TAX COURT OPINION

Case: Banana Moon Trust; J.C. Chisum, Trustee; and Purple Passion Trust; J.C. Chisum, Trustee
Docket Number: 514-99
Judge: Chiechi
Opinion Type: memo
Filed: 03/03/2000
Pages: 10

T.C. Memo. 2000-73 UNITED STATES TAX COURT BANANA MOON TRUST, J. C. CHISUM, TRUSTEE, ·AND PURPLE PASSION TRUST, J.C. CHISUM, TRUSTEE, Petitioners y. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 514-99. Filed March 3, 2000. Jimmy C. Chisum, for petitioners. Richard A. Rappazzo, for respondent. MEMORANDUM OPINION CHIECHI, Judge: This case is before the Court on respon- dent's motion to dismiss for lack of jurisdiction (respondent's motion). We shall grant respondent's motion. $ERvEQ MAR 3 2000 - 2 - 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 engaged in business in the State of Arizona. Petitioner Banana Moon Trust filed a Federal income tax return for estates and trusts, Form 1041 (return), for 1995 which was signed by Jimmy C..Chi'sum (Mr. Chisum) as the fiduciary or officer representing the fiduciary. Banana Moon Trust's 1995 return did not contain the name of the trustee or any information that would enable respondent to determine who the trustee was. Petitioner Purple Passion Trust filed a return for 1995 which wa.s signed by Mr. Chisum as the fiduciary or officer representing the fiduciary. That return did not contain the name of the trustee or any information that would enable respondent to determine who the trustee was. Upon commencement of the examination of each petitioner, respondent requested complete copies of the trust documents relating to each such petitioner as well as other information. Each petitioner refused to provide respondent with the trust documents and other information requested. Although neither petitioner provided respondent with the documentation and other information requested, respondent's examining agent obtained from an unrelated third-party financial - 3 - institution what appear to be the governing trust documents for petitioner Banana Moon Trust and the governing trust documents for petitioner Purple Passion Trust. Those governing trust documents pertaining to each petitioner appear to be identical except for the name of each petitioner reflected therein. The respective governing trust documents relating to peti- tioners state that they are "executed under the laws of the Constitution for the United States of America and the Constitu- tion for the State of Nevada". Those documents identify the original trustee of each petitioner as Sugartree, LLC. The respective governing trust documents relating to petitioners further provide in pertinent part: 1. The Anglo-Saxon Common Law Irrevocable Pure Trust for Asset Protection Purposes, also known as an Asset Protection Trust, created by this Contract and Indenture on this 30th day of September, 1994, authorized to exist and function by and through its Board of Trustees (hereinafter referred to as the Board) pursuant herein, with certain assets to be administered by the Trustee for the benefit of (hereinafter referred to as Beneficiaries) by Certificates of Beneficial with the unalienable Anglo-Saxon Common Law rights afforded to man. the conditions contained in accordance to all of Interest, the Holders of Capital Units * * * is represented * * * * * * * 6. This Trust shall be originally domiciled in the State of Nevada, and shall be interpreted and construed under the Constitution of and the laws of the State of Nevada. thereby the controlling interpretational which the Trust shall be construed, may be changed to any other State or Nation as shall be deemed prudent, the United States laws under The domicile, and - 4 - wise, necessary, or appropriate by the Board [of Trustees]. * * * * * * . * 14. The Creator shall appoint a Fiduciary to the Beneficiaries. serve as "Protector" of The Protector shall be an independent third party with no obligations to any other party to this Trust. shall have the power to remove any Trustee who violates any term or condition of this Trust agreement, or is in breach of any Anglo-Saxon Common Law Trustee duty, and shall have the power to appoint a Successor Trustee to fill any vacancy which occurs for any reason. The Protector * * * * * * * 16. the Board interpreting the same, all of The Board [of Trustees] shall have, except as modified by the terms of this Indenture and the Minutes of the powers of Trustees under the Anglo-Saxon Common Law, as well as those specified under the laws of Nevada. the State of * * * * * * * * * * 33. The Trustee may be replaced in any of the following manners: