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T.C. Memo. 1995-591
UNITED STATES TAX COURT
SPENCER M. STILLMAN AND SUZANNE J. STILLMAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 39448-85. Filed December 13, 1995.
Steve Mather and Elliott H. Kajan, for petitioner Suzanne J.
Stillman.
William E. Crockett, for petitioner Spencer M. Stillman.
Jack Klinghoffer, for respondent.1
MEMORANDUM OPINION
DAWSON, Judge: This case was assigned to Special Trial Judge Larry L.
Nameroff pursuant to section 7443A(b)2 and Rule 180-182. The Court agrees
with and adopts the opinion of the Special Trial Judge, which is set forth
below.
OPINION OF THE SPECIAL TRIAL JUDGE
NAMEROFF, Special Trial Judge: This case is before us on
1
Frederic J. Adam was specially recognized as attorney for the law
firm of Hochman, Salkin & DeRoy in connection with the subpoenaed testimony of
one of its employees.
2
All section references are to the Internal Revenue Code in effect
for the year at issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
the motion of petitioner Suzanne J. Stillman (hereinafter petitioner when used
in the singular) for leave to file a motion to vacate decision out of time
(the Motion for Leave). This case was one of many cases involving the tax
shelter project, referred to as the MAR oil cases, in which the taxpayers
invested in oil and gas partnerships. See Osterhout v. Commissioner, T.C.
Memo. 1993-251.
On September 10, 1985, respondent issued a notice of deficiency which
determined a deficiency in petitioners' 1981 Federal income tax, plus
additions to tax in connection with petitioners' investment in certain MAR oil
partnerships. The petition herein was timely filed on behalf of petitioners
by their then attorneys Bruce I. Hochman and Martin N. Gelfand of the law firm
of Hochman, Salkin and DeRoy (the Hochman firm). A Decision in this case was
entered by this Court "pursuant to an agreement of the parties" on April 13,
1990, providing for a deficiency in income tax in the amount of $84,309 and no
additions to tax. In addition to the signatures of the parties' attorneys,
the stipulated decision document bore the signatures of both petitioners
herein. Petitioner now seeks leave to vacate that decision in order to raise
the defense of "innocent spouse". Summary of Facts
By memorandum dated August 31, 1989, (the MAR Memorandum) Mr. Gelfand
communicated the terms and a detailed legal analysis of a settlement offer
concerning the MAR Oil cases to the MAR Oil investors, and solicited their
acceptance or rejection of the offer on an enclosed Statement of Settlement.
In part, the MAR Memorandum advised MAR Oil investors of the availability of
the innocent spouse defense. By signing the Statement of Settlement,
taxpayers represented that they received the MAR memorandum.
The Hochman firm mailed the MAR Memorandum and Statement of Settlement,
intended for both petitioner and Mr. Stillman, to 175 Sonoma Lane, Carmel
Highlands, California, which was Mr. Stillman's address (but an address at
which petitioner never resided). Mr. Stillman did not forward a copy of the
MAR Memorandum to petitioner. Mr. Stillman received and reviewed the MAR
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Memorandum, checked the box indicating acceptance of the settlement offer,
printed his and petitioner's names, signed his name, wrote in his up-dated
address, and mailed the Statement of Settlement back to the Hochman firm on
September 29, 1989.
Based on the Statement of Settlement received from Mr. Stillman and in
accordance with procedures established for this litigation project, respondent
was requested by the Hochman firm to send appropriate settlement documents
directly to Mr. Stillman, along with an enclosed return envelope to mail the
signed documents back to the Hochman firm. The documents (a Decision and a
Closing Agreement) were so transmitted and were signed and dated by Mr.
Stillman on November 27, 1989, forwarded to petitioner, signed and dated by
petitioner on December 18, 1989, mailed by petitioner, and received by the
Hochman firm on December 21, 1989. As noted earlier, it was not until April
13, 1990, that the Decision was submitted to and entered by the Court.
