FPL Group, Inc. v. Comm'r

T.C. Memo. 2008-144

UNITED STATES TAX COURT

FPL GROUP, INC. AND SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 5271-96, 6653-00, Filed May 28, 2008.
10811-00.1

K. Lee Blalack and Chris Faiferlick, for petitioner.

Jill A. Frisch and Halvor N. Adams, III, for respondent.

MEMORANDUM OPINION

RUWE, Judge: This opinion involves petitioner’s motions to

enforce settlement agreement (motions) filed pursuant to Rule 502

1
By order dated Jan. 17, 2007, these cases were
consolidated for trial, briefing, and opinion on the motions.
2
Unless otherwise indicated, all Rule references are to the
(continued...)
 - 2 -

in three cases involving petitioner’s tax years 1988 through 1992

(docket No. 5271-96), 1994 and 1995 (docket No. 6653-00), and

1996 (docket No. 10811-00). Petitioner’s motions raise the

following issues: (1) Whether the parties entered into an

enforceable settlement agreement wherein they agreed to use a

specified methodology to determine which of certain expenditures

should be capitalized and which should be currently deductible as

repairs (the repairs issue); (2) if respondent did not agree to

an enforceable settlement methodology, whether statements made by

one of respondent’s attorneys are sufficient to compel respondent

to settle the repairs issue using the aforementioned methodology;

or, in the alternative, (3) whether respondent should be estopped

from denying that he agreed to an enforceable settlement of the

repairs issue.

Some of the facts have been stipulated and are so found.

The stipulation of facts, the supplemental stipulation of facts,

and the attached exhibits are incorporated by this reference.

FPL Group Inc. (petitioner), is a corporation organized and

existing under the laws of the State of Florida with its

principal office in Juno Beach, Florida.

2
(...continued)
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code in effect for the
years in issue.
 - 3 -

Background

This Court has already issued two opinions in docket No.

5271-96 pertaining to the repairs issue for the years 1988

through 1992. In that docket petitioner claimed that it had

improperly capitalized many expenditures that should have been

deducted as repairs. For the tax years 1988 through 1992

petitioner alleged in its second amended petition that respondent

erred in failing to allow it to deduct $210,925,534 of repair

expenses that it had capitalized in determining the tax

liabilities set forth in its consolidated Federal income tax

returns for those years.3

In the first of our prior opinions in docket No. 5271-96 we

granted respondent’s motion for partial summary judgment, holding

that petitioner’s method of accounting for tax purposes during

the years 1988 through 1992 was the same method that it used for

Federal Energy Regulatory Commission (FERC) and Florida Public

3
For the tax years 1994 and 1995, petitioner alleged in its
petition in docket No. 6653-00 that respondent erred in failing
to allow it to deduct $62,024,968 of repair expenditures that it
had deducted and $54,625,486 of repair expenditures that it had
capitalized in determining the tax liabilities set forth in its
consolidated Federal income tax returns for those years. For the
tax year 1996 petitioner alleged in its petition in docket No.
10811-00 that respondent erred in failing to allow it to deduct
$11,131,371 of repair expenditures that it had deducted and
$15,676,793 of repair expenditures that it had capitalized in
determining the tax liabilities set forth in its consolidated
Federal income tax return for that year. No notice of deficiency
was issued for 1993, and it is therefore not a year before the
Court although a refund claim was filed for that year and remains
pending.
 - 4 -

Service Commission (FPSC) regulatory purposes and for financial

accounting purposes. See FPL Group, Inc. & Subs. v.

Commissioner, 115 T.C. 554, 575-576 (2000) (FPL I). We further

held that petitioner’s claim for additional deductions for

repairs was an attempt to make an impermissible change in its

method of accounting for which petitioner had failed to secure

the consent of the Secretary as required by section 446(e). Id.