A. Resignation. The Trustee may resign with or without cause at any time by sending a notice of his intention to do so to the Trust principle [sic] office by Certified Mail. However, such resignation shall not be effective unless and until such time as a Successor Trustee has accepted the appointment duties and responsibilities of Trustee on the expiration date of receipt of the outgoing Trustee, or thirty days after the resignation, whichever occurs first. to assume the B. Removal. Upon complaint for proper. cause the by any agent or person appointed by the Trust, Protector shall appoint a Committee of Arbitrators (hereinafter referred to as the Committee), gate the complaint. to investi- * * * * * * * - 5 - 2. The Committee shall have the power, investigation, and a two-thirds (2/3) upon meeting, majority vote, specific reasons constituting proper cause: vency, b) negligence, c) incompetence, or d) perform fiduciary duties under the terms of tract. to remove the Trustee for the following insol- ·a) failure to the Con- 2 * * C. * * * * * Incapacitation. In the event the Trustee is unavailable to participate in the process of his removal or the selection of a Successor Trustee, Protector shall have the authority to execute an affidavit, under oath, setting forth the unavailability of the Trustee. the * * * . D. Court Appointment. In the event it becomes necessary to litigate the.removal of a Trustee and/or appointment of a Successor Trustee, by and through its Beneficiaries, may apply to a court of competent Successor Trustee. jurisdiction for the appointment of a the Trust, The notice of deficiency (notice) issued to petitioner Banana Moon Trust for taxable years 1994 and 1995 was addressed as follows: BANANA MOON TRUST SUGARTREE LLC TTEE 5804 WEST VISTA NO. 347 GLENDALE, AZ 85301-1341 . The notice issued to petitioner Purple Passion Trust with respect to taxable year 1995 was addressed as follows: PURPLE PASSION TRUST SUGARTREE LLC TTEE 5804 WEST VISTA AVENUE NO. 347 GLENDALE, AZ.85301-1341 040 - 6 - Banana Moon Trust and Purple Passion Trust jointly filed a petition in this Court. That petition was signed on behalf of each petitioner by J.C. Chisum as "Trustee". Respondent's motion contends in pertinent part: 14. There is absolutely no evidence from which the Court can adduce that Mr. Chisum is the current trustee of either Qf the petitioner trusts. 15. Petitioners have provided no evidence that the appointment of Mr. Chisum (as trustee) was valid or authorized under the terms of indentures * the respective trust * *. 16. * * * petitioners have failed to demonstrate the petitioner trusts and therefore, that Mr. Chisum was legally appointed as trustee of either of [is] authorized to act on behalf of and bring the instant case before this Court. Rule 60(c). the petitioner trusts See T.C. Petitioners filed a response to respondent's motion in which they ask the Court to deny that motion. That response asserts in pertinent part: the trusts, their internal affairs, concerns As the Respondent concedes that these are "Ari- The Respondent's objection goes to the manage- 3. ment of about their administration, and the determinations of matters involving the trustees. zona Trusts" * sive jurisdiction of State of Arizona. point, this court whether * tee. consequences of matter is completely lacking. The Petitioners need not remind the Court of * Mr. Chisum is the duly authorized Trus- taking any action over which subject this issue falls within the exclu- the superior court here in the See A.R.S. is without § 14-7201. At this jurisdiction to determine * *, * the declaration of rights the 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 - 7 - Respondent or Respondent's counsel has standing. 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 are valid, iudicata from asserting the sham trust claim that the basis for his deficiency determination. then the Respondent will be barred by res finds that The the Trusts forms 5. * * * In essence the factual claims raised by trust. Therefore, the Commissioner's issue in this case. the Motion to Dismiss are inextricably intertwined with the facts going to the merits of sham trust claim at If the Trusts are valid, then Mr. Chisum, under Arizona Law, will be presumed to be the. duly authorized trustee, whether it is as a Trustee of a resulting trust, constructive trust or expressed [sic] course available to this Court ation of meri.ts. 