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Whenever a new potential client comes to your office, it is good practice to run a quick check. Among the initial checks that should be made by a Florida tax attorney or other tax professional is to make sure the person you are speaking to is an officer of the corporation and the corporation is in good standing with its state of incorporation. On May 7, 2013, the United States Tax Court issued an opinion that can be used as a reminder for a tax lawyer or other professional in John C. Hom & Associates, Inc. v. Commissioner, 140 T.C. No 11 (May 7, 2013).
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The story starts with a company incorporating in California in 1986. The company had its rights and privileges to do business in California suspended in March, 2004 through April 13, 2012. On March 16, 2011, the IRS issued a notice of deficiency for over $200,000 in tax, penalties, and interest. On June 13, 2011, the petition was filed to challenge the assessment, and the IRS moved to dismiss the case because the corporation was suspended. The Taxpayer pointed out this fact and argued that, in addition, the notice had the wrong address to challenge the assessment on its face. Assuming the Taxpayer was suspended at the time of filing the Petition, and the IRS sent the notice to the wrong address, who wins?

The case law is clear, and it states that the Tax Court can hear cases if a valid notice is sent to a taxpayer and the taxpayer timely files a petition. However, the case law also says that a notice is valid if it notifies the taxpayer of a deficiency and gives the taxpayer an opportunity to petition the Tax Court. See Frieling v. Comm’r, 81. T.C. 42, 53 (1983). For example, a missing date (Smith v. Comm’r, 114. T.C. 489, 491 (2000)) does not invalidate a notice because there is no prejudice to the taxpayer. Likewise, there was no prejudice to the Taxpayer in this case because one could easily ascertain where to contest the assessment.

Turning to the IRS’ argument that the Taxpayer could not Petition the deficiency because of its suspension, the Court cites rule 60(c), which states that the capacity of a corporation to engage in litigation is determined in the state in which it is organized. Here, the Taxpayer was suspended when it filed its petition; therefore, the Petition was dismissed.

This case serves as a reminder to all state and federal tax attorneys and professionals out there to make sure the corporation is in good standing before filing suit. Many times it is worth knowing before taking a case so this embarrassing fact does not rear its head during litigation when remedying the problem is too late.

About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. In addition to being a co-author for CCH’s Expert Tax Treatise Library: State Sales and Use Tax, he also regularly blogs for Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email or phone listed on this page.

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