at 576.4

Our Opinion in FPL I was issued in December 2000. Other

issues in docket No. 5271-96 remained unresolved, and counsel for

both parties continued dealing with each other. In late spring

4
In a subsequent opinion involving the same docket, we
denied petitioner’s motion for partial summary judgment where
petitioner argued that if its method of accounting for tax
purposes had been the same method it used for regulatory and
financial accounting purposes, then respondent changed
petitioner’s method to the “method of accounting” required by
sec. 1.162-4, Income Tax Regs. See FPL Group, Inc. & Subs. v.
Commissioner, T.C. Memo. 2005-210 (FPL II). Petitioner also
argued that respondent abused his discretion by denying
petitioner’s retroactive “protective request” for a change in
method of accounting, which was filed on Apr. 10, 2001, for the
years 1988 through 1996. Id. FPL II incorporated our Opinion in
FPL I and served as a “sequel” to FPL I. Id. In FPL II we
declined to “accept petitioner’s characterization of section
1.162-4, Income Tax Regs., as a ‘method of accounting’
distinguishable from petitioner’s method”. Id. We rejected
petitioner’s argument that adjustments respondent made or allowed
during the examination were tantamount to changing petitioner’s
method of accounting. Id. Finally, we held that petitioner
failed to demonstrate disparate treatment compared with
competitors and found no abuse of discretion in respondent’s
refusal to grant petitioner’s retroactive “protective request”
for a change in method of accounting for the years 1988 through
1996. Id.
 - 5 -

of 2002 there was a change in the management of respondent’s

attorneys responsible for petitioner’s pending cases. The new

managers were interested in exploring a settlement of the repairs

issue. William Merkle (Mr. Merkle), the IRS Associate Area

Counsel (Strategic Litigation), who was stationed in Chicago,

assumed supervisory control over the three docketed cases that

are the subject of petitioner’s motions. Mr. Merkle had

authority to settle the repairs issue in those cases.

In June 2002 Mr. Merkle met with petitioner’s counsel,

Robert Carney (Mr. Carney), and with petitioner’s senior manager

of tax compliance and audits, Donald Chasmar (Mr. Chasmar). They

discussed the repairs issue and determined that they would

explore a possible settlement. Mr. Merkle’s willingness to

explore settlement was in accord with the interests of his

supervisor, Area Counsel James Lanning, who advocated attempting

to settle the issue, including those years subject to our Opinion

in FPL I.

One of Mr. Merkle’s new subordinates was Robert Shilliday

(Mr. Shilliday), a Special Trial Attorney with more than 30 years

of experience as an IRS attorney who was stationed in Atlanta and

had been working on issues involving petitioner since 2000. Mr.

Shilliday was assigned to negotiate on respondent’s behalf

regarding the repairs issue.
 - 6 -

All of petitioner’s and respondent’s representatives

understood that only Mr. Merkle had the authority to settle the

repairs issue on respondent’s behalf. Mr. Shilliday was

authorized to discuss with petitioner’s representatives any

potential terms of a settlement and to communicate any proposals

to Mr. Merkle. Likewise, if Mr. Merkle expressed views that he

wanted petitioner to know regarding settlement of the repairs

issue, Mr. Merkle expected Mr. Shilliday to communicate them to

petitioner.

Mr. Shilliday met with Messrs. Chasmar and Carney in August

2002 at petitioner’s corporate headquarters in Juno Beach,

Florida, to discuss the repairs issue and attempt to find a basis

for settlement. The parties discussed various alternative

methodologies but concluded that the major component methodology

had the most promise for settlement. Dick Engstrom (Mr.

Engstrom), a supervisor of property plant accounting for

petitioner, joined them toward the end of the meeting after the

focus of settlement moved to the major component methodology.

The major component methodology is described in Mr.

Shilliday’s Settlement Status Report (SSR) as follows:

The definition of major component is to be
controlled by part 116 of the Federal Energy Regulatory
Commission Regulations governing FPL’s utility
accounting practices. A copy of this regulation is
enclosed. Under the major component settlement
methodology, if an entire blower or fan, for example,
is being replaced on a piece of equipment, the work
order involved will be classified as capital. If on
 - 7 -

the other hand the seals on the blower or fan are being
replaced, that work order would be classified as a
repair. The reason FPL capitalized the blower or fan
seals for utility accounting purposes is that
Commission Regulations allow major component sub-
accounts to be established at the discretion of the
utility. These sub-accounts break the major component
down into various minor sub-components.

Whereas the method of accounting that petitioner used for

regulatory, financial, and tax accounting purposes from 1988

through 1992 that we described in our Opinion in FPL I allowed

flexibility, see FPL Group, Inc. & Subs. v. Commissioner, supra

at 556-557, the major component methodology proposed for

settlement purposes would require classifying expenditures listed

in petitioner’s work orders in strict accord with the list of

retirement units contained in part 116 of the FERC regulations.

