Opinion
13235-21
07-26-2023
FEARS DRIVE HENRY 58, LLC, FEARS DRIVE MANAGER, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Travis A. Greaves Judge
On March 16, 2022, respondent filed a Motion to Dismiss for Lack of Jurisdiction, contending that the petition upon which this case is based was not filed by a party with capacity to sue under Rule 60(c). Specifically, respondent points out that the Georgia Secretary of State cancelled the articles of organization for tax matters partner (TMP) Fears Drive Manager, LLC (FDM or petitioner) on October 22, 2020, and did not reinstate FDM until February 8, 2022. Because the petition was filed on July 1, 2021, respondent argues that FDM did not have the capacity to file the petition on behalf of the partnership Fears Drive Henry 58, LLC (Fears Drive or the partnership) at the time of filing.
Unless otherwise noted, all section references are to the Internal Revenue Code of 1986, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.
With leave from the Court, petitioner filed an Objection to respondent's motion on July 7, 2022. Petitioner's Objection claims that "[U]nder Georgia law, which governs the capacity of an entity to engage in litigation with this Court, Fears Drive Manager had capacity to file its Petition." A reinstatement certificate from the Georgia Secretary of State was attached to petitioner's Objection. The reinstatement certificate has an effective date of February 8, 2022, 309 days after respondent issued the Notice of Final Partnership Administrative Adjustment (FPAA). In response to this Court's January 4, 2023 order, respondent filed a Response to petitioner's Objection on January 26, 2023.
Background
FDM was incorporated as a limited liability company in Georgia on December 15, 2017. Old Ivy Capital Partners was listed as its authorized representative and statutory agent. On August 7, 2020, the Georgia Secretary of State sent FDM a Notice of Intent to Administratively Dissolve because FDM had failed to deliver its annual registration along with the required fees, in accordance with Title 14 of the Georgia State Code. FDM did not respond to the notice, and the Georgia Secretary of State issued a Certificate of Administrative Dissolution to FDM on October 22, 2020.
On April 5, 2021, respondent mailed a tax matters partner FPAA to FDM as the TMP of Fears Drive. The FPAA determined a deficiency in federal income tax of $11,633,150, and section 6662(h) and 6662(c) penalties with respect to the partnership's 2017 tax year. On July 1, 2021, FDM in its capacity as TMP for the partnership, filed the petition with this Court. On February 8, 2022, FDM filed an Application for Reinstatement with the Georgia Secretary of State. On February 15, 2022, the Georgia Secretary of State issued a Certificate of Reinstatement to FDM. This certificate stated that FDM was reinstated as of February 8, 2022, and that:
[t]he reinstatement shall relate back to and take effect as of the date of the administrative dissolution and the entity may resume its business as if the administrative dissolution had never occurred.
Discussion
Section 6226(a) provides that a TMP must petition the Tax Court within 90 days of the date the FPAA is mailed. Section 6226(b) extends this petition period to 150 days for any partner who is not a TMP. Rule 240(c) requires that a petition must be filed within the periods specified in Section 6226 for the Tax Court to have jurisdiction. Here, FDM as TMP, filed the petition on July 1, 2021, which was well within the 90-day limit for filing by a TMP.
Former I.R.C. Section 6226 (related to judicial review of FPAAs) was repealed after December 31, 2017. Because the tax year at issue in this case is 2017, former I.R.C. Section 6226 is the relevant statutory authority.
Rule 60(c) provides that the capacity of a corporation to engage in litigation in this Court "shall be determined by the law of the state under which it was organized." See NT, Inc. v. Commissioner, 126 T.C. 191 (2006); David Dung Le, M.D., Inc. v. Commissioner, 114 T.C. 268, 270-71 (2000), aff'd, 22 F. App'x. 837 (9th Cir. 2001). Here, the relevant law is that of Georgia. Petitioner bears the burden of affirmatively establishing all facts giving rise to the Court's jurisdiction. See David Dung Le, M.D., Inc., 114 T.C. at 270; Harold Patz Tr. v. Commissioner, 69 T.C. 497, 503 (1977); Asbury v. Commissioner, T.C. Memo. 2007-53, slip op. at 6.
Title 14 of the Georgia State Code allows one or more persons to act as an organizer of a limited liability company. Ga. Code Ann. § 14-11-203. Such limited liability companies are generally subject to Georgia Limited Liability Company Law, which is found under Chapter 11 of the Georgia State Code. Ga. Code Ann. § 14-11-101. Limited liability companies are required to file an Annual Registration with the Georgia Secretary of State every year. Ga. Code Ann. § 14-11-1103. If a limited liability company fails to file the Annual Registration, the Secretary of State sends notice of the failure in writing to the company. Id. If the company still fails to file 60 days later, the Secretary of State cancels the company's articles of incorporation and sends notice of the cancellation to the company. Ga. Code Ann. §14-11-603(b)(1).
