Tax Court Jurisdiction - Corporation with Revoked Charter

In the recently released Tax Court Memo, Allied Transportation, Inc. (Allied) v. Commissioner, Allied was a Maryland corporation up until 2004 when Maryland revoked the corporate charter for the corporation. The corporation was revived and later forfeited for failure to pay associated fees in 2007.


Even though the corporation was considered forfeited, the taxpayer continued conducting business under the corporation. The IRS then audited the 2010 tax return for the corporation and assessed roughly $80,000 in tax. The taxpayer disagreed and petitioned the Tax Court.


Under Rule 60(c), a corporation's ability to litigate is based on the state it is organized. Pursuant to Maryland law, when a corporation is forfeited, "the powers conferred by law on the corporation are inoperative, null, and void as of the date of the proclamation [of forfeiture]" Md. Code Ann., Corps. & Ass'ns sec 3-503(d). Maryland does allow for a winding up period after the corporate charter is revoked.


Here, the court decided that 10 years was too long of a wind up period for the corporation. Since the corporation had forfeited its status as a corporation, the corporation lacked the power to petition the Tax Court.


Practitioners should take note of this case. When starting an audit representation for a client, practitioners should check the status of the client's entity registration. Failure to do so could lead to a case like this where you may lack jurisdiction to appeal to Tax Court.


Footnote 2 of this case stresses the importance of checking your state laws to see what the corporate status means, "Some States have a fixed time limit for winding up, but other do not. Compare Tex. Bus. Orgs. Code Ann. sec. 11.356 (West 2012) (providing a three year period for purposes of prosecuting or defending in the terminated entity's name) with Mich. Comp. Laws Serv. sec 450.1833 (LexisNexis 2014) (providing that dissolved corporations shall continue in existence for the purposes of wing up). Reviewing courts generally allow a reasonable period. See, e.g. Flint Cold Storage v. Dep't of Treasury, 776 N.W.2d 387, 395-396 (Mich Ct. App. 2009).


Relevant Cites:
Allied Transportation, Inc. v. Commissioner, TC 2016-102
US Tax Court Rules of Practice and Procedure - Rule 60(c)