L v. Castle Investment Group, Inc. v. Commissioner , 465 F.3d 1243 ( 2006 )


Menu:
  •                                                                     [PUBLISH]
    IN THE UNITED STATES COURT OF APPEALS
    FILED
    FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
    ________________________ ELEVENTH CIRCUIT
    SEPT 26, 2006
    No. 05-13267                   THOMAS K. KAHN
    ________________________                 CLERK
    Tax Court No. 17002-04
    L. V. CASTLE INVESTMENT GROUP, INC.,
    LAKE VIEW NUTRITION CONSULTING SERVICES, INC.,
    Petitioners-Appellants,
    versus
    COMMISSIONER OF INTERNAL REVENUE,
    Respondent-Appellee.
    ________________________
    Petition for Review of a Decision of the
    United States Tax Court
    _________________________
    (September 26, 2006)
    Before MARCUS, WILSON and COX, Circuit Judges.
    WILSON, Circuit Judge:
    Appellants L.V. Castle Investment Group, Inc. (“L.V. Castle”) and Lake
    View Nutrition Consulting Services, Inc. (“Lake View”) appeal the Tax Court’s
    decision stating that it did not have jurisdiction to entertain Appellants’ petition
    contesting a deficiency found against L.V. Castle after L.V. Castle’s dissolution.
    Because L.V. Castle did not have the legal capacity to file a petition and because
    the IRS has not filed a notice of transferee liability against Lake View, we
    AFFIRM.
    I. Background
    L.V. Castle was an Illinois Corporation. On October 1, 1996, the Illinois
    Secretary of State dissolved L.V. Castle because it failed to file an annual report
    and because it failed to pay the annual franchise tax. At the time of L.V. Castle’s
    dissolution, Lake View was its sole shareholder and successor to its assets.
    Pursuant to Tax Court Rule 60(c), Illinois state law determines L.V. Castle’s
    capacity to litigate. The relevant Illinois statutes provide that the Illinois Secretary
    of State may administratively dissolve any corporation if , inter alia, the
    corporation “has failed to file its annual report . . . and pay its franchise tax . . . .”
    805 Ill. Comp. Stat. 5/12.35(a). A corporation’s dissolution “terminates its
    corporate existence and a dissolved corporation shall not thereafter carry on any
    business except that necessary to wind-up and liquidate its business and affairs.”
    Id. 5/12.30. Furthermore, the Illinois statutes make it plain that any “action or
    2
    other proceeding” to defend the company’s interests must be commenced within
    the state’s five year corporate wind-up period. Id. 5/12.80. L.V. Castle’s wind-up
    period expired on October 1, 2001.
    In July 1997, the IRS sent L.V. Castle a notice indicating that L.V. Castle
    had failed to file an income tax return for the period ending June 30, 1996. Nearly
    four years later, on June 14, 2001, L.V. Castle belatedly filed the requested tax
    return. On June 9, 2004, the IRS sent L.V. Castle a notice of deficiency under 
    26 U.S.C. § 6212
    ,1 which disallowed certain deductions for its 1996 taxable year. The
    notice further explained that L.V. Castle was liable for delinquency and accuracy
    related penalties, plus interest. Both the issuance of the notice of deficiency and
    the filing of the petition challenging the deficiency occurred in 2004, well beyond
    the October 1, 2001 deadline.
    On September 13, 2004, a petition in the names of L.V. Castle and Lake
    View was filed in the Tax Court under 
    26 U.S.C. § 6213
     2 to redetermine L.V.
    1
    The statute provides in relevant part:
    In general. If the Secretary determines that there is a deficiency in respect of any
    tax imposed by subtitles A or B of chapter 41, 42, 43 or 44 he is authorized to
    send notice of such deficiency to the taxpayer by certified mail or registered mail.
    Such notice shall include a notice to the taxpayer of the taxpayer’s right to contact
    a local office of the taxpayer advocate and the location and phone number of the
    appropriate office.
    
    26 U.S.C. § 6212
    (a).
