T.C. Memo. 1996-358
UNITED STATES TAX COURT
JOHN W. AND MARY ANNE ANTOINE, ALBERT G. AND LOUISE A. CHURIK,
JOHN R. AND SUSAN E. ROSS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 27533-87. 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 John and Mary Anne Antoine resided in Bryan,
Texas, when they petitioned the Court. Petitioners Albert and
Louise Churik resided in New Kensington, Pennsylvania, when they
petitioned the Court. Petitioners John and Susan Ross resided in
Pittsburgh, Pennsylvania, when they petitioned the Court.1 This
case is part of respondent's tax shelter litigation project
entitled "Scheer". Scheer involves a partnership organized to
purchase and market video tapes. By notice of deficiency dated
June 2, 1987, respondent determined deficiencies in, additions
to, and increased interest on petitioners John and Mary Anne
Antoine's Federal income tax as follows:2
Additions to Tax and Increased Interest
Year Deficiency Sec. 6653(a)(1) Sec. 6653(a)(2) Sec. 6659 Sec. 6621(c)
1
1982 $9,951
2
$497.55 $2,179.27
1 50% of the interest due on the deficiency.
2 120% of the interest payable under sec. 6601.
By notice of deficiency dated June 8, 1987, respondent determined
deficiencies in, additions to, and increased interest on
petitioners Albert and Louise Churik's Federal income tax as
follows:
1
Although petitioners received separate deficiency notices,
they filed a collective petition.
2
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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Additions to Tax and Increased Interest
Year Deficiency Sec. 6653(a)(1) Sec. 6653(a)(2) Sec. 6659 Sec. 6621(c)
1 2
1981 $5,207 $260.35 $1,529.40
1 2
1982 4,148 207.40 948.60
1 50% of the interest due on the deficiency.
2 120% of the interest payable under sec. 6601.
By notice of deficiency dated June 10, 1987, respondent
determined deficiencies in, additions to, and increased interest
on petitioners John and Susan Ross' Federal income tax as
follows:
Additions to Tax and Increased Interest
Year Deficiency Sec. 6653(a)(1) Sec. 6653(a)(2) Sec. 6659 Sec. 6621(c)
1 2
1981 $6,362 $318.10 $1,908.60
1 2
1982 4,035 201.75 1,210.50
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;
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:
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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) which 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 January 16, 1996. 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 John and Mary Anne Antoine maintain that their notice
of deficiency does not reflect income-averaging and fails to
account properly for a sales tax deduction.
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Petitioners Albert and Louise Churik claim that their
deficiency notice does not reflect their pro rata share of a
partnership deduction that stems from a guaranteed payment and
fails to account properly for a sales tax deduction. Petitioners
John and Susan Ross claim that their notice of deficiency does
not reflect their pro rata share of a partnership deduction that
stems from a guaranteed payment, does not reflect income-
averaging, fails to account properly for a sales tax deduction,
and fails to account accurately for an investment tax credit in
1981.
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 agreement,
and the objections raised in petitioners' above-referenced
response amount to issues that are not now before the Court.
Respondent, however, concedes petitioners John and Mary Anne
Antoine's claim to a sales tax deduction. Respondent also
concedes petitioners John and Susan Ross' arguments regarding the
investment tax credit and the sales tax deduction.
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
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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 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.
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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.