Court Opinion

ID: 4332642
Source: CourtListenerOpinion
Date Created: 2018-11-14 00:47:51.541327+00
Date Added: 2024-06-11T07:59:11.668203
License: Public Domain

PHOTO ART MARKETING TRUST, JIMMY C. CHISUM, TRUSTEE, AND PHOTO ART PUBLISHING TRUST, JIMMY C. CHISUM, TRUSTEE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, RespondentPhoto Art Mktg. Trust v. CommissionerNo. 16506-98United States Tax CourtT.C. Memo 2000-57; 2000 Tax Ct. Memo LEXIS 65; 79 T.C.M. (CCH) 1537; February 23, 2000, Filed *65  An order denying petitioners' motion and an order of dismissal for lack of jurisdiction granting respondent's motion will be entered.  Jimmy C. Chisum, for petitioners.David W. Otto and Doreen M. Susi, for respondent.  Chiechi, Carolyn P.CHIECHIMEMORANDUM OPINIONCHIECHI, JUDGE: This case is before the Court on respondent's motion to dismiss for lack of jurisdiction (respondent's motion) and petitioners' motion to substitute party and change caption (petitioners' motion). We shall grant respondent's motion and deny petitioners' motion.BACKGROUNDFor purposes of respondent's motion and petitioners' 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. Each petitioner filed a Federal income tax return (return) for 1994, which was signed by Jimmy C. Chisum as agent for the trustee. Neither of those returns contained the name of the trustee or any information that enabled respondent to determine who the trustee of each petitioner was at the time each such return was filed.Upon commencement of the examination*66  of the 1994 return filed by each petitioner, 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 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 473The notice issued to Photo*67  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 473Photo 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 Jimmy C. Chisum, "as Agent for D. & E. Sword Trustee Co., the Trustee of Photo Art Marketing Trust and Photo 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. Mr. Chisum is not   the trustee, but rather claims to be an "agent" for the   trustee.     8. Arizona law does empower the trustee with the   right to employ persons, including attorneys and   agents, to assist the trustee in carrying out his   duties. SeeA.R.S. section 14-7233 C. 24. However, the   petition contains no evidence that Jimmy C. Chisum has   been properly "employed" by the trustee in accordance   with Arizona law.    *     *     *  *68     *     *     *     *     10. In summary, Mr. Chisum lacks the capacity to bring   the instant suit directly on behalf of the trust because he   is not the trustee. Additionally, Mr. Chisum lacks the   capacity to represent the trustee or any other person in   this proceeding because he is not an attorney or * * *   otherwise admitted to practice before this Court.     11. Since the petition in this case was not brought by   a party with proper capacity as required by T.C. Rule 60,   this case should be dismissed for lack of jurisdiction.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:     As the Petitioner has now appointed John P. Wilde   and Jimmy C. Chisum Trustees individually and not as   agents for Trustee, D. & E. Sword Co. and that D. & E.   Sword Co. has resigned as Trustee (See Notice of   Substitution of Fiduciary filed with this Response) all actions   will be taken by John P. Wilde in his capacity as Trustee of the   Trusts. Since counsel for the Respondent has conceded that *69  a   Trustee of an expressed [sic] trust has the capacity to proceed,   the Respondent's objections have been met and Rule 60(a), Rules   of Practice and Procedure, United States Tax Court prohibits   this Court from dismissing this action for lack of jurisdiction.   John P. Wilde hereby files herewith the amended petition and   ratifies by his signature below, the Petition originally filed   by Mr. Chisum when he was acting in his capacity as agent for   the former Trustee D. & E. Sword Co.The Court had the document entitled "NOTICE OF SUBSTITUTION OF FIDUCIARY" referred to in petitioners' response to respondent's motion filed as petitioners' "Motion to Substitute Party and Change Caption". Petitioners' motion alleges in pertinent part:     Notice is hereby given that John P. Wilde has been   appointed as Co-Trustee of Photo Art Marketing Trust   and Photo Art Publishing Trust along with Jimmy C.   Chisum * * * and D.