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respondent's decision to deal separately with
petitioner, and his notification to Hibiscus of same,
Hibiscus lacked the requisite authority to execute the
consents and that respondent is charged with knowledge
of that lack of authority. Accordingly, while the
elements relied upon by respondent may well be of
significance in another context, 'neither intent nor
failure to disavow nor ratification can create a power
that by law does not and cannot exist.' Malone & Hyde,
Inc. v. Commissioner, T.C. Memo. 1992-661, 64 TCM 1309
at 1316.
In sum, petitioner contends that respondent's purported direct
dealing with petitioner within the meaning of the last sentence
of section 1.1502-77(a), Income Tax Regs., precluded Hibiscus
from continuing to act as agent for petitioner in any respect.
We disagree.
The flaw in petitioner's position, and the factor that
serves to distinguish the present case from the cases relied upon
by petitioner, is petitioner's erroneous assumption that Hibiscus
(and its agents) lacked the legal capacity to act as petitioner's
agent. We return to the final sentence of section 1.1502-77(a),
Income Tax Regs., which provides: "Notwithstanding the
provisions of this paragraph, the district director may, upon
notifying the common parent, deal directly with any member of the
group in respect of its liability, in which event such member
shall have full authority to act for itself." (Emphasis added.)
Even assuming for the sake of argument that Hibiscus' authority
to act as petitioner's agent was terminated in April 1993
pursuant to this provision, we see no basis for interpreting the
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