Davenport Recycling Assocs. v. Commissioner

T.C. Memo. 1998-347

UNITED STATES TAX COURT

DAVENPORT RECYCLING ASSOCIATES, SAM WINER,
TAX MATTERS PARTNER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12801-89. Filed September 30, 1998.

Thomas C. Borders, Gail H. Morse, and Courtney N. Stillman,

for participants.

Mary P. Hamilton, William T. Hayes, and Howard A. Wiener,

for respondent.

MEMORANDUM OPINION

DAWSON, Judge: This case was assigned to Special Trial

Judge Norman H. Wolfe pursuant to the provisions of section

7443A(b)(4) and Rules 180, 181, and 183.1 The Court agrees with

1
All section references are to the Internal Revenue Code in
(continued...)
 - 2 -

and adopts the opinion of the Special Trial Judge, which is set

forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

WOLFE, Special Trial Judge: The present case is part of the

Plastics Recycling group of cases. The issues in this group of

cases center about a six-step transaction involving the sale and

lease of machines designed to recycle plastic scrap. For a

detailed discussion of the transactions involved in the Plastics

Recycling cases, see Provizer v. Commissioner, T.C. Memo. 1992-

177, affd. without published opinion 996 F.2d 1216 (6th Cir.

1993).

This matter is before the Court on participating partners

Ernest C. and Marion K. Karras' (hereinafter participants) Motion

for Special Leave to File Motion for Reconsideration of Decision

or to Vacate Decision filed pursuant to Rules 161 and 162.

Participants also lodged with the Court a Motion For

Reconsideration of Decision or to Vacate Decision. As explained

in greater detail below, we will deny participants' motion for

special leave.

The issue for decision is whether grounds exist in this case

for reopening or vacating what is otherwise a final decision.

Participants allege that the Court lacked subject matter

1
(...continued)
effect for the tax years in issue, except as otherwise indicated.
All Rule references are to the Tax Court Rules of Practice and
Procedure.
 - 3 -

jurisdiction to decide this case. In particular, participants

allege that Samuel L. Winer (Winer) had been enjoined from acting

as tax matters partner (TMP) of Davenport Recycling Associates

(Davenport) and had no authority to sign partnership level

consents extending the statutory period of limitations for

assessment during the relevant periods or to sign the petition to

this Court on behalf of Davenport, and therefore this Court

lacked jurisdiction when the decision was entered in this case.

In addition, participants allege that the decision in this case

was obtained as a result of fraud on the Court perpetrated by

respondent because respondent's attorneys concealed from the

Court Winer's purported inability to act as TMP.2

Respondent asserts that participants' motion for special

leave should be denied because the Court had jurisdiction when

the decision was entered, and the decision was not obtained by

fraud on the Court. Respondent further asserts that

participants' motion for special leave should be denied because a

timely petition was filed by the sole general partner, Winer, and

it was ratified by the partners other than Winer.

2
In their Motion for Special Leave to File Motion for
Reconsideration of Decision or to Vacate Decision, the
participants assert that the Court lacks subject matter
jurisdiction because they claim Winer did not have authority to
extend the period of limitations or to file a petition in this
Court. The participants have not requested that, in the event
the Court has jurisdiction, it should permit them to contest the
underlying issues on the merits.
 - 4 -

Davenport is a limited partnership subject to the unified

partnership audit and litigation procedures set forth in sections

6221 through 6233, added to the Code by the Tax Equity and Fiscal

Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a),

96 Stat. 648.

Respondent issued notices of beginning of administrative

Proceeding (NBAP) to Davenport for the years 1982, 1983, 1984,

and 1985 on September 11, 1984, November 8, 1984, January 29,

1987, and October 27, 1986, respectively. Copies of those NBAP's

were issued to all notice partners of Davenport, including

participants. On May 15, 1989, respondent issued notices of

final partnership administrative adjustment (FPAA) to Davenport,

proposing adjustments to Davenport's 1982 through 1985 years.

The notices of FPAA were mailed to Winer as TMP, as well as to

participants and all other notice partners for the 1982 through

1985 years of Davenport.

On June 9, 1989, a petition for readjustment for the years

1982 through 1985 was filed with this Court on behalf of

Davenport by Winer, who identified himself as the TMP. When the

petition was filed in this case, Davenport had its principal

place of business in Clearwater, Florida, and participants

resided in Oak Brook, Illinois.

This case subsequently was concluded before trial by a

concession at the partnership level of the adjustments proposed

by respondent. The case was conceded at the instruction of
 - 5 -

Winer. On February 23, 1994, respondent's proposed decision was

entered as the decision of the Court. Neither participants nor

any other partner objected to the entry of decision, and no

appeal was taken from the decision. Pursuant to sections

6230(a)(1) and 6231(a)(1) and (6), the deficiencies attributable

to the disallowed Davenport partnership items were assessed by

computational adjustments against Davenport's limited partners,

including participants, at the conclusion of the partnership

level proceedings.

Almost 2 years after the entry of decision in this case, on

January 23, 1996, participants filed with this Court a Motion for

Leave to File Election to Participate and submitted a Notice of

Election to Participate in the captioned matter involving

Davenport. By order dated February 15, 1996, we granted

participants' motion to file a notice of election to participate

in the captioned matter involving Davenport. Also on January 23,

1996, participants filed a Motion for Special Leave to File

Motion for Reconsideration of Decision or to Vacate Decision in

the captioned matter involving Davenport. On the same date

participants lodged with the Court a Motion For Reconsideration

of Decision or to Vacate Decision. Participants' motion for

special leave is currently pending before this Court. The

resolution of these matters turns on whether the petition to this

Court signed by Winer on behalf of the partnership is valid for

purposes of conferring jurisdiction on this Court and also on
 - 6 -

whether the decision in this case was obtained as a result of

fraud on the Court.

Background

Because of the unusual circumstances of this case, we

consider it appropriate to recount in some detail the events

preceding Winer's filing of the petition.

A. The Plastics Recycling Transactions

The present case involves participants' investment in a

limited partnership, Davenport, that purportedly leased Sentinel

expanded polystyrene (EPS) recyclers.

The transactions involving the Sentinel EPS recyclers

purportedly leased by Davenport are in substance the same as

those in the Clearwater Group limited partnership (Clearwater),

the partnership considered in Provizer v. Commissioner, T.C.

Memo. 1992-177, affd. without published opinion 996 F.2d 1216

(6th Cir. 1993). Winer was the general partner of Clearwater.

This Court has taken judicial notice of both the opinion and the

record in the Provizer case, which is uniformly viewed as the

lead case involving the Plastics Recycling transactions, and

which held that those transactions were in substance a sham.

B. The Partnership

Participants were limited partners in Davenport, a New York

limited partnership organized and promoted by Winer at the end of

1982. Winer was the sole general partner of Davenport at all

relevant times.
 - 7 -

Under the Davenport agreement of limited partnership, Winer,

as general partner, had full and exclusive power and authority on

behalf of the partnership to manage, control, administer, and

operate the business and affairs of the partnership. Winer's

signature as general partner of Davenport was sufficient to bind

the partnership. Winer signed Davenport's 1982 through 1985

partnership returns as general partner.

A Private Offering Memorandum (the offering) with respect to

Davenport was distributed to potential limited partners. The

Davenport offering states that Winer would have a 1-percent

interest in all items of income, gain, deduction, loss, and

credit arising from the operations of Davenport, for which he

would pay $1,000. For the performance of his administrative and

other services, including acting as the TMP of Davenport, Winer

was to receive general partner fees in the amount of $62,000 from

the proceeds of Davenport after the offering was closed to

investors and additional compensation equal to certain sales

commissions.

The Davenport offering projected tax benefits for a limited

partner for 1982 from a $50,000 investment in the amount of

$77,000 in investment and energy tax credits in addition to a

$38,940 deduction. The offering required that investors who

wished to purchase a $50,000 unit have either a net worth in

excess of $1 million including residences and personal property,

or income in each of the 2 most recent years in excess of
 - 8 -

$200,000 and a reasonable expectation of income in the current

year in excess of $200,000. Additionally, the Davenport offering

stated that there was a high degree of risk with the offering.

The offering declared that an investment in Davenport:

should be considered only by persons who have a
substantial net worth and substantial present and
anticipated income and who can afford to lose all of
their cash investment in the Partnership and to utilize
or lose all or a substantial portion of the anticipated
tax benefits flowing from such investment.

C. Samuel L. Winer

In addition to being the general partner of Davenport, Winer

was the general partner of Stevens, Hamilton, Masters, Dickinson,

Pompano, and Whitman Recycling Associates. These were TEFRA

partnerships which purported to lease Sentinel EPS recyclers and

were substantially identical to Davenport. Also, Winer was the

general partner of two non-TEFRA partnerships which purportedly

leased Sentinel polyethylene (EPE) recyclers, Clearwater and Poly

Reclamation Associates. Although Winer was involved in marketing

the partnerships of which he was a general partner, he did not

participate in structuring the Plastics Recycling transactions.

Winer was also a part owner of two Sentinel recyclers.

Winer does not have an engineering background, and he is not

an expert in plastics material or plastics recycling. The

Davenport offering indicated that since 1977, Winer had been

employed as an independent financial consultant and investment

banker and that he had experience in the securities industry.

Winer testified at the evidentiary hearing that in 1986 he was a
 - 9 -

real estate developer and that he is currently employed as a real

estate broker. Winer received a bachelor's degree in 1959 from

Pennsylvania State University and attended St. Joseph's College

and Temple University for advanced studies. Winer was identified

in the Davenport offering as the TMP of Davenport.

Winer had been involved with other tax shelter transactions

before he became a promoter of the Plastics Recycling

partnerships. He had been a syndicator of numerous coal tax

shelters. The record does not contain information regarding how

Winer initially became a promoter of the Plastics Recycling

partnerships.

D. Participants and Their Involvement With Davenport

Participant Ernest C. Karras (Karras) acquired a 5.50-

percent interest in Davenport in 1982 for a capital contribution

of $50,000. The Schedule K-1 attached to Davenport's 1982 return

showed that Karras had a partnership loss from Davenport of

$39,231, and a basis for investment tax credits and energy

credits of $385,000. The record does not include copies of

participants' Federal income tax returns.