Under this method, if an expenditure was for an entire retirement

unit listed in part 116 of the FERC regulations, i.e., a major

component, it would be capitalized. If an expenditure was for a

part of a listed retirement unit, it would be considered a repair

and be deducted.

To provide Mr. Shilliday with examples of the application of

the major component methodology during the August 2002 meeting,

Mr. Engstrom took 19 work orders selected by Mr. Shilliday and

demonstrated how each work order would be classified. After Mr.

Engstrom completed this analysis, Mr. Shilliday informed Mr.

Chasmar that he thought the methodology was promising and that he

was willing to recommend it to Mr. Merkle. As of the August 2002
 - 8 -

meeting the parties understood that it would be necessary for

approximately 1,500 work orders to be reviewed in order to have a

settlement on the repairs issue.

Messrs. Carney and Chasmar informed Mr. Shilliday that

petitioner was prepared to use the methodology. However, they

explained to Mr. Shilliday that petitioner did not want to

perform the work necessary to classify the 1,500 disputed work

orders unless Mr. Merkle first agreed to use the major component

methodology.

At the conclusion of the August 2002 meeting Mr. Shilliday

volunteered to put together a written recommendation of the

proposal to submit to Mr. Merkle for approval and agreed to

provide Mr. Chasmar with a copy of the proposal to review in

order to ensure that it accurately reflected the understanding

reached at the August 2002 meeting.5 After the August 2002

5
Mr. Chasmar testified:

A [Mr. Chasmar]. * * * Mr. Shilliday
stated that he would be putting together a
proposal to submit to Mr. Merkle for Mr.
Merkle’s approval and that he would forward a
copy to me to review to make sure that it’s
an accurate representation of the agreement
that we had reached at the meeting so it was
presented factually correct.

Q [Petitioner’s counsel at trial]. And
did you in fact at some point after the
meeting receive a draft of his written
recommendation?

(continued...)
 - 9 -

meeting Mr. Shilliday prepared a proposed SSR and sent a copy to

Mr. Chasmar. Mr. Chasmar reviewed the proposal for accuracy and

discussed its contents with Mr. Shilliday. Mr. Chasmar also made

changes to the draft that Mr. Shilliday incorporated into the

proposal. Mr. Shilliday wanted to make sure that he accurately

understood petitioner’s position before he finalized the SSR to

send to Mr. Merkle.6 Mr. Chasmar did not suggest that the SSR

5
(...continued)
A. I did.

Q. Did you review it?

A. I did.

Q. Did you have any conversations with
Mr. Shilliday about it?

A. Yes.

Q. Okay. And after those
conversations, what was your understanding
about what would happen next?

A. That Mr. Shilliday was going to
finalize the document and submit it to Mr.
Merkle for his review, and I asked Mr.
Shilliday if he would please forward me a
copy when he completed finalizing it.

Q. Why did you ask Mr. Shilliday to
provide you a copy of this written
recommendation he was providing to Mr.
Merkle?

A. Because I wanted to have it for my
records.
6
Mr. Carney had authorized Mr. Shilliday to communicate
directly with Mr. Chasmar, and most of the communications
(continued...)
 - 10 -

should specifically require the parties to enter into a binding

agreement to use the major component methodology before

petitioner’s classification of the 1,500 disputed work orders,

and the finalized SSR submitted to Mr. Merkle contains no such

requirement. Mr. Chasmar understood that Mr. Shilliday would

subsequently submit the SSR containing the recommendation of a

settlement proposal to Mr. Merkle for his review. Mr. Shilliday

understood that the SSR reflected petitioner’s proposal, though

that was not stated in the SSR and the SSR was not signed by Mr.

Chasmar or any other representative of petitioner. Mr. Shilliday

sent the SSR to Mr. Merkle on or about August 27, 2002.7 Mr.

Shilliday also sent a copy of the SSR to Mr. Chasmar.

In the second paragraph on the first page of the SSR, Mr.

Shilliday wrote:

Proposal for Settlement: It is proposed that each
Florida Power work order in controversy be inspected by
FPL’s utility regulation accounting department, and a
division of these work orders, between capital and
repair, be made on the basis of whether the item of
equipment being replaced is a major component of the
equipment or not.

