Starvest U.S., Inc. v. Commissioner

T.C. Memo. 1999-314

UNITED STATES TAX COURT

STARVEST U.S., INC., Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 16948-97, 17705-98, Filed September 23, 1999.

1372-99.

David Finkelstein, for petitioner.

William R. McCants, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COUVILLION, Special Trial Judge: These consolidated cases

are before the Court on the parties' motions to dismiss for lack

of jurisdiction. In docket No. 16948-97, petitioner moves to

dismiss on the ground that the notice of deficiency is invalid

because it was not mailed to petitioner's last known address.

Respondent argues that the notice of deficiency was mailed to

petitioner's last known address. In docket Nos. 16948-97 and

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17705-98, respondent moves to dismiss for lack of jurisdiction on

the grounds that petitioner, a corporation dissolved under State

law, did not have the capacity to initiate the subject litigation

and, if it had the capacity to do so, did not authorize the

filing of the petitions with this Court. In docket No. 1372-99,

respondent moves to dismiss for lack of jurisdiction on the

grounds that the petition was not filed timely and is duplicative

of docket No. 17705-98.

FINDINGS OF FACT

Some of the facts were stipulated. Those facts and the

accompanying exhibits are so found and are incorporated herein by

reference. Petitioner, a Florida corporation, had its principal

place of business at Tierra Verde, Florida, at the time the

petitions were filed.

Respondent determined the following deficiencies in

petitioner's Federal income taxes, additions to tax, and

penalties:

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Additions To Tax and Penalties1

Docket No. Year Deficiency Sec. 6651(a)(1) Sec. 6662

16948-97 FYE 5/31/92 $ 100,580 $ 25,145 $ 20,116

17705-98 FYE 5/31/93 906,913 226,728 181,383

FYE 5/31/94 1,049,839 262,460 209,968

Docket No. 1372-99 addresses the same tax years challenged in

docket No. 17705-98.

Starvest U.S., Inc. (Starvest) was incorporated under the

laws of Florida in 1987. Jacques de Bruijn served as president,

secretary, and treasurer of Starvest at its inception, and the

directors were Jacques de Bruijn and Mario Boon. Starvest

adopted a fiscal tax year ending on May 31 of each year.

On November 6, 1995, Jacques de Bruijn, as president of

Starvest, signed a power of attorney (Internal Revenue Service

(IRS) Form 2848) authorizing Allen Swartz, C.P.A., to represent

Starvest before the IRS for its tax years ending May 31, 1992,

1993, and 1994. These are the years before the Court in this

litigation.

On April 30, 1996, Starvest elected new officers and

directors. Mario Boon was elected to the offices of president,

secretary, and treasurer. Mario Boon, Willem van Weert, and

Maria Verstraeten were elected as directors of Starvest.

1

Unless otherwise indicated, section references

hereafter are to the Internal Revenue Code in effect for the

years at issue. All Rule references are to the Tax Court Rules

of Practice and Procedure.

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Additionally, attorney Warren Knaust was appointed as Starvest's

registered agent. Starvest's 1996 annual report to the Florida

secretary of state2 reflected the results of the officer and

director elections. The report also identified Warren Knaust as

Starvest's registered agent.

Revenue Agent Denise Traum conducted the IRS audit of

Starvest. During the course of the audit, Jacques de Bruijn

informed Agent Traum that he was no longer an officer or director

of Starvest. On January 14, 1997, Agent Traum requested in

writing that Jacques de Bruijn produce copies of Starvest's

corporate resolutions naming its officers and directors. The

letter explained that the information was needed to extend the

period of limitations (IRS Form 872) for the tax years in

question, as well as to complete a Tax Information Authorization

(IRS Form 8821) in order that Agent Traum could continue to deal

with Mr. de Bruijn during the audit. Mr. de Bruijn complied with

Agent Traum's request and provided documents identifying

Starvest's officers and directors as those elected in April 1996.

