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Corporations Troubled by the IRS Need to Check State Filing Requirements

Defending against an IRS audit can be a long and arduous process, often draining the time and resources of a corporation's accounting or legal department. When this happens, the stress of responding to IRS demands for information and records will often lead to some everyday tasks being missed. However, it's important to remember that keeping current or getting up to date with your state's filing requirements may be a vital part of making sure the corporation is able to fight a notice of deficiency in Tax Court.

Tax Court Rule 60(c), which governs a Tax Court petitioner's capacity to participate in court proceedings, states that, 'The capacity of a corporation to engage in such litigation shall be determined by the law under which it is organized." In John C. Hom & Associates v. Commissioner, the Tax Court interpreted this to mean that, because the petitioner's corporate powers were suspended by the state in which it was organized when the petition was filed, the Tax Court did not have jurisdiction to hear the matter. 140 T.C. No 11 (May 7, 2013). It did not matter that the corporation had been reinstated by the time the case went to court, only that it was suspended when the petition was filed.

Keeping a corporation in good standing with the state in which it was incorporated can be challenging to a new business owner. Among other things, it means ensuring that all taxes - income, sales, excise, or other - are paid and that all returns, including information returns, are filed. In some states, just forgetting to file an annual form confirming a continued corporate existence can lead to the corporation being suspended. But in the middle of an IRS audit, it's easy to forget how important it is to stay on top of all of the other little details of business operations.

An Article I court, the U.S. Tax Court has its own procedural rules and requirements that are very specific and very different than the rules of other types of federal courts. A careful study and calendaring of deadlines and filing requirements can be the difference between a case being decided on a procedural issue rather than a substantive one. Corporations facing a federal tax audit should keep this rule in mind if they anticipate pursuing the matter to Tax Court.

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