T.C. Memo. 1996-208
UNITED STATES TAX COURT
TRANSPAC DRILLING VENTURE 1982-21, ASHER FENSTERHEIM, CHARLES L.
PINCUS, THOMAS D. CALLAHAN, DONALD W. DVORAK, AND THOMAS J.
WILLIAMS, PARTNERS OTHER THAN THE TAX MATTERS PARTNER,
ET AL.,1 Petitioners v.COMMISSIONER OF
INTERNAL REVENUE, Respondent
Docket Nos. 29181-86, 22689-87, Filed April 30, 1996.
19104-88, 5791-90.
Stafford Smiley and Graeme W. Bush, for Asher Fensterheim.
Victoria J. Kanrek, Mary Ann Amodeo, and Anthony H. Jones,
for respondent.
1
Cases of the following petitioners are consolidated
herewith: Transpac Drilling Venture 1982-21, Asher Fensterheim
and Charles L. Pincus, Partners Other Than the Tax Matters
Partner, docket No. 22689-87; Transpac Drilling Venture 1982-21,
Asher Fensterheim, A Partner Other Than the Tax Matters Partner,
docket No. 19104-88; and Transpac Drilling Venture 1982-15,
Thaddeus A. and Stella M. Dukes, Partners Other Than the Tax
Matters Partner, docket No. 5791-90.
2
MEMORANDUM FINDINGS OF FACT AND OPINION
CLAPP, Judge: These cases are before us on Asher
Fensterheim's Motion to Dismiss for Lack of Jurisdiction as to
Asher Fensterheim and to Strike (Fensterheim's Motion to Dismiss)
on the ground that he has entered into settlement agreements with
respondent pursuant to section 6224(c)(1) and, as a result, is no
longer a party to these proceedings pursuant to section
6226(d)(1)(A). The issue for decision is whether Asher
Fensterheim (Fensterheim) entered into settlement agreements with
respondent in Transpac Drilling Ventures 1982-15 and 1982-21 for
the taxable years 1982, 1983, and 1984. We hold that he did not.
All section references are to the Internal Revenue Code as
in effect for the years in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
FINDINGS OF FACT
These cases are consolidated for trial, briefing, and
opinion for the limited purpose of disposing of Fensterheim's
Motion to Dismiss. Some of the facts have been stipulated and
are found accordingly. We incorporate by reference the
stipulations of facts and attached exhibits.
Asher Fensterheim, resided in White Plains, New York, when
the petitions for readjustment of partnership items in these
cases were filed. Fensterheim is an attorney who specializes in
commercial law and insolvency.
3
During the taxable year 1981, Fensterheim was a partner in
Transpac Drilling Venture 1981-10 (Transpac partnership 1981-10),
docket No. 9906-90. Fensterheim's interest in Transpac
partnership 1981-10 resulted in a separate Tax Court case in
which a decision has been entered. Fensterheim's Motion to
Dismiss now before the Court does not involve Transpac
partnership 1981-10. Transpac partnership 1981-10 was not
subject to the unified audit and litigation procedures set forth
in sections 6221 through 6233 (the TEFRA provisions) enacted by
the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-
248, sec. 402(a), 96 Stat. 648, and amended retroactively by the
Deficit Reduction Act of 1984, Pub. L. 98-369, sec. 714(p)(1), 98
Stat. 494, 964.
During the taxable years 1982, 1983, and 1984, Fensterheim
was a partner in Transpac Drilling Ventures 1982-1, 1982-15, and
1982-21 (Transpac partnerships), and these Transpac partnerships
were subject to the TEFRA provisions. The principal place of
business of the Transpac partnerships was 230 Park Avenue, New
York, New York. Fensterheim and respondent agree that they have
settled Fensterheim's interests in the items related to Transpac
partnership 1982-1 for each of the years in issue. Items
relating to Transpac partnerships 1982-15 and 1982-21 remain at
issue for purposes of Fensterheim's Motion to Dismiss.
Transpac partnerships 1982-1, 1982-15, and 1982-21 were part
of respondent's Transpac national litigation project. Respondent
4
had assigned Michael Goldbas (Goldbas) as the lead attorney on
that project. The project encompassed over 2,000 partners, and
Goldbas was responsible for the administration and litigation of
the Transpac project.
