T.C. Memo. 2000-73
UNITED STATES TAX COURT
BANANA MOON TRUST, J.C. CHISUM, TRUSTEE, AND PURPLE
PASSION TRUST, J.C. CHISUM, TRUSTEE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 514-99. Filed March 3, 2000.
Jimmy C. Chisum, for petitioners.
Richard A. Rappazzo, 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). We shall grant respondent’s motion.
- 2 -
Background
For purposes of respondent’s 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
engaged in business in the State of Arizona.
Petitioner Banana Moon Trust filed a Federal income tax
return for estates and trusts, Form 1041 (return), for 1995 which
was signed by Jimmy C. Chisum (Mr. Chisum) as the fiduciary or
officer representing the fiduciary. Banana Moon Trust’s 1995
return did not contain the name of the trustee or any information
that would enable respondent to determine who the trustee was.
Petitioner Purple Passion Trust filed a return for 1995
which was signed by Mr. Chisum as the fiduciary or officer
representing the fiduciary. That return did not contain the name
of the trustee or any information that would enable respondent to
determine who the trustee was.
Upon commencement of the examination of each petitioner,
respondent requested complete copies of the trust documents
relating to each such petitioner as well as other information.
Each petitioner refused to provide respondent with the trust
documents and other information requested.
Although neither petitioner provided respondent with the
documentation and other information requested, respondent’s
examining agent obtained from an unrelated third-party financial
- 3 -
institution what appear to be the governing trust documents for
petitioner Banana Moon Trust and the governing trust documents
for petitioner Purple Passion Trust. Those governing trust
documents pertaining to each petitioner appear to be identical
except for the name of each petitioner reflected therein.
The respective governing trust documents relating to peti-
tioners state that they are “executed under the laws of the
Constitution for the United States of America and the Constitu-
tion for the State of Nevada”. Those documents identify the
original trustee of each petitioner as Sugartree, LLC. The
respective governing trust documents relating to petitioners
further provide in pertinent part:
1. The Anglo-Saxon Common Law Irrevocable Pure
Trust for Asset Protection Purposes, also known as an
Asset Protection Trust, created by this Contract and
Indenture on this 30th day of September, 1994, is
authorized to exist and function by and through its
Board of Trustees (hereinafter referred to as the
Board) pursuant to all of the conditions contained
herein, with certain assets to be administered by the
Trustee for the benefit of the Holders of Capital Units
(hereinafter referred to as Beneficiaries) represented
by Certificates of Beneficial Interest, in accordance
with the unalienable Anglo-Saxon Common Law rights
afforded to man. * * *
* * * * * * *
6. This Trust shall be originally domiciled in
the State of Nevada, and shall be interpreted and
construed under the Constitution of the United States
and the laws of the State of Nevada. The domicile, and
thereby the controlling interpretational laws under
which the Trust shall be construed, may be changed to
any other State or Nation as shall be deemed prudent,
- 4 -
wise, necessary, or appropriate by the Board [of Trust-
ees].
* * * * * * *
14. The Creator shall appoint a Fiduciary to
serve as “Protector” of the Beneficiaries. The Protec-
tor shall be an independent third party with no obliga-
tions to any other party to this Trust. The Protector
shall have the power to remove any Trustee who violates
any term or condition of this Trust agreement, or is in
breach of any Anglo-Saxon Common Law Trustee duty, and
shall have the power to appoint a Successor Trustee to
fill any vacancy which occurs for any reason.
* * * * * * *
16. The Board [of Trustees] shall have, except as
modified by the terms of this Indenture and the Minutes
of the Board interpreting the same, all of the powers
of Trustees under the Anglo-Saxon Common Law, as well
as those specified under the laws of the State of
Nevada. * * *
* * * * * * *
33. The Trustee may be replaced in any of the
following manners:
A. Resignation. The Trustee may resign with
or without cause at any time by sending a notice of his
intention to do so to the Trust principle [sic] office
by Certified Mail. However, such resignation shall not
be effective unless and until such time as a Successor
Trustee has accepted the appointment to assume the
duties and responsibilities of Trustee on the expira-
tion date of the outgoing Trustee, or thirty days after
receipt of the resignation, whichever occurs first.
B. Removal. Upon complaint for proper cause
by any agent or person appointed by the Trust, the
Protector shall appoint a Committee of Arbitrators
(hereinafter referred to as the Committee), to investi-
gate the complaint.
* * * * * * *
- 5 -
2. The Committee shall have the power,
upon meeting, investigation, and a two-thirds (2/3)
majority vote, to remove the Trustee for the following
specific reasons constituting proper cause: a) insol-
vency, b) negligence, c) incompetence, or d) failure to
perform fiduciary duties under the terms of the Con-
tract.
* * * * * * *
C. Incapacitation. In the event the Trustee
is unavailable to participate in the process of his
removal or the selection of a Successor Trustee, the
Protector shall have the authority to execute an affi-
davit, under oath, setting forth the unavailability of
the Trustee. * * *
D. Court Appointment. In the event it
becomes necessary to litigate the removal of a Trustee
and/or appointment of a Successor Trustee, the Trust,
by and through its Beneficiaries, may apply to a court
of competent jurisdiction for the appointment of a
Successor Trustee.
