In Uncategorized on 05/29/2015 at 17:09

No, not the Bill LaBounty – Cliff Downs 2009 truckdriving ballade.

This is the story of California’s somewhat idiosyncratic corporate revival statute, and how it deals with corporations “recalled to life,” as Charlie Dickens would say, after they underwent the California Franchise Tax Board’s guillotine, but rose to new life after coming clean with CFTB.

Judge Morrison has this one, and his designated hitter stars San Jose Forest Products, Inc., Docket No. 12866-14, filed 5/29/15.

CFTB nailed the Foresters and shut them down for about ten months. Immediately prior thereto, IRS piled on some seven-figure deficiencies and six-figure penalties. The Foresters sent in what would have been a timely petition, but for the fact that CFTB had guillotined the Foresters two months before they mailed the petition.

The Foresters were subsequently recalled to life. IRS says no jurisdiction, Foresters say “nunc pro tunc,” which means “recalled to life means we were alive all along.”

Not for Tax Court purposes, says Judge Morrison.

Remember poor old David Dung Lee, M.D., Inc., 22 Fed. App. 837 (9th Cir., 2001)? Ninth Circuit affirmed Tax Court, holding that petition filed while California corporation was among the dead is not revivified when the corporation is recalled to life.

Although Rule 60(c) says corporate power to litigate in Tax Court is determined by State law, “Jurisdictional statutes such as section 6213(a) are conditions on the waiver of the Federal Government’s sovereign immunity and must be strictly construed. See Bowen v. City of New York, 476 U.S. 467, 479 (1986). Section 6213(a) provides that a petition may be filed by the taxpayer during the 90-day period. * * * [The taxpayer’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 * * * [the Commissioner’s] defense of lack of subject matter jurisdiction.” Order, at p. 3, citing Med. Weight Control Specialist v. Commissioner, T.C. Memo. 2015-52, at *7.

No, I didn’t blog it, because I thought it was just a rehash of a number of other CA turnarounds I had blogged.

But the Foresters have one last twig to which to cling, the CA “procedural vs substantive” faceoff, whereunder most litigation acts are deemed procedural, and therefore retroactively validated when the corporation comes clean.

OK, says Judge Morrison, but SOLs are substantive under CA law, and in our CA turnaround cases we treated the 90-day rule in Section 6213 as substantive.

Yes, Tax Court didn’t use the exact words “substantive vs procedural.” He didn’t add “so sue us,” but he must have thought it very loudly.

Section 6213 is substantive, so the California Turnaround doesn’t help.

Correction, 5/30/15 – Should be the Red Simpson California Turnarounds song.

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