is what it is, deal with it.