Karras has a bachelor's degree in electrical engineering

from the University of Illinois, has done postgraduate work in

telecommunications and computer sciences, and has a master's

degree in industrial management from DePaul University. At all

times since 1982, Karras has been owner, president, and CEO of an
 - 10 -

engineering and manufacturing company engaged in the production

of high-tech computers for the telecommunications industry.

Karras received the initial solicitation for Davenport from

his personal accountant of 20 years, Barry Swartz (Swartz), who

recommended the Davenport investment. Karras testified that,

when he invested in Davenport, he believed that plastics

recycling had a good future. When Karras invested in Davenport,

he knew that Winer was the general partner.

After reading the Davenport offering for the "basics",

Karras gave the offering to his attorney, John Karones (Karones).

According to Karras, after Karones reviewed the Davenport

offering he said, "This is a pretty risky thing, plastic

recycling", and questioned whether the recyclers described in the

offering really existed. Karras testified that he then called

his accountant, Swartz, for confirmation that the recyclers

really existed. After a few days, Swartz reported back to Karras

that someone that Swartz knew had seen the recyclers. Neither

Karras nor Swartz actually saw any of the recycling machines

before Karras paid $50,000 for his interest in Davenport.

During the proceedings in the underlying Davenport Recycling

case, Karras became aware that Winer, as TMP, had filed a

petition with this Court. Karras did not receive further

information or updates from Winer regarding the status of the

case after the filing of the petition. Karras claims that he did

not learn that the case involving Davenport had been settled
 - 11 -

until he "received a bill from the IRS." Karras testified that

he "couldn't believe that the case was over with and nobody had

told us anything." In the end, Karras was "bowled over" by the

size of the tax liability that had resulted from his "simple

$50,000 investment."

E. The Winer Section 7408 Injunction Proceeding

In 1984, Winer and Winer Development Corp. were identified

by respondent as persons who had violated section 6700 by

promoting or selling partnerships or other arrangements that

included gross valuation overstatements. Subsequently,

respondent issued prefiling notification letters to Winer and the

notice partners of Davenport, including participants, regarding

Davenport on April 14, 1984. These letters stated that the

Internal Revenue Service (IRS) planned to review the 1982 and

1983 tax returns of each investor in Davenport for claimed tax

deductions and credits resulting from an investment in the

partnership, which had been identified as a tax shelter. The

letters indicated that the IRS did not believe the purported tax

deductions and/or credits were allowable and that if such tax

deductions and/or credits had been claimed by the investor, his

or her return would be audited. The investor also was provided

an opportunity to file an amended return.

On April 13, 1984, respondent, through the Office of

District Counsel in Jacksonville, authorized the U.S. Department

of Justice (DOJ) to seek injunctions under section 7408 against
 - 12 -

Winer and Winer Development Corp. for engaging in conduct subject

to penalty under section 6700. The letter from the district

counsel stated in part:

you are hereby authorized and requested to take
whatever legal action you deem necessary to secure an
injunction against * * * [Winer] to prevent him from
further promoting, marketing, selling and/or servicing
any abusive tax shelter scheme within the meaning of
I.R.C. section 6700.

On August 17, 1984, the United States filed a complaint

under section 7408 against Winer in connection with his promotion

of certain Plastics Recycling partnerships, and later Winer

Development Corp. was added as a defendant. The proceeding was

docketed as United States v. Winer, Civil No. 84-1123-CIV-T-13

(M.D. Fla.). In the complaint, the United States sought to

enjoin Winer and Winer Development Corp. from:

(1) taking any action in furtherance of the
organization or sale of any abusive tax shelter,
including but not limited to the organization of and
sale of interests in the abusive tax shelter plan
entitled "Stevens Recycling Associates," and other
similar abusive tax shelter plans; (2) engaging in any
other conduct subject to penalty pursuant to Section
6700 of the Internal Revenue Code; and (3) from
engaging in other similar conduct that substantially
interferes with the proper administration of the
Internal Revenue Laws.

Paragraph 28 of the complaint named seven other limited

partnerships substantially identical to Stevens Recycling

Associates in formation, operation, and purpose. Davenport was

included in the list of the seven limited partnerships.

Winer was represented during the initial stages of the

section 7408 injunction proceeding by Elliot Miller (Miller).
 - 13 -

Before becoming involved in the Plastics Recycling cases, Miller

represented investors in coal mining partnerships that had been

syndicated by Winer. Other attorneys, including Ronald

Fieldstone (Fieldstone), represented Winer at various times

during the section 7408 injunction proceeding.

The United States was represented at various times during

the section 7408 injunction proceeding by DOJ Tax Division Trial

Attorney Alice J. Davis (Davis) and many other attorneys on the

staff at the DOJ.

Davis graduated from law school in 1979. She then worked

for the IRS for 4-1/2 years before accepting a position with the

Tax Division of the DOJ in Washington, D.C. During her

employment with the IRS, Davis worked temporarily at the DOJ in

the Special Litigation Section. The function of the Special

Litigation Section was to bring injunction and penalty suits

under sections 6700 and 7408 against persons who were believed to

have promoted abusive tax shelters.3

During the evidentiary hearing, Davis could not recall how

the Winer injunction case was assigned to her. Davis recalled

that the Winer case was only one of many large cases assigned to

3
The Special Litigation Section of the Department of Justice
(DOJ), Tax Division, was created as a result of changes made to
the Internal Revenue Code by the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a),
96 Stat. 648. TEFRA secs. 320(a) and 321(a), 96 Stat. 611, 612,
added secs. 6700 and 7408, respectively.
 - 14 -

her. Davis testified that she did not work with any other trial

attorneys from the DOJ on the Winer injunction case.

Documentary evidence in this case indicates that the Winer

section 7408 injunction case was assigned to respondent's

Jacksonville District Counsel Office, and particularly to

Attorney Avery Cousins III. There is no evidence that the Winer

section 7408 injunction case was assigned to or handled by any of

respondent's attorneys in the Boston District Counsel Office of

the IRS. Winer never met with District Counsel Attorney Mary P.

Hamilton (Hamilton) or William T. Hayes (Hayes) during the

pendency of the section 7408 injunction case filed against him by

the DOJ. Hamilton and Hayes appeared before this Court on behalf

of respondent in this proceeding.

Although Davis worked with people at the IRS, primary

responsibility for the Winer section 7408 injunction proceeding

was with the DOJ and not the IRS. Davis testified that she

believed that she was a key person in the litigation and that the

litigation decisions for the case were made in her office. Davis

was not able to recall exactly who she worked with at the IRS

during the Winer section 7408 injunction case.

On May 10, 1985, before the Jacksonville Office of District

Counsel requested approval from the DOJ to proceed with an

assessment of section 6700 penalties against Winer. Approval was

granted, provided the assessments were determined in a manner

consistent with the litigating position taken by the DOJ in
 - 15 -

another section 6700 penalty case in which Winer was not

involved, which was being argued before the same judge presiding

over the Winer section 7408 injunction proceeding. Davis later

advised the Jacksonville District Counsel's Office that the DOJ

had changed its position and did not approve of the amount of the

proposed penalties.

In the fall of 1985, Winer and his attorneys determined that

they wished to conclude the section 7408 injunction proceeding

and explore the possibility of negotiating a settlement with the

DOJ. Winer testified that he decided to settle the section 7408

injunction proceeding because he felt it was "detrimental to the

partners" of the partnerships in which he was the general

partner. Miller withdrew as Winer's lead counsel, and Fieldstone

was engaged for "the specific and limited purpose of exploring

and negotiating such a settlement" with the DOJ. Fieldstone's

primary objective in any settlement with the Government was to

prevent the Government from restricting Winer in his profession

as a securities salesman. Fieldstone was not involved in any of

the other Plastics Recycling cases. The arrangement was that if

Winer and the DOJ were unable to reach an acceptable settlement,

Miller would then return to represent Winer during the trial.

A settlement conference in the Winer section 7408 injunction

proceeding was arranged for November 18, 1985, in Washington,

D.C., at the DOJ. Before the conference, Davis forwarded to

Fieldstone a copy of a draft Final Consent and Final Judgment of
 - 16 -

Permanent Injunction (Permanent Injunction) for Fieldstone to

review. Davis also sent copies of these documents to Miller.

No one other than Winer, Fieldstone, and Davis was present

during the settlement conference, although Davis did leave the

room at times to confer with her colleagues. The settlement was

ultimately finalized on the same day. The only persons who

participated in the actual settlement negotiations were Winer,

Fieldstone, and Davis.

As part of the settlement, at the insistence of Davis, Winer

agreed to resign as TMP of the Plastics Recycling partnerships

named in the complaint, including Davenport. According to Winer,

Davis "said that I can't have you promoting these things and you

need to resign."

Davis knows of no other case in which the DOJ made an

attempt to remove the TMP. According to Davis, at the time, the

DOJ was concerned that Winer was continuing to make

representations to the other partners in the Plastics Recycling

partnerships that their deductions related to the partnerships

were valid. Requiring Winer to resign as TMP was, among other

things, an attempt by the DOJ to prevent him from continuing to

make these representations.

Winer understood that the duties of a TMP were the same as

those of a general partner. However, Winer never investigated

the duties of a TMP. According to Fieldstone, Winer's

resignation as TMP was not a crucial term of the negotiated
 - 17 -

settlement with the DOJ. Moreover, Fieldstone recalled that

there was a fair amount of negotiation with the DOJ regarding the

degree of constraint on Winer's continued participation in the

securities business and what reporting obligations would be

imposed upon Winer as part of the settlement. In addition,

Fieldstone recalled that "we were negotiating a letter to the

limited partners and Mr. Winer's role as a tax adviser, those

types of issues. I don't remember the details." It was

Fieldstone's impression that the Government wanted Winer to

resign as TMP, "maybe because he was one of the promoters of the

transaction." Although Fieldstone knew what a TMP did, he did

not specifically analyze it for purposes of finalizing a

settlement with the Government. Fieldstone did not know how a

TMP was appointed or changed, and he never did any research on

the matter.