&E. Sword Trustee Co. has resigned   * * *. John P. Wilde will be proceeding in his capacity as a   Trustee of an Expressed [sic] Trust. * * *attached to petitioners' motion are two documents relating to petitioner Photo*70  Art Marketing Trust and two documents relating to petitioner Photo Art Publishing Trust. Those two documents pertaining to each petitioner are entitled "APPOINTMENT OF SUCCESSOR TRUSTEE" and "MINUTE OF TRUSTEE RESIGNATION". Except for the name "PHOTO ART MARKETING" which appears in the two documents relating to petitioner Photo Art Marketing Trust and the name "PHOTO ART PUBLISHING" which appears in the two documents relating to petitioner Photo Art Publishing Trust, the documents entitled "APPOINTMENT OF SUCCESSOR TRUSTEE" and "MINUTE OF TRUSTEE RESIGNATION" are identical.The respective documents entitled "APPOINTMENT OF SUCCESSOR TRUSTEE" relating to petitioners state:     D & E SWORD TRUSTEE CO., does hereby appoint J C   Chisum & John Wilde, as the Successor Trustees for   PHOTO ART MARKETING.     The appointment takes effect immediately and asks   that the Successor waive all time and notice requirements in the   appointment and resignation.     Executed this 21(st) day of December, in the year of   Our Lord, 1998.             D & E SWORD TRUSTEE Co.               TRUSTEE             by:   *71    ns               Donna Chisum, F/A for Trustee     ACCEPTANCE OF APPOINTMENT AS SUCCESSOR TRUSTEE     D & E SWORD TRUSTEE CO., does hereby accept the   appointment of Successor Trustees and the resignation   of J C Chisum & John Wilde. The above resignation and   waiver of time is accepted, and with the accepting of   SUCCESSOR TRUSTEES, J C Chisum & John Wilde, assume the   duties and responsibilities as TRUSTEE for PHOTO ART   MARKETING.     Executed this 21(st) day of December, in the year of   Our Lord, 1998.               J C Chisum               TRUSTEE             by:     ns               J C Chisum, Trustee               John Wilde             by:     ns               John Wilde, TrusteeThe respective documents entitled "MINUTE OF TRUSTEE RESIGNATION" relating to petitioners state:     D & E SWORD TRUSTEE CO., does hereby resign the   position as Trustee for PHOTO ART MARKETING. By special   arrangement with the Successors, J. C. CHISUM & JOHN WILDE, all   the time clauses *72  in this act are waived. The resignation is   immediate, final and irrevocable.     This resignation takes effect immediately upon the   signing and endorsement by the Successor Trustee.     This is intended to release D & E SWORD TRUSTEE   CO., from all responsibility associated with the Trust.     Executed this 21(st) day of December, in the year of   Our Lord, 1998.             D & E SWORD TRUSTEE CO.               TRUSTEE             by:     ns               Donna Chisum, F nA for Trustee     Ratified, Accepted, Acknowledged this 21(st) day of   December, in the year of Our Lord, 1998.               J C Chisum             by:     ns               J C Chisum, Trustee               John Wilde             by:     ns   Respondent filed an objection to petitioners' motion(respondent's objection).  That objection asserts in pertinent part:     5.  To date, petitioners have never provided   respondent with any trust documents or any other sort   of documentary evidence*73  regarding who was the first   appointed trustee of the petitioners trusts. Without   the trust documents themselves, it is impossible to   determine whether subsequent appointments of successor   trustees are legal and/or valid.     6. Moreover, respondent's counsel contacted the Arizona   Corporation Commission to determine the existence/validity of   the entity petitioners refer to as 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 Jimmy C. Chisum.     7. In response to respondent's Motion to Dismiss for Lack of   Jurisdiction, petitioners provided to this Court copies of   documents alleging that D & E Sword Company was removed as   trustee and that both Mr. Chisum and Mr. Wilde have been   appointed successor trustees.     8. There is absolutely no evidence from which the Court can   adduce that*74  the documents referred to in paragraph 7., above,   create a legal assignment of Jimmy C. Chisum and John P. Wilde   as successor trustees. The documents petitioners submitted   appear to be self-serving and created solely in response to   respondent's original Motion to Dismiss for Lack of Jurisdiction.     