                        T.C. Memo. 1996-448




                      UNITED STATES TAX COURT



            PASADENA ENT CLINIC, P.A., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23236-94.                 Filed October 1, 1996.



     Afton Jane Izen, for petitioner.

     Christina D. Moss, for respondent.




                        MEMORANDUM OPINION

     DAWSON, Judge:   This case was assigned for disposition to

Special Trial Judge John F. Dean pursuant to section 7443A(b)(4)
                                 - 2 -

and Rules 180, 181, and 183.1    The Court agrees with and adopts

the opinion of the Special Trial Judge, which is set forth below.



                OPINION OF THE SPECIAL TRIAL JUDGE

     DEAN, Special Trial Judge:     On March 24, 1995, respondent

filed a motion to dismiss for lack of jurisdiction upon the

ground that under Tax Court Rule 60(c) petitioner, Pasadena ENT

Clinic, P.A. (ENT Clinic), lacks the legal capacity to engage in

litigation before the Court.    Petitioner filed an opposition to

respondent's motion on May 15, 1995.     The Court set a hearing on

the motion at the September 5, 1995, Houston, Texas, trial

session.   At the trial session, the parties appeared through

counsel, argued the motion, and filed a stipulation of facts.

     After the hearing on respondent's motion to dismiss,

petitioner filed on November 1, 1995, a Motion to Reopen Record

to Receive Additional Evidence, and on November 15, 1995, a

Motion to Stay Proceedings.     Respondent filed objections to both

motions and petitioner filed responses to each of respondent's

objections.

Background

     For calendar years 1990 and 1991, ENT Clinic filed Forms

1120, U.S. Corporation Income Tax Return.    On September 16, 1994,


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended. All Rule references are to
the Tax Court Rules of Practice and Procedure.
                                - 3 -

respondent mailed to petitioner a notice of deficiency in which

she determined Federal income tax deficiencies in the amounts of

$21,685 and $26,695 for 1990 and 1991, respectively, an addition

to tax under section 6651(a)(1) for 1991 in the amount of $3,831,

and penalties under section 6662(a) in the amounts of $5,388 and

$5,108 for 1990 and 1991, respectively.   Petitioner filed a

petition for redetermination on December 15, 1994.

     In her motion to dismiss respondent argues that 10 years

before the petition was filed in this case, petitioner, a Texas

professional association, was involuntarily dissolved for failure

to file its annual statement.   Thus, it is contended that

petitioner is not a proper party to file a petition with the

Court because it did not exist as a legal entity.

     Petitioner's response is that the State of Texas has no

power to dissolve a professional association.   Even if the State

has such power, petitioner argues, litigation of the corporate

tax liability may be pursued in this Court by petitioner's sole

shareholder for the benefit of the association.

     We rely upon the pleadings, the stipulation of facts with

attached exhibits, and status reports of the parties filed in

this case in deciding respondent's motion as well as those of

petitioner.

     Petitioner was organized under the laws of Texas as a

professional association on or about January 20, 1972.   Its

president and sole shareholder is Joe A. Izen, M.D. (Dr. Izen).
                                - 4 -

Through Dr. Izen, petitioner provides ear, nose, and throat

medical services in a clinic located in Pasadena, Texas, its

principal place of business.

     The parties have attached as exhibits to the stipulation:

(1) A copy of an order of involuntary dissolution of petitioner;

and (2) a copy of a letter from the Texas Secretary of State to

Dr. Izen dated December 17, 1984, declaring petitioner's

involuntary dissolution due to its failure to file an annual

statement for the year 1984 as required by section 21 of the

Texas Professional Association Act, Tex. Civ. Stat. Ann. art.

1528f (West 1980).

Discussion

     Rule 60, Tax Court Rules of Practice and Procedure, provides

that the capacity of a corporation to engage in litigation in

this Court shall be determined by the law under which the

corporation was organized.   See, e.g., Brannon's of Shawnee, Inc.

v. Commissioner, 71 T.C. 108, 111 (1978).

     Petitioner's Dissolution

     Under the facts of this case, petitioner's corporate

existence is governed by two separate but interrelated Texas

statutes.    Section 25 of the Texas Professional Association Act,

Tex. Civ. Stat. Ann. art. 1528(f) (West 1980) provides that:

     The Texas Business Corporation Act shall be applicable
     to professional associations, except to the extent that
     the provisions of the Texas Business Corporation Act
     conflict with the provisions of this Act; and
     professional associations shall enjoy the powers and
                                 - 5 -

     privileges and be subject to the duties, restrictions
     and liabilities of business corporations except insofar
     as the same may be limited or enlarged by this Act.
     This Act shall take precedence in the event of any
     conflict with the provisions of the Texas Business
     Corporation Act or the law.

