Photo Art Mktg. Trust v. Commissioner

MEMORANDUM OPINION

CHIECHI, JUDGE: This case is before the Court on respondent's motion to dismiss for lack of jurisdiction (respondent's motion). We shall grant respondent's motion.

BACKGROUND

For purposes of respondent's motion, the parties do not dispute the following factual allegations that are part of the record. At all relevant times, each petitioner was a trust organized under the laws of the State of Arizona and was engaged in business in that State.

Upon commencement of the examination of each petitioner's taxable years 1995 and 1996, respondent requested that each petitioner provide respondent with complete copies of the trust documents relating to each such petitioner as well as other items of substantiation. Each petitioner refused to provide respondent with the trust documents and other information requested.

At the time respondent issued the notice of deficiency (notice) to each petitioner, respondent's address records indicated an entity named*73 D & E Sword Co. as the trustee for each petitioner. Respondent's address records were not based on any trust documents or other legal documents submitted by each petitioner that could constitute credible evidence regarding who was/is the trustee of each petitioner. Instead, respondent's address records were prepared and updated in accordance with respondent's procedures and were based solely on correspondence submitted by each petitioner which alleged that D & E Sword Co. was the trustee for each petitioner.

The notice issued to petitioner Photo Art Marketing Trust was addressed as follows:

PHOTO ART MARKETING TRUST

SWORD D & E CO-TTES

P.O. BOX 4047

SEDONA, AZ 86340-4047 473

The notice issued to Photo Art Publishing Trust was addressed as follows:

PHOTO ART PUBLISHING TRUST

D & E SWORD TRUSTEE CO TTEE

P.O. BOX 4047

SEDONA, AZ 86340-4047 473

Photo Art Marketing Trust and Photo Art Publishing Trust jointly filed a petition in this Court. That petition was signed on behalf of Photo Art Marketing Trust and Photo Art Publishing Trust by John P. Wilde (Mr. Wilde), as "co-Trustee of Photo Art Marketing Trust and Photo*74 Art Publishing Trust".

Respondent's motion contends in pertinent part:

     7. Arizona law provides that the trustee has the

   capacity to institute court proceedings on behalf of

   the trust. A.R.S. section 14-7233 C. 25. However, Mr. Wilde

   has not demonstrated with credible evidence that he is

   a Co-Trustee of the [petitioner] trusts with capacity

   to bring the instant action.

     *     *     *     *     *     *     *

     11. Moreover, respondent's counsel contacted the

   Arizona Corporation Commission to determine the

   existence/validity of the entity called D & E Sword Company.

   The Corporation Commission informed respondent's

   counsel that it had no record of any entity by that

   name ever existing in the State of Arizona. Further, the

   Corporation Commission informed respondent's counsel that it

   had no record of any entity incorporated in Arizona under the

   name of, or in reference to, an individual named John P. Wilde.

     12. There is absolutely no evidence from which the Court

   can adduce*75 that there has been a legal assignment of John P.

   Wilde as the Co-Trustee of either of the petitioner trusts.

     13. Petitioners have provided no evidence that Mr. Wilde's

   appointment as Co-Trustee is valid or authorized under the terms

   of the trust indentures (assuming they exist).

     14. At a minimum, petitioners should be required to provide

   complete copies of the original trust document(s) wherein the

   initial trustee is appointed. Petitioners should also provide

   any and all documents in the chain of appointments of subsequent

   trustees. If the initial trustees or any successor trustees

   thereafter were, in fact, an entity called D & E Sword

   Company, petitioners should be required to produce credible

   evidence establishing legal existence and validity of that

   entity.

     15. Without the evidence described above in paragraph 14.,

   petitioners have failed to demonstrate that John P. Wilde was

   legally appointed as Co-Trustee authorized to act on behalf of

   the trusts and bring the instant case before this Court. See

   T. *76 C. Rule 60(c).

Petitioners filed a response to respondent's motion in which they ask the Court to deny that motion. Petitioners' response to respondent's motion asserts in pertinent part:

     3. The Respondent's objection goes to the management of the

   trusts, their internal affairs, concerns about their

   administration, the declaration of rights and the determinations

   of matters involving the trustees. As the Respondent concedes

   that these are "Arizona Trusts" * * *, this issue falls

   within the exclusive jurisdiction of the superior court here in

   the State of Arizona. See A.R.S. section 14-7201. At this point,

   this court is without jurisdiction to determine whether * * *

   Mr. Wilde [is] the duly authorized Trustee. The Petitioners need

   not remind the Court of the consequences of taking any action

   over which subject matter jurisdiction is completely lacking.

