Corporate Suspension Blocks Tax Court Access


Most states will suspend or involuntarily dissolve a corporation if it does not pay local taxes or fees. Such suspensions and dissolutions can typically be reversed after the corporation files to be restored and pays any back taxes and fees (and probably a penalty).
Taxpayers are permitted to contest IRS proposed deficiencies by filing a timely petition in U.S. Tax Court. In a recent Tax Court case, a corporate taxpayer filed a Tax Court petition to contest a proposed tax deficiency. Because the California Franchise Tax Board had suspended the powers, rights and privileges of the corporation and such suspension was in effect when the Tax Court petition was filed, the Tax Court dismissed the petition for lack of jurisdiction. Citing a procedural rule that provides that the "capacity of a corporation to engage in such litigation...shall be determined by the law under which it was organized," the Court found under California law the corporation had no authority to litigate during the suspension, and thus the Court could not take jurisdiction. In 2000, the Tax Court similarly ruled in David Dung Le, M.D., Inc. v. Commissioner, 114 TC 268 (2000).
Thus, tax practitioners are cautioned to check the good standing of any entity filing a Tax court petition, and to bring the entity in to good standing before filing the petition if needed.
John C. Hom and Associates, Inc. v. Commissioner, 140 T.C. No. 11

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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