                        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.
                               - 2 -


                            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
                                 - 3 -


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.
                              - 4 -


          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.
                               - 5 -


     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.
                               - 6 -


          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:
                                - 7 -


          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
                         - 8 -


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
                               - 9 -


     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
                              - 10 -


    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)
                             - 11 -


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.
                                - 12 -


     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.
                              - 13 -


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.
                             - 14 -


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.
