Medkiff v. Comm'r

T.C. Memo. 2007-334

UNITED STATES TAX COURT

MICHAEL L. MEDKIFF, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 21823-05. Filed November 7, 2007.

Michael L. Medkiff, pro se.

Jonathan H. Sloat, for respondent.

MEMORANDUM OPINION

MARVEL, Judge: This matter is before the Court on

respondent’s motion for entry of decision, as supplemented, under

Rule 50.1

1
All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code, as amended.
 - 2 -

Background

Petitioner resided in Los Angeles, California, when his

petition was filed.

During 2002 (and apparently in 2003 as well), petitioner

owned a 90-percent interest in Great American Poolcare, LLC

(Great American). Great American filed a Form 1065, U.S. Return

of Partnership Income, for 2002, which reported a loss of

$166,743.2 Great American attached to its 2002 return a Form

4562, Depreciation and Amortization, that reported a tentative

section 179 deduction of $21,028. However, because of the

applicable business income limitation,3 the deduction was not

claimed on Great American’s 2002 return or utilized in the

calculation of Great American’s 2002 loss. Instead, Great

American carried over its tentative 2002 section 179 deduction to

2003.

Sometime before August 29, 2005, respondent examined

petitioner’s 2002 and 2003 returns, including petitioner’s

distributive share of Great American’s 2002 net loss. On

2
Respondent ultimately conceded the audit adjustments to
Great American’s 2003 return. Consequently, the record does not
include the details of Great American’s return for 2003.
3
Under sec. 179(b)(3), the amount allowed as a deduction is
limited to the taxpayer’s aggregate taxable income derived from
the active conduct of a trade or business. Since Great American
reported a loss, it could not claim the deduction under sec. 179.
Sec. 179(b)(3)(B) allows a taxpayer to carry over an unused
deduction to future years in which the taxpayer reports taxable
business income.
 - 3 -

August 29, 2005, respondent issued to petitioner a notice of

deficiency that, among other things, adjusted petitioner’s

distributive share of Great American’s net loss for 2002.

On November 18, 2005, petitioner’s petition for a

redetermination of deficiencies for 2002 and 2003 was filed.

Petitioner alleged that respondent improperly denied auto/truck,

amortization, and bad debt expenses claimed for 2002 and all

other expenses claimed in 2003. The petition did not raise Great

American’s 2002 tentative section 179 deduction that Great

American had carried over to 2003. On January 17, 2006,

respondent’s answer was filed. This case was calendared for

trial on February 5, 2007, in Los Angeles, California.

On February 5, 2007, counsel for respondent appeared at the

calendar call, announced that the parties had reached a

settlement, and lodged a copy of a fully executed stipulation of

agreed issues (stipulation). Neither petitioner nor a

representative for petitioner appeared at the calendar call.

As pertinent to the issue before us, the stipulation states

as follows:

The parties agree that the adjustments set forth
in the Notice of Deficiency * * * are settled as
follows:

1. Sch. E Inc/Loss-Partnership/S-Corp adjustment
of $263,380 for the 2002 year - Petitioner concedes
$183,261; respondent concedes $80,119.
 - 4 -

2. Sch. E Inc/Loss-Partnership/S-Corp adjustment
of $164,608 for the 2003 year - Respondent concedes in
full.

3. Self-employment tax and SE AGI adjustments
for the 2002 and 2003 years - These are computational
adjustments and will be imposed on the adjustments to
Sch. E Inc/Loss-Partnership/S-Corp.

* * * * * * *

The stipulation also states that there are no additional issues

for trial.4 The stipulation is signed by both petitioner and

counsel for respondent.5

When we received the stipulation, we directed the parties to

submit a stipulated decision to the Court by March 7, 2007. On

January 31, 2007, respondent mailed to petitioner a decision

document reflecting the deficiency and penalty that respondent

maintains results from the stipulation. On February 17, 2007,

petitioner’s power of attorney, Jackson Behar, informed

respondent for the first time that petitioner wanted to utilize

Great American’s 2002 tentative section 179 deduction in

calculating petitioner’s 2002 deficiency.

4
Petitioner conceded the tax imposed on qualified plans for
2002 and the accuracy-related penalty under sec. 6662, neither of
which affect our decision in this case.
5
Respondent noted that on Feb. 28, 2007, the holder of
petitioner’s power of attorney, Jackson Behar, stated that
petitioner claimed not to have signed anything. However,
respondent was not able to contact petitioner to confirm such
claim, and petitioner has not raised the issue before the Court.
 - 5 -

On March 2, 2007, respondent filed the motion for entry of

decision. We ordered petitioner to file a response on or before

March 30, 2007. To date, petitioner has not submitted any

response to the Court.