On January 27, 1997, Mario Boon, as president of Starvest,

signed IRS Form 8821 authorizing Jacques de Bruijn to receive

confidential tax information on behalf of Starvest for its tax

2

The 1996 annual report was the last such report filed

by Starvest with the Florida secretary of state.

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years ending May 31, 1992, 1993, 1994, 1995, and 1996.3

Subsequent to receiving the Tax Information Authorization, Agent

Traum issued a letter and copy of the form to Mr. de Bruijn. The

letter explained that the Tax Information Authorization allowed

Mr. de Bruijn to inspect and receive confidential information

relating to Starvest. The letter pointed out, however, that Mr.

de Bruijn could not sign documents on behalf of the corporation

unless a power of attorney was secured. Throughout the remainder

of the audit, Agent Traum continued to deal with Mr. de Bruijn as

Starvest's representative.

In November 1996, Warren Knaust resigned as Starvest's

resident agent. Starvest failed to appoint another registered

agent. On March 14, 1997, Starvest was administratively

dissolved by the State of Florida for its failure to have a

registered agent as required by Florida law.

On May 15, 1997, IRS issued a notice of deficiency (1997

notice of deficiency) to petitioner for its May 31, 1992, tax

3

Form 8821, Tax Information Authorization, is

authorization to IRS by a taxpayer designating any individual,

corporation, firm, organization, or partnership to inspect and/or

receive any confidential information regarding the taxpayer in

any office of the IRS with regard to the tax and for the years or

periods listed in the form. Form 8821, however, does not

constitute authority to such designee to execute waivers,

consents, closing agreements, or to otherwise represent the

taxpayer before the IRS. Form 2848, Power of Attorney and

Declaration of Representative, is the necessary form for such

purposes.

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year. The notice was sent to Starvest at its Tierra Verde,

Florida, address and to Allen Swartz, to whom Starvest had

granted a power of attorney. Subsequent to issuance of the

notice of deficiency, Agent Traum issued a letter to Mario Boon,

president of Starvest, at his address in The Netherlands,

informing him of the issuance of the notice of deficiency and

providing him with a copy of the audit report. The letter

indicated that the notice of deficiency had been sent to

Starvest's corporate address in Tierra Verde, Florida. The

letter also indicated that Allen Swartz had reviewed the audit

report.

Jacques de Bruijn retained the law firm of Gibbs and Runyan

(Gibbs) to represent Starvest in matters relating to the 1997

notice of deficiency. Gibbs filed a petition in the name of

Starvest with this Court on August 12, 1997, for a

redetermination of the taxes determined in the 1997 notice of

deficiency. That petition was filed as docket No. 16948-97.

In May 1998, Gibbs filed a motion to withdraw as Starvest's

counsel. In the motion, which was granted, Gibbs represented

that Jacques de Bruijn was Starvest's president, and that all

future correspondence should be addressed to him. Subsequently,

on June 18, 1998, Gibbs filed what was styled as a status report

amending some of the statements made in the motion to withdraw.

Gibbs represented that, while Mr. de Bruijn had originally

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claimed to have authority to act on Starvest's behalf, Mr. de

Bruijn now claimed that he was not and had never been an officer

or director of Starvest. Gibbs further represented that his firm

had not had contact with any party related to petitioner other

than de Bruijn and did not name any individual or party who had

authority to represent Starvest.

On July 2, 1998, respondent filed a motion to dismiss for

lack of jurisdiction in docket No. 16948-97 with respect to the

1997 notice of deficiency on the grounds that petitioner did not

have the capacity to initiate the action because it was

dissolved, and petitioner had not authorized any person to

initiate such litigation.

Jacques de Bruijn then retained the law firm of Ruden,

McClosky, et al. (Ruden) to represent Starvest in matters

relating to the 1997 notice of deficiency. On August 6, 1998,

Ruden filed an opposition to respondent's motion to dismiss.

Then, on August 11, 1998, Ruden filed a motion to dismiss for

lack of jurisdiction on the grounds that the 1997 notice of

deficiency had not been sent to petitioner's last known address.

