Schaeffer v. Commissioner

T.C. Memo. 1997-263

UNITED STATES TAX COURT

PETER M. SCHAEFFER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8909-95. Filed June 12, 1997.

Peter M. Schaeffer, pro se

Lisa Primavera, for respondent.

MEMORANDUM OPINION

DAWSON, Judge: This case was assigned to Special Trial

Judge Larry L. Nameroff pursuant to section 7443A(b)and Rules
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180, 181 and 183.1 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

petitioner’s motion filed December 16, 1996, for leave to file a

motion to vacate decision out of time (the Motion for Leave).

On March 24, 1995, respondent issued a notice of deficiency

to petitioner which determined a deficiency and an accuracy-

related penalty under section 6662(a) in regard to petitioner’s

1991 Federal income tax. Petitioner resided in Palm Springs,

California, at the time of filing his petition in this Court. On

April 17, 1996, a decision in this case was entered by this Court

"pursuant to the agreement of the parties" providing for a

deficiency in income tax in the amount of $13,776 and a section

6662(a) penalty of $2,755. Petitioner was not represented by

counsel at that time,2 negotiated the settlement on his own

behalf, and signed the stipulation portion of the Decision

document. Petitioner now seeks leave to vacate that decision

because he was allegedly not aware that interest would accrue on

1
All section references are to the Internal Revenue Code
in effect for the year in issue. All Rule references are to the
Tax Court Rules of Practice and Procedure.
2
When the Motion for Leave was filed, petitioner was
represented by Howard C. Kochman. Mr. Kochman and petitioner
filed a Motion to Withdraw Mr. Kochman as counsel on March 11,
1997, which was granted by the Court.
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the deficiency from the due date of his return until the

deficiency is paid.

Summary of Facts

The notice of deficiency dated March 24, 1995, inter alia,

advised petitioner that if he decided not to file a petition with

this Court, he should sign an enclosed waiver form, which would

“permit us to assess the deficiency quickly and limit the

accumulation of interest.” (Emphasis added.) The attached waiver

form provided, in part, “I consent to the immediate assessment

and collection of the deficiencies (increase in tax and

penalties) shown above, plus any interest.” (Emphasis added.)

The form also provided: “If you consent to the assessment of the

deficiencies shown in this waiver, please sign and return this

form to limit the interest charge”. (Emphasis added.) The form

entitled “Income Tax Examination Changes”, which lists the

adjustments made by respondent, reflects a computation of

interest “to 01/04/95" in the amount of $3,954. Schedule 5 of

the notice of deficiency provides the details of that interest

computation. Petitioner did not sign the waiver form. Finally,

the Decision document signed by petitioner provides:

It is further stipulated that, effective upon the entry
of this decision by the Court, petitioner waives the
restriction contained in I.R.C. section 6213(a)
prohibiting assessment and collection of the deficiency
and additions to tax (plus statutory interest) until
the decision of the Tax Court has become final.
[Emphasis added.]
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Notwithstanding the above, petitioner maintains that he believed

his settlement included a settlement of interest and, therefore,

the decision entered by the Court was the result of fraud upon

the Court. After a hearing on this matter, the parties were

ordered to file briefs seriatim, with petitioner filing the

initial brief on April 16, 1997, and respondent to file an

answering brief 30 days thereafter. Petitioner has not filed his

opening brief nor any explanation for such failure. Although we

could deny his motion on the ground that he has abandoned his

contentions, we will consider his motion on its merits.

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 17,

1996. 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
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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 running of the

90-day period for filing an appeal is stopped and commences

again, in full, 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 that decision 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. 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).

The decision in this case was entered pursuant to a

stipulated settlement. No trial was held, no evidence was
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adduced, no stipulations were filed in the record, and no factual

or legal bases upon which the deficiency was settled were recited

in the stipulated decision. 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 (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 normally are 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 there was

not a meeting of the minds because respondent failed to advise

him of the continuing accrual of interest, and thus a fraud was

perpetrated on this Court sufficient to justify granting the two

motions.

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,
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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.]

In Kenner v. Commissioner, 387 F.2d 689, 690-691 (7th Cir. 1968),

the Court of Appeals for the Seventh Circuit stated that the

finality of a Tax Court decision "precludes any subsequent

reconsideration by the Tax Court, at least on such grounds as

mistake, newly discovered evidence, and the like." The Court of

Appeals also emphasized that the burden of proof rests squarely

with the party seeking to set aside the final decision, and

stated that this burden could not be met simply by making a broad

assertion that the Tax Court decision was tainted with fraud.

