T.C. Memo. 1997-576
UNITED STATES TAX COURT
THE MANCHESTER GROUP AND SUBSIDIARIES, FORMERLY TORREY
ENTERPRISES, INC., AND SUBSIDIARIES, FORMERLY TORREY DEVELOPMENT
CORPORATION AND SUBSIDIARIES, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20509-92. Filed December 31, 1997.
J. Clancy Wilson, for petitioners.
William H. Quealy, Jr., and Alice M. Harbutte, for
respondent.
MEMORANDUM OPINION
DAWSON, Judge: This case was assigned to Special Trial
Judge Robert N. Armen, Jr., pursuant to the provisions of section
7443A(b)(4) of the Internal Revenue Code of 1986, as amended, and
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Rules 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
ARMEN, Special Trial Judge: This case is before the Court
on petitioners' Motion for Leave of Court to File Motion to
Vacate or Revise Decision to Seek Litigation Costs Under Code
Section 7430 (petitioners' Motion for Leave).
On December 10, 1993, the Court entered a decision in this
case pursuant to the agreement of the parties. Ninety-four days
later, on March 14, 1994, the Court filed petitioners' Motion for
Leave and lodged two additional motions submitted by petitioners,
namely: (1) Motion to Vacate or Revise Decision to Seek
Litigation Costs Under Code Section 7430 (petitioners' Motion to
Vacate), and (2) Motion for Reasonable Litigation Costs
(petitioners' Motion for Litigation Costs).2
The issues for decision are as follows:
1
Unless otherwise indicated, all section references are to the
Internal Revenue Code, as amended, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
2
The Court of Appeals for the Ninth Circuit has held that
petitioners' Motion for Leave was timely filed because it was
mailed within 90 days after the decision in the case was entered.
Manchester Group v. Commissioner, 113 F.3d 1087 (9th Cir. 1997),
revg. T.C. Memo. 1994-604.
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(1) Whether we should exercise our discretion and grant
petitioners' Motion for Leave (and thereby file petitioners'
Motion to Vacate); and, if so,
(2) whether we should grant petitioners' Motion to Vacate.3
Neither party requested an evidentiary hearing, and the
Court concludes that such a hearing is not necessary for the
proper disposition of petitioners' Motion for Leave and Motion to
Vacate. We therefore decide the matter before us based on the
record that has been developed to date.
Petitioners' principal place of business was in San Diego,
California, at the time that the petition was filed with the
Court.
Background
In June 1992, respondent sent petitioners a notice of
deficiency. In the notice, respondent determined the following
deficiency and additions to tax in petitioners' consolidated
income tax for the taxable year ended March 31, 1986:
Additions to tax
Deficiency Sec. 6653(a)(1) Sec. 6653(a)(2) Sec. 6661(a)
1
$14,458,059 $722,903 $3,614,515
1
50% of the interest due on $14,458,059.
3
Although only petitioner's Motion for Leave is presently
before the Court, petitioners' Motion to Vacate is essentially
identical to petitioners' Motion for Leave.
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Respondent also determined in the notice that petitioners were
liable for additional interest under section 6621(c) by virtue of
a substantial underpayment of tax attributable to a tax-motivated
transaction.
The deficiency in income was essentially attributable to
respondent's determination that petitioners derived substantial
gain in a complex transaction involving the disposition of an
indirect interest in an office building.
In September 1992, petitioners filed a timely petition
contesting respondent's determinations. At the same time,
petitioners designated San Diego, California, as the place of
trial.
The petition was subscribed by J. Clancy Wilson, the
attorney who has continued to represent petitioners throughout
these proceedings. Petitioners' counsel was formerly an attorney
for the Tax Division of the U.S. Department of Justice. He is
also certified by the State of California as a specialist in
taxation law and is an experienced tax litigator.
In November 1992, an answer was filed by respondent's
District Counsel Office in San Diego. Shortly thereafter, in
December 1992, the case was referred to respondent's Appeals
Office in San Diego for settlement consideration. Because of the
amounts in controversy and the complexity of the issues, the case
was assigned to a senior Appeals officer.
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On September 23, 1993, while negotiations between the
parties were ongoing, the Court served the parties with notice
that this case would be called for trial at the Court's trial
session scheduled to commence on February 28, 1994, in San Diego.
In late September or early October 1993, respondent's
Appeals Office, after a period of consultation with respondent's
attorneys in both San Diego and Washington, D.C., decided to
concede the deficiency, additions to tax, and additional interest
as determined in the notice of deficiency and so notified
petitioners' counsel. Sometime thereafter, respondent sent a
settlement document to petitioners' counsel for his review and
signature.
