If you have a California entity, failure to timely file statements of information or timely pay or file state income taxes can lead to the entity’s suspension. Under CA law, when an entity is suspended, its corporate powers, rights, and privileges are suspended. In addition, any contract entered into by the entity during the suspension is not enforceable unless the now revived entity seeks and obtains a Certificate of Voidability from the CA Sec. of State.
In Medical Weight Control Specialists, TC Memo 2015-52, the Tax Court recently held that an entity that is suspendd cannot petition the U.S. Tax Court for any disputed tax liabilities after a notice of deficiency has been issued. In short, taxpayers that receieve a 90-day letter (or notice of deficiency) will be unable to petition the U.S. Tax Court if they are suspended. The court held that this holds true, even if the entity later acquires a Certificate of Voidability as the right to file a petition is not contractual.
While all suspended entities should take steps to lift their suspension, it is imperative for any entity that is under audit or which has a disputed tax liabillity.
If, however, the suspension cannot be lifted in a timely manner, the entity would likely still be able to sue in Federal Court, it would just have to pay the tax first, and then sue for a refund.