                   T.C. Memo. 2000-9



                UNITED STATES TAX COURT



RANGHILD ELTON, KENNETH SIEBERT, TRUSTEE, Petitioner v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 15455-98.                   Filed January 10, 2000.



     P executed a trust agreement in 1997 naming T as
her trustee and giving T authority to control her
assets and bank accounts and act in her stead for all
purposes. R determined deficiencies in P’s Federal
income tax for the year 1996. Pursuant to the trust
agreement, T filed a petition reflecting T, as trustee
for P, as petitioner. After the petition was filed,
the trust was voided ab initio. P contends that she
should be substituted as the proper party petitioner.
T contends that he is the proper party petitioner and
argues that, as the fiduciary who instituted the
proceeding, he is legally obligated and empowered to
continue even if the trust under which he derived
authority has been voided.
     Held: P is the proper party petitioner. Held,
further, T is no longer authorized to prosecute this action,
and P should be substituted as the party petitioner.
                                - 2 -

     Kenneth Siebert, pro se.

     Mark S. Mesler, for respondent.



                         MEMORANDUM OPINION

     GERBER, Judge:    Respondent, in a notice of deficiency

addressed to Ranghild Elton (Ms. Elton), determined a deficiency

in her 1996 Federal income tax and an accuracy-related penalty.

Pursuant to a trust agreement executed by Ranghild Elton, Kenneth

Siebert was empowered to, among other things, “file petitions to

the U.S. Tax Court”.    After the petition was filed, the trust was

voided ab initio.    Ms. Elton seeks to replace Kenneth Siebert and

to have herself substituted as petitioner, individually.

Respondent seeks to have Mr. Siebert dismissed from the case for

lack of this Court’s jurisdiction over him.    The question we

consider is:   Who is the proper party petitioner in this

proceeding, the trustee or the settlor of the voided trust?

Background

     Ms. Elton, on December 5, 1997, executed a trust agreement

naming Mr. Siebert as her trustee “to hold in trust, protect,

defend, and administer all * * * [her] financial and personal

affairs”.    The terms of the trust provide Mr. Siebert with

extensive authority to act on behalf of Ms. Elton, including

controlling her assets, bank accounts, etc., and acting in her

stead for all purposes, including among other significant powers
                               - 3 -

the authority to file suit, prepare and sign Federal income tax

returns, purchase and receive property, vote stock, make gifts,

etc., and generally to bind Ms. Elton with respect to all such

matters.   The trust agreement empowered Mr. Siebert to act for

and bind Ms. Elton and made Mr. Siebert attorney in fact over all

of Ms. Elton’s property and rights to property received into the

trust.

      Ms. Elton alleges that Mr. Siebert and another person

convinced her to place a substantial portion of her assets in a

“federal” trust.   In addition, she states that assurances were

made that she would not be required to report income attributable

to the trust assets, which, under the trust agreement, would no

longer belong to her.   Ms. Elton further alleges that, as a legal

matter, the trust agreement is a power of attorney.

Subsequently, Ms. Elton came to believe that the arrangement with

Mr. Siebert as trustee was an illegal scheme, and she brought

suit in Texas to have the trust declared void.    Final judgment

was entered by a State court of Texas during September 1999,

rendering the trust void ab initio.    The final judgment was

entered in accord with a compromise settlement agreement and

mutual release (settlement) executed by Ms. Elton, Mr. Siebert,

and a third person.

     Among other terms, the parties to the settlement agreed to a

mutual rescission of the trust.   In addition, Ms. Elton agreed to
                                - 4 -

be liable for “any Income Taxes or penalties or interest on such

taxes, which may exist by virtue of the Incident, or by virtue of

the recission and the voiding of the * * * [trust agreement] ab

initio”.   The final judgment, entered during September 1999,

required Mr. Siebert to deliver to Steve Robertson all documents

bearing Ms. Elton’s signature and relating to Ms. Elton’s

ownership of assets or accounts that had been subject to the

trust.

     Ms. Elton and respondent have reached agreement with respect

to Ms. Elton’s 1996 Federal income tax liability.    Ms. Elton

seeks to be recognized as petitioner in lieu of Mr. Siebert and

to have her attorney, Steve Robertson, enter his appearance to

represent her interests.    In conjunction with Ms. Elton’s

actions, respondent has moved to dismiss this case for lack of

jurisdiction as to Mr. Siebert and to change the caption to

reflect Ranghild Elton as petitioner in her own right.

     The trustee, Mr. Siebert, opposes his dismissal or

replacement as the party petitioner, contending that only he may

act as petitioner, in spite of the fact that the trust, of which

he was trustee when he filed the petition, has been voided ab

initio.    Ms. Elton, through her attorney, Mr. Robertson, has

executed an agreed decision and wishes to have the Court change

the caption so that the decision can be entered.    We also note

that Ms. Elton states that she has prepaid the agreed amount of
                                - 5 -

liability to respondent as to the 1996 tax year.    Mr. Siebert

contends, however, that he is the proper party petitioner, no tax

is owed, and that the merits of the case should be pursued by

means of a trial.    With that backdrop, we must decide whether Mr.

Siebert should remain the party petitioner and, if not, whether

Ms. Elton should be substituted for Mr. Siebert and whether Mr.

Robertson should be permitted to enter his appearance on behalf

of Ms. Elton.

Discussion

     No question has been raised as to whether the petition filed

by Mr. Siebert, as trustee, in response to the notice of

deficiency sent to Ms. Elton, was timely or valid, or whether Mr.