On November 4, 1998, Ruden filed a motion to withdraw as counsel

for Starvest. In this motion, counsel represented that Starvest

could be contacted at (1) Tivoliweg 85B, 4561 HK Hulst,

Netherlands, and (2) care of Jacques de Bruijn, 472 First Street

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West, Tierra Verde, Florida, 33715. This motion to withdraw was

also granted.

On August 4, 1998, IRS issued a notice of deficiency (1998

notice of deficiency) to petitioner for its May 31, 1993, and

1994 tax years. IRS sent copies of the notice to Starvest at its

Florida address, to Jacques de Bruijn, to Alan Swartz, and to

Mario Boon at his address in The Netherlands.

Jacques de Bruijn retained the law firm of Finkelstein and

Associates (Finkelstein) to represent Starvest in regard to the

1997 notice of deficiency and the 1998 notice of deficiency.

Finkelstein filed a petition in the name of Starvest with this

Court on November 2, 1998, requesting a redetermination of the

1998 notice of deficiency. That case is docket No. 17705-98.

On December 22, 1998, respondent filed a motion to dismiss

docket No. 17705-98 for lack of jurisdiction on the same grounds

as the motion to dismiss docket No. 16948-97; i.e., lack of

capacity and authorization.

On January 19, 1999, another petition was filed in

Starvest's name for the redetermination of the taxes determined

in the 1998 notice of deficiency. This petition was submitted by

Mario Boon pursuant to the 1998 notice of deficiency he received

at his address in The Netherlands. That petition was filed as

docket No. 1372-99. Boon mailed the petition from his address in

The Netherlands.

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On March 5, 1999, respondent filed a motion to dismiss

docket No. 1372-99 for lack of jurisdiction on the ground that

the second petition filed with respect to the 1998 notice of

deficiency was not filed timely, nor did petitioner, a dissolved

corporation, have the capacity to file, nor did the person filing

the petition have the authority to file on behalf of petitioner.

On March 16, 1999, the parties agreed to consolidate these

cases for hearing on the parties' respective motions.

OPINION

This Court's jurisdiction to redetermine a deficiency is

based upon the issuance of a valid notice of deficiency and a

petition filed timely. See Rule 13(a), (c); Monge v.

Commissioner, 93 T.C. 22, 27 (1989); Normac, Inc. v.

Commissioner, 90 T.C. 142, 147 (1988). In the cases here, the

parties filed motions to dismiss for lack of jurisdiction as

described above. Respondent contends petitioner lacked the

capacity to file petitions because it had been dissolved under

Florida law, and, even if petitioner had such capacity, it did

not authorize the petitions filed in its name. Petitioner

contends that the notice of deficiency with respect to the

May 31, 1992, tax year was not sent to its last known address.

The question of jurisdiction is a fundamental question that

can be raised at any time by either party or by the Court. See

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Estate of Young v. Commissioner, 81 T.C. 879, 880-881 (1983).

When jurisdictional issues are raised, the Court has jurisdiction

to decide whether it has jurisdiction in the case. Id. at 881.

1. The Capacity of Starvest and the Authority To File the

Petitions on Behalf of Starvest

Respondent questioned this Court's jurisdiction on the

ground that petitioner, a dissolved Florida corporation, did not

have the legal capacity to file petitions in this Court.

Respondent further argued that, even if petitioner had the

capacity to file the petitions in this case, the petitions were

not filed by a person authorized to represent petitioner.

A case in this Court must be brought by the proper party.

See Rule 60(a)(1). "This court does not have jurisdiction to

consider a petition filed by a person or entity not qualified by

law." Mishawaka Properties Co. v. Commissioner, 100 T.C. 353,

362 (1993) (quoting 1983 Western Reserve Oil & Gas Co. v.

Commissioner, 95 T.C. 51, 62 (1990), affd. without published

opinion 995 F.2d 235 (9th Cir. 1993), and cases cited therein).

The capacity of a corporation to maintain litigation before this

Court is determined according to the law of the jurisdiction in

which the entity was organized. See Rule 60(c).