9. Petitioners have provided no evidence that said   assignments are valid or authorized under the terms of the trust   indenture (assuming one exists).     10. At a minimum, petitioners should be to provide complete   copies of the original trust document(s) wherein the initial   trustee is appointed. Petitioners should also provide any and   all documents regarding the chain of appointments of subsequent   trustee appointments. If the initial trustee 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.     11. Without the evidence described above in paragraph 10.,   petitioners have failed to demonstrate that either Jimmy C.   Chisum or John P. *75  Wilde were legally appointed as subsequent   trustees authorized to act on behalf of the trusts and bring the   instant case before this Court. * * *     12.  The capacity of Mr. Chisum and/or Mr. Wilde   to act under Arizona law and bring the instant suit in   this Court has not been established.  For the foregoing   reasons, and the reasons detailed in respondent's   original Motion to Dismiss for Lack of Jurisdiction   filed with the Court on or about November 27, 1998, and   incorporated herein by this reference, the Court should   dismiss this case for lack of jurisdiction.Petitioners filed a reply to respondent's objection to petitioners' motion. In that reply, petitioners contend in pertinent part:     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. This   issue falls within the exclusive jurisdiction of the   superior court here in the State of Arizona. See   A.R.S. section 14-7201. Under the circumstances, this court   is powerless to determine*76  whether the Petitioner's   change of Trustees is valid. The Petitioners need not   remind the Court of the consequences of taking any   action over which subject matter is completely lacking.   The internal affairs, administration and the rights and   determinations of matters involving the Trustees is   just one of those areas where this court is completely   lacking in subject matter jurisdiction. Any objection   the Respondent or Respondent's counsel has in this area   must be taken up in the Superior Court, assuming of   course the Respondent or Respondent's counsel has   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 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.     What this court really faces, in dealing with the   Respondent's claims in the objection to the substitution of   fiduciary and in the Motion to Dismiss, is that *77    the underlying facts related to jurisdictional question   raised in the Motion to Dismiss are inextricably intertwined   with the facts going to the merits of the Petition pending in   this Court. Therefore, the only course available to this Court   is to defer consideration of the jurisdictional claims to the   trial on the merits. Careau Group v. United Farm Workers [of   Am.], 940 F.2d 1291">940 F.2d 1291, 1293 (9th Cir. 1991).  See also Rosales v.   United States, 824 F.2d 799">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))     Given the controlling law for this issue, it would   be facially an abuse of discretion to deny the substitution of   fiduciary when the initial filing from the Respondent objected   to the Petition on the grounds that this Court lacked   jurisdiction. Rule 60(a)(1), Rules of Practice and Procedure,   United States Tax Court does not permit the Respondent to   continue his*78  jurisdictional challenge, when the substitution of   the fiduciary answers all of the objections originally made in   the Motion to Dismiss. The objection was that an agent   for the Trustee cannot proceed in this matter. An agent for the   Trustee is no longer proceeding. One of the Co-Trustees is   proceeding in his own name. The fact that the Petitioners   changed trustees to answer the objection is not a matter that   this Court can concern itself with, unless the presiding judge   is prepared to expose himself/herself, the Respondent and   the Respondent's counsel to personal liability.The Court held a hearing on respondent's motion and petitioners' motion. At that hearing, Jimmy C. Chisum (Mr. Chisum) appeared on behalf of petitioners.  