Tax Court In Brief | XC Foundation V. Comm'r | Tax Court Jurisdiction And Corporate Capacity To Seek Relief

• Jurisdiction: United States,Federal,California
• Law Firm: Freeman Law
• Subject Matter: Tax, Income Tax
• Author: Freeman Law
• Published date: 11 January 2023

Tax Litigation: The Week of January 2nd, 2022, through January 6th, 2023

• Mining v. Comm'r, T.C. Memo. 2023-1| January 4, 2023 | Marshall, J. | Dkt. No. 4989-20
• Henry v. Comm'r, T.C. Memo. 2023-2| January 5, 2023| Ashford, J. | Dkt. No. 18832-18

XC Foundation v. Comm'r, T.C. Memo. 2023-3| January 5, 2023 | Lauber, J. | Dkt. No. 9189-21X

Summary: XC Foundation ("XC") was incorporated in California in 2007. In 2008, the IRS issued XC a determination letter recognizing it as exempt from federal income tax under section 501(c)(3) and as a private foundation under section 509(a). On December 1, 2020, the state of California suspended XC's corporate powers, rights, and privileges pursuant to state law. On March 2, 2021, the IRS issued XC a final adverse determination letter revoking XC's tax-exempt status retroactively to January 1, 2016. The letter determined that XC, as of that date, no longer qualified for exemption from federal income tax under section 501(a) as an organization described in section 501(c)(3). On May 28, 2021, XC filed a petition seeking a declaratory judgment that the revocation was erroneous, and at that time XC's corporate powers had not been restored. The IRS filed a Motion to Dismiss for Lack of Jurisdiction, alleging that XC lacked the capacity either to initiate litigation in the Tax Court or to prosecute any part of the case. XC urged that Rule 60(c), which provides that "[t]he capacity of a corporation to engage in [Tax Court] litigation shall be determined by the law under which it was organized," violates its rights to equal protection, due process, and protection against cruel and unusual punishment.

Key Issues: Whether the Tax Court has jurisdiction to adjudicate XC's petition that sought a declaratory judgment that the revocation of its tax-exempt status was erroneous.

Primary Holdings: No. Because XC's corporate powers were suspended and had not been reinstated by the state of California when XC filed its petition or during the 90-day period in which the petition was required to be filed, the Tax Court lacked jurisdiction over the case. Case dismissed for lack of jurisdiction.

Key Points of Law:

Jurisdiction of the Tax Court. The U.S. Tax Court is an Article I court and possesses jurisdiction only to the extent conferred by Congress. See Freytag v. Commissioner, 501 U.S. 868, 870 (1991); see also 26 U.S.C. ' 7442. The Tax Court has jurisdiction to review controversies involving an entity's initial or continuing qualification...