Adorno Bus. Co. v. Comm'r

MEMORANDUM OPINION

DAWSON, Judge: This case was assigned to Special Trial Judge Robert N. Armen, Jr., pursuant to the provisions of section 7443A(b)(5) and Rules 180, 181, and 183. ¹ The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

ARMEN, Special Trial Judge: This matter is before the Court on respondent's motion to dismiss for lack of jurisdiction. Respondent maintains that Edwin R. Adorno (Mr. Adorno), the individual who signed the petition, is not a proper party authorized to bring suit on behalf of The Adorno Business*128 Company (Adorno Business) under Rule 60. As discussed in detail below, we shall grant respondent's motion and dismiss this case for lack of jurisdiction.

Background

Respondent issued a notice of deficiency to Adorno Business determining a deficiency in its Federal income tax for the taxable year 1998 in the amount of $ 758,744 and an accuracy-related penalty under section 6662(a) in the amount of $ 151,749. In the notice of deficiency, respondent disallowed the deductions claimed by Adorno Business on Schedule C, Profit or Loss from Business, because it "failed to establish the amount, if any, that was paid during the taxable year for ordinary and necessary business expenses and you failed to establish the cost or other basis of the property claimed to have been used in business". Respondent also disallowed the income distribution deduction claimed by Adorno Business because it "failed to establish that the requirements for deduction of IRC sections 651 or 661 were satisfied". Finally, respondent determined that Adorno Business is liable for an accuracy-related penalty due to negligence or disregard of rules and regulations, a substantial*129 understatement of income tax, or a substantial valuation overstatement.

The Court subsequently received and filed a petition for redetermination challenging the notice of deficiency. ² The petition was signed by Mr. Adorno as "Edwin R. Adorno (Director)". ³

Paragraph 4 of the petition, which sets forth the bases on which the notice of deficiency is challenged, alleges as follows:

   (1) Business trust are an acceptable business entity according

   to Reg. 301.7701-4(b). (2) Business trust has a business purpose

   for profit. * * * (3) Business deductions are allowed IRC

  section 661. ⁴

Respondent*130 filed a motion to dismiss for lack of jurisdiction. In the motion, respondent asserts that this case should be dismissed for lack of jurisdiction because "the petition in the instant case was not brought by a party with proper capacity". Respondent further contends:

     Upon commencement of the examination of petitioner's 1998

   taxable year, respondent requested a copy of the complete trust

   documents for petitioner. Petitioner failed to cooperate with

   respondent and provide the documents requested during the

   examination of this case.

     To date [July 22, 2002], petitioner has not provided

   respondent with trust documents which establish the chain of

   trusteeship from the creation of the trust until the time the

   petition was filed.

     Petitioner has not provided sufficient evidence that the

   appointment of Mr. Adorno, as trustee or as an agent of the

   trustee, was valid or authorized under the terms of the

   respective trust indentures.

Upon the filing of respondent's motion to dismiss, the Court issued an order directing Adorno Business to file an objection, *131 if any, to respondent's motion, taking into account Rule 60, and to attach to the objection a copy of the trust instrument or other documentation identifying the fiduciary or other representative with legal capacity to institute a case on behalf of Adorno Business.

Ultimately, the Court received an objection, leave for the filing of which was granted, to respondent's motion to dismiss. Mr. Adorno signed the objection as the "Director of The Adorno Business Company". In the objection, Mr. Adorno contends that he is Adorno Business' representative and authorized fiduciary with the authority to act as director, and to sign on behalf, of Adorno Business. In support thereof, Mr. Adorno attached to the objection a two-page document entitled "The Adorno Business Company, Minutes of Second Meeting, December 26, 1995" (second minutes). The second minutes provide, in part, as follows:

   At this, the SECOND MEETING of the Board of

   Directors ⁵ of The Adorno Business Company * * * a

   MAJORITY of the Directors being present, by unanimous accord the

   following was affirmed and ratified, viz:

           *  *132 *   *   *   *   *   *

     18. That the prime responsibility of the Board of Directors

     is to manage The Adorno Business Company, it's [sic]

     business, and it's [sic] assets in such a manner as to

     insure predominate consideration, for the welfare of the

     beneficiaries rights to income distributions. * * * And,

     that it is expected and hereby declared inviolate, that as

     Directors of The Adorno Business Company resign, retire,

     succumb, or are removed * * * their places will be filled

     on the Board of Directors, PREFERABLY by and from

     succeeding generations of blood relatives of the Directors

     of The Adorno Asset Management Company * * *.