On January 3, 1986, Davis sent Fieldstone another draft of

the proposed Permanent Injunction. This document provided for an

unspecified amount of penalties under section 6700 to be paid by

Winer and Winer Development Corp. This penalty provision was

removed from the Permanent Injunction later entered by the U.S.

District Court fro the Middle District of Florida (District

Court). A revised draft of the Final Consent was sent by Davis

to Fieldstone on January 13, 1986. The revised Final Consent had

been changed to state that the entry of the Permanent Injunction

did not preclude the IRS from assessing penalties under section
 - 18 -

6700 or the defendants from contesting such penalties in the

future.

The proposed Permanent Injunction was approved and signed by

Fieldstone, and mailed to Davis on January 20, 1986. Fieldstone

also sent a copy of the proposed Permanent Injunction to Miller.

Winer signed the Final Consent on behalf of himself and Winer

Development Corp. on January 27, 1986. In the Final Consent,

Winer neither admitted nor denied the allegations in the

complaint and consented to the entry of an order of permanent

injunction.

Fieldstone did not consider the terms of the Permanent

Injunction a total capitulation by Winer because, as the terms

were set forth, the Permanent Injunction did not prevent Winer

from being able to sell securities. Fieldstone believed he had

accomplished his objective because Winer was able to settle his

case with the Government and return to his career as a securities

dealer.

The Permanent Injunction was entered by the District Court

on February 18, 1986. In the Permanent Injunction, Winer and

Winer Development Corp. (hereinafter Winer) were enjoined from

promoting abusive Plastics Recycling tax shelter plans, including

Davenport and other Plastics Recycling partnerships, within the

meaning of sections 6700 and 6701. In general, Winer was

enjoined from organizing, selling, or marketing tax shelter

plans; making or furnishing oral or written advice to an investor
 - 19 -

to the effect that the investor is entitled to tax benefits with

respect to such tax shelter plans; or making or furnishing a

statement as to the allowability of a tax benefit or as to the

value of property or services related to the tax shelter plan.

Winer was ordered not to contest in any court or administrative

proceeding the denial of any tax credits or deductions claimed on

his 1981 and 1982 individual Federal income tax returns, and any

other tax years to which such tax credits and deductions may have

been carried back or forward, with respect to the TEFRA Plastics

Recycling partnerships. The Permanent Injunction further

specifically states:

Winer shall retain the right to be treated as a party
in a proceeding brought by the tax matters partner of
said partnerships as allowed by Sections 6226(c)(1) and
6228(a)(4)(A)(i) of the Internal Revenue Code, except
that he will not actively participate in the action as
allowed by Sections 6226(c)(2) and 6228(a)(4)(A)(ii).
He shall, however, be allowed to cooperate with the tax
matters partner for the purpose of administrative and
court proceedings.

The February 18, 1986, Permanent Injunction ordered Winer to

resign as TMP of the partnerships and to send a letter of

resignation to all of the partners:

It is further ORDERED, ADJUDGED AND DECREED that
defendant Samuel L. Winer shall send a letter to each
partner in the following partnerships: * * * Davenport
Recycling Associates * * * , within 30 days from the
date this Order is entered. In said letter, defendant
Samuel L. Winer shall tender his resignation as tax
matters partner (to the extent applicable) in said
partnerships, and waive his right to intervene in any
court proceedings as tax matters partner on behalf of
these partnerships. The form of the letter to be sent
is attached hereto as Exhibit A. Within 30 days from
the date this Final Judgment order is entered, Samuel
 - 20 -

L. Winer shall file an affidavit with this Court
affirming that said letters have been sent.

In the letter from Winer, described in the above-mentioned

exhibit A, Winer tendered his resignation as TMP of listed

partnerships, including Davenport, and provided the name and

address of a new TMP for each listed partnership. DL &

Associates, Ltd. (DL & Associates), of Southfield, Michigan, was

identified in the letter from Winer as the successor TMP for

Davenport. In the required letter, Winer explained that he was

complying with the requirements of the injunction without

admitting or denying the allegations in the complaint.4 The

District Court did not order Winer to resign as general partner

from any of the partnerships.

The Permanent Injunction did not enjoin Winer from providing

correct factual information to the new TMP's for the partnerships

or from providing such information in response to a court order,

4
The first paragraph of the letter stated as follows:

This letter is to advise you that effective _____,
1986, the undersigned individually and on behalf of
Winer Development Corporation, entered into a Consent
and agreed to a Final Judgment of Permanent Injunction,
without admitting or denying any of the allegations in
the Complaint, with respect to the pending action by
the United States government for an injunction against
the undersigned and Winer Development Corporation with
respect to the Stevens Recycling Associates Partnership
and other similar partnerships, including the
partnership in which you are a limited partner.

The conclusion of the letter provided the names and phone numbers
of Samuel L. Winer's attorneys, Elliot Miller and Ronald
Fieldstone, and stated that they were available to answer any
questions concerning the matters described in the letter.
 - 21 -

subpoena, or as otherwise required by law. Neither the DOJ nor

the IRS (which was not a party to the case) was ordered by the

District Court to make any notifications regarding any of the

matters in the Permanent Injunction.

Winer's explanation for failing to communicate with the

limited partners immediately after the Permanent Injunction was

entered is that Fieldstone's receipt of a copy of the Permanent

Injunction signed by the District Court judge was delayed. On or

about July 7, 1986, Winer filed an affidavit with the District

Court, dated May 23, 1986, which indicated that he had sent the

letters to the limited partners as specified in exhibit A of the

Permanent Injunction.

Winer's letter of resignation to the partners stated in

part:

As also required by the Consent, the undersigned
[Winer] hereby tenders his resignation as the tax
matters partner of the partnership in which you are a
limited partner. The undersigned [Winer] has also
personally waived his right to intervene in any court
proceeding as tax matters partner on behalf of this and
any other similarly situated partnership. The new tax
matters partner of your partnership is ______, whose
address is _____, Telephone number ______. Mr. ____,
was appointed pursuant to section 6231(a)(7) of the
Internal Revenue Code.

The letter instructed each addressee to consult an attached list

of limited partners to determine who had been selected as the new

TMP for his or her partnership. However, no separate letters

were sent to the individuals or entities who had been selected to

replace Winer as the TMP of each partnership. Winer testified
 - 22 -

that he did not personally know each individual or entity named

in his letter as a replacement TMP, but he did recognize two-

thirds of the individuals or entities listed. At the time he

sent the letter, Winer thought that DL & Associates, which he had

identified as the replacement TMP for Davenport, was a law firm.

In fact, DL & Associates was a partnership which had been formed

for the purpose of investing in Davenport and other Plastics

Recycling promotions. DL & Associates consisted of five or six

individuals who had a percentage of an interest in one unit of

Davenport.

Other investors, aside from those who purportedly had been

appointed as the new TMP's, called Winer after receiving his

resignation letter of April 23, 1986, to ask him about the effect

of his letter. Winer responded by assuring the investors that

his resignation as TMP did not mean that they were out on their

own and that since many of the new TMP's that he had designated

were attorneys, the partnerships would still be able to fight the

IRS on the tax issues. Additionally, a few investors called

Fieldstone and asked him general questions about Winer's letter.

The record in this case clearly indicates that Fieldstone

and Winer selected the replacement TMP's. In a June 23, 1986,

letter from Davis to Fieldstone relating to the section 7408

injunction case against Winer, Davis wrote:

This is in response to your May 22, 1986, letter
concerning the tax matters partners for the eight
partnerships involved in the above-entitled case. As
you are aware, we left to you and your client's
 - 23 -

discretion the choosing of the new tax matters partners
to replace Mr. Winer. You provided to us the list of
the new tax matters partners which we accepted without
question.

Additionally, the Memorandum in Support of Joint Motion for

Permanent Injunction, filed August 11, 1986, in the District

Court and signed by both Davis and Fieldstone, clearly states

that Winer prepared the list of new tax matters partners for the

partnerships involved.

Eventually, all of the persons or entities designated as

replacement TMP's in Winer's resignation letter contacted Winer,

directly or indirectly, and indicated that they refused to serve

as TMP's. For example, Stuart Hershfield, who had been selected

by Winer to serve as the new TMP for the Stevens Recycling

Associates partnership, on April 30, 1986, wrote in a letter to

Winer:

I discovered with some alarm that I have been
designated as the new tax matters partner to replace
you. This designation is not acceptable under any
circumstance. I ask that you forthwith communicate
with the IRS or the parties with whom you entered a
consent order advising them that I do not wish to be
the tax matters partner and accordingly to replace me.

The evidence indicates that Davis was caught off guard by

the refusal of the purported replacement TMP's for the

partnerships to act as such. In a June 23, 1986, letter to

Fieldstone, Davis wrote:

I was quite surprised and somewhat dismayed to discover
that at least some of the newly "appointed" tax matters
partners had not agreed to the appointments, nor had
they even been contacted before their names were
submitted to us by you and your client. The
 - 24 -

appointment of parties to be tax matters partners
without first obtaining their consent [indicates] a
clear lack of good faith in the consent negotiations.

In her letter, Davis concluded that because so many of the newly

selected TMP's would not agree to their purported appointments,

the United States would not object to the appointment of a second

round of replacement TMP's, provided:

the tax matters partners to be appointed have consented
to such an appointment and are qualified to act in that
capacity, and further provided that the appointee not
be Samuel Winer.

F. DL & Associates

DL & Associates of Southfield, Michigan, had been selected

by Winer and Fieldstone as the new TMP of Davenport. DL &

Associates acquired a 1.79-percent limited partner interest in

Davenport in 1982 for a capital contribution of $16,250. DL &

Associates was named for David Lichtenstein (Lichtenstein), who

was one of the partners. Lichtenstein is an attorney who

practices business and transactional law. Lichtenstein testified

that he became aware of the Davenport offering through Fred

Gordon (Gordon), an attorney in Michigan. In the Davenport

offering, Gordon was identified as the special counsel to the

general partner, who was Winer. Gordon was later retained by

Winer on behalf of Davenport for the TEFRA litigation in the

subject case. Lichtenstein was familiar with the litigation

involving the Plastics Recycling partnerships because he had been

a witness in the lead case, Provizer v. Commissioner, T.C. Memo.
 - 25 -

1992-177, as well as another Plastics Recycling case tried in

Detroit, Michigan, after the trial in Provizer.