On or about March 15, 2007, petitioner mailed to respondent

a document titled “Limited Opposition to Motion To Confirm

Decision; Declaration of Jackson Behar in Support Thereof”

(limited opposition), but he did not file the limited opposition

with this Court.6 On March 27, 2007, respondent filed a

supplement to his motion for entry of decision and included

petitioner’s limited opposition as an exhibit. In his limited

opposition, petitioner objects to respondent’s failure to include

Great American’s tentative section 179 expense deduction in

calculating Great American’s 2002 profit/loss and asserts that

respondent’s failure adversely affects the calculation of

petitioner’s income tax deficiency for 2002. However, petitioner

does not dispute that he entered into the stipulation or that the

stipulation reflects the settlement reached by the parties.

Neither party has requested an evidentiary hearing on

respondent’s motion, and we conclude that a hearing is not

necessary to decide respondent’s motion.

6
The limited opposition was filed in the names of both
petitioner and Don Ticinovich, another partner of Great American,
but only lists petitioner’s docket number.
 - 6 -

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 is a contract, and general principles

of contract law apply in interpreting the settlement. Id. at 330

(citing Robbins Tire & Rubber Co. v. Commissioner, 52 T.C. 420,

435-436, supplemented by 53 T.C. 275 (1969)). A settlement may

be reflected in a formal written agreement or more informally,

such as in an offer and acceptance made by an exchange of

letters. Id. (citing Lamborn v. Commissioner, T.C. Memo. 1994-

515). Written settlement agreements are enforced as binding

agreements. Id. (citing Haiduk v. Commissioner, T.C. Memo. 1990-

506).

Ordinarily, once a settlement has been reached, it cannot be

repudiated by either party. Id. However, we may relieve a party

of an otherwise binding settlement agreement if the party can

show a lack of formal consent, fraud, mutual mistake, or other

similar ground. Id. at 335; Revell v. Commissioner, T.C. Memo.

2007-37; see also Stamm Intl. Corp. v. Commissioner, 90 T.C. 315,

321-322 (1988).

Both parties signed the stipulation in this case creating an

enforceable, binding settlement agreement between them. Counsel

for respondent notified the Court on the day of trial that a
 - 7 -

settlement had been reached between the parties, and he lodged

the stipulation on behalf of both parties. Based on the parties’

representation that a settlement of all outstanding issues had

been reached, we canceled the trial and set a deadline for the

submission of a signed decision document.

Petitioner did not file a response to respondent’s motion

with this Court. On that ground alone, we could conclude that

petitioner has failed to demonstrate any proper basis to relieve

him of the consequences of the stipulation. However, petitioner

belatedly submitted to respondent a document described as a

“limited opposition”, and that document has been furnished to the

Court by respondent. For the sake of clarity and completeness,

we address it here.

In petitioner’s limited opposition, petitioner argues only

that he believed the stipulation included the section 179

deduction. However, petitioner fails to indicate whether he made

any attempt to verify the relevant calculation or to ascertain

how Great American’s 2002 section 179 deduction was actually

utilized by Great American. At best, petitioner’s response

outlines an oversight, and at worst, petitioner’s response

suggests a decision not to verify timely the correctness of

respondent’s calculation. Under either scenario, petitioner made

a mistake, and it appears that the mistake was unilateral. A

unilateral mistake is an insufficient ground for disregarding a
 - 8 -

stipulation. Revell v. Commissioner, supra; see also Dorchester

Indus. Inc. v. Commissioner, supra at 330; Stamm Intl. Corp. v.

Commissioner, supra at 320-321.7

Petitioner did not raise any issue regarding Great

American’s 2002 tentative section 179 deduction in his petition,

and he apparently did not raise it during settlement

negotiations. Petitioner asserted that he was entitled to the

benefit of the tentative section 179 deduction only after the

stipulation had already been executed and lodged with this Court

and after respondent had prepared a decision document in

accordance with the stipulation. Petitioner simply waited too

long to raise an issue regarding Great American’s 2002 tentative

section 179 deduction and its effect, if any, on the calculation

of Great American’s 2002 net profit/loss.

Petitioner has failed to demonstrate any proper basis for

relieving him of the stipulation. Petitioner has not shown that

there was any lack of formal consent, fraud, mutual mistake, or

other similar ground for disregarding the stipulation. See

7
The stipulation contains a concession by respondent that
petitioner does not address but should. In the stipulation,
respondent concedes in full the “Sch. E Inc/Loss-Partnership/S-
Corp. adjustment of $164,608 for the 2003 year”. The record does
not disclose whether that adjustment involves Great American, but
in all likelihood it does. Great American elected to carry over
its tentative sec. 179 deduction to 2003. Petitioner does not
trace the use of the 2002 sec. 179 deduction by Great American
and does not explain how the deduction was handled on Great
American’s 2003 return.
 - 9 -

Dorchester Indus. Inc. v. Commissioner, 108 T.C. at 330, 334-335.

Consequently, we shall grant respondent’s motion, as

supplemented, and enter a decision consistent with the settlement

reached between the parties.

To reflect the foregoing,

An appropriate order

and decision will be entered.