Siebert was authorized to file the petition, either individually

or on Ms. Elton’s behalf.    The controversy is focused on who is

the proper party to prosecute this matter following the voiding

of the trust.1    Mr. Siebert argues that he is the proper taxpayer

and petitioner, while Ms. Elton apparently contends that Mr.

Siebert has simply been the fiduciary.    The question we must

answer, however, is the same; i.e., whether Mr. Siebert has

capacity to prosecute this proceeding either as the taxpayer or

as a fiduciary.


     1
       Even if Mr. Siebert had not been authorized to file the
petition, there is a limited line of cases where ratification of
imperfect petitions has been permitted. See Holt v.
Commissioner, 67 T.C. 829 (1977); Brooks v. Commissioner, 63 T.C.
709 (1975); Carstenson v. Commissioner, 57 T.C. 542 (1972).
                                - 6 -

     Mr. Siebert further argues that, in spite of the settlement

and final judgment, as the fiduciary who instituted this

proceeding, he is legally obligated and continues to be empowered

to pursue it to a conclusion.   As a practical matter, Mr.

Siebert’s position is without reason because the trust under

which he derived authority has been voided ab initio.   He no

longer possesses trust powers enabling him either to represent

Ms. Elton’s interest or to act in her stead.

     Rule 60(c)2 provides that an individual’s capacity is based

on the law of domicile, and a fiduciary’s authority is determined

in accordance with the law of the jurisdiction from which

authority is derived.   Although Mr. Siebert has asserted that he

remains empowered to act and that, as a fiduciary, he is

compelled to complete the proceeding he instituted, he has not

referred us to any legal precedent under the laws of Texas or

Georgia that supports his position.

     Mr. Siebert, in response to Ms. Elton’s statement in support

of her position, presented a detailed explanation of how Ms.

Elton became involved with him in the trust relationship.    In

that regard, Mr. Siebert, by his explanation, seems to be

defending against Ms. Elton’s statement that she thought the

trust arrangement was an illegal scheme.   In deciding who is the



     2
       Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure.
                               - 7 -

proper party petitioner, we do not have to consider the merits of

whether the trust arrangement was an illegal scheme.   Mr.

Siebert, however, concluded his explanation with the

acknowledgment and confirmation that he, as a trustee, agreed to

terminate the trust and that the attorneys for the trustee signed

an agreement rendering the trust void.   On the last point, Mr.

Siebert asserts that neither the trustees nor their attorneys

have legal standing to void the trust, ab initio or otherwise.

Here again, Mr. Siebert provides no legal precedent for his

position.

     We are satisfied, based on the certified copy of the final

judgment of the District Court of Bosque County, Texas, that a

court of competent jurisdiction has rendered the trust void ab

initio.   Any infirmity that may exist in that final judgment must

be addressed in the Texas courts where the trust was voided.    Mr.

Siebert has not provided any ground for this Court to question

the effect or validity of the Texas court’s judgment and has not

shown that he remains qualified under State law to continue as

the petitioner in this proceeding.

     This is the first case to consider a fiduciary’s claim that

he remains empowered to pursue litigation where the trust from

which his authority was derived has been voided ab initio.    By

way of analogy, we have decided that a petition filed by a

trustee after the termination of the trust was not valid.    See
                                 - 8 -

Main-Hammond Land Trust v. Commissioner, 17 T.C. 942 (1951),

affd. on other grounds 200 F.2d 308 (6th Cir. 1952).      In the same

vein, we have retained jurisdiction over petitions filed while a

trust was active but had terminated after the petition was filed.

See Patz Trust v. Commissioner, 69 T.C. 497 (1977); Main-Hammond

Land Trust v. Commissioner, supra.       The principles of these

earlier opinions support our holding that while we retain

jurisdiction over petitions filed when a trust was active even

though subsequently voided, the trustee of a terminated or voided

trust should not be preferred to the true party in interest where

the trust has terminated or been voided and the subject of the

trust returned to the settlor.    In this situation, it is

appropriate to favor the settlor over the trustee.

     Mr. Siebert did cite some cases3 in support of his position

that he is and should continue as the taxpayer in this proceeding

and that Ms. Elton should not be allowed to be substituted as the

party petitioner herein.   Those cases, however, are inapposite

because they involve the question of who is obligated to report

income and generally turn on factors such as ownership and title

of income-producing property.    Here, no one has questioned Mr.

Siebert’s ability to file the petition commencing this case.       The



     3
       See Griffiths v. Helvering, 308 U.S. 355 (1939); Edward G.
Swartz, Inc. v. Commissioner, 25 B.T.A. 1065 (1932), affd. 69
F.2d 633 (5th Cir. 1934); Philadelphia Rapid Transit Co. v.
United States, 81 Ct. Cl. 289, 10 F. Supp. 591 (1935).
                                 - 9 -

question is whether he is authorized to continue as petitioner in

this case.    The voiding ab initio of the trust returns to Ms.

Elton the trust assets and authority to pursue this proceeding on

her own behalf, and we hold that she is the proper party

petitioner.   We also hold that Mr. Siebert is no longer

authorized to prosecute this action and that Ms. Elton should be

substituted as the party petitioner.4       Finally, Mr. Robertson

will be allowed to enter his appearance on behalf of Ms. Elton.

     To reflect the foregoing,

                                         An appropriate order will be

                                 issued.




     4
       Under Rule 63(d), this Court, on motion of a party or on
its own initiative, may order the substitution of the proper
party.