     Under the authority of Tex. Bus. Corp. Act. Ann. art. 7.12

(West 1980), a corporation may be dissolved involuntarily by

order of the Secretary of State when it is in default by failing

to file "any report" within the time required by law.    Petitioner

essentially argues that its December 17, 1984, dissolution by the

Secretary of State was illegal because there is a "conflict"

between the provision of the Business Corporation Act, allowing

the Secretary of State to act as he did, and the Professional

Association Act, which contains no involuntary dissolution

provision.

     When two statutes are in pari materia, or cover the same

subject matter, they should be construed so that their provisions

are harmonized.     United States v. Caldera-Herrera, 930 F.2d 409,

411 (5th Cir. 1991).    Even if two statutes are in conflict to

some degree, they must be read to give effect to each unless it

is clear that the legislature intended to repeal the earlier

statute.   United States v. Cavada, 821 F.2d 1046, 1048 (5th Cir.

1987).

     We find no conflict between the pertinent provisions of the

two statutes.     The Professional Association Act makes the general

Business Corporation Act (that provides for involuntary
                               - 6 -

dissolution) applicable to professional associations unless there

is a conflict between the Acts but does not itself mention

involuntary dissolution.   If we follow petitioner's logic, any

provision of Texas statutory law not mentioned in the

Professional Association Act would be in "conflict" with it.

This argument is specious.   There is no conflict between the

Acts.   We think petitioner was lawfully dissolved on December 17,

1984.

     Petitioner's Capacity Under "Survival" Statute

     Petitioner argues that even if it was lawfully dissolved,

its sole shareholder, Dr. Izen, may pursue litigation for its

benefit in this Court because there is no time limit on the

survival of this cause of action.   To the contrary, respondent

argues that a corporation that has been dissolved under state law

and files a petition beyond the statutory period for "winding up"

its affairs has no capacity to prosecute an action in this Court,

citing among other cases, Lee Enterprises, Inc. v Commissioner,

T.C. Memo. 1992-629 (petition of Texas corporation dissolved more

than three years dismissed).

     Under article 7.12 of the Business Corporation Act, the

dissolution of a corporation does not impair "any remedy

available to or against such corporation, its officers,

directors, or shareholders, for any right or claim existing, or

any liability incurred, prior to such dissolution if action or

other proceeding thereon is commenced within three years after
                                 - 7 -

the date of such dissolution."    (Emphasis added.)   The effect of

this and its predecessor statute is to preserve remedies for pre-

dissolution claims and liabilities only.    Petitioner's liability

for deficiencies in income tax for the years 1990 and 1991 arose

only after the filing of the respective returns.      See sec.

6901(b).    The notice of deficiency issued by respondent therefore

relates to post-dissolution liabilities.

       In Hunter v. Fort Worth Capital Corp., 620 S.W.2d 547, 549-

550 (Tex. 1981), the Supreme Court of Texas noted that, at common

law, dissolution terminated the legal existence of a corporation.

Once dissolved, a corporation could neither sue nor be sued, and

all legal proceedings in which it was a party abated.     The court

considered the possibility that some principle of equity,

separate and apart from article 7.12 and its predecessor, might

keep alive a cause of action against a corporation for post-

dissolution liabilities.   The court found that the effect of the

statutes enacted prior to the enactment of article 7.12 in 1955

was:

       to supplant the equitable trust theory by declaring a
       statutory equivalent.   * * *
            We find no indication that the legislature intended for
       Article 7.12 to be interpreted any differently. * * *
       Therefore Article 7.12 expresses a legislative policy to
       restrict the use of the trust fund theory to pre-dissolution
       claims. * * * [Id. at 550-551; fn. ref. omitted.]
                               - 8 -

     Although its focus was on the "trust fund" doctrine,2 we

interpret the Hunter v. Fort Worth Capital Corp., supra, opinion

to hold that article 7.12 is the sole legal authority for a

dissolved Texas corporation to pursue claims or to defend against

liabilities.   See Anderson v. Hodge Boats & Motors, Inc., 814

S.W.2d 894, 896 (Tex. Ct. App. 1991); Weibel v. Martin Indus.,

Inc., 806 S.W.2d 345, 346 (Tex. Ct. App. 1991) (article 7.12 only

provides for survival of any right or claim existing or any

liability incurred before dissolution).   The Federal income tax

liabilities in this case are clearly post-dissolution liabilities

that are outside the cited statutory authority and may not be

litigated by petitioner.