    2
    The statute provides in relevant part:
    3
    Castle’s deficiency. The Commissioner filed a motion to dismiss for lack of
    jurisdiction. The Commissioner argued that L.V. Castle lacked the capacity to
    petition the Tax Court because, under Illinois law, L.V. Castle was dissolved and
    its ability to commence new proceedings had expired in 2001 (after the conclusion
    of Illinois’ five year wind-up period). He also argued that Lake View could not
    maintain the petition pursuant to I.R.C. § 6213(a) and Tax Court Rule 34(b)
    because the Commissioner had not issued it either a notice of deficiency or a notice
    of transferee liability.
    Time for filing petition and restriction on assessment. Within 90 days, or 150
    days if the notice is addressed to a person outside the United States, after the
    notice of deficiency authorized in section 6212 is mailed (not counting Saturday,
    Sunday, or a legal holiday in the District of Columbia as the last day), the
    taxpayer may file a petition with the Tax Court for a redetermination of the
    deficiency. Except as otherwise provided in section 6851, 6852 or 6861, no
    assessment of a deficiency in respect of any tax imposed by subtitle A, or B,
    chapter 41, 42, 43, or 44 and no levy or proceeding in court for its collection shall
    be made, begun, or prosecuted until such notice has been mailed to the taxpayer,
    nor until the expiration of such 90-day or 150-day period, as the case may be, nor,
    if a petition has been filed with the Tax Court, until the decision of the Tax Court
    has become final. Notwithstanding the provisions of section 7421(a), the making
    of such assessment or the beginning of such proceeding or levy during the time
    such prohibition is in force may be enjoined by a proceeding in the proper court,
    including the Tax Court, and a refund may be ordered by such court of any
    amount collected within the period during which the Secretary is prohibited from
    collecting by levy or through a proceeding in court under the provisions of this
    subsection. The Tax Court shall have no jurisdiction to enjoin any action or
    proceeding or order any refund under this subsection unless a timely petition for a
    redetermination of the deficiency has been filed and then only in respect of the
    deficiency that is the subject of such petition. Any petition filed with the Tax
    Court on or before the last date specified for filing such petition by the Secretary
    in the notice of deficiency shall be treated as timely filed.
    
    26 U.S.C. § 6213
    (a).
    4
    Appellants opposed the motion, arguing that the filing of L.V. Castle’s tax
    return constituted an “action or other proceeding” under Illinois law that would toll
    the expiration of the corporate wind-up period. Alternatively, Appellants argued
    that Lake View was the real party in interest, and as such, should be allowed to
    maintain the petition in the Tax Court. The Tax Court agreed with the government
    and granted the Commissioner’s motion in an order of dismissal.
    II. Standard of Review
    We have jurisdiction over this appeal under 
    26 U.S.C. § 7482
    (a), which
    specifies that we review Tax Court decisions “in the same manner and to the same
    extent as decisions of the district courts in civil actions tried without a jury.” 
    26 U.S.C. § 7482
    (a)(1). Accordingly, we review de novo the Tax Court’s
    interpretations of the Internal Revenue Code and state law. Shepherd v. Comm’r,
    
    283 F.3d 1258
    , 1260 n.1 (11th Cir. 2002); Fabry v. Comm’r, 
    223 F.3d 1261
    , 1263
    (11th Cir. 2000); Cox v. Comm’r, 
    121 F.3d 390
    , 391 (8th Cir. 1997).
    III. Analysis
    A.     L.V. Castle did not have the capacity to petition the Tax Court to
    redetermine its deficiency.
    Appellants argue that the solicitation or the filing of L.V. Castle’s tax return
    prior to the expiration of Illinois’ corporate wrap-up period constituted the
    proceeding that triggered the Tax Court’s jurisdiction to entertain appellants’
    5
    petition. Appellants rely upon American Police and Fire Foundation, Inc. v.
    Commissioner, 
    43 T.C.M. (CCH) 77
     (1981). In that case, the Tax Court held that
    receipt within the corporate survival period of a notice of deficiency created
    jurisdiction: “[W]e believe that a proceeding had been commenced at least at the
    time of issuance of the statutory notice . . . . We need not decide whether a
    qualifying proceeding had commenced before that time.” 
    Id.
     (emphasis added).