Petitioner understood that, as a result of signing the Decision, she had
an obligation to pay a deficiency in Federal income tax for 1981. Since
petitioner did not like owing a tax liability, she was anxious to make the
payment. Accordingly, petitioner had her accountant, Joseph Slattery, compute
her share of the final amount of tax, which she paid prior to receiving a bill
from the IRS. Petitioner looked to Mr. Slattery for computations, but she did
not believe that he represented her interests in the Tax Court case.
On June 10, 1986, a judgment dissolving the marriage between petitioner
and Mr. Stillman was entered, subject to the resolution of "reserved issues",
including disposition of substantial property interests. On February 4,
1988, petitioner signed her acceptance to a proposal made by her divorce
attorney to Mr. Stillman's divorce attorney, which included the following
language:
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It is agreed that, except in the case of fraud, misrepresentation,
or other action of which Suzanne had no knowledge or control, the
following obligations are to be considered community obligations:
* * * * * * *
(B) Any obligation for unpaid taxes, penalties, and
interest, for years in which joint returns were filed,
except to the extent that Suzanne would be entitled to
relief under the "innocent spouse" rule.
(C) Any obligation to the IRS or to certain holders
of notes with respect to the oil and gas shelters as
listed in the income tax returns.
On October 22, 1990, a Further Judgment on Reserved Issues (the Further
Judgment) was entered by the court in the divorce case. The Further Judgment
contained a provision which relieved either party of liability for unpaid
income taxes; i.e., "to the extent either party is relieved, in whole or in
part, of any liability in connection therewith pursuant to section 6013 of the
Internal Revenue Code or any successor statute (and/or any similar provision
of California law)." Petitioner was generally aware of the terms and
negotiations which led to the Further Judgment, but she did not pay close
attention to any provisions related to taxes because she did not understand
them. Petitioner looked to the Hochman firm for guidance as to the tax case
and did not discuss or rely on her divorce attorney with respect to any issues
relating to that case. Instead, she believed she had retained separate
specialists (tax and divorce) for separate actions (Tax Court case and divorce
case).
In a notice of deficiency dated October 14, 1992, respondent determined
deficiencies in petitioners' 1982 and 1983 Federal income taxes with respect
to the same MAR Oil partnerships at issue in 1981. Steve Mather and Elliott
H. Kajan timely filed a petition in response to the notice of deficiency. It
became Docket No. 28098-92. A decision was entered in that case on April 14,
1994, in which petitioner was relieved of any liability for the deficiencies
relating to the MAR Oil partnership based upon her qualification as an
innocent spouse.
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Subsequent to the entry of the Decision in Docket No. 28098-92,
petitioner learned of the MAR Memorandum. Thereafter, petitioner filed her
Motion for Leave and lodged her Motion to Vacate Decision in this case.
Discussion
The date of a decision of this Court is the date an order specifying the
amount of the deficiency is "entered" in the records of the Tax Court, which,
in this case, was April 13, 1990. Sec. 7459(c). A decision of this Court
becomes final upon expiration of the time to file a notice of appeal if no
notice of appeal is filed. Sec. 7481(a)(1). Generally, a notice of appeal
must be filed within 90 days after the decision is entered by this Court.
Sec. 7483; Fed. R. App. P. 13(a). A motion to vacate or revise a decision
must be filed within 30 days after the decision is entered unless the Court
"shall otherwise permit". Rule 162. A motion to vacate a decision, filed
more than 30 days after entry of the decision, may be filed only by leave of
the Court, usually by the granting of a motion for leave to file an untimely
motion to vacate. The granting of such a motion for leave to file a motion to
vacate, or the granting of a timely motion to vacate, lies within the sound
discretion of this Court. Heim v. Commissioner, 872 F.2d 245, 246 (8th Cir.
1989), affg. T.C. Memo. 1987-1; Lentin v. Commissioner, 237 F.2d 5, 6 (7th
Cir. 1956). If a motion to vacate has been timely filed, the 90-day period
for filing an appeal is terminated, and the full time commences to run after
the motion is adjudicated. Fed. R. App. P. 13(a).
Once a decision becomes final, this Court may vacate it only in narrowly
circumscribed situations. Helvering v. Northern Coal Co., 293 U.S. 191, 193
(1934). The Court may vacate a final decision if it is shown to be void, or a
legal nullity, for lack of jurisdiction over the subject matter or a party.
