T.C. Memo. 2001-84
UNITED STATES TAX COURT
CHIH H. AND CHU F. CHU, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24861-97. Filed April 9, 2001.
Chih H. and Chu F. Chu, pro sese.
David R. Jojola, for respondent.
MEMORANDUM OPINION
CHIECHI, Judge: This case is before the Court on petition-
ers’ motion for leave to file motion to vacate decision (peti-
tioners’ motion). Respondent filed an objection to petitioners’
motion and a declaration by David R. Jojola (Mr. Jojola) in
support of that objection. Petitioners filed a reply to respon-
dent’s objection (petitioners’ reply). We shall deny petition-
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ers’ motion.
Background
On October 29, 1997, respondent issued a notice of defi-
ciency (notice) to petitioners that determined the following
deficiencies in, and fraud penalties under section 6663(a)1 on,
petitioners’ Federal income tax (tax):
Fraud Penalty
Year Deficiency Under Sec. 6663(a)
1991 $18,508 $13,881
1992 40,931 30,698
1993 70,662 52,997
On December 29, 1997, petitioners timely filed pro sese a
petition. This case was calendared for trial at the Court’s
trial session in Los Angeles, California, that commenced on
February 8, 1999.
On February 2, 1999, Robert H. Appert (Mr. Appert) entered
an appearance on behalf of petitioners. On February 8, 1999, the
parties filed a stipulation of settled issues, a first supplemen-
tal stipulation of settled issues, and a second supplemental
stipulation of settled issues (collectively, stipulations of
settled issues). Each of those stipulations was signed on
February 6, 1999, by Mr. Appert on behalf of petitioners as well
as by each petitioner and by Mr. Jojola on behalf of respondent.
On March 11, 1999, the parties submitted to the Court a stipu-
1
All section references are to the Internal Revenue Code in
effect at relevant times. All Rule references are to the Tax
Court Rules of Practice and Procedure.
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lated decision document (stipulated decision document) that was
signed on March 10, 1999, by Mr. Appert on behalf of petitioners
and by a representative of respondent and that reflected the
agreement of the parties as set forth in the stipulations of
settled issues.
On March 15, 1999, the Court entered a decision in this case
pursuant to the agreement of the parties as reflected in the
stipulated decision document2 that petitioners are not liable for
the fraud penalty under section 6663(a) for any of the years at
issue and that they are liable for deficiencies in, and accuracy-
related penalties under section 6662(a) on, petitioners’ tax, as
follows:
Fraud Penalty Accuracy-Related Penalty
Year Deficiency Under Sec. 6663(a) Under Sec. 6662(a)
1991 $2,973 None $595
1992 6,008 None 1,202
1993 20,379 None 4,076
Discussion
The Court’s decision in this case was entered pursuant to
the agreement of the parties on March 15, 1999. No notice of
appeal or timely motion to vacate or revise the decision was
filed in this case, see sec. 7483 and Rule 162, and the decision
herein became final on June 13, 1999, see sec. 7481(a)(1); Fed.
R. App. P. 13(a).
2
On Mar. 26, 1999, after the decision in this case was
entered, Mr. Appert filed a motion to withdraw as attorney of
record for petitioners in this case. On Apr. 22, 1999, the Court
granted Mr. Appert’s motion.
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Petitioners’ motion was filed on February 12, 2001, almost
two years after the Court entered the decision in this case and
20 months after that decision became final. Once a decision
becomes final, the Court may vacate it only in narrowly circum-
scribed situations, such as where the decision was obtained
through fraud on the Court, see Abatti v. Commissioner, 859 F.2d
115, 118 (9th Cir. 1988), affg. 86 T.C. 1319 (1986), or where the
decision is void or a legal nullity for lack of this Court’s
jurisdiction over either the subject matter or the party, see
Billingsley v. Commissioner, 868 F.2d 1081, 1084-1085 (9th Cir.
1989); Abeles v. Commissioner, 90 T.C. 103, 105-106 (1988).3
The Court of Appeals for the Ninth Circuit has defined the
phrase “fraud on the court” to be “‘an unconscionable plan or
scheme which is designed to improperly influence the court in its
decision.’” Toscano v. Commissioner, 441 F.2d 930, 934 (9th Cir.
1971)(quoting England v. Doyle, 281 F.2d 304, 309 (9th Cir.
