Opinion
13235-21
10-05-2023
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 was not filed by a party with capacity to sue under Rule 60(c). Specifically, respondent points out that the Georgia Secretary of State canceled 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 FDM filed the petition on July 1, 2021 to commence this case, respondent contends 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. With leave from the Court, petitioner filed an Objection to respondent's Motion to Dismiss to Dismiss for Lack of Jurisdiction on July 7, 2022.
Unless otherwise noted, all Rule references are to the Tax Court Rules of Practice and Procedure, and all section references are to the Internal Revenue Code of 1986, as amended.
Background
In our July 26, 2023 Order, we agreed with respondent that FDM did not have capacity to file the petition on behalf of the partnership at the time of filing. However, petitioner argued in its Objection that it should be allowed to properly ratify its petition by filing an amended petition if FDM is found to lack capacity. In response to this argument, our Order noted that this Court has previously applied the principle of ratification in TEFRA proceedings.
Because we lacked an adequate factual record to determine whether an authorized person ratified FDM's filing of the petition, we ordered that respondent's Motion to Dismiss for Lack of Jurisdiction be held in abeyance. We further ordered that petitioner be allowed to supplement its Objection to discuss this issue. On August 25, 2023, petitioner timely filed a First Supplement to Objection to Motion to Dismiss for Lack of Jurisdiction, as well as two declarations signed under penalty of perjury. The first declaration is from Daniel Carbonara, the manager of FDM, and the second declaration is from Aaron Kowan, the managing director of Emerald Acquisitions 2017, LLC (Emerald). At all times relevant to this case, Emerald owned a 95.99 percent interest in the partnership.
Discussion
Our rules provide us with the discretion to allow ratification of imperfect petitions. 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.
In Mishawaka Properties Co. v. Commissioner, 100 T.C. 353, 362 (1993) this Court previously discussed the principle of ratification as applied in TEFRA proceedings:
[I]n 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, 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.
In those situations that satisfy the three factors listed in Mishawaka, this Court has held that it would be an appropriate use of the ratification doctrine to allow the partnership an opportunity to appoint a TMP and ratify the petition. See Id. at 362; Montana Sapphire, 95 T.C. at 483-84 (1990). This Court has found it particularly inappropriate to dismiss an imperfect petition when doing so would deprive a petitioner of any "judicial remedy with respect to the partnership adjustments determined in the FPAA." Montana Sapphire, 95 T.C. at 483. However, the ultimate decision to allow such a remedy is up to the discretion of this Court and is to be decided on a case-by-case basis. Brooks, 63 T.C. 709 at 714. Accordingly, we will consider the three factors from Mishawaka are present and if denying the petition would deprive the partnership of any judicial remedy.
Under the first Mishawaka factor, the person who attempted to file the petition must have thought he was authorized to do so. Here, FDM was designated as TMP of the partnership by its partners. Further, respondent recognized FDM's status as TMP by sending to FDM the TMP FPAA upon which the petition is based. Despite FDM not having capacity to sue at the time the petition was filed, Mr. Carbonara, as the manager of FDM, filed the petition under the belief that FDM was the authorized TMP of the partnership and had the requisite capacity to file. Thus, petitioner in this case meets the first Mishawaka factor.
Under the second Mishawaka factor, those who ratified the petition had to be authorized to file or approve the filing of the petition. Here, the ratifying party would be the other partners in the partnership. As partners, they would have the authority to file within the 150-day period or approve the petition as filed by FDM. At the time of filing the petition, Emerald Acquisitions 2017, LLC, owned a 95.99 percent interest in the partnership, with Aaron Kowan as its managing director. Mr. Kowan believed that FDM was the TMP of the partnership and did not file a petition on behalf of partner Emerald because he was aware of and relied on the fact that FDM had already done so. The second Mishawaka factor is thus satisfied.
Under the third Mishawaka factor, ratification must have been expressly attempted or possible. In his declaration, Mr. Kowan, on behalf of Emerald, expressly adopted the petition and the assignments of error asserted therein. Moreover, no evidence suggests that any partner objected to the filing of the petition at any time.
Finally, FDM as the TMP, had 90 days from the issuance of the FPAA to file a petition in the Tax Court, United States District Court, or the Court of Federal Claims. Once the 90 days lapsed, notice partners other than the TMP had 60 days to file in one of the aforementioned courts. See § 6226. Both of these deadlines have lapsed. Thus, the partnership in this case would be without judicial remedy with respect to its partnership adjustments if we granted respondent's Motion and dismissed this case. See Montana Sapphire, 95 T.C. at 483-84.
We do not believe that it is appropriate to dismiss the petition under these circumstances without first allowing the partnership an opportunity to file an amended petition as contemplated by Rule 60(a). Id.
Accordingly, it is
ORDERED that, on or before November 6, 2023 petitioner may (1) advise the Court of the partner qualified under statute to be appointed and serve as tax matters partner of the partnership and (2) for such tax matters partner to file an amended petition. Failure to do so will result in the case being dismissed or other action as the Court deems appropriate.