Lichtenstein testified that neither he nor DL & Associates

ever received a notice from the IRS or the DOJ that DL &

Associates was being appointed as the new TMP for Davenport.

Lichtenstein was never notified by Winer prior to his receipt of

Winer's letter listing DL & Associates as the new TMP of

Davenport. According to Lichtenstein, upon receipt of Winer's

letter, he called Gordon and "told him what I had received and

that I had no idea what it was, and that I had no idea how this

partnership could act in any capacity to represent anything or

anyone, and I asked him what should we do?" Gordon told

Lichtenstein he would look into the matter and get back to him.

There is no evidence in the record that Gordon ever responded to

Lichtenstein's inquiry.

A few weeks before the evidentiary hearing in the present

case, Lichtenstein received some document which the IRS had sent

to DL & Associates, but Lichtenstein was unable to recall whether

the documents had been addressed to DL & Associates as TMP of

Davenport. Lichtenstein did not remember receiving an FPAA in

the Davenport Recycling case and was unaware that in 1989, a

petition had been filed on behalf of Davenport with this Court by

Winer.

At the time of the evidentiary hearing in this case,

Lichtenstein was unaware of the status of DL & Associates. Under
 - 26 -

Michigan law, a partnership must be renewed after a certain

period of time or it will expire. Lichtenstein did not renew DL

& Associates' status as a partnership.

G. The Modified Injunction

Miller had received a copy of the February 1986 Final

Consent and Permanent Injunction from Winer. Sometime in late

April or early May 1986, Miller read the proposed TEFRA

partnership regulations which had been reprinted in the April 17,

1986, issue of the Daily Tax Report, a publication of the Bureau

of National Affairs. After reviewing the proposed TEFRA

partnership regulations, Miller, on May 6, 1986, wrote to Winer

regarding Winer's settlement of his section 7408 injunction case

with the United States. Miller also sent copies of this letter

to Fieldstone and Davis.

In his letter, Miller informed Winer that he believed

Winer's settlement of the section 7408 injunction proceeding

action was invalid because: (1) Winer had not resigned as TMP in

accordance with the proposed TEFRA partnership regulations; and

(2) only general partners could be designated as TMP's. It was

Miller's belief that certain provisions in the proposed

regulations:

confirm that what you did in the settlement process is
probably invalid and, should the Proposed Regulations
be promulgated in the form in which they are proposed,
certain additional steps will have to be taken before
your resignation as tax matters partner can be
effective and before the successor tax matters partner
can be properly designated.
 - 27 -

I am enclosing herein section 301.6231(a)(7) of
the proposed regulations. This makes clear that the
only persons who may be designated as tax matters
partners are persons who are general partners in the
partnership. This is entirely consistent with the
provisions of the Code which these Proposed Regulations
purport to interpret. In fact, they do not contain any
additional procedures pursuant to which a limited
partner may become a tax matters partner.

Additionally, Miller's letter made clear to Winer that he

believed Winer's resignation as TMP was ineffective under the

proposed regulations because Winer had not filed a statement with

the service center with which the partnerships' returns were

filed. As Miller explained:

Moreover, the Regulations are quite clear that your
status as a tax matters partner will remain in effect,
notwithstanding a purported resignation and a purported
designation of a successor, until the resignation and
designation of a successor become effective; as noted,
such resignation and designations would not become
effective until filed with the service center.

* * * * * * *

Even so, such statements would not become effective
retroactively, but only the day filed.

Miller further advised Winer to consult the partnership

agreements to determine how to arrange for additional limited

partners to become general partners so that they could serve as

TMP's in accordance with the proposed regulations.

According to Miller, since Winer was still technically the

TMP, he should comport himself in accordance with the proposed

regulations until his resignation as TMP became effective.

Miller also suggested that since Winer had sent letters to the

investors stating that he had resigned as TMP, he should send the
 - 28 -

investors a subsequent letter discussing the issues Miller had

raised.

At some point after Miller sent his letter, Davis,

Fieldstone, and Winer became concerned that because the partners

Winer had listed as the new TMP's were all limited partners, they

might be ineligible to serve as TMP's under section 6231(a)(7).

The parties involved also were concerned by Miller's

interpretation of the proposed regulations that the mailing of a

letter of resignation by Winer to the partners was ineffective to

terminate his own status as the TMP or to designate a new TMP

under existing law.

In a June 23, 1986, letter to Davis, Fieldstone proposed

that Winer "continue to serve as the tax matters partner solely

for the purpose of providing administrative services in such

capacity and not for the purpose of rendering any substantive

legal advice to limited partners." Fieldstone also wrote that

"Mr. Winer is willing to comply with your request to resign as

tax matters partner if such resignation were possible under

existing law, which apparently it is not."

In response, Davis, reversing her earlier opposition to

allowing Winer to serve as TMP, wrote Fieldstone on August 7,

1986, that the United States would agree to allow Winer to

continue to serve as TMP, for the purpose of providing

"administrative services to the recycling partnerships."

Subsequently, on August 11, 1986, the United States and Winer
 - 29 -

filed a Joint Motion for an Order Granting Specific Relief from

Final Judgment of Permanent Injunction (joint motion). Winer

authorized Fieldstone to sign the joint motion for specific

relief on his behalf. In the joint motion, the parties moved

that "Winer be allowed to act as tax matters partner for some of

the recycling partnerships listed in the Final Judgment of

Permanent Injunction, for the purpose of providing administrative

services to said partnerships." Davenport was one of the

recycling partnerships listed in the Permanent Injunction. Winer

purportedly assumed that the joint motion was another part of the

settlement.

Davis testified that her understanding of the term

"administrative services" at the time the modification was filed

was that this would allow Winer to participate in winding up the

partnerships and defending them in the Tax Court. According to

Davis, Winer was allowed to be reinstated as TMP because no other

partner would accept the responsibility.

The parties also jointly filed a memorandum in support of

the joint motion which stated:

Because of the refusal of the persons on this list to
act as tax matters partners, and the apparent inability
of the defendant [Winer] to obtain other persons to act
in this capacity, and also because someone is needed to
administer the affairs of the partnerships, the United
States and the defendants [Winer and Winer Development
Corp.] have agreed that it is in the best interest of
all involved to allow defendant Samuel L. Winer to act
as tax matters partner on behalf of said partnerships.
 - 30 -

Both the joint motion and the memorandum in support of the joint

motion were drafted by Davis. The memorandum noted that the

District Court had retained jurisdiction of the underlying

injunction case for the purpose of implementing and enforcing any

additional decrees and orders necessary and appropriate to the

public interest. In the memorandum, the parties wrote that "an

order allowing defendant Samuel L. Winer to act as tax matters

partner for the * * * partnerships will serve the best interests

of the public."

On September 17, 1986, the District Court issued an Order

Granting Specific Relief from the Final Judgment of Permanent

Injunction as to Samuel L. Winer and Winer Development Corp. in

which it was ordered that "for good cause shown, * * * Samuel L.

Winer may act as tax matters partner for the purpose of providing

administrative services to the * * * partnerships", which

included Davenport. The District Court's order did not remove

the prohibitions against Winer's selling or promoting the

partnership or intervening in any court proceeding as the TMP on

behalf of any of the partnerships referenced in the February 18,

1986, Permanent Injunction.

Winer claims that he first heard of the proposal to

reinstate him as TMP of the partnerships in August 1986 during a

phone call from Fieldstone. Winer recalled that Fieldstone told

him he had been reinstated because none of the other investors

wanted to be the TMP. At that time of the modification, Winer
 - 31 -

thought that because there was no activity going on at the

partnership level, even after being reinstated as TMP, he still

would not have any function. Winer testified at the evidentiary

hearing in December 1996 that he understood "administrative

services" to be "similar to a mailbox or a box drop. I mean,

every time I got correspondence from the Government concerning

audits or whatever, I would pass it on to the investors and also,

they started sending me extensions."

Two months earlier, however, at a deposition on October 17,

1996, in the case of Thompson v. United States, 95-C-1112-B (N.D.

Okla.), Winer testified that it was his understanding after the

Permanent Injunction was modified "that if anything came up from

a tax standpoint, that I was to step in--had been reappointed,

whatever terminology you want to use--and do whatever I had to

do." During the deposition, Winer stated that he believed he

could also perform "ministerial functions", like cooperating with

the investors "if they needed any help in terms of answering

things relating to their taxes based on this investment."

Winer did not notify the investors after the order modifying

the Permanent Injunction was entered by the District Court.

Because of the large number of investors involved and the

consequent expense, Winer was unwilling to incur the burden of

notification if he was not required to do so by the District

Court. Winer felt no obligation to notify all of the investors,
 - 32 -

although he did inform a few investors "in the course of

business" that he had been reinstated as TMP of the partnerships.

Winer did not speak with Davis about the modification and

did not inform her that he was not going to notify the investors

that he had been reinstated as TMP of the partnerships. Davis

did not instruct Winer to notify the investors that the Permanent

Injunction had been modified.

H. The Davenport Partnership Examination

Respondent conducted a TEFRA partnership audit of Davenport

for its 1982 through 1985 taxable years. From 1984 through June

26, 1988, Winer was represented in the partnership audit

proceedings by Harris W. Freedman, C.P.A. (Freedman), and Shaye

Jacobson, C.P.A. (Jacobson), who were both also engaged by the

Davenport partnership. Winer testified at the evidentiary

hearing that he did not participate in the Davenport audit.

During the entire audit, either Jacobson or Freedman or both of

them handled the audit on behalf of Davenport as Davenport's

attorneys in fact. Beginning on June 27, 1988, Winer and

Davenport were represented by Gordon and/or Deborah Hack (Hack).

Gordon testified at the evidentiary hearing at the request of

respondent. Respondent also conducted TEFRA partnership audits

of six additional Winer partnerships5 for their 1982 through 1985

taxable years.