1960)), vacating 52 T.C. 295 (1969); see Abatti v. Commissioner,
3
The Court of Appeals for the Fifth Circuit has indicated
that in extraordinary circumstances this Court has the power in
its discretion to vacate and correct a final decision where it is
based on a mutual mistake of fact. See La Floridienne J.
Buttgenbach & Co. v. Commissioner, 63 F.2d 630 (5th Cir. 1933).
The Court of Appeals for the Ninth Circuit, to which an appeal in
this case would normally lie, does not recognize this Court’s
power to vacate and correct a final decision where it is based on
a mutual mistake of fact. See Abatti v. Commissioner, 859 F.2d
115, 118 (9th Cir. 1988), affg. 86 T.C. 1319 (1986); Lasky v.
Commissioner, 235 F.2d 97, 99-100 (9th Cir. 1956), affd. per
curiam 352 U.S. 1027 (1957).
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supra. In order to prove fraud on the Court, petitioners have
the burden of establishing that “an intentional plan of deception
designed to improperly influence the Court in its decision has
had such an effect on the Court.” Abatti v. Commissioner, 86
T.C. 1319, 1325 (1986), affd. 859 F.2d 115 (9th Cir. 1988); see
Drobny v. Commissioner, 113 F.3d 670, 677-678 (7th Cir. 1997),
affg. T.C. Memo. 1995-209, and cases cited therein.
The Court has carefully reviewed petitioners’ motion and
petitioners’ reply. Petitioners’ motion states in pertinent
part:
1) IRS hold the document (from the Bank Deposits) and
made the copies of receipts back to 1995 of tax-
able year 1991-1993; But, never exchange to tax-
payer or CPA even requested for years to see what
the results from and run out of the appealing
time, jumped to the conclusion which no one would
believe it * * *.
* * * * * * *
3) It was found IRS made mistakes for taxable year of
1990 by double taxing on the petitioners because
IRS always using the worksheets to jot down the
numbers which could be partially reported and IRS
examiners never recreated on the official forms to
show or exchange to the taxpayers.
4) IRS eventually released the data in Dec. of 1998
and petitioners hired the attorney Robert H.
Appert to check and recreate the official 1040
forms for taxable year of 1991-1993 as the refer-
ence to the Tax Court.
5) The counsel for Petitioners did not attend the
conference meeting on time held by judge Carolyn
Chiechi, nor recreated the 1040/Schedule C offi-
cial forms as all the receipts, cancelled checks
were available.
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6) The motion to withdraw the counsel of petitioners
was ordered from the court because Robert with CPA
background charging $200/hr and did not prepare
the 1040 forms either as the supporting document
to the court and both parties.
7) From the IRS booklets; When all the data are
available, the professionals require only hours to
fill out 1040 forms; Actually, back to 1995, when
auditor Jennifer was in CPA’s office to examine
the taxable year of 1991; The CPA took only half
hour to accomplish the 1040 forms with schedule C
to auditor for information when all the receipts
and cancelled checks were copied by the auditor.
8) The reason to use official 1040 forms was easy to
communicate with the other party and should any
number in doubt, the taxpayers can have receipts
or cancelled check or bank statement to prove it.
To prevent IRS examiners to hide or delete items
or made partial report to jump to the conclusion
misleading the judgments; It must have the 1040
forms to be as the reference. It does not matter
which 1040 forms to be used.
9) The petitioner has been in electronics industry
for 16 years and being laid off from July 1991 due
to the Eaton Corp. closed completely in Los An-
geles; Since the petitioners have no idea of ac-
counting/book keeping, every year must have the
CPA/tax specialist to prepare the 1040 forms.
10) In 1992, petitioner could not find the right job
after being laid off For almost one year starting
to do import/trade business using the Savings or
IRA funds to purchase the goods. The Cost of
goods in the year 1992 was Around $54,000 plus the
operation expenses of startup this new field of
business. Definitely, the operating expenses
(Schedule C) for this new trade business was far
more than the profits of selling the products. It
does not matter which official forms (1040 EZ or
1040A) to be used; The results of the income loss
(profits) should be the same.
11) It does not matter what method to be used to anal-
ysis the new startup business; The bank saving
dropping from 1991 to 1993 indicated the seeds
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money being used up for the import business start-
up, and in 1992 & 1993, even could not afford to
hire the part time bookkeeper. Mrs. Chu majoring
in Music helped to just put all the receipts aside
without knowing how to organize it. But, everyone
knows without investing or buying the seeds to
fertilize it, the fruits will not be there years
after. In other words, no one would expect the
profits (Fruits) in the first few years of startup
a new business (seeds). [Reproduced literally.]