Respondent mailed the tax matters partners of Transpac
partnerships 1982-15 and 1982-21 Notices of Final Partnership
Administrative Adjustments that set forth adjustments determined
by respondent for the taxable years 1982, 1983, and 1984.
In a letter dated September 25, 1990 (September 25th
letter), respondent mailed Fensterheim a separate Settlement
Agreement for Partnership Adjustments and Affected Items (Form
870-L(AD)) for each Transpac partnership, 1982-1, 1982-15 and
1982-21. Relevant portions of the September 25th letter state:
In re: Settlement of Tax Matters
Relating to Transpac
Drilling Venture
Dear Transpac Investor:
You are probably aware that the Service has
developed a settlement proposal with respect to matters
relating to the disallowance of the losses (and
credits) you reported from your Transpac Drilling
Venture. The pending settlement offer is that you
concede the full disallowance of all reported
partnership losses (and credits) and the Government
will concede all penalty issues. The interest on the
tax deficiencies resulting from this settlement will
run at 120% of the prevailing rate pursuant to I.R.C. §
6621(c).
* * * * * * *
In order to process the above described settlement
you must complete the enclosed form 870-L(AD) * * * in
the following manner: First, complete the section * *
5
* of the form entitled "Taxpayer(s) name(s), address
and zip code." * * *
* * * * * * *
Second, sign the form twice in the spaces entitled
"Signature of Taxpayer" and set forth the date you
signed the agreement. * * *
* * * * * * *
Please note that you are not obligated to accept
the above described settlement. After you have signed
and transmitted the enclosed forms, however, you will
not be able to retract your acceptance of the
settlement offer. * * *
* * * * * * *
After we receive the executed Form 870-L(AD) * * *
the form will be reviewed and executed by the Internal
Revenue Service. The settlement is not final until the
enclosed forms are signed by a representative of the
Internal Revenue Service.
The September 25th letter also set forth the address to which the
completed forms should be mailed.
The Form 870-L(AD) contains the following language: "the
undersigned offers to enter into a settlement agreement"; "This
offer is subject to acceptance for the Commissioner"; "Unless and
until it is accepted, it will have no force or effect"; "If this
offer is accepted for the Commissioner"; and "Date accepted for
Commissioner".
In November 1990 at Fensterheim's law offices, Fensterheim
met with Goldbas on a matter unrelated to these cases. When the
meeting ended, Fensterheim and Goldbas met privately to discuss
Fensterheim's Transpac partnerships. The two met for about 30
6
minutes and discussed the September 25th letter, the forms that
Fensterheim received from respondent, and the procedure for
settling Fensterheim's interests in the Transpac partnerships.
Sometime after the November 1990 meeting, Fensterheim asked
Goldbas what the deficiencies would be if Fensterheim agreed to
settle in each of the Transpac partnerships. In a letter to
Fensterheim dated February 13, 1991, Goldbas sent computations of
Fensterheim's tax deficiencies for the taxable years 1982 through
1985 based on the disallowance of losses and deductions from the
Transpac partnerships, 1982-1, 1982-15, and 1982-21. Fensterheim
asked his accountant, John Milo (Milo), to review the
computations.
Milo recalculated the tax deficiencies shown in Goldbas'
letter of February 13, 1991, and mailed the recalculated figures
to Goldbas in a letter dated March 14, 1991.
On May 10, 1991, Goldbas mailed Fensterheim a stipulated
decision for Transpac partnership 1981-10 and a revised
computation of the tax deficiencies for the years 1982 through
1985 based on the disallowance of losses and deductions from
Transpac partnerships 1982-1, 1982-15, and 1982-21. The relevant
portion of Goldbas' May 10, 1991, letter states:
Pursuant to your request we have computed the
deficiencies for the 1982, 1983, and 1984 years
resulting from the disallowance of Transpac Drilling
Venture losses. As you are aware, you are a petitioner
in the partnership actions that control the 1982, 1983,
and 1984 tax years relating to the Transpac Drilling
Ventures in which you are a partner. You wanted a
7
computation before you executed the consent form which
will result in the settlement of your Transpac Drilling
Venture losses. These computations account for the
matters raised in your accountant's letter of March 14,
1991. Your accountant agreed with our computation of
the tax deficiencies for the 1983 and 1984 years and
requested that we consider certain items that related
to the 1982 year that were allegedly not considered in
the original computations that we submitted to you on
February 13, 1991. Accordingly, as agreed, you will
execute the agreements relating to the assessment for
the 1982 through 1985 tax years as soon as possible.