    Appellants argue that the court’s refusal to decide whether the qualifying
    proceeding had commenced prior to the issuance of the notice indirectly
    acknowledged that the expiration of a corporate wind-up period should not limit a
    corporate taxpayer’s right to defend itself from a potentially erroneous tax
    determination. Appellants contend that this is particularly true where the petition
    challenging the determination could not be filed until after the survival period
    expired.
    Appellants also rely upon Bahen & Wright, Inc. v. Commissioner, 
    176 F.2d 538
    , 539 (4th Cir. 1949) (holding that sending a notice of tax deficiency within the
    three year state statutory wind-up period commenced a “proceeding” for purposes
    of invoking the Tax Court’s jurisdiction); Bared & Cobo Co., Inc. v.
    Commissioner, 
    77 T.C. 1194
    , 1196 (1981) (holding that issuance of a notice of
    deficiency to a corporation three years after its dissolution was an “action or other
    proceeding” under Florida’s corporate survival statute); and American Standard
    6
    Watch Co., Inc. v. Commissioner, 
    229 F.2d 672
    , 674-75 (2d Cir. 1956) (holding
    that filing a claim for a tax refund within the statutory survival period commenced
    the proceeding for jurisdictional purposes). Appellants conclude that they must be
    permitted to pursue their claim because they filed their tax return before the wind-
    up period expired. They argue that the district court has effectively allowed the
    IRS to take advantage of them by filing a notice of deficiency after the expiration
    of the wind-up period, during which L.V. Castle could have pursued its petition.
    Appellants’ argument fails, however, because Congress has expressly
    authorized the Commissioner to issue notices to defunct corporate taxpayers that
    can no longer legally contest the notice. Specifically, I.R.C. § 6212(b)(1) provides
    that “[i]n the absence of notice to the Secretary under section 6903 of the existence
    of a fiduciary relationship, notice of a deficiency in respect of [income] tax . . . if
    [properly] mailed to the taxpayer . . . shall be sufficient . . . even if such taxpayer . .
    . , in the case of a corporation, has terminated its existence.” Additionally, the Tax
    Court has confirmed on numerous occasions that Congress has authorized the
    Commissioner through I.R.C. § 6212(b) to issue a notice of deficiency to a
    dissolved corporation, despite the fact that the corporation does not have the legal
    capacity to challenge the notice in the Tax Court. E.g., Bloomington Transmission
    Servs., Inc. v. Comm’r, 
    87 T.C. 586
    , 591 (1986) (“We recognize that our holding
    will leave petitioner in the anomalous position of being unable to defend against
    7
    the determination, assessment, and possibly the collection of Federal tax. It was,
    however, petitioner’s shareholder-officer’s failure to file annual reports or pay
    franchise tax, or to cure the defects during either the 2 or 5-year ‘winding-up
    period.’”); Padre Island Thunderbird, Inc. v. Comm’r, 
    72 T.C. 391
    , 394-95 (1974);
    Condo v. Comm’r, 
    69 T.C. 149
    , 156 (1977); Dillman Bros. Asphalt Co. v. Comm’r,
    
    64 T.C. 793
    , 796-97 (1975); Great Falls Bonding Agency, Inc. v. Comm’r, 
    63 T.C. 304
    , 306 (1974). The Tax Court has never found the filing of a return to
    “commence” a proceeding within the meaning of a statutory wind-up period, but it
    has dismissed for lack of jurisdiction a petition filed after the wind-up period in
    which a return had been filed before the wind-up period ended. Dillman Bros.
    Asphalt Co., 64 T.C. at 796; see also Malone & Hyde, Inc. v. Comm’r, 
    64 T.C.M. (CCH) 1309
     (1992) (holding that audit of a tax return does not constitute an
    “action or proceeding” within the meaning of Delaware statute addressing the
    survival of any “action or proceeding” in a merger); Badger Materials, Inc. v.
    Comm’r, 
    40 T.C. 1061
    , 1062 (1963) (“[W]e . . . do not regard the filing of an
    application for tentative carryback adjustment or the issuance of an informal
    conference letter as a ‘suit or other proceeding’ within the purview of the
    Wisconsin statute.”).