     19. That, in the best interest of The Adorno Business

     Company, the Director hereby nominates, unanimously elects,

     and appoints Edwin R. Adorno as THE EXECUTIVE Director of

     The Adorno Business Company.

           *   *   *   *   *   *   *

   ns

   Edwin R. Adorno, *133 Director

The second minutes do not list the name of a "trustee" for Adorno Business nor make any reference to a "trustee".

The objection also challenges respondent's authority to determine a deficiency against Adorno Business because "IRR 301.7701-4(b) clearly states that: there is another entity that is like a trust, but it is not recognized (not known to exist) as a trust for internal revenue purposes".

At the Court's direction, respondent filed a response to the foregoing objection. Respondent contends that the second minutes do not establish that Adorno Business appointed Mr. Adorno as its trustee under Illinois law, and, therefore, Mr. Adorno is not authorized to act on behalf of Adorno Business.

Upon the filing of respondent's response, the Court issued an order directing both parties to file certain documents with the Court. Pursuant to the Court's order, respondent filed, inter alia, a complete copy of a Form 1041, U.S. Income Tax Return for Estates and Trusts (Form 1041), filed in the name of Adorno Business for 1998. ⁶ The Form 1041, which was executed by Mr. Adorno on September 15, 1999, lists the date the entity was created as December 22, 1995. *134

Specifically, the Court ordered Adorno Business to produce:

   (1) a complete copy of the organizational document(s)

   related to the creation of petitioner; (2) a complete

   copy of all the minutes that preceded in time the

   "Minutes of Second Meeting -December 26, 1995" that was

   attached to petitioner's*135 Objection filed September 3, 2002; and

   (3) any and all other documentation identifying the fiduciary or

   other representative thought to have legal capacity to institute

   this the present case on behalf of petitioner.

Ultimately, the Court received a response, leave for the filing of which was granted, to its order for document production. Mr. Adorno signed the response as "Edwin R. Adorno, Trustee, Adorno Business Company". ⁷ Mr. Adorno attached to the response, inter alia, a copy of an eight-page purported trust instrument dated December 22, 1995 (purported trust instrument), a two-page document entitled "The Adorno Business Company, Minutes of First Meeting, December 22, 1995" (first minutes), and a notarized affidavit dated October 17, 2002.

*136 The purported trust instrument ⁸ provides, in part, as follows:

         COMMON LAW BUSINESS ORGANIZATION

   THIS COMMON LAW CONTRACT IN THE FORMAT OF AN IRREVOCABLE



  DECLARATION OF TRUST AUTHORIZES ITS DIRECTORS TO OPERATE UNDER



               THE NAME OF



           The Adorno Business Company



          (referred to as the company)

            DATED December 22, 1995

     THIS agreement, conveyance and acceptance is made and

   entered into at the time and on the date appearing in the

   acknowledgment hereto attached, by and between The Adorno Asset

   Management Company CREATOR hereof and INVESTOR herein, Edwin R.

   Adorno, Acceptor*137 hereof in fee simple as Director who shall

   comprise the Board of Directors for conducting the business of

   The Adorno Business Company hereby established.

     THE CREATOR hereby constitutes and appoints the above

   designated Director to be, in fact, Director of The Adorno

   Business Company hereby created and established. THE CREATOR for

   and in consideration of the objects and purposes herein set

   forth and other considerations of value the receipt of which is

   hereby acknowledged, does hereby convey and deliver unto said

   Director, who is to hold title in fee simple, the sum of $ 10.00

   in cash and other considerations of value, which shall form the

   assets of this Company.

   The Adorno Asset Management Company shall receive, as part

   consideration for it's conveyance: All One Hundred (100) units

   of Interest in the income and assets of The Adorno Business

   Company.

           *   *   *   *   *   *   *

   THE DIRECTORS herein named, or their successors elected to fill

   vacancies, shall hold office, have and exercise*138 collectively the

   exclusive management and control of The Adorno Business Company

   property and business affairs.