6
(...continued)
regarding the repairs issue were between Messrs. Shilliday and
Chasmar. Mr. Carney had no more substantive communications with
Mr. Merkle or Mr. Shilliday regarding the resolution of the
repairs issue until 2003.
7
A copy of the final Settlement Status Report (SSR) is
attached as an appendix. Although the SSR states that “A copy of
* * * [part 116 of the FERC regulations] is enclosed”, the copy
was not submitted to the Court or entered into evidence.
 - 11 -

This was Mr. Shilliday’s effort to communicate to Mr. Merkle

what he believed to be petitioner’s proposal. However, the SSR

nowhere states that it is petitioner’s proposal.

The SSR contains the following recommendation:

It is recommended that you [Mr. Merkle] approve
the major component settlement system analysis and
authorize FPL to conduct the survey necessary to
complete the classification of the work orders in
controversy. When completed, I will check FPL’s
analysis to ensure its accuracy.

The SSR does not state that FPL would not perform the work

necessary to classify the 1,500 work orders unless Mr. Merkle

first agreed to settle using the major component methodology.

The SSR lacks final adjustment numbers and does not address how

any disputes regarding the proper classification of work orders

would be resolved. The SSR does not include a signature line for

Mr. Merkle’s approval.

After sending the finalized SSR to Mr. Merkle, Mr. Shilliday

telephoned Mr. Merkle in late August or early September 2002 in

order to discuss the proposal. Mr. Shilliday testified that he

explained to Mr. Merkle that petitioner wanted Mr. Merkle to

agree to settle in accordance with the major component

methodology before petitioner performed the analysis of the 1,500

work orders in order to classify them as capital expenditures or

repair expenses. According to Mr. Shilliday, Mr. Merkle told him

in a subsequent telephone conversation to “go ahead with the

deal”. Mr. Shilliday testified that he understood this to mean
 - 12 -

that Mr. Merkle agreed to use the methodology described in the

SSR for settlement purposes.

In contrast, Mr. Merkle described his recollection of his

conversation with Mr. Shilliday as follows:

[Mr. Shilliday] described the settlement methodology
that he wanted to follow with regards to settling the
repairs issue. He said he wanted to follow a FERC
regulatory method. That was the predominant portion of
the discussion.

He said he wanted my approval of that analysis so
he can go forward and complete it, and then he also
said that Mr. Chasmar was refusing to do any further
analysis on the issue unless I agreed to settle the
case using this methodology.

At that point in time I sort of laughed either out
loud or to myself and said I can’t do that, and I
believe I told * * * [Mr. Shilliday] to go ahead with
his conducting the analysis of the settlement
methodology because otherwise there would be no
settlement.

When asked at trial whether he interpreted the SSR as an

offer from petitioner, Mr. Merkle testified as follows:

Well, as it was explained to me * * * with regards
to the discussion on that status report and the
methodology * * * [Mr. Shilliday] said here’s the
methodology we want to follow. I said it looks
rational and that we needed to look at it further to
determine if it was reasonable with regards to the
amounts at question, what are the amounts at issue.
And he also said that Mr. Chasmar was not willing to go
forward with doing the work to determine –- or actually
doing the work with regards to the analysis.

At that point in time I didn’t, I did not
interpret Mr. Chasmar’s remarks as a settlement offer
because I did not consider Mr. Chasmar a representative
of the Petitioner that I was supposed to be dealing
with or as a representative of the Petitioner that
should be dealing on this case with Respondent.
 - 13 -

I had one other point to make. This was more in
my experience what I’ve seen in the many cases I’ve
worked on as a taxpayer’s employees and staff
complaining about doing work on a case. And this has
happened * * * on occasion with my experiences with
representation between myself and taxpayers. So I
considered this as nothing more than disgruntled talk
by Mr. Chasmar. And I just did not understand it as a
proposed settlement offer from the counsel of record in
this case.

Mr. Merkle acknowledged that he told Mr. Shilliday to

“proceed as proposed”. When asked at trial whether this was in

reference to the proposal outlined in the SSR, Mr. Merkle stated:

What I was telling * * * [Mr. Shilliday] to do was to
proceed with his analysis, since there was further
analysis to be done. I was not telling him to proceed
with a proposal, but with the analysis, which was what
I thought the status report was all about.

Mr. Shilliday testified that he called Mr. Chasmar sometime

between the end of August and early in the first week of

September 2002 and told him that “the methodology had been

authorized by Mr. Merkle”. Mr. Chasmar testified that Mr.