The settlement document was a standard stipulated decision
consisting of a form of decision, which embodied respondent's
concession of the deficiency, additions to tax, and additional
interest, and a stipulation to be signed by counsel for the
parties agreeing to entry of the form of decision by the Court.
The stipulated decision was silent regarding litigation costs.
Petitioners' counsel reviewed the stipulated decision and
revised its language.4 In revising the language, petitioners'
counsel did not introduce the issue of litigation costs.
4
The nature of the revision made by petitioners' counsel
appears to relate to the description of the additions to tax and
additional interest addressed in the stipulated decision.
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Petitioners' counsel executed the stipulated decision in
November 1993. Nevertheless, petitioners' counsel did not intend
the stipulated decision to be conclusive as to litigation costs.
In December 1993, respondent's counsel executed the
stipulated decision and forwarded it to the Court.
On December 9, 1993, the Court received the stipulated
decision. The portion consisting of the form of decision recited
that "Pursuant to the agreement of the parties in this case",
petitioners were not liable for any deficiency, additions to tax,
or additional interest for the taxable year in issue. The
portion consisting of the stipulation recited that "It is hereby
stipulated that the Court may enter the foregoing decision in the
above-entitled case" and was executed by counsel for the parties.
As previously indicated, the stipulated decision was silent
regarding litigation costs.
On December 10, 1993, the Court executed the form of
decision and formally entered decision pursuant to the agreement
of the parties (the Decision). Also on December 10, 1993, the
Court served conformed copies of the Decision on the parties.
Thereafter, the Court struck petitioners' case from the February
28, 1994, trial session in San Diego.
In January 1994, respondent closed the administrative and
litigation files related to this case and discarded certain
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handwritten notes and other such informal materials that had been
generated prior to the entry of the Decision.
On March 9, 1994, the 89th day after the Decision was
entered, petitioners mailed their Motion for Leave, Motion to
Vacate, and Motion for Litigation Costs to the Court. All three
motions were received by the Court on March 14, 1994, the 94th
day after the Decision was entered. On the same day, March 14,
1994, the Court filed petitioners' Motion for Leave and lodged
petitioners' Motion to Vacate and petitioners' Motion for
Litigation Costs.
Prior to March 9, 1994, petitioners had not disclosed their
intention of seeking litigation costs. However, at the time that
he executed the stipulated decision in November 1993,
petitioners' counsel fully contemplated that petitioners would
seek litigation costs. Nevertheless, petitioners' counsel did
not mail petitioners' three motions to the Court until March 9,
1994. Petitioners' counsel intentionally delayed submitting the
motions for two reasons. First, petitioners' counsel was
concerned that claiming litigation costs might cause respondent
to withhold concession of the amounts in issue in the present
case. Second, petitioners' counsel was concerned that claiming
litigation costs might negatively influence the resolution of
another dispute between petitioners and respondent that was also
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under consideration by respondent's Appeals Office in San Diego.5
Therefore, in an effort to "avoid burning bridges", petitioners'
counsel intentionally delayed submitting a motion for litigation
costs until the eve of the expiration of the 90-day period that
typically leads to the finality of a stipulated decision. See
secs. 7481(a)(1), 7483.
Discussion
A. Time and Manner of Making a Claim for Litigation Costs
Petitioners advance arguments in support of their view that
they are entitled, without first filing a motion to vacate
decision, to file a motion for litigation costs at any time
before the decision becomes final. Thus, petitioners contend
that we must consider the merits of their Motion for Litigation
Costs without regard to their Motion for Leave. We disagree for
the reasons discussed in our prior opinion. Manchester Group v.
Commissioner, T.C. Memo. 1994-604, revd. on another issue 113
F.3d 1087 (9th Cir. 1997). We hold, as before, that we will not
consider the merits of petitioners' Motion for Litigation Costs
5
The other dispute apparently involved another taxable year
in respect of which a 30-day letter had been issued.
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unless and until we first grant petitioners' Motion for Leave and
then grant petitioners' Motion to Vacate.6
The reasoning that supports our holding is set forth in our
prior opinion and will not be repeated herein. See Manchester
Group v. Commissioner, T.C. Memo. 1994-604. However, we make
mention of several cases that petitioners cite in support of
their argument that a motion for litigation costs may be filed at
any time before a decision becomes final. We do not think that
these cases support such proposition. In each case, it appears
that a motion to vacate the decision, or for litigation costs,
was mailed or delivered to the Court within 30 days after the
entry of the decision, and in no case was there anything to
suggest that the taxpayer intentionally delayed submitting an
appropriate motion. See Comer v. Commissioner, 958 F.2d 136 (6th
Cir. 1992); Cassuto v. Commissioner, 93 T.C. 256 (1989), affd. in
part, revd. in part and remanded 936 F.2d 736 (2d Cir. 1991);
6
In Manchester Group v. Commissioner, 113 F.3d 1087, 1089
(9th Cir. 1997), the Court of Appeals did not take issue with our
holding that petitioners' Motion for Litigation Costs was not
separately reviewable; rather, the Court of Appeals reversed our
dismissal for lack of jurisdiction and remanded this case "to
decide the motion for leave on the merits." In reaching its
conclusion, the Court of Appeals appeared to agree that
petitioners' Motion to Vacate cannot be considered without first
granting petitioners' Motion for Leave. Thus:
"As the Tax Court held, the motion to vacate could not
be considered without first granting the motion for
leave because more than thirty days had passed." [Id.
