T.C. Memo. 1996-359
UNITED STATES TAX COURT
ROGER W. AND KATHLEEN STOY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24961-87. 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
several adjustments that are not reflected in the stipulation.
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Background
Petitioners resided in Millersville, Maryland, when they
petitioned the Court. This case is part of respondent's tax
shelter litigation project entitled "Scheer". Scheer involves a
partnership organized by Lawrence Scheer to purchase and market
video tapes. By notice of deficiency dated May 6, 1987,
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 $13,173 $659 $3,952
1 2
1982 10,580 529 3,174
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 13, 1995. They
contend that respondent's determinations involve incorrect
calculations and suggest that corrections are necessary before a
decision can be entered in this case. More specifically,
petitioners claim that respondent's determinations fail to
account for their pro rata share of a partnership deduction
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stemming from various guaranteed payments and fail to allow
petitioners the benefit of income-averaging.
By Order dated April 16, 1996, the Court directed respondent
to address petitioners' above-referenced response. On June 10,
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.
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).
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Petitioners request that we instruct respondent to prepare a
decision document that incorporates several noncomputational
adjustments. We decline this invitation. The adjustments sought
by petitioners are not addressed in the stipulation agreement and
involve issues that are not now before the Court. The
stipulation 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 its content 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, and petitioners
must live with 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.