Section 14-11-202 of Georgia's State Code specifies that a limited liability company has the same powers as any person to do all things necessary to carry out its purpose, business, and affairs. When a Georgia limited liability company's articles of incorporation are canceled, however, the company loses its authority to carry on business and must only do acts required to wind up its affairs or obtain reinstatement of its articles. Ga. Code Ann. § 14-11-603(b)(3) and (4).
Thus, when FDM's articles of incorporation were canceled, it lost its ability to sue or be sued, including its ability to petition this Court. This is not the end of the inquiry, however, because Georgia law allows a corporation's articles to be reinstated with retroactive effect. Specifically, Georgia State Code section 14-11-603(b)(4) provides that upon reinstatement of a limited liability company's articles of incorporation, "it relates back to and takes effect as of the effective date of the administrative dissolution, and the limited liability company resumes carrying on its business as if the administrative dissolution had never occurred."
I. Retroactive Effect of Reinstatement
Petitioner argues that under Georgia law the Georgia Secretary of State reinstated FDM and because such reinstatement "relate[s] back to and take[s] effect as of the date of the administrative dissolution", FDM had capacity to file as of the date the petition was filed in this case. Respondent counters that reinstatement under Georgia law does not extend the statute of limitations for filing of a lawsuit and, therefore FDM's reinstatement did not provide it capacity to petition this Court as of the filing date. We therefore focus on whether reinstatement under Georgia State Code section 14-11-603(b)(4) allowed for FDM to file the petition after the filing deadline had expired.
In Gas Pump, Inc. v. Gen. Cinema Beverages of N. Fla., Inc., 263 Ga. 583 (1993), the Georgia Supreme Court stated that "the question of capacity is one to be decided on a case-by-case basis." Id. at 584. Further, the court held that "expiration of the time for reinstatement puts a stamp of finality on the demise of the corporation - it can no longer be resuscitated." Id. The Georgia Supreme Court specified that the "[dissolved] corporation cannot, after the time its demise is deemed complete, initiate any activity." Id. Thus, the closing of an entity's reinstatement period is sufficient to prevent an entity from having capacity to file a suit.
Petitioner contends that this court should rely on Williams v. Martin Lakes Condo. Assn., 284 Ga.App. 569 (Ga.App. 2007) to find that FDM could file the petition in this case because FDM was reinstated by the Georgia Secretary of State before the limitation period had ended. In Williams, the Georgia Court of Appeals held that an administratively dissolved nonprofit organization had the ability to sue during its dissolution period because the nonprofit was reinstated under Georgia law such that it could "resume business as if the administrative dissolution never occurred." Id. The Georgia Court of Appeals relied upon Title 14 of the Georgia Code which, at the time, did not have a limitation period for reinstating nonprofit organizations. Id. Since there was no limitation period for reinstatement under the code, the nonprofit was allowed to file for reinstatement at any time and was allowed to "resume business as if the…dissolution never occurred." Id.
Petitioner argues in its Objection that FDM timely filed the petition because it was reinstated within the five-year survival period provided for LLCs under Georgia State Code section 14-11-603(b)(4). Like the nonprofit in Williams, petitioner contends that it filed for reinstatement before the expiration of the Georgia State Code's limitation period and thus it should be allowed to "resume business as if the administrative dissolution never occurred." 284 Ga.App. at 569. Absent any other restrictions, FDM's reinstatement within the five-year LLC survival period would allow it to relate back to the date of dissolution and carry on its business.
However, while Gas Pump, Inc. and Williams clearly demonstrate that the expiration of the limitation period for reinstatement would prevent an entity from having capacity to file, GC Quality Lubricants provides that the running of the statute of limitations for a case's underlying cause of action would also prevent an entity from having such legal capacity.
In GC Quality Lubricants v. Doherty, Duggan & Rouse Insurers, 304 Ga.App. 767, 768 (2010), the Georgia Court of Appeals addressed the issue of reinstatement for a corporation that had been administratively dissolved for over four years. In the case, the Georgia Court of Appeals discussed the presence of a two-year corporate survival statute in the code as well as the running of the statute of limitations period for the underlying cause of action. Id. at 768-69. The Court held that reinstatement did not render the corporation competent to initiate a lawsuit because the corporation's reinstatement occurred outside the two-year survival statute period and because the underlying statute of limitations period had run. Id. at 770. To emphasize the significance of the statute of limitations in the case, the court stated:
[corporation's] failure to obtain reinstatement prior to the expiration of the […] statute of limitation for the underlying causes of action prevented [corporation] from initiating a valid timely filed lawsuit. To hold otherwise would result in the improper extension of the four-year statute of limitation. Id.