at 1088.]
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Minahan v. Commissioner, 88 T.C. 492 (1987); Bouterie v.
Commissioner, T.C. Memo. 1993-510, revd. and remanded 36 F.3d
1361 (5th Cir. 1994).
B. The Interests of Justice
In the alternative to their argument that their Motion for
Litigation Costs is separately reviewable, petitioners argue that
we should grant their Motion for Leave. In this regard,
petitioners argue that "the inadvertent actions of petitioners'
counsel should be viewed in light of the lack of specific
guidance in the Tax Court Rules as to when a party should move
for litigation costs." Therefore, according to petitioners,
justice would be served by granting their Motion for Leave. We
disagree with both the premise and the conclusion of petitioners'
argument.
Whether to grant or deny a motion for leave is a matter that
lies within the sound discretion of the Court. Heim v.
Commissioner, 872 F.2d 245, 246 (8th Cir. 1989), affg. T.C. Memo.
1987-1; Estate of Egger v. Commissioner, 92 T.C. 1079, 1083
(1989). In deciding what action to take,
We are guided primarily by whether it would be in the
interest of justice to vacate the prior decision. But,
we also recognize that litigation must end at sometime.
[Estate of Egger v. Commissioner, supra; citation
omitted.]
See also Commissioner v. Estate of Long, 304 F.2d 136, 144 (9th
Cir. 1962).
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In the present case, justice does not demand that we grant
petitioners' Motion for Leave.
First, we disagree with the assertion that the actions of
petitioners' counsel were "inadvertent". Rather, the record
clearly demonstrates that petitioners' counsel intentionally
delayed submitting petitioners' various motions until the eve of
the expiration of the 90-day period that typically leads to the
finality of a stipulated decision. Petitioners' counsel
intentionally delayed submitting the motions for what he regarded
as strategic reasons. Thus, it cannot be said that the actions
of petitioners' counsel were "inadvertent".
Second, we disagree that our Rules lack specific guidance
regarding the time when a claim for litigation costs should be
made. We have previously discussed at length the provisions of
our Rules regarding the time and manner of making a claim for
litigation costs, see Manchester Group v. Commissioner, T.C.
Memo. 1994-604, and we will not repeat that discussion herein.7
Suffice it to say that petitioners' counsel should not have
waited to file the instant motions until the 89th day after the
entry of the stipulated decision if he did not intend it to be
conclusive as to litigation costs. Rather, when respondent
7
Cf. Abatti v. Commissioner, 859 F.2d 115, 119 (9th Cir.
1988) (holding that a taxpayer's misunderstanding of the Tax
Court's Rules is insufficient to overcome the doctrine of
finality).
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mailed the settlement document to petitioners' counsel for his
review and signature, if not sooner, petitioners' counsel should
have alerted respondent to petitioners' claim for litigation
costs. At that point, either the proposed stipulated decision
could have been revised to reflect petitioners' entitlement to
litigation costs, see Rule 231(a)(1), or the parties could have
executed a stipulation of settled issues, see Rule 231(a)(2)(C),
(b)(3), and (c), thereby preserving the issue of litigation costs
for subsequent disposition by the Court. Petitioners could then
have filed their Motion for Litigation Costs, accompanied by the
stipulation of settled issues. See Rule 231(c). Alternatively,
petitioners' counsel, having executed the stipulated decision in
November 1993 but not intending that it be conclusive as to
litigation costs, could have filed the Motion to Vacate within
the 30-day period provided by Rule 162. See Rule 230(a).
However, petitioners' counsel did not pursue either of these
alternatives because they did not comport with his litigation
strategy.
C. Public Policy
Petitioners assert that they incurred substantial costs in
defending against what they regard as respondent's unreasonable
position. Petitioners then argue that because section 7430 was
enacted by Congress to deter the Commissioner from taking
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unreasonable positions, "public policy" would be served by
granting their Motion for Leave.
