1986 U.S. Tax Ct. LEXIS 56">*56 P, an Illinois corporation, was dissolved for failure to pay franchise tax and to file an annual report. Illinois law limited P's capacity to maintain a civil action, unless P remedied its failure to pay franchise tax and file annual report. P was required either to remedy the cause of dissolution or wind up its affairs during a 2-year period following dissolution, and P did neither. Thereafter, R issued a statutory notice of deficiency to P and P filed a petition with this Court. R moved to dismiss P for lack of capacity to maintain an action in this Court. This Court has held that Illinois dissolution statutes would preclude corporations from petitioning this Court. P contends that prior cases presented situations where the corporation was without assets and the shareholders would have their day in court when R sought to collect the tax in a transferee proceeding. P asserts that this case is different because dismissal of this case would result in assessment and collection of the tax without a remedy and because the assets were held by the corporation.
87 T.C. 586">*587 OPINION
Respondent determined, by means of statutory notices dated February 14, 1985, and September 9, 1985, deficiencies in Federal income taxes and additions to tax for the taxable years ended November1986 U.S. Tax Ct. LEXIS 56">*58 30, 1979, 1980, 1981, and 1982. Petitioner, a corporation which had been dissolved by the Secretary of State of Illinois for failure to file annual reports and pay franchise tax, filed two timely petitions in response to respondent's notices. Respondent moved to dismiss both cases because of petitioner's lack of capacity to sue or be sued under Illinois law and to initiate or maintain a proceeding in this Court. The parties stipulated that petitioner was a de facto corporation under Illinois law at the time of filing its petitions. 1
Petitioner was dissolved on December 1, 1977, and no action has been taken to reinstate retroactively its corporate status as a de jure corporation under the laws of the State of Illinois. Under chapter 32 of the Illinois Revised 1986 U.S. Tax Ct. LEXIS 56">*59 Statutes section 157.94 (effective July 1, 1933), petitioner was permitted 2 years from dissolution within which to commence the prosecution or defense of any actions or proceedings. Chapter 32 of the Illinois Revised Statutes was amended by section 12.80 (effective July 1, 1984) extending the period to 5 years instead of the 2 years originally permitted under section 157.94. Because the 5-year period would have run as of December 1, 1982, the 1984 change in 87 T.C. 586">*588 Illinois law would not have cured petitioner's apparent impediment in this case.
Respondent brought an action, during 1984, against petitioner and its president, Robert A. Perschall, to enforce an Internal Revenue Service summons seeking petitioner's records. The summons was issued in connection with respondent's investigation of Robert Perschall (Perschall). Perschall asserted his
Chief Judge Baker, by an order entered May 20, 1985, found that 1986 U.S. Tax Ct. LEXIS 56">*60 petitioner was "estopped from denying a corporate existence, despite its statutory dissolution. * * *
Petitioner argues that the District Court order established its status as a de facto corporation which, under Illinois law would have authority to maintain actions, including this proceeding pursuant to
1986 U.S. Tax Ct. LEXIS 56">*64 Corporations are creatures of statute and their existence and capacity are dependent upon the State law under which they were created.
In essence, 1986 U.S. Tax Ct. LEXIS 56">*65 chapter 32 of the Illinois Revised Statutes section 12.80 (effective July 1, 1984), and its predecessor section (chapter 32, section 157.94) provide for a 2- or 5-year period within which to reinstate corporate status by curing defects or otherwise to wind up its affairs (including the institution of a legal proceeding). These statutes place a clear and unambiguous limit upon a corporation's capacity and ability to institute or maintain a civil action in the State of Illinois unless the corporate status is restored by the remedy provided. To the extent discernable from the facts recited in our prior opinions, all of the taxpayer-corporations were either within the "winding-up period" or inactive and without assets from which respondent could collect the assessment attendant upon dismissal for lack of jurisdiction. Petitioner contends that the factual distinction of this case should provide a basis for us to consider it a de 87 T.C. 586">*591 facto corporation with capacity to maintain this proceeding. We do not agree.
State statutes which provide a limited period to wind up following dissolution represent a valid and constitutional exercise of legislative power.
We recognize that our holding will leave petitioner in the anomalous position of being unable to defend against the determination, assessment, and possibly the collection of Federal tax. It was, however, petitioner's shareholder-officer's failure to file annual reports or pay franchise tax, or to cure the defects during either the 2- or 5-year "winding-up period." Moreover, petitioner was operated beyond the clear legislative limit of its existence without 87 T.C. 586">*592 statutory authority or color of corporate existence due to its inability to acquire again a de jure existence. 4
1986 U.S. Tax Ct. LEXIS 56">*68 Our holding is not inconsistent with the District Court's order estopping petitioner from denying corporate existence for purposes of a summons enforcement action seeking corporate records. The District Court has properly denied petitioner's attempt to use its failure to comply with State law to thwart the rights of others to whom petitioner was held out as a corporation. 5
In view of the foregoing, we find, under the law of the State of Illinois, petitioner is without capacity to petition this Court for a redetermination of the two statutory notices of deficiency respondent issued. Respondent's motions to dismiss for lack of jurisdiction will be granted.
To reflect1986 U.S. Tax Ct. LEXIS 56">*69 the foregoing,
1. The parties have also stipulated that "In Illinois, the requisite elements for the existence of a
2. Unless otherwise indicated, all Rule references are to this Court's Rules of Practice and Procedure, and all section references are to the Internal Revenue Code of 1954 as amended and in effect during the years in issue.↩
3. Although petitioner's argument assumes that the corporate entity would be the subject matter of respondent's collection activity, there is case precedent which could mitigate against petitioner's concerns and produce the transferee factual setting contemplated in
4. The parties' stipulation that petitioner is a de facto corporation under Illinois law is recognized for purposes of this case. Our holding is limited to petitioner's capacity to petition this Court. We make no findings with respect to petitioner's status for any other purpose.↩
5. Petitioner has argued both that it exists and does not exist, depending upon which position is most advantageous at the time. Being estopped from using petitioner's impaired status to its own advantage or to the detriment of others is not the same as a determination that petitioner was a de facto corporation for all purposes, including capacity to sue.↩