In light of the status of the current partnership
actions, we will provide 30 additional days for the
execution of the Form 870-L agreements that we have
provided in order to resolve the tax deficiencies
relating to Transpac partnership items for the 1982
through 1985 years.
Milo reviewed the computations, revised them, and mailed the
revised computations to Goldbas in a letter dated June 3, 1991.
After unsuccessful attempts to reach Goldbas by phone,
Fensterheim sent a letter to Goldbas via Federal Express dated
June 7, 1991, stating that he wanted to discuss the various
settlement documents. After receiving Fensterheim's letter,
Goldbas called Fensterheim, and they discussed the various
documents.
On June 10, 1991, Fensterheim and his wife executed the Form
870-L(AD) for Transpac partnership 1982-1. They also executed
the stipulated decision for Transpac partnership 1981-10.
Fensterheim gave the executed documents to his secretary, Apryl
Deshler (Deshler).
On June 14, 1991, Fensterheim was in Boston, and he called
Deshler and instructed her to send the Form 870-L(AD) for
8
Transpac partnership 1982-1 and the stipulated decision document
relating to Transpac partnership 1981-10 to Goldbas. Deshler
prepared a cover letter dated June 14, 1991, and she signed
Fensterheim's name on his behalf. The relevant portion of the
letter states:
Re: Asher and Deborah Fensterheim
Transpac Drilling Venture
1982-1
Tax Years 1982, 1983, and 1984
Dear Mr. Goldbas:
In accordance with our telephone conversation, I
am forwarding to you form 870-L(AD) Settlement
Agreement for Partnership Adjustments and Affected
Items, which has been signed by both Asher Fensterheim
and Deborah Fensterheim.
I also enclose four copis [sic] of the Stipulation
and Decision in the Tax Court case, Docket No. 9906-90,
which has likewise been signed by both Asher
Fensterheim and Deborah Fensterheim.
I would appreciate your calling me upon receipt of
the enclosed as I would like to discuss with you what
the next steps will be.
On June 14, 1991, Deshler mailed a package to Goldbas that
contained the following: (1) The cover letter dated June 14,
1991, signed on behalf of Fensterheim by Deshler; (2) an executed
Form 870-L(AD) related to Transpac partnership 1982-1 for the
taxable years 1982, 1983, and 1984, bearing Fensterheim's and his
wife's original signatures, together with the accompanying
Schedule of Adjustments; and (3) the stipulated decision for
Transpac partnership 1981-10 bearing Fensterheim's and his wife's
9
original signatures. Fensterheim did not examine the contents of
this package.
Deshler did not testify at trial, and Fensterheim made no
attempt to contact Deshler to ascertain whether she had any
recollection of the events that transpired on June 14, 1991.
Respondent received the package mailed by Deshler and
processed the executed Form 870-L(AD) for Transpac partnership
1982-1 and the stipulated decision for Transpac partnership 1981-
10. Respondent's personnel had no personal knowledge and no
recollection of the package's being received or of the contents
of the package.
On July 22, 1991, respondent's authorized representative
countersigned the Form 870-L(AD) for Transpac partnership 1982-1,
and a copy of the countersigned Form 870-L(AD) was sent to and
received by Fensterheim. Fensterheim was aware that respondent
had 1 year from the date of settlement to assess his partnership
liabilities.
In October 1991, respondent filed two Notices of Settlement
with the Court. Each Notice of Settlement related to Transpac
partnership 1982-1. The Notices of Settlement indicated that
Fensterheim and respondent had entered into a binding settlement
on July 22, 1991, as to all partnership items related to Transpac
partnership 1982-1. Respondent served the Notices of Settlement
on Fensterheim. At no time did respondent file with this Court,
or serve on Fensterheim, any Notice of Settlement for
10
Fensterheim's partnership items in Transpac partnership 1982-15
or Transpac partnership 1982-21.
