Notice of Deficiency

Posted on May 13, 2013

A corporation is recognized as a “separate person” under the law. But what happens if the corporation is not in good standing with the Secretary of State when it is required to take action?

In a recent Tax Court case, the IRS issued a Notice of Deficiency to a corporation that subsequently filed a Petition in the United States Tax Court. However, at the time the corporation filed the Petition in the Tax Court, the State of California had suspended that entity’s corporate status. The IRS subsequently moved to dismiss the Petition in the Tax Court for lack of jurisdiction for this reason. Essentially, the IRS argued that the corporation was no longer a “person” under the law and, as such, could not act on its own behalf. The Tax Court agreed with the IRS and dismissed the corporation’s Petition.

When a Petition is dismissed for lack of jurisdiction in the Tax Court, the IRS can subsequently assess the tax liability listed in the Notice of Deficiency against the corporation in full, including penalties and interest, even if the IRS’ position was incorrect.

Has the IRS issued a Notice of Deficiency to you or your business? Call us, we can help.