In a footnote, the court also noted that the corporation was not reinstated until approximately two-and-a-half months after the statute of limitations for the underlying action had expired. Id. at 771n.14. Moreover, the court in GC Quality Lubricants distinguished Williams by pointing out that in Williams, as well as another case cited in the opinion, the effect of reinstatement on an expired statute of limitations for the underlying cause of action was not addressed. Id. at 770.
Petitioner attempts to distinguish GC Quality Lubricants from this case by identifying the different survival periods for corporations and LLCs under Georgia State Code. The Georgia corporate survival code at issue in GC Quality Lubricants gave corporations up to two years to be reinstated; whereas, as is relevant here, the Georgia Code gives LLCs up to five years for reinstatement. Petitioner argues that because the period for reinstatement is longer for LLCs and since petitioner was reinstated prior to the expiration of the LLC survival period, it is not subject to the limitation on reinstatement that was articulated in Gas Pump, Inc. and Williams, and therefore it timely filed its petition. While it is true that the court in GC Quality Lubricants discussed the running of the two-year corporate survival statute as a reason for barring a lawsuit, the running of the survival period was not the only reason for barring the suit in that case. The running of the statute of limitations also prevented the corporation from having the capacity to file.
Here, FDM as TMP of petitioner, had 90 days after the FPAA was mailed to file a petition with this Court. The FPAA was mailed to FDM on April 5, 2021, and FDM filed on July 1, 2021. At the time of filing, FDM was administratively dissolved. FDM was reinstated on February 8, 2022, which is 309 days after the FPAA was mailed and beyond the 90-day filing deadline. FDM was reinstated within the five-year period allowed for LLCs under Georgia state law. However, GC Quality Lubricants states that the running of the state of limitations for the underlying cause of action also bars a reinstated entity from timely filing a lawsuit. See GC Quality Lubricants, 304 Ga.App. at 770. Because FDM was not reinstated until after the period for filing a petition with this Court had expired, under Georgia law FDM did not have capacity when the petition was filed with this Court.
II. Ratification of the Petition
In its Objection, petitioner argues that it should be allowed to properly ratify its petition by filing an amended petition if FDM is found to lack capacity. Under Rule 60(a):
A case timely brought shall not be dismissed on the ground that it is not properly brought on behalf of a party until a reasonable time has been allowed after objection for ratification by such party of the bringing of the case; and such ratification shall have the same effect as if the case had been properly brought by such party.
This court has previously discussed the principle of ratification as applied in TEFRA proceedings:
In a limited line of cases, this court has permitted the perfection of "imperfect petitions." See Holt v. Commissioner, 67 T.C. 829 (1977); Brooks v. Commissioner of Internal Revenue, 63 T.C. 709 (1975); Carstenson v. Commissioner, 57 T.C. 542 (1972). Under the principle of
ratification, an imperfect petition in a TEFRA proceeding has been perfected by the filing of an amended petition if there is evidence that a person qualified to file the petition authorized or consented to the filing of the petition by the improper party. Montana Sapphire Assocs., Ltd. v. Commissioner, 95 T.C. 477 (1990). The underlying rationale for ratification follows a pattern where: (1) the person who attempted to file the petition thought he was authorized, and (2) those who ratified were authorized to file or approve the filing of the petition, and (3) ratification was expressly attempted or possible. Mishawaka Properties Co. v. Commissioner, 100 T.C. 353, 362 (1993).
Absent a partnership's express ratification, implied ratification may also be a factor considered in permitting the perfection of an imperfect petition. See Id. The Court has full discretion in allowing such a remedy, which it decides on a case-by-case basis. Brooks 63 T.C. 709 at 714.
In Mishawaka, this Court considered an extensive factual record to determine that one or more partners impliedly ratified the filing of a petition by the managing partner of a partnership. Here, we lack such a record and have insufficient information to conclude whether an authorized person ratified FDM's filing of the petition. Accordingly we will allow petitioner the opportunity to address this issue by supplementing its Opposition.
Accordingly, it is
ORDERED that respondent's Motion to Dismiss for Lack of Jurisdiction is held in abeyance. It is further
ORDERED that by August 25, 2023 petitioner may file a supplement to its Objection and therein set forth and fully discuss the application of the Mishawaka factors to this case. Failure to do so will result in the case being dismissed or other action as the Court deems appropriate.