T.C. Memo. 1996-360
UNITED STATES TAX COURT
THOMAS R. AND MARGARET KENNEDY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 28309-88. Filed August 6, 1996.
Larry Kars, for petitioners.
Cheryl B. Harris, for respondent.
MEMORANDUM OPINION
WRIGHT, Judge: This matter is before the Court on
respondent's motion for entry of decision in accordance with a
stipulation of settlement (the stipulation) filed October 11,
1994. We must decide whether the subject decision should reflect
an adjustment that is not reflected in the stipulation.
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Background
Petitioners resided in Winter Haven, Florida, when they
petitioned the Court. This case is part of respondent's tax
shelter litigation project entitled "Scheer". The Scheer project
involves a partnership organized by Lawrence Scheer to purchase
and market video tapes. By notices of deficiency dated August 2,
1988, respondent determined deficiencies in, additions to, and
increased interest on petitioners' Federal income tax as
follows:1
Additions to Tax and Increased Interest
Year Deficiency Sec. 6653(a)(1) Sec. 6653(a)(2) Sec. 6659 Sec. 6621(c)
1 2
1981 $10,316.29 $ 515.82 $1,956.70
1 2
1982 7,663.00 383.15 2,298.90
1 50% of the interest due on the deficiency.
2 120% of the interest payable under sec. 6601.
In the stipulation, petitioners agreed to be bound by the
test case entitled Pinto v. Commissioner, docket No. 17407-86.
This Court entered a decision in the Pinto case on January 18,
1995. The stipulation provides:
With respect to all adjustments in respondent's
notice of deficiency relating to the Scheer Project tax
shelter, more specifically, the limited partnership
entitled Richard II, Ltd., the parties stipulate to the
following terms of settlement:
1. THE ABOVE ADJUSTMENTS ARE THE ONLY ISSUES IN
THIS CASE WITH RESPECT TO ALL PARTIES;
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect during the years at issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
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2. The above adjustments, as specified in the
preamble, shall be redetermined by application of the
same formula as that which resolved the same tax
shelter adjustments with respect to the following
taxpayers:
Names: Melvin and Barbara Pinto
Tax Court Docket No.: 17407-86
(hereafter the CONTROLLING CASE)
3. All issues involving the above adjustments
shall be resolved as if the petitioners in this case
were the same as the taxpayers in the CONTROLLING CASE;
* * *
5. A decision shall be submitted in this case
when the decision in the CONTROLLING CASE (whether
litigated or settled) becomes final under I.R.C. §
7481;
* * *
The parties agree to this STIPULATION OF SETTLEMENT.
Respondent filed a motion for entry of decision with this
Court on October 30, 1995. Attached as an exhibit to said motion
was a decision document (the Document) that respondent claims to
be in accordance with the stipulation. By Order dated November
7, 1995, the Court directed petitioners to show cause why
respondent's above-referenced motion should not be granted.
Petitioners filed their response on December 15, 1995. They
contend that respondent's determination fails to account properly
for a 1981 investment tax credit and a 1981 sales tax deduction.
By Order dated April 16, 1996, the Court directed respondent
to address petitioners' above-referenced response. On June 10,
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1996, respondent filed her response. Respondent principally
argues that petitioners are bound by the stipulation, and the
objections raised in petitioners' above-referenced response
amount to new issues that are not now before the Court.
Respondent, however, concedes petitioners' sales tax argument.
Discussion
The general principles of contract law govern the compromise
and settlement of tax cases. In essence, settlement stipulations
are contracts, and this Court is bound to enforce them. Stamos
v. Commissioner, 87 T.C. 1451, 1454 (1986). During the process
of negotiation, each party agrees to concede rights that may be
asserted against his or her adversary as consideration for those
secured in the agreement. Saigh v. Commissioner, 26 T.C. 171,
177 (1956). We enforce settlement stipulations unless justice
requires otherwise. Adams v. Commissioner, 85 T.C. 359, 375
(1985); Saigh v. Commissioner, supra. We also enforce
stipulations where the parties agree to be bound by the outcome
of a test case. Hillman v. Commissioner, T.C. Memo. 1982-468.
In determining the proper meaning of the terms of settlement, we
look to the language of the stipulation and the circumstances
surrounding its execution. Robbins Tire & Rubber Co. v.
Commissioner, 52 T.C. 420, 435-436 (1969).
Petitioners ask the Court to instruct respondent to prepare
a decision document that reflects their argument regarding an
investment tax credit. We decline to do so because the
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adjustment sought by petitioners is not addressed in the
stipulation and is not computational in nature. The stipulation
agreement is clear and shows that the parties agreed to resolve
this case in the manner set forth therein. It was incumbent upon
petitioners' counsel to understand the significance of the
stipulation before agreeing to it on behalf of petitioners. The
stipulation was voluntarily entered into and must be given
binding effect. The interests of justice do not require
otherwise. The parties struck a bargain in the stipulation, and
petitioners must live with both its benefits and burdens.
Respondent requests that the Court impose against
petitioners and their counsel a penalty pursuant to section
6673(a)(1) and (2). In support of this request, respondent
contends that petitioners advanced arguments primarily for the
purpose of delaying entry of decision. In the exercise of our
discretion, we shall not grant respondent's request.
To reflect the foregoing,
An appropriate order will
be issued granting
respondent's motion for
entry of decision, and
decision will be entered
accordingly.