Respondent has no record of having received from Fensterheim
in 1991 an executed Form 870-L(AD) for either Transpac
partnership 1982-15 or Transpac partnership 1982-21.
In 1991 and 1992, respondent's Albany District Counsel
maintained settlement logs that constituted a record of documents
pursuant to Rule 248(c) received from Internal Revenue service
centers. During those years, respondent's Albany District
Counsel did not maintain a log reflecting: (1) Communications
from taxpayers about possible settlements; (2) receipt of Forms
870-L(AD) submitted by taxpayers; or (3) Forms 870-L(AD) received
from taxpayers by respondent's service centers.
On March 11, 1992, respondent attempted without success to
deliver to Fensterheim informal discovery requests for Transpac
partnership 1982-21. Respondent delivered these documents to
Fensterheim on June 23, 1992.
In a letter to Goldbas dated July 30, 1992, Fensterheim
stated that he had settled the various Transpac partnerships and
had paid the deficiencies.
In a letter to Fensterheim dated August 28, 1992, Rosalyn C.
Shaughnessy (Shaughnessy), a paralegal in respondent's Albany
District Counsel office, advised Fensterheim that respondent's
records indicated that Fensterheim and respondent had settled
11
Transpac partnership 1982-1 but not Transpac partnerships 1982-15
and 1982-21.
In a letter to Shaughnessy dated September 9, 1992,
Fensterheim stated that he had settled his interests in each
Transpac partnership, 1982-1, 1982-15, and 1982-21. Fensterheim
enclosed with his letter copies of three Forms 870-L(AD), one for
each Transpac partnership, 1982-1, 1982-15, and 1982-21.
Fensterheim's and his wife's signatures appeared on each of the
Forms 870-L(AD), but there were no signatures by respondent's
authorized representative.
In a letter to Fensterheim dated October 13, 1992, Goldbas
informed Fensterheim that duplicate settlement packages for the
Transpac partnerships 1982-15 and 1982-21 would be sent to him
and that he should execute and return them to the Andover Service
Center. Fensterheim did not execute these duplicate settlement
documents.
OPINION
Under the TEFRA provisions, the tax treatment of partnership
items is decided at the partnership level in a unified
partnership proceeding rather than separate proceedings for each
partner, Boyd v. Commissioner, 101 T.C. 365, 369 (1993), and
"affected items", items affected by the treatment of partnership
items (e.g. certain additions to tax), only can be assessed
following the conclusion of the partnership proceeding. See sec.
6225(a); Maxwell v. Commissioner, 87 T.C. 783, 791 n.6 (1986).
12
The assessment of tax attributable to partnership items of a
partnership subject to the TEFRA provisions shall be made with
respect to any partner during the period provided by section
6229(a) through (f). A settlement agreement converts partnership
items to nonpartnership items, and the partner that enters into
the settlement agreement is no longer treated as a party in the
partnership proceeding. Secs. 6226(d)(1)(A), 6231(b)(1)(C). The
period for assessment shall not expire before 1 year after the
settlement agreement is entered into. Sec. 6229(f).
Fensterheim argues that by virtue of settlement agreements
entered into with respondent for Transpac partnerships 1982-15
and 1982-21, he is no longer a party to these partnership
proceedings. Respondent argues that Fensterheim and respondent
have not entered into settlement agreements in Transpac
partnerships 1982-15 and 1982-21, and, therefore, Fensterheim
remains a party to these partnership proceedings.
General contract law principles govern tax case settlements.
Robbins Tire & Rubber Co. v. Commissioner, 52 T.C. 420, 435-436,
supplemented by 53 T.C. 275 (1969); Smith v. Commissioner, T.C.
Memo. 1991-412. Where the intent of the parties to settle is
evident and the terms of the settlement are otherwise
ascertainable, then a tax settlement agreement may be binding
even if it consists only of letters of offer and acceptance.
Treaty Pines Invs. Partnership v. Commissioner, 967 F.2d 206, 211
(5th Cir. 1992); Haiduk v. Commissioner, T.C. Memo 1990-506.
13
Fensterheim argues that respondent's September 25th letter
constitutes an offer and that sometime prior to May 10, 1991, he
orally accepted respondent's offer. Respondent argues that the
September 25th letter does not constitute an offer. We agree
with respondent.
