T.C. Memo. 2000-57
UNITED STATES TAX COURT
PHOTO ART MARKETING TRUST, JIMMY C. CHISUM, TRUSTEE, AND PHOTO
ART PUBLISHING TRUST, JIMMY C. CHISUM, TRUSTEE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16506-98. Filed February 23, 2000.
Jimmy C. Chisum, for petitioners.
David W. Otto and Doreen M. Susi, for respondent.
MEMORANDUM OPINION
CHIECHI, Judge: This case is before the Court on respon-
dent'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.
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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 peti-
tioner 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 peti-
tioner 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 indi-
cated 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
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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
P.O. BOX 4047
SEDONA, AZ 86340-4047 473
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. § 14-7233 C. 25. Mr. Chisum is not
the trustee, but rather claims to be an “agent” for the
trustee.
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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. See A.R.S. § 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 Sub-
stitution 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 Re-
spondent has conceded that a Trustee of an expressed
[sic] trust has the capacity to proceed, the Respon-
dent’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.
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The Court had the document entitled “NOTICE OF SUBSTITUTION
OF FIDUCIARY” referred to in petitioners’ response to respon-
dent’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 capac-
ity 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 docu-
ments 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.
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The appointment takes effect immediately and asks
that the Successor waive all time and notice require-
ments in the appointment and resignation.
Executed this 21st day of December, in the year of
Our Lord, 1998.
D & E SWORD TRUSTEE Co.
TRUSTEE
by: /s/
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.
Executed this 21st day of December, in the year of
Our Lord, 1998.
J C Chisum
TRUSTEE
by: /s/
J C Chisum, Trustee
John Wilde
by: /s/
John Wilde, Trustee
The respective documents entitled “MINUTE OF TRUSTEE RESIG-
NATION” relating to petitioners state:
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D & E SWORD TRUSTEE CO., does hereby resign the
position as Trustee for PHOTO ART MARKETING. By spe-
cial arrangement with the Successors, J. C. CHISUM &
JOHN WILDE, all the time clauses in this act are
waived. The resignation is immediate, final and ir-
revocable.
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.
Executed this 21st day of December, in the year of
Our Lord, 1998.
D & E SWORD TRUSTEE CO.
TRUSTEE
by: /s/
Donna Chisum, F/A/ for Trustee
Ratified, Accepted, Acknowledged this 21st day of
December, in the year of Our Lord, 1998.
J C Chisum
by: /s/
J C Chisum, Trustee
John Wilde
by: /s/
Respondent filed an objection to petitioners' motion (re-
spondent’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
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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 exis-
tence/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 required
to provide complete copies of the original trust docu-
ment(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
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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. § 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 substitu-
tion of fiduciary and in the Motion to Dismiss, is that
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the underlying facts related to jurisdictional question
raised in the Motion to Dismiss are inextricably inter-
twined with the facts going to the merits of the Peti-
tion 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 jurisdic-
tion 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 substi-
tution 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 jurisdic-
tional challenge, when the substitution of the fidu-
ciary 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 peti-
tioners’ motion. At that hearing, Jimmy C. Chisum (Mr. Chisum)
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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 provi-
sions 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 jurisdic-
tion 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 elect-
ed to substitute the trustees before –- well, I substi-
tuted 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 origi-
1
At the hearing the Court informed Mr. Chisum that its
allowing him to appear at the hearing as the alleged trustee of
each petitioner did not mean that the Court agreed that he in
fact was a duly appointed and authorized trustee of each peti-
tioner.
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nally 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 reason-
able time has been allowed after objection for ratifi-
cation 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 juris-
diction 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. See Ariz.
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.
2
All Rule references are to the Tax Court Rules of Practice
and Procedure.
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Commissioner, 27 T.C. 837, 839 (1957), by establishing affirma-
tively 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 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
3
Petitioners no longer contend that Mr. Chisum is authorized
to act on their behalf in this proceeding as the agent of D & E
Sword Co., and we conclude that they have abandoned any such
argument. Even if they had not abandoned such an argument, on
the record before us, we find that petitioners have not shown
that Mr. Chisum was properly employed by the trustee of each
petitioner in accordance with the laws of the State of Arizona.
See Ariz. Rev. Stat. Ann. sec. 14-7233.C.24. (West 1995). We
further find that, unless Mr. Chisum is a duly appointed and
authorized trustee of each petitioner, Mr. Chisum is not auth-
orized to represent or act in this proceeding on behalf of either
each petitioner or the trustee of each petitioner. See Rules 60
and 200.
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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 en-
tered.
4
We have considered all of the contentions and arguments of
petitioners that are not discussed herein, and we find them to be
without merit and/or irrelevant.