The notice of deficiency (notice) issued to petitioner
Banana Moon Trust for taxable years 1994 and 1995 was addressed
as follows:
BANANA MOON TRUST
SUGARTREE LLC TTEE
5804 WEST VISTA NO. 347
GLENDALE, AZ 85301-1341
The notice issued to petitioner Purple Passion Trust with respect
to taxable year 1995 was addressed as follows:
PURPLE PASSION TRUST
SUGARTREE LLC TTEE
5804 WEST VISTA AVENUE NO. 347
GLENDALE, AZ 85301-1341 040
- 6 -
Banana Moon Trust and Purple Passion Trust jointly filed a
petition in this Court. That petition was signed on behalf of
each petitioner by J.C. Chisum as “Trustee”.
Respondent’s motion contends in pertinent part:
14. There is absolutely no evidence from which
the Court can adduce that Mr. Chisum is the current
trustee of either of the petitioner trusts.
15. Petitioners have provided no evidence that
the appointment of Mr. Chisum (as trustee) was valid or
authorized under the terms of the respective trust
indentures * * *.
16. * * * petitioners have failed to demonstrate
that Mr. Chisum was legally appointed as trustee of
either of the petitioner trusts and therefore, [is]
authorized to act on behalf of the petitioner trusts
and bring the instant case before this Court. See T.C.
Rule 60(c).
Petitioners filed a response to respondent’s motion in which
they ask the Court to deny that motion. That response asserts in
pertinent part:
3. The Respondent’s objection goes to the manage-
ment of the trusts, their internal affairs, concerns
about their administration, the declaration of rights
and the determinations of matters involving the trust-
ees. As the Respondent concedes that these are “Ari-
zona Trusts” * * *, this issue falls within the exclu-
sive jurisdiction of the superior court here in the
State of Arizona. See A.R.S. § 14-7201. At this
point, this court is without jurisdiction to determine
whether * * * Mr. Chisum is the duly authorized Trus-
tee. The Petitioners need not remind the Court of the
consequences of taking any action over which subject
matter is completely lacking.
4. Any objection the Respondent or Respondent’s
counsel has in this area must be taken up in the Supe-
rior Court here in Arizona, assuming of course the
Respondent or Respondent’s counsel has standing. The
- 7 -
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 if 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.
5. * * * In essence the factual claims raised by
the Motion to Dismiss are inextricably intertwined with
the facts going to the merits of the Commissioner’s
sham trust claim at issue in this case. If the Trusts
are valid, then Mr. Chisum, under Arizona Law, will be
presumed to be the duly authorized trustee, whether it
is as a Trustee of a resulting trust, constructive
trust or expressed [sic] trust. Therefore, the only
course available to this Court is to defer consider-
ation of the jurisdictional claims to the trial on the
merits. Farr v. United States, 990 F.2d 451, * * *
[454] n.1 (9th Cir., 1993). 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 inter-
twined with the merits.”) (Emphasis added)
The Court held a hearing on respondent’s motion, at which
Mr. Chisum appeared on behalf of petitioners.1 At that hearing,
Mr. Chisum contended, inter alia:
I was one of the members of Sugar Tree, LLC, and subse-
quently substituted the trustee to give a better con-
trol in the tax matters and in the business administra-
tion.
1
At the hearing, the Court informed Mr. Chisum that its
allowing him to appear at the hearing on behalf of each
petitioner did not mean that the Court agreed that he in fact had
the capacity to be appearing on their behalf.
- 8 -
The fact that this trust is again administered
within the State of Arizona, it comes under the exclu-
sive jurisdiction of the courts of Arizona and the law
of Arizona for determining the real parties. * * *
* * * * * * *
There was [sic] subsequent items, subsequent
trustee replacements that are not a part of the record.
The role of protector that the Respondent brings up is
only one of the methods of removal of a trustee. Any
trustee has the authority and the power to resign at
any time. * * *
Petitioners presented no additional contentions and proffered no
evidence at the hearing on respondent’s motion.
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.
2
All Rule references are to the Tax Court Rules of Practice
and Procedure.
- 9 -
The respective governing trust documents pertaining to
petitioners suggest that each petitioner was organized as a trust
under the laws of the State of Nevada. However, in petitioners’
response to respondent’s motion and at the hearing on that
motion, Mr. Chisum asserted that the administration of each
petitioner trust is governed by the laws of the State of Arizona
and that the exclusive jurisdiction in determining the validity
of the trust and of the trustee is in the Superior Court of the
State of Arizona.
Assuming arguendo, as petitioners claim, that each peti-
tioner is a trust, the administration of which is subject to the
laws of the State of Arizona, under Arizona law, see Rule 60(c),
a trustee has the power to commence litigation on behalf of a
trust.3 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. Commis-
sioner, 65 T.C. 346, 348 (1975); National Comm. to Secure Justice
3
Assuming arguendo, as the respective governing trust
documents pertaining to petitioners suggest, that each petitioner
is a trust, the administration of which is subject to the laws of
the State of Nevada, under Nevada law, see Rule 60(c), a trustee
has the power to commence litigation on behalf of a trust if the
trust instrument so provides. See Nev. Rev. Stat. Ann. secs.
163.260 and 163.375 (Michie 1993). The respective governing
trust documents pertaining to petitioners stated in pertinent
part that the board of trustees of each petitioner trust was to
have “all of the powers of Trustees under the Anglo-Saxon Common
Law, as well as those specified under the laws of the State of
Nevada.”
- 10 -
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. Commis-
sioner, 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. Chisum has authority to act on its behalf. 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. Chisum as trustee of each petitioner falls within the exclu-
sive jurisdiction of the courts of the State of Arizona.
On the record before us, we find that each petitioner has
failed to establish that Mr. Chisum is authorized to act on its
behalf.4
To reflect the foregoing,
An order of dismissal for lack
of jurisdiction granting respon-
dent’s motion will be entered.
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.