Rather, "there is a heavy burden * * * upon the one who seeks to

impeach an order or decree of a court", who must come forward

with "specific facts which will pretty plainly impugn the

official record." Id.; see also Kraasch v. Commissioner, 70 T.C.

623, 626 (1978); Spielberger v. Commissioner, T.C. Memo.

1989-444.

Defining the term "fraud upon the court," in Kenner the

Court stated that the alleged improper conduct must rise to the

level of an "unconscionable plan or scheme * * * designed to

improperly influence the court in its decision" before it may be

deemed a "fraud upon the court." Kenner v. Commissioner, supra
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at 691. The narrow and limited definition of "fraud upon the

court" reflects the policy of putting an end to litigation, and

serves the important legal and social interest in preserving the

finality of judgments. Toscano v. Commissioner, 441 F.2d 930,

934 (9th Cir. 1971), vacating 52 T.C. 295 (1969). Other circuits

have also articulated a very narrow definition of "fraud upon the

court" and have underscored the heavy burden faced by a party who

seeks to set aside a final Tax Court decision. See Harbold v.

Commissioner, 51 F.3d 618, 622 (6th Cir. 1995); Aoude v. Mobil

Oil Corp., 892 F.2d 1115, 1118 (1st Cir. 1989); Abatti v.

Commissioner, 859 F.2d at 118; Senate Realty Corp. v.

Commissioner, supra; Stickler v. Commissioner, supra.

In addition it is also clear that petitioner was required to

demonstrate, not only that respondent engaged in conduct that was

intended to mislead the Court, but--of paramount importance--that

the actual conduct affected the outcome of the case. Drobny v.

Commissioner, 79 AFTR 2d 97-2395 (7th Cir. May 1, 1997). In

addition to establishing improper conduct, a taxpayer who

attempts to set aside a final decision of the Tax Court must also

explain how the alleged conduct induced, caused, or had a

material effect upon the decision. See also Chao v.

Commissioner, 92 T.C. 1141, 1144, (1989) (motion to vacate denied

because same result would have been reached even in the absence

of the alleged fraud upon the court); Abatti v. Commissioner, 86
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T.C. at 1325 (taxpayer must show that deception "designed to

improperly influence the Court in its decision has had such an

effect on the Court.").

Petitioner has failed to establish that a fraud was

perpetrated on this Court. There were sufficient indications

about interest accruals in the various documents petitioner

received and in the Decision document he signed to put petitioner

on his guard. If he had any concern in that regard, he should

have inquired. The law is clear that interest accrues on unpaid

tax liabilities from their due date until paid. Moreover, the

record does not reflect any evidence that the outcome of this

case would be different if we permitted a trial on the merits.

In his reply to respondent’s opposition to petitioner’s

motion for leave, petitioner relies on Toscano v. Commissioner,

supra, to support his claim of fraud on the Court. Josephine

Toscano, also known as Josephine Zelasko, moved to vacate a

stipulated decision of this Court 15 years after entry on the

grounds that she was not and had not been the wife of Mr.

Toscano. In that case it was alleged that Mr. Toscano was not

married when he filed what purported to be a joint return, having

either forged the signature of Ms. Zelasko as his spouse or

coerced her to sign the joint return against her will. Mr.

Toscano allegedly perpetrated three frauds. First, he defrauded

the Commissioner by filing a fraudulent joint income tax return
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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

filed a joint petition with this Court for a redetermination of

the deficiency. The fraud upon this Court culminated when the

Court entered a decision signed on behalf of Ms. Zelasko, holding

her liable for the tax deficiency. The Court of Appeals for the

Ninth Circuit vacated the Tax Court’s Decision and held that Ms.

Zelasko, under these circumstances, was entitled to a hearing on

her allegations.

The facts in Toscano are distinguishable from the instant

case. Here, petitioner represented himself and negotiated a

settlement with respondent. He signed a stipulation of decision

which specifically provides for the assessment and collection of

statutory interest. We do not find any fraud perpetrated upon

this Court.

Accordingly,

An order will be issued denying

petitioner's Motion for Leave to

File a Motion to Vacate or Revise

the Decision.