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, 1293 (9th Cir. 1991). See also Rosales v. United States,.824 F.2d 799, 803 (9th Cir. 1987) * hear evidence and make findings of rule on the subject matter jurisdiction question prior to trial, if the iurisdictional twined with the merits.") the jurisdictional claims to the trial on the the only is to defer consider- [district] court may fact necessary to (Emphasis added) facts are not ("A * * inter- * * The Court held a hearing on respondent's motion, at which (cid:16)042Mr. Chisum appeared on behalf of petitioner,s.¹ At that hearing, Mr. Chisum contended, inter alia: the members of Sugar Tree, LLC, and subse- I was one of quently substituted the trustee to give a better control tion. in the tax matters and in the business administra- ¹At the hearing, allowing him to appear at petitioner did not mean that the Court agreed that he in fact had the capacity to be appearing on their behalf. the Court informed Mr. Chisum that the hearing on behalf of each its - 8 - The fact that this trust is again administered within the State of Arizona, sive jurisdiction of of Arizona for determining the real parties. it comes under the excluthe courts of Arizona and the law * * * * * * * * * * There was [sic] subsequent items, subsequent trustee replacements that are not a part of The role of protector that only one of trustee has the authority and the power to resign at any time. the record. the Respondent brings up is Any the methods of removal of a trustee. * * * Petitioners presented no additional contentions and proffered no evidence at the hearing on respondent's motion. Rule 602 provides in pertinent part: Discussion (a) Petitioner: (1) Deficiency or Liability * Actions: A case shall be brought by and in the name of 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 fiduciary entitled to institute a case on behalf of such person. 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. A case ti.mely brought See Rule 23(a)(1). the * * * * * * * * * * (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 from which such person's authority is derived. 2All Rule references are to the Tax Court Rules of Practice and Procedure. - 9 - The respective governing trust documents pertaining to petitioners suggest that each petitioner was organized as a trust under the laws of the State of Nevada. However, in petitioners' responsé to respondent's motion and at the hearing on that motion, Mr. Chisum asserted that the administration of each petitioner trust is governed by the laws of the State of Arizona and that the exclusive jurisdiction in determining the validity of the trust and of the trustee is in the Superior Court of the State of Arizona. Assuming arguendo, as petitioners claim, that each peti- tioner is a trust, the administration of which is subject to the laws of the State of Arizona, under Arizona law, see Rule 60(c), a trustee has the power to commence litigation on behalf of a trust.3 See Ariz. Rev. Stat. kan. 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. Commis- sioner, 65 T.C. 346, 348 (1975); National Comm. to Secure Justice 3Assuming arguendo, as the respective governing trust that each petitioner to the laws of the State of the administration of which is subject documents pertaining to petitioners suggest, is a trust, the State of Nevada, under Nevada law, see Rule 60(c), a trustee has the power to commence litigation on behalf of a trust if the trust instrument so provides. 163.260 and 163.375 (Michie 1993). trust documents pertaining to petitioners stated in pertinent part have "all of Law, as well as those specified under the laws of Nevada." See Nev. Rev. Stat. Ann. secs. The respective governing the powers of Trustees under the Anglo-Saxon Common that the board of trustees of each petitioner trust was to - 10 - 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. Commis- sioner, 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. Chisum has authority to act on its behalf. See National Comm. to Secure Justice in the Rosenberg Case v. Commissioner, supra at 839-840; Coca-Cola Bottling Co. v. Commissioner, 22 B.T.A. 686, 700 (1931). We reject petitioners' position that under Arizona law the validity of the purported appointment of Mr. Chisum as trustee of each petitioner falls within the exclu- sive 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. Chisum is authoriz.ed to act on its behalf.4 To reflect the foregoing, An order of dismissal.for lack of jurisdiction granting resbon~ dent's motion will be entered. 4We have considered all of the contentions and arguments of petitioners that are not discussed herein, and we find them to be without merit and/or irrelevant.