     4. Any objection the Respondent or Respondent's

   counsel has in this area must be taken up in the Superior Court

   here in Arizona, assuming of course the Respondent or

   Respondent's counsel has*77 standing. The irony is of course, if

   Respondent or Respondent's counsel does take the matter up with

   the Superior Court, where the Respondent will have the burden of

   proof, and if the Superior Court finds that the Trusts

   are valid, then the Respondent will be barred by res judicata

   from asserting the sham trust claim that forms the basis for his

   deficiency determination.

     5. * * * In essence the factual claims raised by the Motion

   to Dismiss are inextricably intertwined with the facts going to

   the merits of the Commissioner's sham trust claim at issue in

   this case. If the Trusts are valid, then Mr. Wilde, under

   Arizona Law, will be presumed to be the duly authorized trustee,

   whether it is as a Trustee of the resulting trust, constructive

   trust or expressed [sic] trust. Therefore, the only course

   available to this Court is to defer consideration of the

   jurisdictional claims to the trial on the merits.  Farr v.

   United States, 990 F.2d 451, * * * [454] n.1 (9th Cir., 1993).

  Careau Group v. United Farm Workers [of Am.], 940 F.2d 1291,

*78    1293 (9th Cir. 1991).  See also Rosales v. United States, 824

   F.2d 799, 803 (9th Cir. 1987) ("A * * * [district] court may

   hear evidence and make findings of fact necessary to rule on the

   subject matter jurisdiction question prior to trial, IF THE

JURISDICTIONAL FACTS ARE NOT INTERTWINED WITH THE MERITS."

   (Emphasis added))

The Court held a hearing on respondent's motion. At that hearing, Mr. Wilde appeared on behalf of petitioners. ¹ Petitioners proffered no evidence, and the parties presented no new arguments, at that hearing.

DISCUSSION

Rule 60² provides in pertinent part:

     (a) Petitioner: (1) Deficiency or Liability

   Actions: A case shall be brought by and in the name of

*79    the person against whom the Commissioner determined the

   deficiency (in the case of a notice of deficiency)

   * * * or by and with the full descriptive name of the

   fiduciary entitled to institute a case on behalf of

   such person. See Rule 23(a)(1). 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. * * *

     *     *     *     *     *     *     *

     (c) Capacity: * * * The capacity of a fiduciary or other

   representative to litigate in the Court shall be determined in

   accordance with the law of the jurisdiction*80 from which such

   person's authority is derived.

The parties do not dispute that each petitioner is a trust organized under the laws of, and doing business in, the State of Arizona. Under Arizona law, see Rule 60(c), a trustee has the power to commence litigation on behalf of a trust. See Ariz.Rev. Stat. Ann. sec. 14-7233.C.25. (West 1995). In the instant case, each petitioner has the burden of proving that this Court has jurisdiction, see Fehrs v. Commissioner, 65 T.C. 346, 348 (1975); National Comm. to Secure Justice in the Rosenberg Case v. Commissioner, 27 T.C. 837, 839 (1957), by establishing affirmatively all facts giving rise to our jurisdiction, see Wheeler's Peachtree Pharmacy, Inc. v. Commissioner, 35 T.C. 177, 180 (1960); Consolidated Cos., Inc. v. Commissioner, 15 B.T.A. 645, 651 (1929). In order to meet that burden, each petitioner must provide evidence establishing that Mr. Wilde has authority to act on its behalf. See National Comm. to Secure Justice in the Rosenberg Case v. Commissioner, supra 27 T.C. at 839-840; Coca-Cola Bottling Co. v. Commissioner, 22 B.T.A. 686, 700 (1931). We reject*81 petitioners' position that under Arizona law the validity of the purported appointment of Mr. Wilde as co-trustee of each petitioner falls within the exclusive jurisdiction of the courts of the State of Arizona.

On the record before us, we find that each petitioner has failed to establish that Mr. Wilde is authorized to act on its behalf. ³

To reflect the foregoing,

An order of dismissal for lack of jurisdiction granting respondent's motion will be entered.