Billingsley v. Commissioner, 868 F.2d 1081 (9th Cir. 1989); Abeles v.
Commissioner, 90 T.C. 103, 105-106 (1988); Brannon's of Shawnee, Inc. v.
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Commissioner, 71 T.C. 108, 111-112 (1978). The Court may vacate a final
decision if there has been a fraud on the Court. Abatti v. Commissioner, 859
F.2d 115 (9th Cir. 1988), affg. 86 T.C. 1319 (1986); Senate Realty Corp. v.
Commissioner, 511 F.2d 929, 931 (2d Cir. 1975); Stickler v. Commissioner, 464
F.2d 368, 370 (3d Cir. 1972); Toscano v. Commissioner, 441 F.2d 930 (9th Cir.
1971), vacating and remanding 52 T.C. 295 (1969).
The decision in this case was entered pursuant to a stipulated
settlement. There was no trial; no evidence was adduced; no stipulations were
filed in the record; and the stipulated decision does not recite any factual
or legal bases upon which the deficiency was settled. The compromise and
settlement of tax cases is governed by general principles of contract law.
Robbins Tire & Rubber Co., v. Commissioner, 52 T.C. 420, 435-436, supplemented
by 53 T.C. 275 (1969); Brink v. Commissioner, 39 T.C. 602, 606 (1962), affd.
328 F.2d 622 (6th Cir. 1964). Where a decision is entered pursuant to a
stipulated settlement, the parties are usually held to their agreement without
regard to whether the decision is correct on the merits. Stamm International
Corp. v. Commissioner, 90 T.C. 315, 321-322 (1988); Spector v. Commissioner,
42 T.C. 110 (1964).
It is within this framework that petitioner asks for leave to file the
Motion to Vacate. Petitioner contends that by failing to advise her of the
innocent spouse "opportunity", Mr. Stillman and the Hochman firm committed a
fraud on this Court sufficient to justify granting the two motions.
Petitioner asserts that Mr. Stillman purportedly perpetrated this fraud by
failing to send the MAR Memorandum to her, while the Hochman firm ignored the
fact that the Statement of Settlement was not signed by petitioner and
proceeded to carry out the settlement process. Initially, respondent
filed no objection to granting of the Motion for Leave, but Mr. Stillman filed
an objection. Petitioner objected and contended that Mr. Stillman had no
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standing to contest these proceedings. The Court set the motion for a hearing
in which Mr. Stillman was permitted to participate. Although Mr. Stillman's
evidence was accepted for what it was worth, this Court generally gives little
weight to a taxpayer's opposition to the spouse's entitlement to innocent
spouse relief. See Garvey v. Commissioner, T.C. Memo. 1993-354; Estate of
Ravetti v. Commissioner, T.C. Memo. 1989-45. Respondent, on brief, argued
against granting the Motion for Leave.
We defined "fraud on the court" in Abatti v. Commissioner, 86 T.C. 1319,
1325 (1986), affd. 859 F.2d 115 (9th Cir.1988), as follows:
"Fraud on the court is "only that species of fraud which does, or
attempts to, defile the court itself, or is a fraud perpetrated by
officers of the court so that the judicial machinery can not
perform in the usual manner its impartial task of adjud[g]ing
cases that are presented for adjudication. Fraud, inter partes,
without more, should not be a fraud upon the court * * *" Toscano
v. Commissioner, 441 F.2d at 933, quoting 7 J. Moore, Federal
Practice, par. 60.33 (2d ed. 1970). To prove such fraud, the
petitioners must show that an intentional plan of deception
designed to improperly influence the Court in its decision has had
such an effect on the Court. * * * [Citations omitted.]"
The burden is on the moving party to show such fraud by clear and
convincing evidence. Kraasch v. Commissioner, 70 T.C. 623, 626 (1978);
Spielberger v. Commissioner, T.C. Memo. 1989-444. Gross neglect on the part
of taxpayer's counsel does not constitute fraud on the Court. Kenner v.
Commissioner, 387 F.2d 689 (7th Cir. 1968).