1 At that hearing, Mr. Chisum argued in pertinent part:*79       The documents for the change of trustee to put me   personally in that position predate the petition to the   court. We have not yet engaged in discovery. When we   engage in discovery, that seems a more appropriate time   for the discovery items concerning the trust. I do   have concerns in the contract, about the privacy provisions of   the trust in the contract and when and how I reveal that and   that that's my concern as to why I have not yet submitted copies   of the trust or those other documents of the lineage of trustee,   so that the trust and correct trustee is myself in my personal   capacity and Mr. Wilde in his personal capacity that's a part of   the other motion.     And since the Superior Court of the State of Arizona by   that same state law has exclusive jurisdiction on the   validity of the trust and the validity of the trustee as the   party, it seems that this is a better process to be handled   through the discovery than in a motion to dismiss, and perhaps   the motion is just premature.    *     *     *     *     *     *     *     * * * In the original format of creating*80  the trust   there was a company trustee, and in my capacity in that   company I have the ability to substitute trustees. In   order to clarify and remove question as to who would be   the proper party to act and argue for the trust to   create and to hold the jurisdiction where I could argue   and have Mr. Wilde assist me in that argument, I elected to   substitute the trustees before -- well, I substituted myself   before the petition was due and then later decided that to have   assistance in some of the case that I would also include Mr.   Wilde.  But I was originally the real party of the trustee and   I'm still the original -- the real party.DISCUSSIONRule 602 provides in pertinent part:     (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 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*81  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   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. SeeAriz.Rev. Stat. Ann. sec. 14-7233.C.25. (West 1995). In the instant case, each petitioner has the burden of proving that this*82  Court has jurisdiction, see Fehrs v. Commissioner, 65 T.C. 346">65 T.C. 346, 348 (1975); National Comm. to Secure Justice in the Rosenberg Case v. Commissioner, 27 T.C. 837">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">35 T.C. 177, 180 (1960); Consolidated Cos., Inc. v. Commissioner, 15 B.T.A. 645">15 B.T.A. 645, 651 (1929). In order to meet that burden, each petitioner must provide evidence establishing that Mr. Wilde and Mr. Chisum have authority to act on its behalf.  3 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">22 B.T.A. 686, 700 (1931). We reject petitioners' position that under Arizona law the validity of the purported appointment of Mr. Wilde and Mr. Chisum as trustees of each petitioner falls within the exclusive jurisdiction of the State of Arizona.*83  We are not persuaded by the respective documents relating to petitioners entitled "APPOINTMENT OF SUCCESSOR TRUSTEE" and "MINUTE OF TRUSTEE RESIGNATION" that Mr. Wilde and Mr. Chisum are duly appointed and authorized trustees of each petitioner. On the record before us, we find that each petitioner has failed to establish that Mr. Wilde and Mr. Chisum are authorized to act on its behalf.  4To reflect the foregoing,An order denying petitioners' motion and an order of dismissal for lack of jurisdiction granting respondent's motion will be entered.  Footnotes1. At the hearing the Court informed Mr. Chisum that its allowing him to appear at the hearing as the alleged trustee of each petitioner did not mean that the Court agreed that he in fact was a duly appointed and authorized trustee of each petitioner.↩2. All Rule references are to the Tax Court Rules of Practice and Procedure.↩3. Petitioners no longer contend that Mr. Chisum is authorized to act on their behalf in this proceeding as the agent of D & E Sword Co., and we conclude that they have abandoned any such argument. Even if they had not abandoned such an argument, on the record before us, we find that petitioners have not shown that Mr. Chisum was properly employed by the trustee of each petitioner in accordance with the laws of the State of Arizona. See Ariz. Rev. Stat. Ann. sec. 14- 7233.C.24. (West 1995). We further find that, unless Mr. Chisum is a duly appointed and authorized trustee of each petitioner, Mr. Chisum is not authorized to represent or act in this proceeding on behalf of either each petitioner or the trustee of each petitioner. See Rules 60 and 200↩.4. We 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.↩