Petitioners’ reply states in pertinent part:
12) This Court has jurisdiction to vacate a final
decision if the decision of the Court was obtained
by fraud on the Court. Partially report the COG
is the act of fraud, which would influence the
judgment. Treating petitioners unfairly or dif-
ferently will be justified by the court as the act
of fraud or one kind of discriminating the peti-
tioners had no tax/accounting background or knowl-
edge.
* * * * * * *
14) The definition of Fraud is an act of deliberate
deception with the design of securing something by
taking unfair advantage of another-New Interna-
tional Dictionary; A deliberate deception for
unfair or unlawful gain-American Heritage Diction-
ary. Respondent is a tax professional, hold the
documents retrieved from the bank without exchange
to the petitioners for four years (1995-1999) and
jump to the decision without providing the appeal
meeting for petitioners to explain until tax solv-
ing date requested by the congressman to release
the files to the petitioners to check.
15) To prove such fraud, petitioners (No Tax back-
ground) hired the CPA and attorney to analyze and
prepare the detailed 1040 forms and schedule C for
easy understanding without eliminating or modified
the numbers where the banks statements or re-
ceipts/cancelled checks were all available. The
respondent (Professional tax expert) claimed in
his office the preparation of 1040 forms need one
more year and he could not find help to prepare it
based on the receipts/cancelled checks and bank
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transaction statement. Actually, respondent spent
only two hours to put the numbers into the 1040
forms (See Exhibit A), but, hold the progress of
checking the taxable years of 1992 and 1993.
Because respondent knowing that petitioner lost
the main job in 1992 and started to import the
different small quantities of samples of audio
devices from April of 1992. Respondent deliber-
ately hold the progress of reviewing the expenses
of start-up business, which was about two weeks
from Feb. 8, 1999. (Deadline to turn in the paper
to the court). The petitioners hired the attorney
to continue to review and prepare the 1040 form
and schedule C which estimated only need four
hours required, but, not successful and on Feb.
6th, 1999, petitioners being told that counsel
could do it at the second phase; First phase he
did not care about what respondent did. This was
the main reason the petitioner had the motion to
withdraw the counsel.
* * * * * * *
17) The legal counsel was hired to make the progress
of reviewing the COGs of 1992, 1993 and few ex-
penses items which respondent deliberately hold or
partially report in his stipulation report. Dur-
ing the time of hiring, not only the counsel was
late in the meeting called by the judge, but, he
did not make any progress report to petitioners
until Feb. 6th, 1999 (Two days away from the dead-
line set by the court); Besides, the petitioner
(spouse) had the operation of the chest and under
daily radiation treatment of cancer disease; Under
such mentally pressure, Robert forced the peti-
tioners to sign the incompletely stipulation re-
port by saying he can fix it at the second phase.
As the Fraud is an act; only if the professional
made it, later can be caught what did the respon-
dent make. During the stage of professional’s
intention to design the scheme, it was hard to get
the evidence. As Fraud is an act using profes-
sional knowledge to take advantage of the non-
professionals by treating the taxpayer unfairly,
differently or not just. As people say that non-
professionals might use tangible weapons to rob
the bank to get money illegally; But, profession-
als can use intangible way (their knowledge to
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write the makeup figures) to take the money from
the taxpayer pockets illegally. As the profes-
sional always use the rules in favor of his mis-
conduct as the fraud activity, he would never tell
anyone by holding such case for how many years
would dismiss (drop) the case; Since by holding
the case, IRS put the interest on it, and when IRS
owed petitioner money, also, holding the check for
the taxable year of 1990 without releasing by
making the excuses. As there are two different
issues.
18) Because of the following reasons, the settlement
was never reached.
A) The deficiency of taxable year 1991, 1992 and
1993 came out without giving the petitioners the
documents describing where the figures from or how
it was calculated. The only paper received was
last week the exhibits of respondent letter, which
had lots of expenses, items being deleted or par-
tially report. In other words, The stipulation
issues were not only vague, incomplete but, very
confusing to the court if the judge knowing in
1992 and 1993 the petitioners had no main job and
using up the savings or even the IRA fund as emer-
gency seed money used to start up the new trade
business; The tax deficiency in 1992 (Petitioner
lost the main job) was calculated twice as higher
as in the 1991 ($2,973.00 + $595) which petitioner
still had the main job. In 1993 (the second year
of the new start-up trade business), the defi-
ciency was calculated eight times ($20,379 +
$4076) higher than the 1991. It would make the
judge very confused by just looking at the above
figures made-up by the respondent deliberately to
deceive the court judgment.