Prior to 1989, Florida law provided that the "dissolution of

a corporation * * * shall not take away or impair any remedy

available to or against such corporation, or its directors,

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officers, or shareholders for any right or claim existing, or any

liability incurred, prior to such dissolution if action or other

proceeding thereon is commenced within 3 years after the date of

such dissolution." See sec. 607.297(3), Florida Statutes (1988).

This Court has previously held that the issuance of a notice of

deficiency within the above mentioned 3-year period constitutes

the commencement of an "action or other proceeding" under the

Florida statute that preserves the right of the officers and

directors to file valid petitions in this Court. See Bared &

Cobo Co. v. Commissioner, 77 T.C. 1194 (1981); American Police &

Fire Found., Inc. v. Commissioner, T.C. Memo. 1981-704.

In 1989, the Florida legislature made substantial changes to

the State's corporate laws. The statutes relating to dissolved

corporations were among those that were amended. Section

607.1405, Florida Statutes (1995), "Effect of dissolution", was

amended to provide, in relevant part:

(1) A dissolved corporation continues its

corporate existence but may not carry on any business

except that appropriate to wind up and liquidate its

business and affairs, * * *

(2) Dissolution of a corporation does not:

(a) Transfer title to the corporation's property;

* * * * * * *

(e) Prevent commencement of a proceeding by or

against the corporation in its corporate name;

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* * * * * * *

(g) Terminate the authority of the registered

agent of the corporation.

Similarly, section 607.1421, Florida Statutes (1995), "procedure

for and effect of administrative dissolution", was amended to

provide, in relevant part:

(3) A corporation administratively dissolved

continues its corporate existence but may not carry on

any business except that necessary to wind up and

liquidate its business and affairs under s. 607.1405

and notify claimants under s. 607.1406.

* * * * * * *

(5) The administrative dissolution of a

corporation does not terminate the authority of its

registered agent.

While pre-1989 Florida law provided a 3-year limitation

period for commencing actions in the name of a dissolved

corporation, the amended Florida statutes do not require such a

limitation. A dissolved Florida corporation now continues in

existence indefinitely to the extent necessary to wind up and

liquidate its business and affairs, including the right to sue

and be sued in its own name. See Cygnet Homes, Inc. v. Kaleny

Ltd., 681 So. 2d 826 (Fl. Dist. Ct. App. 1996). Starvest,

therefore, had the legal capacity to file petitions with this

Court, even though it was dissolved at the time the petitions

herein were filed.

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Whether the filing of the petitions here was authorized or

ratified by Starvest is a question of fact to be determined based

on principles of agency. See Adams v. Commissioner, 85 T.C. 359,

369-372 (1985); Kraasch v. Commissioner, 70 T.C. 623, 627-629

(1978). "Authority to do an act can be created by written or

spoken words or other conduct of the principal which, reasonably

interpreted, causes the agent to believe that the principal

desires him to so act on the principal's account." See 1

Restatement, Agency 2d, sec. 26 (1958). "Unless otherwise

provided by statute, a written authorization is not necessary for

the execution of a writing." See 1 Restatement, Agency 2d, sec.

30. The actions of a corporation are manifested through the

actions of its corporate officers, directors, and employees, as

well as through those acting on behalf of or at the direction of

the aforementioned corporate representatives.

Starvest's current directors and officers have limited

knowledge of the company. Further, they have limited involvement

in the day-to-day operations of the business. The company does

not appear to have had regular shareholder, board, officer, or

other meetings. Instead, Starvest was operated and represented

on a daily basis by Jacques de Bruijn.

While Mr. de Bruijn was the former president, secretary,

treasurer, and director of Starvest, he held no official position

with the corporation at the time the petitions in these cases

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were filed. There is, however, ample evidence in the record to

conclude that Mr. de Bruijn was intimately involved in the daily

workings and affairs of the corporation, regardless of his lack

of official title. Moreover, the record shows that Jacques de

Bruijn was authorized to act on behalf of and to protect the

interests of Starvest in its tax matters for the years at issue.