    The cases Appellants rely upon are readily distinguishable. In Bahen &
    Wright, Inc., 
    176 F.2d at 539
    ; Bared & Cobo Co., 
    77 T.C. at 1196
    ; and American
    8
    Police & Fire Foundation, Inc., 
    43 T.C.M. (CCH) 77
    , the courts held only that the
    issuance of a notice of deficiency constituted the commencement of a “proceeding”
    within the meaning of the state wind-up statute before it.3 A notice of deficiency
    serves a function different from that of a tax return. As the Tax Court stated in
    American Police & Fire Foundation, Inc., it “signals the existence of a contest
    over tax liability” and is the taxpayer’s “‘ticket to the Tax Court.’” Am. Police &
    Fire Found., Inc., 
    43 T.C.M. (CCH) 77
    ; see also I.R.C. § 6213(a); Laing v. United
    States, 
    423 U.S. 161
    , 165 n.4, 
    96 S. Ct. 473
    , 477 n.4, 
    46 L. Ed. 2d 416
     (1976) (“A
    deficiency notice is of import primarily because it is a jurisdictional prerequisite to
    a taxpayer’s suit in the Tax Court for redetermination of his tax liability.”). A tax
    return, on the other hand, does not signal the existence of a controversy. See
    Malone & Hyde, Inc., 
    64 T.C.M. (CCH) 1309
     (finding the cases upon which the
    appellants rely to be distinguishable and holding that even the post-return event of
    an audit does not commence an action or a proceeding). Indeed, because the return
    does not signal a controversy, the Commissioner can immediately assess the tax
    liability that a taxpayer reports on a return. I.R.C. § 6201(a)(1).
    The Tax Code and the Tax Court clearly establish that Congress has
    3
    Another of Appellants’ cited cases, American Standard Watch Co., Inc., 
    229 F.2d 672
    ,
    involved a special statutory scheme for the former excess profits tax in which the filing of an
    administrative claim for refund served as the functional equivalent of the issuance of a notice of
    deficiency for jurisdictional purposes.
    9
    allowed the IRS to file a notice of deficiency against a dissolved corporation that
    can no longer legally defend itself in such an action. Furthermore, as we will
    discuss in our analysis of Appellants’ second argument, such a result is in fact not
    as inequitable 4 as it first appears because the IRS has yet to file a notice of
    transferee liability, which it must do before it can move against the corporation’s
    assets if they have already been transferred from the dissolved corporation (as they
    have been in this case). I.R.C. §§ 6213(a), 6901(a), (g).
    B.      Lake View cannot file a petition in the Tax Court on behalf of
    L.V. Castle.
    Appellants argue that, under Illinois law, L. V. Castle’s assets automatically
    passed to Lake View upon L.V. Castle ’s dissolution and that Lake View stepped
    into the shoes of L.V. Castle with regard to litigating any claims against L.V.
    Castle. See Matos v. Richard A. Nellis, Inc., 
    101 F.3d 1193
    , 1195 (7th Cir. 1996);
    Dubey v. Abam Bldg. Corp., 
    639 N.E.2d 215
    , 218 (Ill. App. Ct. 1994); Shute v.
    Chambers, 
    492 N.E.2d 528
    , 531 (Ill. App. Ct. 1986). Appellants contend therefore
    that Lake View can litigate the Commissioner’s claim for deficient taxes—a claim
    which could be enforced against those assets.
    4
    Any potential inequities are irrelevant in any case because “the Tax Court is a court of
    strictly limited jurisdiction and cannot assert equitable powers in any way that could be
    construed as extending its jurisdiction.” Roberts v. Comm’r, 
    175 F.3d 889
    , 896 n.7 (11th Cir.
    1999) (internal quotations and citations omitted).
    10
    Appellants cite to the United States Tax Court and at least one Illinois court
    as support for their position. Appellants argue that in Bloomington Transmission
    Services, Inc., 87 T.C. at 589, although the court held that the petitioner lacked the
    capacity to litigate the question of its tax liability because the Illinois survival
    period had expired, the court left the door open for the dissolved corporation’s
    successors to litigate issues of determination, assessment, and collection of federal
    tax. Appellants also cite to Dubey, 
    639 N.E.2d at 218-19
    , which held that the
    applicable corporate wind-up statute did not bar an action of a dissolved
    corporation’s sole shareholder to recover a security deposit made by the dissolved
    corporation because the deposit was a corporate asset to which the former
    shareholder succeeded by operation of law following dissolution.
