T.C. Memo. 2003-110
UNITED STATES TAX COURT
LIDIA LAMANNA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
FRANCISCO LAMANNA, a.k.a. FRANK LAMANNA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 7569-99, 7570-99. Filed April 18, 2003.
Lidia Lamanna, pro se in docket No. 7569-99.
Francisco Lamanna, pro se in docket No. 7570-99.
Lorraine Y. Wu, for respondent.
MEMORANDUM OPINION
DAWSON, Judge: These cases were assigned to Chief Special
Trial Judge Peter J. Panuthos, pursuant to the provisions of
- 2 -
section 7443A(b)(5) and Rules 180, 181, and 183.1 The Court
agrees with and adopts the opinion of the Chief Special Trial
Judge, which is set forth below.
OPINION OF THE SPECIAL TRIAL JUDGE
PANUTHOS, Chief Special Trial Judge: This case is before
the Court on respondent’s motions for entry of decision in
accordance with the parties’ stipulation of settled issues filed
on May 14, 2002. As explained in detail below, we shall grant
respondent’s motions.
Background
Respondent issued petitioners a statutory notice of
deficiency, dated January 27, 1999, determining the following
income tax deficiencies, additions to tax, and penalties:
Additions to Tax Penalty
Sec. Sec. Sec. Sec. Sec. Sec.
Year Deficiency 6651(a) 6653(a)(1)(A) 6653(a)(1)(B) 6653(a) 6654 6662(a)
1986 $20,235 $5,059 $1,012 50% of the --- $980 ---
interest due
on $20,235
1987 48,438 12,110 2,422 50% of the --- 2,618 ---
interest due
on $48,438
1988 36,091 9,023 --- --- $1,805 2,308 ---
1989 37,235 9,309 --- --- --- 2,515 $7,447
1990 38,968 8,992 --- --- --- 2,370 7,194
1991 55,343 13,836 --- --- --- 3,185 11,069
The adjustments to income in the notice of deficiency were
primarily due to respondent’s disallowance of various deductions
claimed on Schedule A and to the disallowance of total expenses
1
All section references are to the Internal Revenue Code
in effect for the years in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
- 3 -
claimed on Schedule E of petitioners’ jointly filed Federal
income tax returns for 1986 through 1991.
Frank Lamanna and Lidia Lamanna each filed a petition with
this Court. At the time the petitions were filed petitioners
resided in Los Angeles, California. Respondent filed an answer
to each petition and later filed a motion to consolidate for
trial, briefing, and opinion. On January 20, 2000, we granted
respondent’s motion to consolidate.
These consolidated cases were originally set for trial on
January 24, 2000. Petitioners moved for a continuance on four
separate occasions, based on a variety of grounds, including but
not limited to an opportunity for petitioners to engage counsel.
These cases were set for trial at the trial session
beginning May 13, 2002. The parties executed on May 13, 2002, a
stipulation of settled issues that covered all taxable years in
issue.2 The stipulation, filed on May 14, 2002, set forth
numerous adjustments that resulted in no deficiencies, no
additions to tax, and no penalties for taxable years 1987 through
1991. For 1986, the remaining taxable year, the stipulation
provided in pertinent part:
2
While there are two docketed cases before the Court,
there is one stipulation of settled issues which addresses all
issues in each of these consolidated cases.
- 4 -
1986
1. For taxable year 1986, petitioners are
entitled to total Schedule E expenses in the amount of
$212,906.44.
2. For taxable year 1986, petitioners are not
entitled to a Schedule A medical expense deduction.
3. For taxable year 1986, petitioners are
entitled to a Schedule A mortgage interest expense
deduction in the amount of $5,218.00.
4. For taxable year 1986, petitioners are not
entitled to a Schedule A charitable contribution
deduction.
5. For taxable year 1986, petitioners are subject
to an addition to tax pursuant to I.R.C. Section
6651(a).
6. For taxable year 1986, petitioners are subject
to an addition to tax pursuant to I.R.C. Section
6653(a)(1)(A) for negligence.
7. For taxable year 1986, petitioners are subject
to an addition to tax pursuant to I.R.C. Section
6653(a)(1)(B) for negligence.
8. For taxable year 1986, petitioners are subject
to an addition to tax pursuant to I.R.C. Section 6654
for failure to pay estimated taxes.
* * * * * * *
For All Years (1986, 1987, 1988, 1989, 1990, and 1991)
47. It is further stipulated that interest will
be assessed as provided by law on any deficiencies due
from the petitioners.
48. This STIPULATION OF SETTLED ISSUES resolves
all of the issues before the Court.
Based on the stipulation, respondent prepared a decision in
each of these consolidated cases. For the 1986 taxable year,
- 5 -
respondent’s decision proposed the following deficiency and
additions to tax:
Sec. Sec.