(B) Before the deadline (Feb. 2, 1999); Judge
agreed the withdrawal of petitioners counsel.
Because no progress report and even negligence of
the meeting called by the judge.
(C) The petitioner (Spouse) was under cancer
treatment and mentally in the bad shape. Peti-
tioners have to totally trust and rely on the
counsel hired with the $200/hr rate.
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(D) Under above stress conditions, the petition-
ers’ counsel talked into the petitioners to sign
the incomplete stipulation issues made up by the
respondent at the last minute on Feb. 6th, 1999 by
saying he could do the second phase work or he
would not represent the petitioners on the Feb.
8th, 1999 in the court.
(E) In the morning (About 9:00 A.M.) of Feb. 8th,
1999; Petitioner did turn in the above situation
paper and requested the Judge to consider the COGs
of 1992, 1993 and few expenses items which respon-
dent deliberately drop or cut off in respondent
issues two days ago. Showing the stipulations has
the figures made up by the respondent except the
taxable year of 1991. Starting from the end of
January 1999; The respondent just hold the pro-
gress of reviewing the taxable year of 1992 and
1993; Do not mention to exchange the documents or
provide the opportunity for petitioners until Feb.
6th, 1999. All the papers were prepared for last
minutes signatures. This was the way the profes-
sional designed the trap to take advantage of the
taxpayers unfairly by giving petitioners no oppor-
tunity at all saying the court need the signatures
to turn in. The petitioners did not sign the
stipulations of facts at the first place because
the respondent did not provide the complete ex-
penses report when reviewing the taxable year of
1991. I believe the laws give the taxpayers to
know how the deficiency being calculated and based
on. Respondent hold or hide the documentations
and provided no chance for petitioners to explain
or exchange are not only unfair, but, trying to
stop the court to review what figures respondent
made up deliberately to take advantage of the
petitioners is obviously seen. If the respondent
did not make up the figures or untruth report to
the court, respondent should not be afraid of any
questions to be asked by the Judge during the next
investigation. [Reproduced literally.]
We find petitioners’ motion and petitioners’ reply to be
vague and confusing. However, those filings do not appear to
suggest or argue that we had no jurisdiction over the subject
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matter or petitioners in this case. Nor do petitioners’ motion
and petitioners’ reply appear to suggest or argue that there was
any corruption of the Court. Assuming arguendo that petitioners
are contending in petitioners’ motion and petitioners’ reply that
some sort of fraud was perpetrated on the Court, on the instant
record, we reject any such contention. That record establishes
that: Petitioners retained legal counsel shortly before the
scheduled trial in this case was to begin; after retaining legal
counsel, the parties reached a basis of settlement and memorial-
ized that settlement in the stipulations of settled issues which
were signed by petitioners’ counsel, Mr. Appert, on behalf of
petitioners as well as by each petitioner and by Mr. Jojola on
behalf of respondent; the Court entered a decision in this case
pursuant to the agreement of the parties as shown in the stipu-
lated decision document4 that was signed by Mr. Appert on behalf
of petitioners and by a representative of respondent and that
reflected the stipulations of settled issues;5 and petitioners
did not appeal the decision in this case or timely move to vacate
4
It is noteworthy that the stipulated decision document
reflects a substantial concession by respondent regarding the
determinations in the notice.
5
Contrary to the allegations in petitioners’ motion and
petitioners’ reply, petitioners’ counsel, Mr. Appert, did not
file a motion to withdraw as attorney of record for petitioners
in this case until Mar. 26, 1999, after the decision in this case
was entered on Mar. 15, 1999. The Court granted that motion on
Apr. 22, 1999.
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or revise that decision.
Based on our review of the entire record before us, we find
that petitioners have failed to show that the decision entered in
this case is the result of fraud on the Court or any other
situation that warrants our exercise of our discretion under Rule
162 to grant petitioners’ motion. Based on that record, we find
that petitioners have failed to persuade us that we should grant
them leave to file a motion to vacate the decision.
To reflect the foregoing,
An order will be issued deny-
ing petitioners’ motion for leave
to file motion to vacate decision.