Recently I
received a call from a client requesting that certain records be sent to an
attorney as soon as possible, hopefully before noon.
It was not a
big request, just the QuickBooks files for two companies (those who know me
will understand the inside joke in that sentence). Activity in recent years has
been minimal, and the companies have been kept alive primarily because of a
lawsuit. The companies previously experienced one of the most astounding thefts
of intellectual property I have encountered. It sounds like the attorneys have now
stopped playing flag and are now playing tackle, as legal discovery is turning
up some rather unflattering information. We are talking retirement-level money here.
Notice what
I said: the companies have been kept alive.
Why?
Because it
is the companies that are suing.
Keeping the
companies alive means filing tax returns, renewing annual reports with the
secretary of state and whatever else one’s particular state of organization may
require. It may also require the owners kicking-in money to pay those taxes, registrations
and fees.
What if you
do not do this? To use a rather memorable phrase: what difference does it make?
Let’s talk
about the recent Timbron case.
There are
two Timbrons: the parent (Timbron Holdings) and the operating company (Timbron
Internation). For ease, we will call them both Timbron.
Timbron was
organized in California.
Timbron did
not pay state taxes.
By 2013
California has suspended corporate rights for both Timbrons.
In 2016 the
IRS showed up and issued Notices of Deficiency for 2010 and 2011.
In October, 2016
Timbron filed a petition with the Tax Court.
In November,
2016 the IRS filed its response.
A couple of
months later the IRS realized Timbron was no longer a corporation under
California law. This is a problem, as corporations are legal entities, meaning
they are created and sustained under force of law.
An attorney
at the IRS earned one of the easiest paychecks he/she will ever receive.
The IRS
moved to dismiss.
Timbron
fought back. Someone must have invested in a legal dictionary, as we are
introduced to “certificates of reviver.” Timbron continued on, arguing “vitality”
and “mere irregularities.”
I am not an
attorney, although I did a substantial portion of my Masters at the University
of Missouri Law School. When I come across gloss and floss like “vitality” and
so forth, I discern that an attorney is hard-pressed.
Here is the
Court:
With respect to corporate taxpayers like petitioners, a proper filing requires taxpayers tendering petitions to the Court to have the capacity to engage in litigation before this Court.”
To no one’s
surprise:
… we find that petitioners lacked capacity to timely file proper petitions.”
Timbron
lost.
On the most
basic of facts: it failed to maintain its corporate status under California
law.