Jacques de Bruijn served as Starvest's president, secretary,

and treasurer, and as one of Starvest's directors from the

company's inception in 1987 until 1996. Officer and director

changes were formally made at Starvest in 1996, and Mr. de Bruijn

ceased to have any official title with the corporation.

Starvest's new officers and directors were all foreign nationals

domiciled outside of the United States. Mr. de Bruijn continued

to represent the company and look after its affairs on a daily

basis despite the management changes.

Starvest's president, Mario Boon, signed a Tax Information

Authorization vesting Jacques de Bruijn with authority to receive

and inspect confidential information relating to Starvest's tax

matters for its 1992 through 1996 tax years. Mr. de Bruijn acted

as Starvest's representative during the IRS audit of the

corporation. Starvest's officers and directors did not have any

contact with the IRS or involvement in the handling of the audit.

When the notices of deficiency were issued, de Bruijn retained

legal counsel to protect the corporation's interests.

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Importantly, during this process, Starvest's officers and

directors never indicated that Mr. de Bruijn's actions were

inconsistent with their wishes or that his authority was limited

in handling these matters. Moreover, one of Starvest's

directors, Willem van Weert, testified at the hearing that

Jacques de Bruijn had been given broad discretion to handle

Starvest's tax matters for the years at issue.

In considering whether de Bruijn was authorized to cause

petitions to be filed on behalf of Starvest, respondent has urged

the Court to take into account the fact that Jacques de Bruijn

was not an officer or director of the corporation at the time the

petitions were filed. Respondent further points out that there

was no power of attorney or other express grant of authority

authorizing Jacques de Bruijn to sign documents or institute suit

on behalf of Starvest. While no IRS power of attorney or other

authorizing document was in effect with respect to Mr. de Bruijn,

such forms are not required for a petition to be filed on behalf

of a corporation in this Court. It suffices that a petition is

authorized by an appropriate representative or agent of the

corporation.

Although Starvest may not have been structured or operated

in the mold of a typical business, it was nevertheless a legal

entity that acted through and was bound by its representatives.

The record clearly establishes that Jacques de Bruijn was

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authorized to handle the affairs of and protect the interests of

Starvest with respect to its tax matters for the years at issue,

regardless of the title under which he acted. Causing the

petitions to be filed in Starvest's name was among the duties

that he performed on the corporation's behalf. Based upon the

foregoing facts and the principles of agency, therefore, the

Court holds that Jacques de Bruijn was authorized to cause the

petitions in these cases to be filed on behalf of Starvest.

Even if the Court were to conclude that Starvest did not

authorize Mr. de Bruijn to cause the petitions to be filed on its

behalf, there is ample evidence that Starvest ratified the filing

of the petitions. In this regard, this Court has held that a

taxpayer can ratify a previously filed petition, even in the

absence of express approval, through action or inaction

implicitly approving the filing of the petition. See Mishawaka

Properties Co. v. Commissioner, 100 T.C. 353 (1993); Kraasch v.

Commissioner, supra.

In Kraasch v. Commissioner, supra at 627, 628, this Court

found that the accountant, in filing the petition, "acted as the

authorized agent of * * * [the taxpayers]" and that "even if this

were a situation where * * * [the accountant] acted upon * * *

[the taxpayers'] behalf without authority, * * * [the taxpayers]

are still bound * * * because they subsequently ratified * * *

[the accountant's] actions." The ratification was implied

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because it was found to be based upon the taxpayers' conduct

subsequent to the filing of the petition, even though the

taxpayers had not expressly approved or authorized the act of

filing or signing their names to the petition. In reaching that

conclusion, it was noted that the taxpayers were informed and

knowledgeable about documents received from the Government and

actions taken by their accountant.

The Kraasch rationale is rooted in concepts of agency and

ratification. In Kraasch, the person who signed the taxpayers'

names was representing their interests before the IRS in the

handling of their tax matters. Even though the agent did not

have specific authority to file a petition on their behalf, a

petition was filed, the taxpayers were aware of it, and they were

deemed to have ratified it.