Shilliday’s verbatim statement was that Mr. Merkle had given “the

green light to go ahead with the deal.” Mr. Chasmar informed Mr.

Shilliday that he would contact Mr. Engstrom and ask him to

perform the classification analysis on the 1,500 disputed work

orders. Mr. Chasmar told Mr. Shilliday that he would be in

contact once the work was completed to schedule a followup

meeting to review the results of Mr. Engstrom’s analysis.

None of the participants in the aforementioned telephone

conversations between Messrs. Shilliday and Merkle and between
 - 14 -

Messrs. Shilliday and Chasmar made any contemporaneous notes or

memoranda of those conversations. Mr. Chasmar did not request

that Mr. Shilliday provide any written verification from Mr.

Merkle as to the alleged agreement. Neither Mr. Carney nor Mr.

Chasmar sent a confirming letter regarding Mr. Merkle’s alleged

approval of petitioner’s alleged offer to settle in accordance

with the major component methodology.

The process of classifying the work orders cost petitioner

$10,000. When Mr. Engstrom finished his analysis of the work

orders, Mr. Chasmar arranged a meeting with Mr. Shilliday at

petitioner’s Juno Beach office on September 23-24, 2002, to

review the results. The parties met for 2 days while Mr.

Shilliday reviewed petitioner’s classifications of the 1,500 work

orders. Mr. Shilliday requested changes to some classifications

of the work orders. Mr. Chasmar agreed to change some of the

classifications that Mr. Shilliday disputed, and Messrs.

Shilliday and Chasmar eventually came to an understanding on all

of the classifications.

Following the analysis of the work orders, petitioner

prepared a calculation of the results of the analysis with regard

to the years 1988 through 1997, including the nondocketed years

1993 and 1997. On October 16, 2002, Mr. Shilliday received this

calculation which purported to be a complete computation of the

net effect of the capital versus repair adjustment. Mr. Chasmar
 - 15 -

understood that the calculation faxed to Mr. Shilliday on October

16, 2002, was to be incorporated by Mr. Shilliday into a document

that would contain the proposed settlement numbers that Mr.

Shilliday would submit to Mr. Merkle for Mr. Merkle’s approval.

Only Mr. Merkle had authority to approve the classifications for

purposes of computing final settlement figures.

On November 4, 2002, Mr. Merkle e-mailed a spreadsheet

updating the status of all the FPL issues to several people

within the IRS, including Mr. Shilliday. The spreadsheet

described the repairs issue as an “Open Issue” as opposed to a

“Resolved”, “Pending,” or “Computational” issue. This

spreadsheet was attached to an e-mail from Mr. Merkle, the body

of which contained the following sentence: “I have also verbally

reviewed this list with Bob Carney and we are in general

agreement with the items at issue and status, i.e. Resolved,

Dispute, Pending trial.” Mr. Shilliday did not reply to Mr.

Merkle’s e-mail.

Beginning on or about October 11, 2002, and through the

spring of 2003, Mr. Merkle communicated with IRS employees from

the examination team, technical advisers, the industry issue

resolution task force for the accounting method issue, and the

Chief Counsel’s national office regarding the potential

settlement of the repairs issue. All expressed opposition to the

settlement.
 - 16 -

Mr. Shilliday drafted a Counsel Settlement Memorandum (CSM)

that included the results of petitioner’s calculation for Mr.

Merkle.8 Mr. Shilliday shared the factual portion of the

proposed CSM on the repairs issue with petitioner. The CSM set

forth the results of the proposed settlement and took into

account 1993 and 1997 even though the parties understood that Mr.

Merkle had no authority to settle those years, which were not

then before the Tax Court.9

Mr. Shilliday prepared two versions of the CSM, one dated on

or about November 15, 2002, and a second that he sent to Mr.