Year Deficiency Sec. 6651(a) 6653(a)(1)(A) 6653(a)(1)(B) Sec. 6654
1986 $3,096 $774 $154.80 $3,096 $149.78
Respondent sent each petitioner a letter dated July 5, 2002,
enclosing the proposed decision document with supporting
computations. Petitioners refused to sign the decision document
for a variety of reasons. First, petitioners claim that the
decision document does not conform with the terms of the
stipulation of settled issues. Second, they claim that they were
denied an opportunity to consult with an attorney prior to
signing the stipulation of settled issues. Third, they claim
that respondent’s counsel misled them into believing the
stipulation they signed was not final and could be subject to
revisions.
In particular, petitioners wanted to revise the signed
stipulation, with respect to the 1986 taxable year, to show a
Schedule A mortgage interest deduction of $29,305 instead of the
listed amount of $5,218 and to include Schedule E rental income
of only $127,752 instead of the $172,752 amount listed on their
1986 Federal income tax return. Petitioners were aware that the
Schedule A mortgage interest deductions were in issue prior to
their signing the stipulation of settled issues. Petitioners
claim that respondent’s counsel agreed to allow further interest
- 6 -
expense deductions and Schedule E adjustments after the
stipulation of settled issues was signed and filed. Respondent’s
counsel denies that she promised petitioners anything other than
what had been agreed upon in the stipulation.
Respondent filed a Motion for Entry of Decision in each of
these consolidated cases. Each petitioner filed an Objection to
respondent’s motion and a Reply to respondent’s response.3
Discussion
A controversy before this Court may be settled by agreement
of the parties. Dorchester Indus. Inc. v. Commissioner, 108 T.C.
320, 329 (1997), affd. without published opinion 208 F.3d 205 (3d
Cir. 2000). A settlement stipulation is in essence a contract.
Stamos v. Commissioner, 87 T.C. 1451, 1455 (1986). Accordingly,
general principles of contract law determine whether a settlement
has been reached and, if so, whether the stipulation is binding
and enforceable. Dorchester Indus. Inc. v. Commissioner, supra
at 330.
Under such principles, we enforce a valid settlement
stipulation absent a showing of lack of formal consent, fraud,
3
The documents initially submitted by petitioners on July
23 and Oct. 10, 2002, asked the Court for an entry of decision in
which there would be no deficiencies, no additions to tax, and no
penalties for all taxable years in issue. The Court filed the
documents as petitioners’ (1) Opposition to Respondent’s Motion
for Entry of Decision and (2) Reply to Respondent’s Response to
Petitioner’s Opposition to Motion for Entry of Decision,
respectively. See Rule 54.
- 7 -
mutual mistake, or some similar ground. A mistake by one of the
parties alone is not a sufficient ground to vacate a settlement
agreement. Stamm Intl. Corp. v. Commissioner, 90 T.C. 315, 320-
321 (1988).
Moreover, we “will not permit a party to a stipulation to
qualify, change, or contradict a stipulation in whole or in part,
except * * * where justice requires”, Rule 91(e), or “unless good
cause is shown.” Saigh v. Commissioner, 26 T.C. 171, 176 (1956).
Factors to consider include the injury to the opposing party and
the amount of inconvenience to the Court if the stipulation were
set aside or modified, as well as the possible injustice to the
moving party if the stipulation were enforced. Adams v.
Commissioner, 85 T.C. 359, 375 (1985). More stringent standards
to modify or set aside a settlement stipulation shall apply when
a trial is canceled as a result of the stipulation. Stamm Intl.
Corp. v. Commissioner, supra at 321. In such cases, the parties
are held to their agreement without regard to whether the
judgment is correct on the merits. Id. at 322.
In the present consolidated cases, the stipulation of
settled issues is valid. It was signed by all parties and filed
with the Court on May 14, 2002. It is comprehensive,
encompassing both consolidated cases, covering all taxable years
in issue, and disposing of all issues raised by the statutory
notice of deficiency dated January 27, 1999.
- 8 -
Petitioners nevertheless claim that respondent’s counsel
misled them into believing the stipulation they signed was not
final and could be subject to revisions. They have not offered
any credible evidence to support their claim. Nor is there any
evidence to show that respondent committed fraud in having
petitioners sign the stipulation. At most, petitioners’ claim
amounts to a unilateral mistake, which is not a sufficient ground
to vacate a settlement agreement.
The interests of justice also do not justify setting aside
or modifying the stipulation of settled issues. It was executed
during the late afternoon of May 13, 2002, and filed in time to
avert trial. Prior to that, petitioners had moved for a
continuance on four separate occasions, in part because they
represented to the Court that they wanted an opportunity to
engage counsel. Their claim now that they were unfairly denied
an opportunity for attorney consultation prior to signing the
stipulation does not satisfy the more stringent standards to
modify or set aside a settlement stipulation when a trial is
canceled as a result of the stipulation. We note that the
stipulation of settled issues results in no deficiencies,
additions to tax, and penalties for taxable years 1987 through
1991, and for the remaining taxable year of 1986, the deficiency,
additions to tax, and penalty were substantially reduced when
- 9 -
compared to the corresponding amounts in the statutory notice of
deficiency.
Accordingly, petitioners are bound by the amounts shown in
the stipulation.
To reflect the foregoing,
An order granting respondent’s
motion and decision will be entered
in each docket.