5
The additional partnerships were: Dickinson, Hamilton,
Masters, Pompano, Stevens, and Whitman Recycling Associates.
 - 33 -

During the partnership audit proceedings, Winer signed Forms

872-P, Consent to Extend the Time to Assess Tax Attributable to

Items of a Partnership (hereinafter the consents), to extend the

period of limitations as TMP of Davenport under section

6229(b)(1)(B).6 According to Winer, he signed the consents in

order to avoid immediate assessments' being made against the

investors. Every time Winer received a request to sign a consent

to extend the statutory period of limitations he would call his

attorney or Gordon for advice. Winer stopped signing the

consents in late 1988, after one of his attorneys told him to

stop signing the consents in order to "wait and see what happens

in Tax Court."

6
The dates of the extension forms signed by Winer were as
follows:
Taxable Year 1982

Signed by Winer Signed by IRS Extension Date

10/08/85 10/30/85 12/31/87
04/29/87 05/03/87 12/31/88
11/19/87 12/10/87 12/31/89

Taxable Year 1983

08/26/86 09/22/86 12/31/87
04/29/87 05/03/87 12/31/88
11/19/87 12/10/87 12/31/89

Taxable Year 1984

09/29/87 10/06/87 12/31/88
11/19/87 12/10/87 12/31/89

Taxable Year 1985

11/01/88 11/03/88 12/31/89
 - 34 -

Between 1986 and 1988, Revenue Agent Ray Ealy (Ealy)

corresponded with Winer and/or Jacobson regarding the Davenport

audit. Ealy addressed his correspondence to Winer as TMP of

Davenport, and Winer identified himself as TMP in his dealings

with Ealy. Winer testified that he believed the documents from

the IRS were addressed to him as TMP because that was his

"administrative function".

In November 1987, Ealy sent his summary report on the

Davenport audit to Winer. Ealy's summary report disallowed the

deductions and credits attributable to the Sentinel EPS recyclers

on the primary ground that the recycler transactions were a sham

and lacking in economic substance. Winer informed Ealy on

November 26, 1987, that he did not agree with Ealy's summary

report. A closing conference was scheduled for January 10, 1988,

in order to give Winer time to contact the other partners.

Winer disagreed with the IRS's appraisal report, which placed a

value of $200,000, or $50,000 each, on the Sentinel EPS

recyclers. On January 7, 1988, Winer informed Ealy that he had

received no response from any of the partners, and therefore,

there was no need for a closing conference. Winer told Ealy that

as TMP he would prefer to proceed through the IRS Appeals

process.

Respondent issued an examination report to Winer as TMP of

Davenport on May 2, 1988. In the examination report, respondent

disallowed all deductions and credits claimed with respect to
 - 35 -

Davenport's recycling activity for the years 1982 through 1985.

On May 2, 1988, copies of the cover letter accompanying the

examination report, and the report itself were mailed to all

other partners of Davenport, including participants. In response

to respondent's examination report, Winer's attorney, Hack, filed

a protest with the IRS on behalf of Winer in which Winer argued

that Davenport was a for-profit venture and that the recyclers

were not grossly overvalued. Winer did not allege that he was

not the TMP or that he had been enjoined from serving as TMP.

I. The Plastics Recycling Project Settlement Offer

After the protest was filed, the Davenport Recycling case

was assigned to IRS Appeals Officer Nelson Leduc (Leduc). In an

October 21, 1988, letter from Leduc to Winer, respondent made the

Plastics Recycling Project Settlement Offer to Davenport and the

other TEFRA partnerships of which Winer was general partner. The

settlement offer was mailed to Winer as TMP of Davenport at

Davenport's business address and at Winer's home address. Leduc

sent blank copies of the offer letter to Winer for his

convenience, so that Winer could forward to each notice partner

the details of the Government's offer. The terms of the

settlement offer were as follows: (1) The investor would be

allowed a deduction for 50 percent of his cash invested in the

year of investment; (2) no business or energy tax credits would

be allowed; (3) the investor would concede the overvaluation

penalty under section 6659 at the 30-percent rate; (4) the
 - 36 -

investor would concede the section 6621(c) interest; (5) the

Government would concede the additions to tax for negligence

under section 6653(a)(1) and (2); (6) the Government would

concede the additions to tax for substantial understatement under

section 6661; and (7) the investor had to execute a closing

agreement.

Leduc's settlement offer letter stated that the offer would

not be repeated and would be the best offer that would be made at

any level of the IRS. Leduc's letter also mentioned that "this

offer is identical for all investors within any entity identified

as part of the Plastics Recycling Group." In addition, Leduc's

letter clearly pointed out that the settlement offer would expire

30 days from the date stamped on the letter.

Winer did not recall receiving the offer letter from Leduc.

According to Winer, if he had received the settlement offer, he

would have forwarded it to Gordon.

Karras testified at the evidentiary hearing that he received

a letter from Gordon regarding the settlement offer. Karras knew

that Gordon was the attorney for Davenport. In his letter,

Gordon advised participants that they should not accept the

settlement offer from the IRS and that Gordon was going to

continue to pursue the case.

Winer did not accept the settlement offer on behalf of any

of the partnerships. Leduc closed the partnership cases as

unagreed and recommended that FPAA's be issued.
 - 37 -

J. Proceedings Involving Winer's Tax Liabilities in His
Individual Capacity

On June 9, 1986, a penalty under section 6700 in the amount

of $534,600 was assessed against Winer by the Jacksonville,

Florida, IRS district director. The notice of penalty charge

stated that the penalty for promoting an abusive tax shelter had

been assessed against Winer for organizing, assisting in the

organization of, or participating in the sale of an abusive tax

shelter.

Winer paid 15 percent of the section 6700 penalty

assessment, or $80,190, on or about July 7, 1986. Thereafter, on

February 2, 1987, Winer filed a refund suit regarding the section

6700 penalty in the District Court for the Southern District of

Florida. This suit was captioned Winer v. United States, Civil

Action No. 87-0175-CIV-RYSKAMP. On April 2, 1987, Jacksonville

District Counsel wrote a defense letter to the DOJ, which was

handling the litigation of the section 6700 penalty case,

regarding Winer's suit. Among other things, the defense letter

referred to the section 7408 injunction proceedings against Winer

and Winer Development Corp., but it raised no issues relating to

Winer's status as TMP of the Plastics Recycling partnerships

involved. Although copies of the engineering reports showing the

overvaluation of the recyclers were forwarded to DOJ with the

defense letter, no copies of the pleadings from the Winer section

7408 injunction proceeding were included. At the time, Davis
 - 38 -

still had possession of the pleadings from the section 7408

injunction case against Winer and Winer Development Corp. This

refund suit ultimately was dismissed without prejudice because

venue was improper.

On June 21, 1988, Winer refiled his refund suit regarding

the section 6700 penalty in the District Court for the Middle

District of Florida. Winer's complaint contained no information

or any references to the section 7408 injunction proceeding which

had been filed against him by the United States.

In a case similar to Winer's, Waltman v. United States, 618

F. Supp. 718 (M.D. Fla. 1985), the District Court held that the

amount of the penalty asserted under section 6700 was limited to

the greater of $1,000 or 10 percent of the gross income derived

from each sale. Id. at 720. Under the holding in Waltman,

respondent's calculation of the section 6700 penalty in Winer's

case was excessive and ultimately was reduced.

A notice of deficiency was issued to Winer and his wife,

Judith J. Winer, on March 19, 1992. The notice of deficiency was

for Winer's personal income taxes for the taxable years 1979 and

1981 through 1984, inclusive. In the notice of deficiency,

respondent determined adjustments primarily related to Winer's

investment as a Schedule C owner in certain Sentinel EPE and EPS

recyclers. However, the notice of deficiency also made

adjustments for "burnout gain" for Winer's mining partnerships,

partnership losses claimed in excess of basis, and adjustments
 - 39 -

due to prior examinations. Respondent also determined additions

to tax for delinquency, negligence, overvaluation, and

substantial understatement of tax.

Although Winer testified that he did not contest any of the

adjustments in the notice of deficiency because "part of my

settlement was that I wouldn't do that," on June 16, 1992,

Winer's attorney, Richard Baron, filed a petition on behalf of

Winer. The petition was docketed as Samuel L. Winer, Petitioner

v. Commissioner of Internal Revenue, Respondent, docket No.

13308-92. In the petition, Winer set forth numerous arguments

why respondent's adjustments were incorrect. Counsel for

respondent in Winer's personal income tax case was Attorney

Howard P. Levine (Levine) of respondent's Jacksonville District

Counsel Office.

Winer's personal income tax case was concluded by a

stipulated settlement between Winer and the Office of Miami

District Counsel. A decision in the case was entered on May 23,

1994, which reflected deficiencies in tax and additions to tax in

excess of $1,200,000, not including additions to tax for

negligence under section 6653(a)(2) and additional interest under

section 6621(c).

In December 1995, Winer filed for personal bankruptcy. At

the evidentiary hearing, Winer implied that his concession and

subsequent bankruptcy "[were] all part of a complicated scheme,

if you will, or arrangement with the IRS," and that the
 - 40 -

Government knew he would be filing for bankruptcy. However,

during his deposition on October 17, 1996, in the case of

Thompson v. United States, 95-C-1112-B (N.D. Okla.), Winer

testified that the Government did not link the outcome of his

personal tax case to any of the Plastics Recycling partnership

cases.

K. The Davenport Partnership Litigation

Both Winer and Davenport were represented during the

Davenport TEFRA partnership litigation by Gordon at all times

relevant hereto, and by Hack until her withdrawal in April 1991.

Respondent was represented during the Davenport partnership

litigation in this case by District Counsel Attorneys Mary P.

Hamilton, Paul V. Colleran, and Kirk S. Chaberski and by

Assistant District Counsel William T. Hayes.

After the issuance of the FPAA's in the Hamilton case, Winer

wrote a memorandum to the partners of Hamilton, Davenport and

Dickinson Recycling Associates, including Karras, on May 30,

1989. In his memorandum, Winer enclosed a copy of a Notice of

Filing of Petition for Hamilton Recycling Associates and stated:

Please be advised that we will do the same for
Dickinson, Davenport, and any other partnerships that
require this filing. We sincerely hope that you will
continue to support our Legal Defense Fund so that we
may continue to retain counsel to represent the
partnership in order to obtain a favorable disposition
of this matter.
 - 41 -

On May 15, 1989, respondent issued notices of FPAA7 to

Davenport proposing adjustments to Davenport's 1982 through 1985

years. In the FPAA's, respondent disallowed all deductions and

credits attributable to the Sentinel EPS recyclers. Copies of

notices of FPAA issued to Davenport were mailed to all notice

partners of Davenport, including participants.

