MEMORANDUM OPINION
CHIECHI, 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.
BACKGROUND
For 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 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 473
The notice issued to Photo Art Publishing Trust was addressed as follows:
PHOTO ART PUBLISHING TRUST
D & E SWORD TRUSTEE CO TTEE
Photo 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.
* * * * * * *
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 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 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: 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.
J C Chisum
by: ns
J C Chisum, Trustee
John Wilde
John Wilde, Trustee
The 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 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.
Donna Chisum, F nA for Trustee
Ratified, Accepted, Acknowledged this 21(st) day of
December, in the year of Our Lord, 1998.
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 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 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. 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 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
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, 1293 (9th Cir. 1991). See also Rosales v.
United States, 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 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:
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 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.
DISCUSSION
Rule 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 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 Court has jurisdiction, see Fehrs v. Commissioner, 65 T.C. 346, 348 (1975); National Comm. to Secure Justice 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. Commissioner, 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. 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, 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.
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. 4
To reflect the foregoing,
An order denying petitioners' motion and an order of dismissal for lack of jurisdiction granting respondent's motion will be entered.