Merkle on December 2, 2002. Both versions contained proposed

settlement amounts for additional repair deductions and amounts

for depreciation associated with the additional repair

deductions. The first version did not analyze the settlement in

the context of FPL I, particularly with regard to the accounting

8
A Counsel Settlement Memorandum (CSM) is a written
document stating the basis of settlement of an issue. A CSM
follows a format consisting of a statement of the issue, a
statement of the resolution, a discussion of the relevant facts,
a discussion of the applicable law, and if the issue is to be
settled other than upon the merits, a discussion of the hazards
of litigation. A CSM is signed by the attorney and then
countersigned, following an “Approved” line, by the managing or
approving official.
9
Petitioner claimed a refund, which was pending, for 1993.
Mr. Shilliday had no discussions with petitioner’s
representatives regarding how the proposed 1993 deficiency would
be assessed or whether assessment was barred. The discussion of
the dollar tax impact for 1997 includes a reference to the fact
that the claim was pending in the IRS’s Appeals Office.
 - 17 -

method issue.10 Mr. Merkle requested that Mr. Shilliday revise

the first CSM to address the Court’s Opinion in FPL I. Mr.

Shilliday complied with Mr. Merkle’s request by adding a section

labeled “Issue 2” and sent the revised version to Mr. Merkle on

December 2, 2002. The final version of the CSM includes the

following statement:

Proposal for Settlement: It is proposed that each
Florida Power work order in controversy be reviewed,
and a division of these work orders, between capital
and repair, be made on the basis of whether the item of
equipment being replaced is a major component of the
equipment or not.

The CSM closes with Mr. Shilliday’s recommendation “That the

proposal for settlement be accepted” and contains a signature

line for Mr. Merkle’s approval. Mr. Merkle never approved the

settlement figures in the CSM and never signed the CSM.

Mr. Merkle informed Mr. Shilliday by telephone in December

2002 that Mr. Shilliday was being transferred out of Mr. Merkle’s

group effective January 12, 2003. At some point after Mr.

Shilliday’s transfer, Mr. Merkle contacted Mr. Shilliday and

indicated that he should have no further involvement in

petitioner’s case.

In early 2003 Mr. Carney contacted Mr. Merkle. Mr. Merkle

informed Mr. Carney that he was still reviewing the settlement

proposal. Mr. Merkle requested that Mr. Carney draft a history

10
Respondent was not able to locate a copy of the first
version of the CSM.
 - 18 -

of the repairs issue in the form of a letter that described the

factual and procedural issues that existed before Mr. Merkle

assumed responsibility for the case.

Mr. Carney sent a letter to Mr. Merkle on February 14, 2003.

Mr. Carney’s letter referred to the “proposed settlement” of the

repairs issue and stated that “In the event that the pending

settlement proposal is not finalized, additional litigation will

be required in the Tax Court to review Respondent’s refusal to

grant * * * [petitioner’s protective request to change its method

of accounting]”. The letter did not mention an existing

settlement regarding methodology, nor did it refer to potential

litigation to enforce such an agreement.

On or about March 20, 2003, the parties scheduled a meeting

in Mr. Carney’s office in Washington, D.C., for April 16, 2003,

to discuss the repairs issue and other outstanding items. On

March 27, 2003, Mr. Merkle sent a letter to Mr. Carney in which

he stated that the proposed settlement of the repairs issue did

not adequately reflect the “hazards of litigation” from

respondent’s perspective. Following the receipt of Mr. Merkle’s

March 27, 2003, letter, Mr. Carney contacted Mr. Merkle by

telephone on or about April 1, 2003. During the call Mr. Merkle

told Mr. Carney that potential settlement would be kept under

consideration for the April 16, 2003, meeting between the

parties.
 - 19 -

On April 7, 2003, Mr. Carney e-mailed James Higgins (Mr.

Higgins), petitioner’s vice president of tax, Mr. Chasmar, and

Suanne Fechtmeyer (Ms. Fechtmeyer) a first and then a revised

draft of a proposed letter in response to Mr. Merkle’s March 27,

2003, letter. Both drafts of the letter referred to a “proposed

settlement” of the repairs issue and to a “prior agreement” to a

settlement methodology. Mr. Higgins subsequently e-mailed Mr.

Chasmar and Ms. Fechtmeyer and attached a revised draft of the

letter in which Mr. Higgins added the following sentence:

“Petitioner requests that Respondent explain why it is reneging

on its prior agreement.” The mention of a “prior agreement” in

these drafts represents the first written statement, internally

or otherwise, alleging that the parties had an agreement

regarding settlement of the repairs issue.

In the final version of Mr. Carney’s letter, dated April 9,

2003, Mr. Carney made statements regarding the alleged

methodology agreement and requested that respondent “exercise

good faith and abide by the prior agreement.” The “prior

agreement” to which Mr. Carney referred was the alleged agreement

to use the major component methodology.