     Although petitioner was dissolved at the time, absent a

notice to respondent of a fiduciary relationship under sections

6903 and 6212(b)(1), respondent was justified in issuing the

notice directly to and in the name of petitioner.   Sec.

6212(b)(1); Great Falls Bonding Agency, Inc. v. Commissioner,

63 T.C. 304 (1974); Comfort Home Builders, Inc. v. Commissioner,

T.C. Memo. 1995-225.

     Petitioner's Motions




     2
      The trust fund doctrine is an equitable principle that
contemplates that assets of a dissolved corporation are held in
"trust" for the benefit of the creditors of the corporation. See
In re MortgageAmerica Corp., 714 F.2d 1266 (5th Cir. 1983);
Albert v. Commissioner, 56 T.C. 447 (1971).
                               - 9 -

     We next address petitioner's motion to reopen the record.

Petitioner asks the Court to reopen the record in the hearing on

respondent's motion to allow it to introduce a copy of a letter

to Dr. Izen from an attorney in the Office of the Secretary of

State of Texas.   The letter suggests that if certain measures

were taken, the dissolution of petitioner would be set aside, and

petitioner's existence would be reinstated as of December 17,

1984.

     Not only does this document contain hearsay, but by

obtaining the letter only after the hearing on the motion in this

case, petitioner has not shown due diligence.   See Haydon v.

Commissioner, T.C. Memo. 1991-42.   Further, as petitioner admits

in its motion to stay proceedings (discussed below), there has

been no reinstatement.   Absent a retroactive reinstatement,

admission of the proffered document would have no effect on the

outcome of our decision on respondent's motion.   For all the

above reasons, we will deny petitioner's motion to reopen the

record.

     Petitioner moves in its most recent motion to, in effect,

indefinitely continue consideration of respondent's motion until

it can obtain a declaratory judgment against the State of Texas

that it has a right to reinstatement of its charter for the

period 1984 through 1995.

     The decision to continue consideration of a motion lies in

the sole discretion of the Court and will not be set aside absent
                              - 10 -

a clear showing of abuse of discretion.   Manzoli v. Commissioner,

904 F.2d 101, 103 (1st Cir. 1990), affg. T.C. Memo. 1988-299;

Aruba Bonair Curacao Trust Co. v. Commissioner, 777 F.2d 38, 43

(D.C. Cir. 1985).   Only an "unreasoning and arbitrary insistence

upon expeditiousness in the face of a justifiable request for

delay" will be such an abuse of discretion.   United States v.

Torres, 793 F.2d 436, 440 (1st Cir. 1986) (citing Morris v.

Slappy, 461 U.S. 1, 11-12 (1983)).3

     The parties, by order dated July 3, 1996, were requested to

notify the Court of the status of petitioner's declaratory

judgment action filed in the District Court of Travis County,

Texas, in which retroactive corporate reinstatement was sought.

We have been informed by the parties that petitioner's

declaratory judgment action was dismissed for lack of

jurisdiction.   Petitioner's status report advises the Court of

its intention to move for a "new trial" or to appeal the decision

of dismissal.

     Based on the record, we see no reason to stay, continue, or

further delay our consideration of respondent's motion.

Therefore, we will deny petitioner's motion for a stay of

proceedings.


     3
      The cases cite various factors that may be used in deciding
the issue. Fowler v. Jones, 899 F.2d 1088, 1094 (11th Cir.
1990); United States v. 2.61 Acres of Land, 791 F.2d 666, 670
(9th Cir. 1985); United States v. Uptain, 531 F.2d 1281, 1286
(5th Cir. 1976).
                                - 11 -

Conclusion

     Having considered all of petitioner's arguments, we find

them to be without merit.    We hold that petitioner lacked the

capacity under Rule 60(c) to file a petition in this Court, and

we will grant respondent's motion to dismiss for lack of

jurisdiction.   See Condo v. Commissioner, 69 T.C. 149 (1977); Lee

Enterprises, Inc. v. Commissioner, T.C. Memo. 1992-629.    The

liabilities at issue here may be litigated on their merits in the

event respondent should issue a notice of transferee liability to

the appropriate person.     Sec. 6901; Great Falls Bonding Agency,

Inc. v. Commissioner, supra at 307.

                                     An order and order of dismissal

                                    will be entered.
