T.C. Memo. 1998-450
UNITED STATES TAX COURT
ESTATE OF JACQUELINE A. STOTZ, DECEASED, TRENT MCGEE
AND LEO KAPLAN, CO-EXECUTORS AND JACKIE STOTZ TRUST,
TRENT MCGEE AND LEO KAPLAN, CO-TRUSTEES, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18732-96. Filed December 23, 1998.
Elliott H. Kajan and Cameron Williams, for petitioners.
Louis B. Jack, for respondent.
MEMORANDUM OPINION
GERBER, Judge: This case had been calendared for trial at
the Los Angeles, California, trial session beginning March 23,
1998. Shortly before that session, the Court was advised by the
parties' representatives of a settlement, and, as a result, the
Court continued this case from the trial session. After several
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extensions of the time within which the parties were to provide
the Court with a decision document reflecting their settlement,
petitioners, on October 20, 1998, filed a motion to calendar for
trial, alleging that the settlement was disabled because of a
mutual mistake or an affirmative misrepresentation concerning
respondent’s position. The questions we must consider are
whether the parties had a binding settlement, and, if they did,
whether petitioners remain bound to the terms of the parties’
agreement. If either question is decided favorably for
petitioners, then petitioners will be relieved from the agreement
to settle.
Background
On several occasions, the parties reported to the Court that
a basis for settlement had been reached in this case. No
document setting forth the particulars of the settlement was
provided to the Court. The settlement agreement, as described by
respondent, was that respondent would concede the increased
deficiency claimed in the amendment to answer and petitioners
would concede the deficiency determined in the notice of
deficiency. The parties’ concessions concern corporate stock
that was part of the gross estate. The issue of which
petitioners complain involves the amount of discount to the value
of corporate stock that would be attributable to possible capital
gains tax on the sale or liquidation of the corporation’s assets.
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In motions and pleadings, it was explained that the estate’s
appraiser valued the corporation’s assets at $18,552,231, and
using a 10-percent discount for marketability and a discount for
potential capital gains, arrived at a $14,910,000 reporting
value. Agreeing with the $18,552,231 value and the 10-percent
marketability discount, but not with the discount for potential
capital gains, respondent’s notice determination resulted in a
$16,428,719 value. In an amended pleading, respondent sought an
increased deficiency on the grounds that the estate was not
entitled to the 10-percent marketability discount for all assets
of the corporation. In particular, respondent sought an
increased deficiency to the extent that a 10-percent
marketability discount had been claimed regarding the
corporation’s cash assets and allowed in the notice of
deficiency.
Petitioners contend that respondent’s examining agent had
proposed to allow a discount on the “built-in capital gains” on
corporate assets actually sold after the decedent’s death. As
noted above, no such discount was allowed in respondent’s notice
of deficiency. Respondent’s counsel, in accord with the notice
of deficiency, maintained the litigating position that no
discount regarding capital gains tax was allowable in this case.
Petitioners contend that respondent’s counsel represented
respondent’s general litigating position as one that precluded,
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under any circumstances, the possibility of any form of built-in
capital gains tax discount. After the parties had agreed to
settlement, petitioners discovered that respondent had, in
another case, Estate of Davis v. Commissioner, 110 T.C. 530
(1998), taken the following reply brief position:
Respondent agrees that if a sale or liquidation of [the
taxpayer’s] assets was in fact contemplated on the
valuation date or if, in fact, avoidance of a corporate
level capital gains tax was not available, some
reduction in value would be appropriate.
Respondent contends that his trial memorandum comports with the
position stated in the above-cited case and that respondent’s
counsel did not agree that the circumstances for such a discount
or reduction exist here. Respondent references the following
from his trial memorandum in this case:
Because a purchaser of the decedent’s stock could
have avoided or indefinitely deferred payment of
capital gains tax, and because no liquidation or sale
of assets was planned for this particular corporation
as of the date of death, a discount for potential
capital gains tax is too speculative for estate tax
valuation purposes.
Discussion
In this setting, petitioners argue that there was either a
mutual mistake or an affirmative misrepresentation regarding
respondent’s position on the major issue in this case.