The September 25th letter explains that, in order to process
the settlement, the taxpayer must complete the Form 870-L(AD),
sign the Form 870-L(AD), and mail the completed Form 870-L(AD) to
respondent at a specified address. We conclude that the
September 25th letter did not constitute an offer to Fensterheim
from respondent. The September 25th letter outlines the
settlement proposal and the steps necessary to complete the
settlement. In addition, the September 25th letter must be read
in light of the Form 870-L(AD). The language set forth in the
Form 870-L(AD) reinforces the conclusion that the September 25th
letter does not constitute an offer from respondent. See Estate
of Ray v. Commissioner, T.C. Memo. 1995-561; Gillilan v.
Commissioner, T.C. Memo. 1993-366; H Graphics/Access, Ltd. v.
Commissioner, T.C. Memo. 1992-345; Brookstone Corp. v. United
States, 74 AFTR 2d 6025, 94-2 USTC par. 50,474 (S.D. Tex. 1994),
affd. without published opinion 58 F.3d 637 (5th Cir. 1995).
Assuming, arguendo, that Fensterheim received an offer from
respondent, Fensterheim has failed to show that he accepted the
alleged offer. Fensterheim asserts that he orally accepted
respondent's offer, but he sets forth no facts to support this
14
conclusion. The communications that took place between September
25, 1990, and May 10, 1991, related to ascertaining final
computations and making clear the steps necessary to achieve a
settlement. The purpose was to satisfy Fensterheim and answer
his questions preliminary to signing the Forms 870-L(AD).
Nothing that transpired constituted a settlement agreement.
Fensterheim relies entirely on the language in the May 10, 1991,
letter from Goldbas stating: "Accordingly, as agreed, you will
execute the agreements relating to the assessment for the 1982
through 1985 tax years as soon as possible." The quoted language
does not indicate that a settlement had been reached.
In the letter of May 10, 1991, Goldbas stated "You wanted a
computation before you executed the consent form which will
result in the settlement of your Transpac Drilling Venture
losses" and "we will provide 30 additional days for the execution
of the Form 870-L agreements that we have provided in order to
resolve the tax deficiencies relating to the Transpac partnership
items for the 1982 through 1985 years." This language indicates
that no settlement had been reached between Fensterheim and
respondent as of that date. Nothing in Goldbas' letter indicates
that a settlement had been reached or would be reached without
the Forms 870-L(AD).
Fensterheim next argues that on June 14, 1991, Deshler
mailed respondent three executed Forms 870-L(AD), one for each
Transpac partnership, 1982-1, 1982-15, and 1982-21. Fensterheim
15
contends that respondent somehow lost the Forms 870-L(AD) for
Transpac partnerships 1982-15 and 1982-21. Fensterheim concludes
that respondent's failure to process the Forms 870-L(AD) for
Transpac partnership 1982-15, and 1982-21 does not affect the
validity of the settlements. Respondent contends that the
package mailed by Deshler did not contain executed Forms 870-
L(AD) for Transpac partnerships 1982-15 and 1982-21.
Fensterheim has not shown that the package mailed by Deshler
contained executed Forms 870-L(AD) for Transpac partnerships
1982-15 and 1982-21. The cover letter dated June 14, 1991,
signed by Deshler on behalf of Fensterheim contains the following
caption:
Re: Asher and Deborah Fensterheim
Transpac Drilling Venture
1982-1
Tax Years 1982, 1983, and 1984
The body of that letter states "I am forwarding to you form 870-
L(AD) Settlement Agreement for Partnership Adjustments and
Affected Items, which has been signed by both Asher Fensterheim
and Deborah Fensterheim." The caption and the quoted sentence
refer to a single Form 870-L(AD), which supports respondent's
argument that the package mailed by Deshler did not contain Forms
870-L(AD) for Transpac partnerships 1982-15 and 1982-21. The
signed stipulated decision for the already settled Transpac
partnership 1981-10 was also forwarded with this letter. The
signed stipulated decision for Transpac partnership 1981-10 was
16
mentioned in the body of the letter but not in the caption. It
was processed in due course and is not in issue here. We find it
improbable that Deshler would include the Forms 870-L(AD) for
Transpac partnerships 1982-15 and 1982-21 without comment in the
caption or the body of the letter, particularly where the Form
870-L(AD) for Transpac partnership 1982-1 and the stipulated
decision for Transpac partnership 1981-10 were so clearly
identified.
