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Petitioner formed Spirit Horse Ranch as a New Mexico
corporation in 1986, and it continued to exist throughout all of
the years in issue. That entity owned real property, maintained
bank accounts in its name, and conducted a business activity for
profit. All of these factors indicate that Spirit Horse Ranch was
not a sham and had a business purpose as well as a substantive
business activity. Higgins v. Smith, supra.
It is evident that petitioner did not dissolve Spirit Horse
Ranch pursuant to New Mexico law. She never filed a statement of
intent to dissolve the corporation even though she may have desired
no longer to use its form. To be sure, she admitted that she knew
how to dissolve corporations and that she needed to do so.
Further, petitioner's failure to comply with the filing of
biennial State franchise tax reports following the formation of a
corporation does not cause the corporation's automatic cessation.
"[S]uch non-compliance in the absence of * * * [a State forfeiture]
proceeding does not in anywise affect the legal existence of the
corporation." Skarda v. Commissioner, 250 F.2d 429, 435 (10th Cir.
1957), affg. 27 T.C. 137 (1956).
Finally, it is clear that petitioner did not transfer the
business assets of Spirit Horse Ranch to another entity. Spirit
Horse Ranch retained the real property (underlying land,
improvements, and mobile homes) and the bank accounts during the
years in issue. See Weigman v. Commissioner, 47 T.C. 596 (1967),
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