Respondent counters that there was a settlement agreement, which
was not founded on a mutual mistake, and that respondent’s
counsel did not misrepresent respondent’s position.
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We have held that the existence or validity of parties’
settlements may be interpreted under general contract principles.
Robbins Tire & Rubber Co. v. Commissioner, 52 T.C. 420, 435-436
(1969), supplemented by 53 T.C. 275 (1969). In that regard, as
expressed in Bankamerica Corp. v. Commissioner, 109 T.C. 1, 11
(1997):
It is clear that we may reopen an otherwise valid
settlement agreement based on the existence of mutual
mistake. Callen v. Pennsylvania R. Co., 332 U.S. 625,
630 (1948); Dorchester Indus. Inc. v. Commissioner, 108
T.C. 320, 334 (1997). We may also relieve a party of a
stipulation where justice requires. Cf. Rule 91(e);
Adams v. Commissioner, 85 T.C. 359, 375 (1985); Shaw v.
Commissioner, T.C. Memo. 1991-372 n.3. On the other
hand, unilateral mistake is generally not a ground for
reforming a settlement or stipulation. Stamm Intl.
Corp. v. Commissioner, 90 T.C. 315, 320 (1988); see
Markin v. Commissioner, T.C. Memo. 1989-665. * * *
Petitioners do not contend that a basis for settlement was
not reached or that a settlement was not agreed to. Accordingly,
the parties entered into a contract to settle, but petitioners
contend that there was a mutual mistake as to respondent’s
position in this case. Respondent counters that his position was
set forth in his trial memorandum, and that position was in
accord with respondent’s litigation position expressed in his
reply brief in Estate of Davis v. Commissioner, supra. We agree
with respondent.
Although petitioners allege that respondent’s counsel orally
precluded the possibility that capital gains tax could be taken
into account in this case, the written documents in this case do
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not bear out petitioners’ allegation. Based on the notice of
deficiency and respondent’s trial memorandum, it is clear that
respondent’s trial position was essentially the same as the one
expressed in Estate of Davis v. Commissioner, supra. Even though
respondent’s litigation position in Estate of Davis did not come
to petitioners’ attention until after a basis for settlement had
been reached, petitioners were aware of respondent’s trial
memorandum at the time of settlement. Accordingly, to the extent
that there was a mistake of fact or misunderstanding about
respondent’s trial position in this case, it would have been
petitioners’ unilateral mistake or misunderstanding. It is also
noted that there was no mistake about the terms of the settlement
between the parties or the underlying facts. The alleged mistake
is about the Government’s litigating position.
Petitioners, relying on Stamm Intl. Corp. v. Commissioner,
90 T.C. 315, 320-321 (1988), contend that respondent’s counsel
made an affirmative misrepresentation as to respondent’s
litigating position. Petitioners contend that they relied on the
misrepresentation and that grounds exist for relief from the
settlement stipulation. See also Saigh v. Commissioner, 26 T.C.
171, 180 (1956), where the Court recognized that “Excusable
damaging reliance upon a false or untrue representation of the
other party, even one innocently made, is a recognized ground for
relief from a settlement stipulation.”
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Even if respondent’s counsel had orally stated the
Government’s litigating position as one where no discount of any
kind for “built-in capital gains” is permitted, with respondent’s
trial memorandum containing a contrary statement, it is hard to
understand how petitioners were misled or why the oral statement
was accepted over the written position. The very essence of the
parties’ controversy is sourced in their interpretations of law,
litigating positions, facts, cases, etc. If petitioners accepted
an oral representation of respondent’s best offer or litigating
position, we must assume that the offer was accepted after
considering petitioners’ chances for success in litigation.
We also recognize that this case had been calendared for
trial and that the Court had invested time in resolving certain
of the parties’ pretrial procedural disagreements. The parties
were released from their obligations to complete trial
preparation and\or to present their evidence only after they
advised the Court that the case had been settled. We shall treat
the settlement as binding in these circumstances. Dorchester
Indus. Inc. v. Commissioner, 108 T.C. 320 (1997).
To reflect the foregoing,
An appropriate order will be
issued denying petitioners' motion
to calendar.