           *   *   *   *   *   *   *

   POWER OF DIRECTORS: Directors' powers shall be construed as

   general powers of a citizen of the UNITED STATES OF AMERICA, to

   do anything any citizen may do in any state or country, subject

   to the type restrictions herein noted. They shall continue in

   business, conserve the property, commercialize the resources,

   extend any established line of business in industry or

   investment, as herein specially noted, at their discretion for

   the benefit of this Company, vis: perform as agents for the

   surface or mineral rights buy or sell mortgages, securities,

   bonds, notes, leases of all kinds, contracts or credits of any

   form, patents, trademarks, or copyrights buy, sell, or conduct

   mail-order business, or branches thereof operate stores, shops,

   factories, warehouses or other places of business, advertise,

   borrow money, pledging the Company property for the payment

   thereof, hypothecate*139 assets and other property, own stock in, or

   entire charters of TRUST COMPANIES, and or corporations, or

   other such properties, companies, or associations as they may

   deem advantageous.

           *   *   *   *   *   *   *

   OFFICERS AND MANAGEMENT: The Directors may in their discretion

   elect among their number, or any other person, an Executive

   Director, Executive Secretary, Treasurer Director * * *. Any

   Directors may hold two or more offices simultaneously, * * *

           *   *   *   *   *   *   *

   IN WITNESS WHEREOF the Creator/Investor and Acceptor hereof * *

   * have hereunto set their hands and seals.

   Director of The Adorno Asset Management Company (INVESTOR)

   ns

   Edwin R. Adorno, Director

Director of The Adorno Business Company

   ns

   Edwin R. Adorno, Director

   This document prepared by:

   Name: Attorney Edward Bartoli ⁹

Address: 11022 Southwest Hwy., Palos Hills, IL 60465 The purported trust instrument does not list the name of any "trustee" for Adorno Business nor*140 make any reference to a "trustee". Further, none of the provisions of the purported trust instrument grant the director the power to litigate on behalf of Adorno Business.

¹⁰

The first minutes 10 provide, in part, as follows:

At this, the FIRST MEETING of the BOARD OF DIRECTORS of

   The Adorno Business Company * * *. All Directors being present,

   by unanimous accord the following was affirmed and ratified,

   viz:

     1. That, pursuant to the request and declaration of The

     Adorno Asset Management Company, on this date, a Contract

     Creating This Entity creating The Adorno Asset Management

     Company (A Common Law Business Organization) was duly

     executed, acknowledging Edwin R. Adorno, its Director, and

     the above named person by their signature evidenced the

     acceptance of the duties, obligations and faithful

     performance of said Company.

           *   *   *   *   *   *   *

   3. * * * However, in order to acquire a proper [employer

   identification] number, the Director hereby changes*141 the name of

   The Adorno Business Company, by substituting the word

   "Trust" for the word "Company". * * *

           *   *   *   *   *   *   *

   ns

   Edwin R. Adorno, Director

The first minutes do not list the name of a "trustee" for Adorno Business nor make any reference to a "trustee".

The affidavit provides, in part, as follows:

   I, Edwin Adorno, * * * state as follows based on my personal

   knowledge:

     1. I am trustee of the Adorno Asset Management Trust

     lawfully authorized to represent and act on behalf of

     Adorno Asset Management Trust.

           *   *   *   *   *   *   *

   Date: 10/17/02

   ns

   Edwin Adorno, Trustee

   Adorno Asset Management Trust

The affidavit does not list the name of a "trustee" for Adorno Business nor make any reference to the purported trustee of Adorno Business.

Mr. Adorno also filed a supplemental objection with his response stating that he is the "trustee" of Adorno Business and attesting to his capacity and authority to act on behalf of Adorno Business. *142 In addition, Mr. Adorno submitted a "motion to vacate claims, motion for summary judgment and complaint under authority of 26 U.S.C. 7433, 7214(a)" which the Court filed as a Motion to Dismiss, challenging respondent's authority to assess tax against Adorno Business and stating that he is the trustee of Adorno Business. ¹¹

This matter was called for hearing at the Court's trial session in Chicago, Illinois. ¹² Counsel for respondent appeared at the hearing and offered argument and evidence in support of respondent's motion to dismiss. Specifically, respondent challenges the validity of all of the documents submitted by Mr. Adorno and contends that these documents do not demonstrate that Mr. Adorno has current representative capacity as trustee. Mr. Adorno appeared pro se, purportedly on behalf of Adorno Business. ¹³ Offering no evidence to supplement the previously submitted documents, *143 he asserted that "the minutes elected me as director" and "I stand by my stipulations and affidavits that are in the Court's [sic]".