We agree that section 7430 was enacted by Congress to deter
unreasonable conduct by the Commissioner. Indeed, the
legislative history of section 7430 sets forth some guidelines
for determining whether the Commissioner's conduct was
unreasonable:
The committee intends that the determination by the
court on this issue is to be made on the basis of the
facts and legal precedents relating to the case as
revealed in the record. Other factors the committee
believes might be taken into account in making this
determination include, (1) whether the government used
the costs and expenses of litigation against its
position to extract concessions from the taxpayer that
were not justified under the circumstances of the case,
(2) whether the government pursued the litigation
against the taxpayer for purposes of harassment or
embarrassment, or out of political motivation, and (3)
such other factors as the court finds relevant. * * *
[H. Rept. 97-404, at 12 (1981).]
Petitioners' counsel intentionally delayed submitting
petitioners' three motions because of his concern that a claim
for litigation costs might: (1) Cause respondent to withhold
concession of the amounts in issue in the present case and might
(2) negatively influence the resolution of a dispute in a
collateral matter. Neither of these reasons constitutes good
cause, and in the absence of good cause, we are unwilling to
allow petitioners to ignore the orderly procedures of this Court
as embodied in Rule 162. In short, the "public policy" of
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section 7430, to which we give expression through our Rules,
simply does not justify a waiver of Rule 162 in this instance.8
D. Impact on the Judicial Process
We think that the Court has an interest in this matter that
petitioners do not recognize.
The Court has an interest in fostering respect for the
judicial process and accomplishing orderly disposition of its
workload. In part, the Court seeks to foster respect for the
judicial process through the evenhanded enforcement of its Rules,
which are designed to secure the just, speedy, and inexpensive
determination of every case. See Rule 1(b); see also sec. 7453.9
If a party, in the pursuit of its own agenda, is permitted to
disregard the procedures established by this Court, unfairness to
others and disruption of the Court's processes occur. See Estate
8
We note that sec. 7430(b)(4) precludes an award of
litigation costs with respect to any portion of the court
proceeding during which the prevailing party has unreasonably
protracted such proceeding. It is apparent, therefore, that the
statute itself does not excuse intentional delay by a taxpayer.
9
Cf. Commissioner v. Estate of Long, 304 F.2d 136, 144 (9th
Cir. 1962) (quoting and adopting Commissioner v. Erie Forge Co.,
167 F.2d 71, 76 (3d Cir. 1948): "The Tax Court is authorized to
determine whether its rules are complied with and where its
decision of such questions is not shown to be clearly wrong it
should not be disturbed.")
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of Quirk v. Commissioner, 60 T.C. 520, 521 (1973).10 This is
particularly true if the party has disregarded those procedures
intentionally.
As we have already stated, petitioners' counsel should not
have executed the stipulated decision and waited to file the
instant motions until 89 days after its entry if he did not
intend the stipulated decision to be conclusive as to litigation
costs. However, by so doing, he signaled to the Court, as well
as respondent, that all of the issues in the case, specifically
including the issue of litigation costs, had been resolved by the
parties. As a consequence, the Court struck this case from the
February 28, 1994, trial session in San Diego. In contrast, if a
stipulation of settled issues had been filed, the Court would
have known that the issue of litigation costs remained in the
case and might have been able to entertain that issue at the San
Diego trial session. Regardless, the fact remains that the
integrity of the Court's Rules was compromised through
10
"The Rules of this Court were adopted for serious reasons
and are not to be taken lightly. Time limitations, for example,
are necessary to ensure the speedy and efficient disposition of
cases so that evidence and witnesses will not grow stale.
Litigation before this Court would be significantly slowed if we
routinely countenanced violations of the time limitations set by
our Rules. And, of course, respondent must be held to the same
strict observance of the Rules that we require of taxpayers."
Estate of Quirk v. Commissioner, 60 T.C. 520, 521 (1973).
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petitioners' stratagem of "buying time" by intentionally waiting
until the 11th hour to submit the Motion for Litigation Costs.
E. Conclusion
Whether to grant or deny a motion for leave is a matter that
lies within the sound discretion of the Court. In ruling on
such a motion, we are guided primarily by whether it would be in
the interest of justice to vacate the prior decision.
Justice does not require us to vacate the prior decision in
this case. Petitioners' counsel intentionally delayed mailing
the Motion for Leave to the Court until the 89th day after the
Decision had been entered. Significantly, there was no good
cause for such delay. Further, respect for the judicial system
is compromised when a party, in pursuit of its own litigation
strategy, is permitted to disregard the procedures established by
this Court for the orderly disposition of disputes.
In view of the foregoing, we will deny petitioners' Motion
for Leave. Accordingly, we need not address petitioners' Motion
to Vacate.
To reflect the foregoing,
An appropriate order will
be issued.