    Appellants are correct that shareholders of a dissolved corporation can
    litigate the Commissioner’s claims against the dissolved corporation’s assets.
    Appellants are attempting to do so prematurely in this case, however. In
    deficiency cases, the Tax Court’s jurisdiction is limited to petitions filed by the
    party named in the notice of deficiency. I.R.C. § 6213(a); Tax Ct. R. 13(a);
    Hempel v. United States, 
    14 F.3d 572
    , 573 n.3 (11th Cir. 1994). Congress has
    provided a transferee of a defunct corporation with the ability to petition the Tax
    Court to challenge the Commissioner’s determination that it is liable as a transferee
    for an income tax deficiency of the defunct corporation. I.R.C. § 6901(a). The
    11
    transferee, however, must wait until the Commissioner has made a determination
    of transferee liability and issued a notice to it. I.R.C. §§ 6213(a), 6901(a), (g).
    Although the Tax Court cannot entertain a transferee’s petition on the basis of a
    notice of deficiency sent to the transferor, the transferee is “free to litigate the[ ]
    transferor’s liability” after it receives a notice of transferee liability. Great Falls
    Bonding Agency, 63 T.C. at 307; accord Dillman Bros. Asphalt Co., 64 T.C. at
    796-97; Padre Island Thunderbird, Inc., 72 T.C. at 399; Bloomington
    Transmission Servs., Inc., 87 T.C. at 589.5
    The IRS has not issued to Lake View a notice of transferee liability. Lake
    View cannot yet petition the Tax Court regarding a notice of deficiency issued
    against L.V. Castle. The Tax Code provides a procedure in which Lake View
    could file a petition after the IRS issues it a notice of transferee liability.6 Until this
    5
    Dubey, 
    639 N.E.2d 215
     does not conflict with this established IRS procedure. In that
    case, the sole shareholder of a dissolved corporation that succeeded to the corporation’s assets
    brought an action “in his individual capacity” to recover a security deposit under a lease
    executed by the dissolved corporation. 
    Id. at 218
    . Because the shareholder succeeded to
    ownership of the assets by operation of law, he was able to bring an action as an individual that
    was not subject to the wind-up statute. 
    Id. at 219
    . Here, Lake View does not contend that it is
    bringing an action in its own capacity. Indeed, as discussed above, such an action is barred in
    the Tax Court because Lake View was not issued the requisite notice. Rather, Lake View brings
    the action as a substitute for L.V. Castle. That type of action is plainly subject to the Illinois
    wind-up statute and Dubey does not support a contrary conclusion.
    6
    We have no occasion to address today whether Lake View, in its capacity as transferee,
    could litigate the issue of L.V. Castle’s tax liability if the IRS issues a notice of transferee
    liability against Lake View in the future. The Commissioner made it clear, however, at oral
    argument and in his appellate brief, that “the transferee is ‘free to litigate the[] transferor’s
    liability’ after it receives a notice of transferee liability, so there is no inequity.” Appellee’s Br.
    12
    happens, however, Lake View is in no danger of losing its assets to the IRS.
    Thus, Lake View could not petition for redetermination of L.V. Castle’s
    liability, and the Tax Court properly dismissed the petition with respect to both
    L.V. Castle and Lake View.7 Therefore, we AFFIRM the Tax Court.
    AFFIRMED.
    20 (alteration in original) (quoting Great Falls Bonding Agency, Inc. V. Comm’r, 
    63 T.C. 304
    ,
    307 (1974)).
    7
    The Tax Court characterized its dismissal of the petition as a dismissal for lack of
    jurisdiction. Stated more precisely, the ground for dismissal of L.V. Castle’s petition was for
    L.V. Castle’s lack of capacity, and the ground for dismissal with respect to Lake View was a
    combination of two grounds: lack of real-party-in-interest status with respect to Lake View’s
    attempt to litigate as a stand-in for L.V. Castle, and lack of jurisdiction with respect to Lake
    View’s attempt to litigate its own transferee liability before it had been issued a notice of
    liability. Cf. Liberty Nat’l Ins. Holding Co. v. Charter Co., 
    734 F.2d 545
    , 553 n.19 (11th Cir.
    1984) .
    13