In our opinion petitioner has failed to establish that a fraud was
perpetrated on this Court. While it is true that petitioner did not receive a
copy of the MAR Memorandum, it does not follow that receipt by her of that
document would have made any difference. During that time frame, petitioner
was mainly concerned with the welfare of her son and paid little attention to
the various materials sent to her by her lawyers. Thus, we conclude that she
either knew or should have known about the innocent spouse defense because of
the ongoing negotiations between 1986 and 1990 related to her divorce and the
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division of property. Finally, even if Mr. Stillman's actions constituted
some sort of fraud, we do not think it was a fraud on the Court, but only as
to petitioner, for which some other remedy may be available in another forum.
As to the actions of the Hochman law firm in proceeding with the
settlement process without petitioner's signature on the Statement of
Settlement, we do not find that any fraud on the Court has been committed,
particularly in view of petitioner's signature on the stipulated decision
document. We are not called upon, and do not make, any finding as to whether
there was any neglect on the part of the Hochman firm.
Petitioner relies on Toscano v. Commissioner, 441 F.2d 930 (9th Cir.
1971), to support her claim of fraud on the Court. However, the facts in
Toscano are distinguishable from the instant case. Mr. Toscano was not
married when he filed what purported to be a joint return. The Court of
Appeals held that, if Ms. Zelasko could prove that Mr. Toscano either forged
her signature as his spouse or coerced her to sign the joint return against
her will, then Mr. Toscano perpetrated three frauds. First, he defrauded the
Commissioner by filing a fraudulent joint income tax return claiming he owed
less tax than allowed by the law. Second, he defrauded Ms. Zelasko by
purporting to make her liable for his taxes. Third, he carried this fraud to
the Tax Court when he petitioned the Court for a redetermination of the
deficiency. The fraud upon this Court culminated when the Court held Ms.
Zelasko liable for the tax deficiency.
Unlike Toscano v. Commissioner, supra, petitioners in this case filed a
joint return and were subject to joint and several liability for any
deficiencies with respect to their joint return. Sec. 6013(d)(3). Petitioner
was aware of the income tax case for which she could be held liable. She
authorized and relied upon the Hochman law firm to handle her 1981 tax
matters. She signed the stipulated decision entered by the Court. These
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facts clearly distinguish the Toscano case from the instant case.
Alternatively, petitioner urges this Court to grant the Motion for Leave based
upon the independent authority of Rule 60(b) of the Federal Rules of Civil
Procedure, which provides in pertinent part:
On motion and upon such terms as are just, the court may relieve a
party or a party's legal representative from a final judgment,
order, or proceeding for the following reasons: (1) mistake,
inadvertence, surprise, or excusable neglect; (2) newly discovered
evidence which by due diligence could not have been discovered in
time to move for a new trial under Rule 59(b); (3) fraud (whether
heretofore denominated intrinsic or extrinsic), misrepresentation,
or other misconduct of an adverse party; (4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged, or a
prior judgment upon which it is based has been reversed or
otherwise vacated, or it is no longer equitable that the judgment
should have prospective application; or (6) any other reason
justifying relief from the operation of the judgment. The motion
shall be made within a reasonable time, and for reasons (1), (2),
and (3) not more than one year after the judgment, order, or
proceeding was entered or taken. * * *
Petitioner's reliance on Rule 60(b) of the Federal Rules of Civil
Procedure is without merit. The Tax Court Rules of Practice and Procedure are
applicable here, along with the case law previously discussed. However, even
if Rule 60(b) were suitably adaptable to govern this situation, we note that
by its terms any such motion for fraud, misrepresentation, or other misconduct
of an adverse party must be made not more than one year after judgment
(decision) was entered. Petitioner failed to timely make any such motion.
Moreover, notwithstanding the cases cited by petitioner in her brief, we are
not persuaded that the record reflects the compelling equitable considerations
inherent in the phrase "any other reason justifying relief" contained in Rule
60(b)(6) of the Federal Rules of Civil Procedure.
Accordingly,
An order will be issued
denying petitioner's Motion for
Leave to File Motion to Vacate
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Decision Out of Time.