When Winer received the notices of FPAA addressed to him as

TMP of Davenport, he gave them to Gordon and his accountant.

Subsequently, on June 9, 1989, Gordon filed a petition on behalf

of Winer, in the subject case, captioned Davenport Recycling

Associates, Sam Winer, Tax Matters Partner v. Commissioner,

docket No. 12801-89. Gordon's firm had been employed by Winer to

file the petition with this Court, and Gordon was aware that the

case caption read "Sam Winer, Tax Matters Partner". At this

stage in the case, Winer spoke frequently with Gordon, and Winer

allegedly believes he told Gordon at some point prior to the

filing of the petition that he was "back in" as the TMP of

Davenport.

In his petition to this Court, filed June 9, 1989, Winer

alleged: "Petitioner is the Tax Matters Partner of the

7
The notices of FPAA were issued to the following addresses:
(1) Mr. Samuel Winer, Tax Matters Partner, Davenport Recycling
Associates, 3109 Crystal Cay, Bellair Beach, FL 33535; (2) Mr.
Samuel Winer, Tax Matters Partner, Davenport Recycling
Associates, P.O. Box 2929, Clearwater, FL 33517; and (3) Tax
Matters Partner, Davenport Recycling Associates, P.O. Box 2929,
Clearwater, FL 33517.
 - 42 -

Partnership." Winer had agreed to the filing of the petition,

e.g., in Davenport Recycling and knew that the caption of the

case identified him as the TMP.

During his testimony at the evidentiary hearing,

Lichtenstein was unable to recall whether he or DL & Associates

had received notices of FPAA regarding Davenport. However,

respondent's records indicate that the notices of FPAA were

issued by certified mail to DL & Associates on May 15, 1989.

Lichtenstein never filed a petition in the case involving

Davenport.

In preparation for trial in the Davenport Recycling case,

respondent conducted discovery, to which Gordon and Hack

responded. Respondent's primary interest during discovery was in

records relating to the placement and production of the Sentinel

EPS recyclers and "correspondence to and from the general partner

and tax matters partner, Samuel L. Winer." During the course of

discovery, none of the discovery responses from Gordon and Hack

contained any information regarding any section 7408 injunction

proceedings involving Winer.

During the period of preparation for trial in the Davenport

Recycling case, respondent prevailed on the merits in test

litigation with respect to the Plastics Recycling issues. The

case of Harold M. Provizer and Joan Provizer, docket No. 27141-

86, was chosen as a test case and ultimately was the only test
 - 43 -

case actually tried with respect to the underlying plastics

recycling transaction. As discussed previously, Provizer,

resolved in T.C. Memo. 1992-177, has been uniformly viewed as the

lead case involving Sentinel EPE recyclers.

During 1992 and 1993, respondent prepared four partnership

cases as test cases (the SAB cases)8 for the Sentinel EPS

recycler. On August 2, 1993, the day the trial of the SAB cases

was scheduled to begin, the TMP of these partnerships conceded

all partnership adjustments in full in open court. As a result

of the TMP's concessions, decisions were entered in favor of

respondent in the SAB test cases.

After the complete concession by the TMP in the SAB cases,

respondent wrote to Gordon on August 6, 1993, and inquired as to

how Winer intended to proceed in his partnership cases.

Respondent's letter stated: "Please advise this office by August

20, 1993, whether you will concede in full or try your cases in

Tax Court. If we do not hear from you by August 20, 1993, we

will file motions to calendar your cases for trial."

Thereafter, on August 30, 1993, respondent filed a motion to

8
The cases involved were: SAB Recycling Associates 1982, SAB
Management, Ltd., Tax Matters Partner v. Commissioner, docket No.
4504-92; SAB Recycling Associates 1983, SAB Management, Ltd., Tax
Matters Partner v. Commissioner, docket No. 4526-92; SAB Foam
Recycling Associates 1982, SAB Management, Ltd., Tax Matters
Partner v. Commissioner, docket No. 5103-92; and SAB Foam
Recycling Associates 1983, SAB Management, Ltd., Tax Matters
Partner v. Commissioner, docket No. 4826-92.
 - 44 -

calendar in the Davenport Recycling case. In an order dated

October 4, 1993, this Court set the Davenport Recycling case for

trial in Detroit, Michigan, on March 7, 1994.

Sometime after the Davenport Recycling case was set for

trial, Gordon advised respondent that Winer would concede all

partnership level adjustments in Davenport Recycling and the

other partnership cases, but that Winer could not certify that

all of the other partners would also concede. The Davenport

Recycling case was conceded at the direction of Winer. Gordon

did not make any recommendations to Winer as to whether or not

Winer should concede. During the evidentiary hearing, Gordon

admitted that he did not send a copy of respondent's motion for

entry of decision or proposed decision to Davenport's limited

partners. Gordon also testified that he did not know whether

Winer had sent copies of respondent's motion for entry of

decision or proposed decision to Davenport's limited partners.

However, Karras' testimony is that Winer never directly

communicated to him that the IRS had filed a motion for entry of

decision and a proposed decision in the Davenport Recycling case.

On November 5, 1993, respondent mailed to this Court a

motion for entry of decision under Rule 248(b) and a proposed

decision. On February 17, 1994, respondent's motion for entry of

decision was granted. On February 23, 1994, respondent's

proposed decision was entered as the decision of this Court. At
 - 45 -

the conclusion of the partnership level proceeding, pursuant to

sections 6230(a)(1) and 6231(a)(1) and (6), the deficiencies

attributable to the disallowed Davenport partnership items were

assessed against the partners, including participants. During

the pendency of the Davenport partnership proceeding, none of the

39 notice partners of Davenport, including participants, ever

moved to participate or intervene. No partner purporting to be a

replacement TMP ever filed a petition on behalf of Davenport.

On May 26, 1995, more than 1 year after this Court had

entered a final decision in the Davenport Recycling case, Hayes,

of the Boston District Counsel Office, wrote a letter to the

clerk of the District Court requesting copies of the orders

entered in the Winer section 7408 injunction proceeding. Hayes

indicated in his letter that he was requesting the information in

order to respond to allegations made by taxpayers in a number of

cases filed with this Court. On July 24, 1995, Hamilton, also of

the Boston District Counsel Office, wrote to the clerk with a

second request for copies of the orders.

On July 17, 1995, in a memorandum to the Jacksonville

District Counsel Office, Hayes requested information regarding

both the Winer section 7408 injunction case and the Winer section

6700 penalty case. Hayes wrote that his office needed Winer's

old section 7408 and section 6700 files in connection with

approximately 120 TEFRA penalties cases in which Winer was the
 - 46 -

TMP. Hayes also requested that any Jacksonville attorney who had

worked on the Winer cases contact Hamilton.

In response to Hayes' memorandum, on August 3, 1995, Levine

faxed Hamilton copies of: (1) The Final Judgment of Permanent

Injunction; (2) Winer's affidavit and Fieldstone's accompanying

cover letter; (3) the Joint Motion for an Order Granting Specific

Relief from Final Judgment of Permanent Injunction; (4) the

Memorandum in Support of Joint Motion; (5) the Order Granting

Specific Relief; and (6) a February 6, 1995, letter from James A.

Strickland, C.P.A. The facsimile transmission memorandum and

Strickland letter indicated that the documents from the Winer

section 7408 injunction proceeding had been submitted to the IRS

Problem Resolution Office in Jacksonville, Florida, in February

1995. Before Hamilton's receipt of these documents in August

1995, the Boston Office of District Counsel was unaware that in

response to the joint motion, the District Court initially had

removed Winer as TMP of Davenport in February 1986 and then

purportedly reinstated him as TMP "for the purpose of providing

administrative services" in September 1986.

Discussion

We must decide whether grounds exist in this case to grant

participants' motion under Rules 161 and 162 for special leave to

file a motion to reconsider or vacate what is otherwise a final

decision of this Court. Participants argue that their motion
 - 47 -

should be granted because this Court never had jurisdiction over

the underlying case since Winer was not authorized to file a

petition with this Court. Participants further contend that

fraud was committed upon this Court by respondent. Additionally,

they argue that the notices of FPAA were not timely. Partici-

pants' motion is based upon their wish to have this Court vacate

the underlying decision so they no longer will be responsible for

amounts that have been assessed against them by respondent. In

response, respondent argues that Winer was the proper TMP of

Davenport with authority to file the petition with this Court,

and, in the alternative, that participants' motion should be

denied because a timely petition was filed by Winer as notice

partner and ratified by the other partners of Davenport.

Additionally, respondent strongly denies committing fraud upon

this Court. Respondent points out that participants' arguments

concerning the alleged expiration of the statutory period for

assessment are not relevant since those arguments involve an

affirmative defense that was not raised timely and do not affect

this Court's jurisdiction.

The date of a decision of this Court is the date an order

specifying the amount of the deficiencies is entered in the

records of the Tax Court, here February 23, 1994. Sec. 7459(c).

A decision of this Court becomes final upon expiration of the

time to file the notice of appeal if no notice of appeal is
 - 48 -

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). Therefore, the decision in

this case became final on May 24, 1994. Participants' motion in

this case was not filed until January 23, 1996.

Because the decision in this case was entered pursuant to a

stipulated settlement with respondent by Winer, as the purported

TMP, there is no underlying opinion for this Court to reconsider.

Therefore, participants are not within the general rules for

reconsideration of an opinion under Rule 161, and their motion

for reconsideration is denied.

Once a decision becomes final, this Court may vacate the

final decision only in certain narrowly circumscribed situations.

The Court may vacate a final decision if that decision is shown

to be void or a legal nullity for lack of jurisdiction over

either 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, 69 T.C. 999, 1002 (1978). The Court may

also 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).
 - 49 -

Participants filed their motion approximately 20 months

after the decision became final. As we have noted, participants

argue that their motion to vacate should be granted because the

Court did not have jurisdiction over the underlying case and also

because there was a fraud upon the Court. A party seeking to

vacate a final decision bears the burden of proof. Abeles v.

Commissioner, supra at 106.