Florida case law has long recognized that ratification of an

agreement occurs where a person expressly or impliedly adopts an

act or contract entered into on his or her behalf by another

without express authority. See Deutsche Credit Corp. v.

Peninger, 603 So. 2d 57 (Fla. Dist. Ct. App. 1992); Carolina

Georgia Carpet & Textiles, Inc. v. Pelloni, 370 So. 2d 450 (Fla.

Dist. Ct. App. 1979). An agreement is deemed ratified where the

principal has full knowledge of all material facts and

circumstances relating to the act or transaction at the time of

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ratification. See Ball v. Yates, 158 Fla. 521, 29 So. 2d 729

(1946); Deutsche Credit Corp. v. Peninger, supra.

Subsequent to Mr. de Bruijn's causing the second petition to

be filed, Starvest's president, Mario Boon, filed a petition with

this Court asking for a redetermination of the taxes determined

in the 1998 notice of deficiency. Additionally, at the hearing

on the motions here, one of Starvest's directors clearly stated

that the company's directors and officers were aware of and

approved of Mr. de Bruijn's causing the petitions to be filed.

Further, this director testified that the company wished to

challenge respondent's determinations in these matters.

The filing of the petition by Mr. Boon and the testimony of

Starvest's director clearly indicate and satisfy the Court that

Starvest desired to challenge respondent's determinations for the

years at issue and approved of the actions of Mr. de Bruijn in

causing the petitions to be filed. Therefore, as in Kraasch v.

Commissioner, supra, and Mishawaka Properties Co. v.

Commissioner, supra, the Court holds that a ratification was

implied based upon the officers' and directors' conduct

subsequent to the filing of the petitions, even if such officers

and directors may not have expressly approved or authorized the

act of filing the petitions.

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2. Last Known Address

A notice of deficiency is valid if the taxpayer actually

receives the notice and thereafter files a petition timely with

the Court. See Frieling v. Commissioner, 81 T.C. 42, 52-53

(1983). This rule applies regardless of the address to which the

notice is mailed. See id.

On August 12, 1997, petitioner filed a timely petition with

the Court for the May 15, 1997, notice of deficiency.4 On

November 2, 1998, petitioner filed a timely petition with the

Court for the August 4, 1998, notice of deficiency.5

Petitioner's actual receipt of the notices of deficiency and its

subsequent filing of timely petitions with this Court render moot

any inquiry regarding the address to which the notices of

deficiency were mailed. The notices of deficiency, therefore,

were valid.

4

The 90-day period for filing a petition with the Court

expired on Aug. 13, 1998, which was not a Saturday, Sunday, or

legal holiday in the District of Columbia. See sec. 7503.

5

The 90-day period for filing a petition with the Court

expired on Nov. 2, 1998, which date was not a Saturday, Sunday,

or legal holiday in the District of Columbia. See sec. 7503.

Although the petition was not received until Nov. 5, 1998, it was

deemed filed on Nov. 2, 1998, under sec. 7502(a).

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3. Dismissal of Docket No. 1372-99

A petition was filed by petitioner on November 2, 1998, for

redetermination of its 1993 and 1994 Federal income taxes based

on the notice of deficiency dated August 4, 1998. Said

proceeding bears docket No. 17705-98 on the docket of this Court.

On January 19, 1999, petitioner filed another petition with this

Court, bearing docket No. 1372-99, also for redetermination of

its 1993 and 1994 Federal income taxes, based on the same notice

of deficiency dated August 4, 1998.

Since the latter petition, filed as docket No. 1372-99,

duplicates the same notice of deficiency that is addressed in

docket No. 17705-98, docket No. 1372-99 will be closed for

duplication.

Orders will be issued denying

respondent's motions to dismiss docket

Nos. 16948-97, 17705-98, and 1372-99;

denying petitioner's motion to dismiss

docket No. 16948-97; and closing docket

No. 1372-99 for duplication.