Fensterheim had no personal knowledge of what Deshler mailed
to respondent on June 14, 1991. He was out of town at the time.
Fensterheim did not produce Deshler at trial, and Fensterheim has
failed to show that he made a reasonable attempt to locate
Deshler. Fensterheim testified that his inquiry into Deshler's
whereabouts consisted of checking his telephone index for her
number. Fensterheim testified that Deshler had moved "out West",
but that he made no attempt to locate her through telephone
listings or any other means. Under these circumstances, we infer
that, had Fensterheim produced Deshler to testify at trial, her
testimony would have been unfavorable to him. Wichita Terminal
Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162
F.2d 513 (10th Cir. 1947). We also note that Fensterheim's
accountant, Milo, was not called to testify. He might have been
able to shed some light on the discussions, the extent and timing
of Fensterheim's tax knowledge, and Fensterheim's intent.
17
Fensterheim should have been well aware that he had not
settled Transpac partnerships 1982-15 and 1982-21. In October
1991, respondent served Notices of Settlement on Fensterheim that
indicated a settlement of all partnership items related to
Fensterheim's interests in Transpac partnership 1982-1.
Fensterheim also received a copy of the Form 870-L(AD) related to
Transpac partnership 1982-1 that had been countersigned by
respondent's authorized representative. Fensterheim received no
such Notices of Settlement or Forms 870-L(AD) related to Transpac
partnerships 1982-15 and 1982-21, and Fensterheim never inquired
as to whether these documents would be forthcoming.
Respondent's authorized representative countersigned the
Form 870-L(AD) for Transpac partnership 1982-1 on July 22, 1991.
Fensterheim was aware that respondent had 1 year from the date of
settlement to assess his partnership liabilities. We do not
consider it a coincidence that Fensterheim's letter of July 30,
1992, to Goldbas was the first indication that Fensterheim
considered his interests in Transpac partnerships 1982-15 and
1982-21 settled.
We conclude that the package mailed by Deshler on June 14,
1991, did not contain executed Forms 870-L(AD) for Transpac
partnerships 1982-15 and 1982-21.
Fensterheim next argues that the copies of the Forms 870-
L(AD) for Transpac partnerships 1982-15 and 1982-21 that he
mailed to respondent on September 9, 1992, served to "ratify and
18
reaffirm" the settlement he had reached with respondent. This
argument is without merit.
Fensterheim's letter of September 9, 1992, did not purport
to be a settlement. It was merely correspondence in which
Fensterheim alleged that all of his interests in the Transpac
partnerships had been settled in 1991.
Respondent's authorized representative did not execute the
Forms 870-L(AD) for Transpac partnerships 1982-15 and 1982-21,
and we have found that there were no settlement agreements for
Transpac partnerships 1982-15 and 1982-21 for Fensterheim to
"ratify and reaffirm".
Subsequent to Fensterheim's letter of September 9, 1992,
Goldbas sent a duplicate set of settlement documents to
Fensterheim covering Transpac partnerships 1982-15 and 1982-21,
which Fensterheim ignored. If Fensterheim had intended finally
to consummate the settlement in September 1992, as suggested in
his alternative argument, he could easily have done so by signing
the duplicate set of settlement documents.
Fensterheim was his own only witness. He was clear and
positive regarding facts favorable to him, but vague and cavalier
with respect to matters adverse to him. He seemed to know the
difference. He was well prepared. After listening to
Fensterheim's testimony and observing him on the stand, we do not
find his version of the facts to be believable. We conclude that
19
Fensterheim developed a well thought-out scheme to slip one (or
two) by respondent. It did not work.
We hold that Fensterheim and respondent did not enter into
settlement agreements for Transpac partnerships 1982-15 and 1982-
21 for the taxable years 1982, 1983, and 1984, and Fensterheim
remains a party to these partnership proceedings.
To reflect the foregoing,
An Order will be issued denying
Fensterheim's Motion to Dismiss.