*144

At the conclusion of the hearing, the Court directed the parties to file memorandum briefs in support of their respective positions. Respondent complied with this order, but Mr. Adorno failed to do so.

Discussion

According to respondent, Adorno Business failed to show that Mr. Adorno is a proper party authorized to act on its behalf. Respondent asserts that as a result, no valid petition has been filed and the Court must dismiss this case for lack of jurisdiction. We agree.

It is well settled that the taxpayer has the burden of affirmatively establishing all of the facts giving rise to our jurisdiction. See Patz Trust v. Commissioner, 69 T.C. 497, 503 (1977); Fehrs v. Commissioner, 65 T.C. 346, 348 (1975); Wheeler's Peachtree Pharmacy, Inc. v. Commissioner, 35 T.C. 177, 180 (1960); Natl Comm. To Secure Justice v. Commissioner, 27 T.C. 837, 838-839 (1957). Furthermore, unless the petition is filed by the taxpayer, or by someone lawfully authorized to act on the taxpayer's behalf, we are without jurisdiction. See Fehrs v. Commissioner, supra at 348.

Rule 60(a)requires that a case*145 be brought "by and in the name of the person against whom the Commissioner determined the 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)." Rule 60(c) states that the capacity of a fiduciary or other representative to litigate in the Court "shall be determined in accordance with the law of the jurisdiction from which such person's authority is derived." The record shows that Illinois State law is controlling in this case.

Under Illinois law, only the trustee ¹⁴ is authorized to commence litigation on behalf of a trust. 760 Ill. Comp. Stat. Ann.5/4.11 (West 1992). ¹⁵ In this respect, the Illinois Trusts and Trustees Act does not grant the power to sue on behalf of a trust to a director, a fiduciary, or any other legal representative. See Restatement, Trusts 2d, sec. 16A (1959) ("The officers and directors of a corporation, although they are fiduciaries, are not trustees."). In the present case, Adorno Business has failed to provide the Court with the documentary evidence necessary to support its contention that Mr. Adorno is its duly appointed trustee.

*146

As previously discussed, Adorno Business is purportedly an irrevocable trust wherein The Adorno Asset Management Trust (Adorno Asset) is the "Creator"/" Investor" and Mr. Adorno is the "Acceptor". ¹⁶ According to the purported trust instrument, Mr. Adorno was specifically designated "director" of Adorno Business. However, no provision of the purported trust instrument appoints or designates Mr. Adorno "trustee" for Adorno Business. We find it difficult to accept that the title "director" confers the legal status of trustee on Mr. Adorno. The purported trust instrument does not define the term "director", but it dictates that the director comprises the "Board of Directors" to "exercise collectively the exclusive management and control of The Adorno Business Company property and business affairs". Further, the purported trust instrument does not provide the director with the authority to institute legal proceedings on behalf of Adorno Business. ¹⁷ The specific duties, powers, and responsibilities set forth in the purported trust instrument are associated with the day-to-day management affairs of the business. Thus, the director's responsibilities appear to be nothing more than those*147 of a business manager.

Indeed, the first time Mr. Adorno claimed to be trustee for Adorno Business was in his response dated October 17, 2002, to the Court's order for production of documents evidencing Mr. Adorno's capacity as the purported "trustee" of Adorno Business. With the exception of the response, Mr. Adorno continually referred to himself as director and signed all relevant documents as director of Adorno Business. Without clear evidence in the purported trust instrument, we are unpersuaded that the term "director" is synonymous with the term "trustee" to accord Mr. Adorno the status of trustee. Accordingly, we conclude*148 that Mr. Adorno is not the duly appointed trustee of Adorno Business pursuant to Illinois law.

In the absence of any persuasive basis for concluding that Mr. Adorno was duly appointed as trustee for Adorno Business, we shall dismiss this case for lack of jurisdiction consistent with respondent's motion.

All of the arguments and contentions that have not been specifically analyzed herein have been considered, but do not require any further discussion.

In order to give effect to the foregoing,

An order of dismissal for lack of jurisdiction will be entered.