In this case, participants also allege that the FPAA's were

not timely issued since under the terms of the Permanent

Injunction and subsequent Modification Winer was not authorized

to execute consents extending the period of limitations because

his authority as TMP was restricted to the performance of

"administrative services". However, we decline to address

participants' allegations that the consents executed by Winer, as

TMP, were ineffective to extend the time for respondent to issue

an FPAA because allegations concerning the period of limitations

constitute an affirmative defense, not a plea to the jurisdiction

of this Court. Rule 39; Genesis Oil & Gas, Ltd. v. Commissioner,

93 T.C. 562 (1989). The timeliness of the FPAA is not relevant

to the jurisdiction of this Court under section 6226, concerning

judicial review of final partnership administrative actions.

Genesis Oil & Gas, Ltd. v. Commissioner, supra. For the purpose

of deciding participants' motion, our focus is on the validity of

the petition and not upon the timeliness of the FPAA's.
 - 50 -

In the instant case there was no trial; no evidence was

adduced; no stipulations were filed in the record; and the

stipulated decision does not recite any factual or legal bases

upon which the deficiency was settled. The compromise and

settlement of tax cases are governed by general principles of

contract law. Robbins Tire & Rubber Co. v. Commissioner, 52 T.C.

420, 435-436, supplemented by 53 T.C. 275 (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 are generally held to their agreement

without regard to whether the decision is correct on the merits.

Stamm Intl. Corp. v. Commissioner, 90 T.C. 315, 321-322 (1988);

Spector v. Commissioner, 42 T.C. 110 (1964). Within this

framework, participants ask for leave to file their motion to

vacate.

Lack of Subject Matter Jurisdiction

This Court has jurisdiction to vacate a decision that has

become final if we find that we lacked jurisdiction when we

entered the decision. Pyo v. Commissioner, 83 T.C. 626, 632

(1984); Brannon's of Shawnee, Inc. v. Commissioner, supra at

1002. The Tax Court is a court of limited jurisdiction and may

exercise jurisdiction only to the extent expressly permitted by

statute. See sec. 7442; Trost v. Commissioner, 95 T.C. 560, 565

(1990).
 - 51 -

Section 6226(f) vests this Court with subject matter

jurisdiction to determine all partnership items of the

partnership for the partnership taxable year to which the FPAA

relates and the proper allocation of those items among the

partners. Our jurisdiction over a partnership action is

predicated upon the mailing of an FPAA by the Commissioner to the

TMP and the timely filing by the TMP or other eligible partner of

a petition seeking readjustment of partnership items. Secs.

6223(a)(2), 6226(a) and (b); Rule 240(c); Seneca, Ltd. v.

Commissioner, 92 T.C. 363, 365 (1989), affd. without published

opinion 899 F.2d 1225 (9th Cir. 1990).

Once a taxpayer invokes the Court's jurisdiction,

jurisdiction lies with the Court and remains unimpaired until the

Court has decided the controversy. Naftel v. Commissioner, 85

T.C. 527, 529-530 (1985).

The TMP may file a petition for readjustment with this Court

within 90 days after the Commissioner mails the FPAA to that

partner. Sec. 6226(a). When the TMP does not file a petition

within the 90-day period, a "notice partner" or 5-percent group

may file a petition for readjustment with this Court within 60

days after the close of the 90-day period. Sec. 6226(b)(1).

"These time limits are jurisdictional and, if a petition is

untimely, it must be dismissed." Tempest Associates, Ltd. v.

Commissioner, 94 T.C. 794, 798 (1990).
 - 52 -

The TMP of a partnership is defined in section 6231(a)(7) as

follows:

(7) Tax Matters Partner.--The tax matters partner
of any partnership is--

(A) the general partner designated as the tax
matters partner as provided in regulations, or

(B) if there is no general partner who has been so
designated, the general partner having the largest
profits interest in the partnership at the close of
the taxable year involved * * *.

If there is no general partner designated under
subparagraph (A) and the Secretary determines that it
is impracticable to apply subparagraph (B), the partner
selected by the Secretary shall be treated as the tax
matters partner.

A petition filed during the 90-day period by a partner other than

the TMP is an invalid petition. Amesbury Apartments, Ltd. v.

Commissioner, 95 T.C. 227 (1990); Computer Programs Lambda, Ltd.

v. Commissioner, 89 T.C. 198, 205 (1987). In this case, because

of the existence of the Permanent Injunction, and subsequent

Modification, at the time he filed the petition, Winer was the

TMP of Davenport, but he had been ordered to limit his function

to "administrative services" on behalf of the partnership.

Under normal circumstances, this Court lacks jurisdiction to

consider a petition filed by a person who is not authorized to

file the petition. In 1983 Western Reserve Oil & Gas Co. v.

Commissioner, 95 T.C. 51 (1990), affd. without published opinion

995 F.2d 235 (9th Cir. 1993), the U.S. District Court for the

Central District of California had appointed a receiver pendente
 - 53 -

lite for two limited partnerships purportedly authorized to

perform the duties of a TMP in proceedings before the IRS or

other tax or administrative agency. We held that the receiver

was not a partner and thus could not meet the statutory

requirement that the TMP be a partner. The receiver was not

qualified to file a petition in this Court because he was not a

TMP and also because the receiver's authorization to act in

administrative proceedings did not authorize him to act before

this Court. Id. at 62-63. Although Winer's ability to act as

TMP was limited to the performance of "administrative services",

at the time Winer filed the petition in this Court he was the

sole general partner of Davenport and thus met the statutory

requirement that the TMP be a partner. Therefore, by the terms

of the controlling statute, Winer was not prohibited from filing

a petition with this Court.

In this case, respondent mailed FPAA's to Winer as TMP of

Davenport at two separate addresses, in addition to mailing an

FPAA simply to Davenport's TMP, without identifying Winer as

such. Furthermore, copies of the FPAA's issued to Davenport were

mailed to all notice partners of Davenport, including

participants. No argument was made by participants that there

was no notice or inadequate notice. Instead, participants argue

that respondent, by mailing duplicate notices of FPAA's to Winer,

as TMP of Davenport, created the circumstances in the instant
 - 54 -

case which allowed Winer to exceed his limited authority as TMP

and file an unauthorized and therefore invalid petition.

Participants further allege that respondent committed fraud upon

the Court by sending Winer the FPAA because respondent knew that

Winer had been enjoined from acting as TMP in the litigation of

this case.

In Mishawaka Properties Co. v. Commissioner, 100 T.C. 353

(1993), we held that the principles of implied ratification apply

in TEFRA partnership cases. That case involved a TEFRA real

estate partnership, Mishawaka Properties Co. (Mishawaka), which

had no designated TMP. Mishawaka was one of a group of related

partnerships, both TEFRA and non-TEFRA, of which Sol Finkelman

(Finkelman) was managing partner. Although Finkelman was a

partner, he was not the partner with the largest profits

interest.

During a period of more than 10 years, except for litigation

counsel retained by Finkelman, Finkelman was the only partner or

person who dealt with the Commissioner's agents, appeals

officers, and counsel in connection with the audit of about 35 of

the partnerships, some of which were later litigated as test

cases. Id. at 355. The dispute involving Mishawaka was not

settled, and litigation ensued.

Because there was a question regarding the identity of

Mishawaka's TMP, the Commissioner issued triplicate FPAA's to Sol
 - 55 -

Finkelman, Edmond A. Malouf (Malouf), and Mishawaka. Malouf was

the partner with the largest profits interest. Finkelman, who

was not the TMP, filed a petition within the 90 days reserved for

filing a petition by the TMP. In the petition, Finkelman

identified himself as the TMP. In addition, before the filing of

the petition, Finkelman had prepared and signed all the

partnership returns and acted as Mishawaka's managing partner and

accountant. Finkelman had identified himself as the TMP in his

correspondence with the other partners and advised them that he

would be filing a petition in this Court on their behalf. Id. at

356-358.

One year after he had filed the petition, Finkelman notified

the other partners that he could no longer finance the litigation

and advised them to form committees to finance and organize the

litigation. No partner took any action to disavow, repudiate, or

manifest objection to Finkelman's filing of the petition, until 4

years afterward when a participant moved to dismiss the case for

lack of jurisdiction on the grounds that Finkelman was not the

proper TMP. Id. at 358-359.

In Mishawaka, we denied participant's motion to dismiss for

lack of jurisdiction and held that we had jurisdiction over the

case. We reached this holding by finding that the doctrine of

ratification, which applied in deficiency cases, Kraasch v.

Commissioner, 70 T.C. 623 (1978), applied in TEFRA cases as well
 - 56 -

where State law is consistent with the principle of implied

ratification. New York's partnership law, the law governing the

Davenport partnership agreement, specifically indicates that the

law of agency applies to partnerships. N.Y. Partnership Law sec.

4 (McKinney 1988). Inasmuch as ratification9 is an agency

concept, it applies here. Under New York law, ratification by

implication may be found to exist where a principal fails to

disaffirm the action of an agent within a reasonable time. IBJ

Schroder Bank & Trust Co. v. Resolution Trust Corporation, 26

F.3d 370, 375 (2d Cir. 1994).

Moreover, in Mishawaka, we found evidence that persons who

were qualified to file the petition had authorized or consented

to the filing of the petition by Finkelman. Under the doctrine

of ratification, such a petition was an imperfect petition which

was then impliedly ratified by the other partners when they

failed to protest Finkelman's filing of the petition. In earlier

cases, we had allowed partners to perfect an imperfect petition

in a TEFRA case where there was evidence that the partners had

authorized the filing of the petition and wanted this Court to

find jurisdiction. Montana Sapphire Associates. Ltd. v.

9
A ratification occurs when the benefits of the purportedly
unauthorized acts are accepted with full knowledge of the facts
under circumstances demonstrating an intent to adopt the
unauthorized arrangement. In re Securities Group, 926 F.2d 1051,
1055 (11th Cir. 1991) (citing Monarch Ins. Co. v. Insurance Corp.
of Ireland, Ltd., 835 F.2d 32, 36 (2d Cir. 1987)).
 - 57 -

Commissioner, 95 T.C. 477 (1990). However, in Mishawaka

Properties Co. v. Commissioner, supra at 363, the Court

explicitly noted that the partners were "seek[ing] refuge behind

the fact that Finkelman may not have been the TMP when the

petition was filed. * * * because they believe the period for

assessment [had] expired. * * * [and] do not now wish to ratify,

adopt, sanction, or in any way breathe life into the Finkelman

petition."

Despite the Mishawaka partners' later attempts to disavow

the petition filed by Finkelman, we found that ratification of

the petition was implied on the basis of the partners' conduct

after the filing of the petition, even though none of the

partners had expressly ratified the petition. The partners in

Mishawaka were aware that Finkelman had represented them before

the IRS, both individually and as a group (partnership), on all

business and tax matters involving Mishawaka. Additionally, the

partners knew about the FPAA's and that Finkelman had filed a

petition or was acting on their behalf in connection with the

IRS. Id. at 366. The Commissioner had treated the petition as

precluding assessment of deficiencies against the partners until

the partnership proceeding was concluded. We found that the

partners had relied on Finkelman "both before and after the

filing of the petition under consideration and did not question

his authority until * * * it became advantageous to do so. The
 - 58 -

partners here voluntarily permitted Finkelman's petition and

apparent authority to exist, a situation that should not redound

to their own benefit and to respondent's detriment." Id. at 367.

Participants in the instant case are in a situation similar

to that of the partners in Mishawaka. During the Davenport audit

and subsequent proceedings, Winer was the only partner or person

who dealt regularly with respondent's agents, appeals officers,

and counsel, except for Gordon and Hack, who were chosen by Winer

as litigation counsel, and the accountants also chosen by Winer.

At all relevant times, Winer retained his position as the sole

general partner of Davenport.

Both Winer and his attorney, Gordon, held Winer out to

respondent as TMP. Respondent sent notices of FPAA's to Winer

and all of the notice partners of Davenport, including

participants and DL & Associates. When the petition was filed in

this case, Winer identified himself as the TMP of Davenport. As

in Mishawaka, respondent treated the petition filed by Winer as

precluding assessment of deficiencies against the partners until

the partnership proceeding was concluded. In addition, before

the filing of the petition, Winer had signed all of the

partnership returns as general partner.

Winer chose accountants to handle the partnership audit and

hired attorneys to handle the partnership litigation. Winer

provided the investors with: (1) Tax information for the

purposes of filing returns; (2) status reports regarding the
 - 59 -

Davenport recycling machines; (3) information regarding the

original injunction proceedings involving PI; (4) particularly

notice that a petition had been filed in the Davenport Recycling

case and other partnership cases; and (5) progress reports

regarding the Provizer trial and appeal. Participants and the

other limited partners received this information from Winer and

were aware that he was taking charge of the Davenport Recycling

litigation. Participants did not question his authority as TMP

until after they were assessed by respondent. "'Deficiencies ex

post do not detract from authority ex ante.'" DiSanza v.

Commissioner, T.C. Memo. 1993-142 (quoting Slavin v.

Commissioner, 932 F.2d 598, 601 (7th Cir. 1991), revg. and

remanding T.C. Memo. 1990-44), affd. without published opinion, 9

F.3d 1538 (2d Cir. 1993). In addition, Winer assisted Gordon and

Hack by providing information to them so they could respond to

respondent's discovery requests.

The evidence clearly indicates that all the limited

partners, including Karras, were aware that Winer had filed a

petition in this Court and intended to represent the limited

partners in the subsequent litigation. During the evidentiary

hearing on this matter, Karras testified that he received the

FPAA's in time to file a petition in this Court but chose not to

because he knew that Winer had filed a petition in this case.

Furthermore, Karras had received a notice that Winer had filed a

petition on behalf of Davenport in the capacity of TMP.
 - 60 -

Consequently, we conclude that Karras and the other limited

partners ratified Winer's filing of the petition. We have held

that a taxpayer can ratify a previously filed imperfect petition,

even in the absence of express approval, through action or

inaction implicitly approving the filing of the petition.

Mishawaka Properties v. Commissioner, 100 T.C. 353 (1993);

Kraasch v. Commissioner, 70 T.C. 623 (1978).

Participants attempted to disavow the validity of the

petition only after they thought the period of limitations on

assessment had expired. However, as we stated in Lyon v.

Commissioner, T.C. Memo. 1994-351: "It was petitioner's duty to

repudiate the * * * [petition] as soon as he learned of it if he

had not authorized it." Therefore, by waiting until 1996 to

repudiate the petition that Karras knew Winer had filed in 1989,

Karras impliedly ratified it. Karras "had the duty and [was] in

a position to disaffirm any unauthorized acts * * * long before

filing * * * [the] motion now before the Court." Kraasch v.

Commissioner, supra at 628.

Not until 1996, long after the decision in this case became

final, did any partner in Davenport take any action to disavow,

repudiate, or manifest objection to Winer's filing of the

petition. We note that, at a minimum, many of Davenport's

partners had reason to question Winer's authority to file the

petition, because prior to their receipt of the May 30, 1989,

memorandum from Winer regarding the Hamilton case, their last
 - 61 -

official correspondence from Winer had been notification that he

had been ordered by the District Court to resign as TMP of the

partnerships and waive his right to participate in any court

proceedings. Winer ultimately settled this case with respondent

and failed to inform the other partners. Karras testified that

he did not learn that the case had been settled until he was

assessed by respondent for his share of the partnership

deficiency. However, Karras offered no reasonable explanation

why he did not take steps to keep himself informed of the status

of the case, or why he did not make any inquiries of Winer when

he received no further information. Although Karras is not an

attorney, he is a sophisticated businessman with experience

dealing with complicated matters. We note that he employed a

C.P.A. who appeared as a witness in other plastics recycling

litigation and had some contact with Plastics Recycling

partnerships other than Davenport. It seems reasonable to us

that an individual who is aware that he has a financial stake in

the outcome of any litigation in this Court would take whatever

steps were necessary to keep himself informed. The same would

hold true for the other partners of Davenport, which we have

noted required an investment of $50,000 per unit. In any event,

Winer's failure to notify the limited partners of his decision to

enter into a settlement with respondent does not justify the

extraordinary relief of vacating the final decision in this case.

Winer's failure to act was directed to the limited partners, and
 - 62 -

not the Court, and does not affect our jurisdiction. See sec.

6230(f).

Fraud on the Court

In the alternative, participants argue that respondent's

attorneys, Hamilton and Hayes, committed fraud on the Court

because they continued to deal with Winer as TMP of Davenport

despite their knowledge of the contents of the Permanent

Injunction and Modification. In their briefs and during the

evidentiary hearing on this matter, participants made very

specific and accusatory statements concerning the actions and

behavior of Hamilton and Hayes in this case. However, after a

full evidentiary hearing and full briefing of this issue by both

parties, we find that there is no evidence that Hamilton or Hayes

committed any fraud on the Court. We further specifically find

that Hamilton and Hayes had no knowledge of the terms or outcome

of the section 7408 injunction proceeding against Winer before

the decision in this case was entered.

We defined "fraud on the court" in Abatti v. Commissioner,

86 T.C. at 1325, 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,
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
 - 63 -

influence the Court in its decision has had such an
effect on the Court. * * *

The burden is on the moving party to show such fraud by clear and

convincing evidence. Drobny v. Commissioner, 113 F.3d 670 (7th

Cir. 1997), affg. T.C. Memo. 1995-209; Kraasch v. Commissioner,

supra at 626.

In the instant case, participants' allegation of fraud upon

the Court is based on evidence that respondent's Jacksonville

District Counsel Office signed and filed the answer in the

Davenport Recycling case, acknowledging Winer as TMP, although

the same office had initiated the section 7408 injunction

proceeding which resulted in Winer's being ordered to resign as

TMP by the District Court. According to participants, it then

follows that Hamilton and Hayes, of respondent's Boston District

Counsel Office, knew that Winer had been enjoined from acting as

TMP of Davenport yet continued to deal with him as such in order

to achieve a favorable outcome in the Davenport Recycling case

for respondent. Therefore, according to participants, the

conclusion of this case by a stipulated settlement between

respondent and Winer, acting as TMP of Davenport, was a fraud on

the Court.

In the instant case, participants in alleging that Hamilton

and Hayes committed fraud on the Court ignore the fact that,

through his actions, Winer himself advised the Court that he was

the TMP of Davenport. For example, Winer signed Forms 2848
 - 64 -

naming Gordon and Hack as attorneys for Davenport in his capacity

as TMP, submitted a protest in the Davenport Recycling case

identifying himself as the TMP, and in informal discussions with

respondent's agents held himself out as the TMP of Davenport.

Furthermore, the Modification did reinstate Winer as TMP, albeit

with restrictions on the scope of his authority.

On the basis of our review of the evidence, we find that

participants' allegations of fraud on the Court are groundless.

Participants have failed to show that Hamilton and Hayes had

actual or imputed knowledge of the content of the Permanent

Injunction and Modification either before or during the Davenport

Recycling litigation. Hamilton and Hayes both filed detailed

affidavits with this Court stating that they had no knowledge of

the "Winer TMP" issue prior to May 24, 1994, the date the

decision in this case became final. We have no reason to

disbelieve their assertions that they did not know about the

existence of the Permanent Injunction and Modification until the

spring of 1995 when a petition was filed in a Plastics Recycling

TEFRA penalties case captioned David E. and Jean H. Kohn v.

Commissioner, docket No. 5390-95.

On the basis of this record, we hold that respondent did not

commit fraud on the Court. There is no evidence that Hamilton

and Hayes had any involvement in the Winer section 7408

injunction proceeding. The letter authorizing the DOJ to seek

injunctive action against Winer under section 7408 originated in
 - 65 -

the Jacksonville District Counsel Office and was signed by the

District Counsel there. Participants did not call the District

Counsel or any other member of the Jacksonville District Counsel

Office to testify regarding any possible communications with

Hamilton and Hayes which would have alerted them to the existence

of the Permanent Injunction and Modification.

Because we have concluded that a petition conferring

jurisdiction on this Court was filed and that there has been no

fraud on this Court in this case, it follows that participants'

Motion for Special Leave to File Motion for Reconsideration of

Decision or to Vacate Decision will be denied.

An appropriate order will

be issued.