The parties met on April 16, 2003, at Mr. Carney’s office in

Washington, D.C. Mr. Carney began the meeting by explaining

petitioner’s position that Mr. Merkle had entered into an

agreement on methodology. Mr. Merkle advised petitioner’s
 - 20 -

representatives that respondent would not settle the repairs

issue in the first docket, docket No. 5271-96, which was the

subject of our Opinion in FPL I. Mr. Merkle stated that he would

keep the possibility of settlement open for 10 days with regard

to the years after the first docket in order to confer with the

national office and others within the IRS who had knowledge of

the repairs issue.

Following the April 2003 meeting, Mr. Merkle consulted with

various constituencies familiar with the repairs issue within the

IRS, all of whom indicated they were not in favor of a settlement

with petitioner.

Discussion

The first issue we must decide is whether the parties

entered into an enforceable settlement agreement wherein they

agreed to use a specified methodology to determine which of

certain expenditures should be capitalized and which should be

deductible as repairs. General principles regarding the

enforcement of settlements in the Tax Court were set out in

Dorchester Indus., Inc. v. Commissioner, 108 T.C. 320, 330 (1997)

(quoting Manko v. Commissioner, T.C. Memo. 1995-10), affd.

without published opinion 208 F.3d 205 (3d Cir. 2000), as

follows:

“For almost a century, it has been settled that
voluntary settlement of civil controversies is in high
judicial favor. Williams v. First Natl. Bank, 216 U.S.
582, 595 (1910); St. Louis Mining & Milling Co. v.
 - 21 -

Montana Mining Co., 171 U.S. 650, 656 (1898). A valid
settlement, once reached, cannot be repudiated by
either party, and after the parties have entered into a
binding settlement agreement, the actual merits of the
settled controversy are without consequence. This
Court has declined to set aside a settlement duly
executed by the parties and filed with the Court in the
absence of fraud or mutual mistake. Stamm Intl. Corp.
v. Commissioner, 90 T.C. 315 (1988); Spector v.
Commissioner, 42 T.C. 110 (1964). However, a court
will not force a settlement on parties where no
settlement was intended. Autera v. Robinson, 419 F.2d
1197 (D.C. Cir. 1969).

“A settlement is a contract and, consequently,
general principles of contract law determine whether a
settlement has been reached. Robbins Tire & Rubber Co.
v. Commissioner, 52 T.C. 420, 435-436, supplemented by
53 T.C. 275 (1969). A prerequisite to the formation of
a contract is an objective manifestation of mutual
assent to its essential terms. Heil v. Commissioner,
T.C. Memo. 1994-417; 17A Am. Jur. 2d, Contracts, secs.
27 and 28 (1991); 1 Williston on Contracts, sec. 3:5
(4th ed. 1990). Mutual assent generally requires an
offer and an acceptance. 17A Am. Jur. 2d, Contracts,
sec. 41 (1991). ‘An offer is the manifestation of
willingness to enter into a bargain, so made as to
justify another person in understanding that his assent
to that bargain is invited and will conclude it.’ 1
Restatement, Contracts 2d, sec. 24 (1981).

“In a tax case, it ‘is not necessary that the
parties execute a closing agreement under section 7121
in order to settle a case pending before this Court,
but, rather, a settlement agreement may be reached
through offer and acceptance made by letter, or even in
the absence of a writing.’ Lamborn v. Commissioner,
T.C. Memo. 1994-515. Settlement offers made and
accepted by letters are enforced as binding agreements.
Haiduk v. Commissioner, T.C. Memo. 1990-506; see also
Himmelwright v. Commissioner, T.C. Memo. 1988-114.”

Petitioner argues that Mr. Merkle orally accepted

petitioner’s settlement proposal to use the major component

methodology to determine how to classify approximately 1,500
 - 22 -

disputed expenditures as either capital expenditures or

deductible repair expenses. According to petitioner, its

proposal was conveyed to Mr. Merkle through Mr. Shilliday’s

written SSR and Mr. Shilliday’s oral telephone explanation to Mr.

Merkle that petitioner’s proposal to perform the classification

of 1,500 work orders was contingent on Mr. Merkle’s up-front

agreement to use the methodology without first knowing the

results that it might produce. The evidence upon which

petitioner primarily relies is the SSR and the testimony of

Messrs. Shilliday and Chasmar.

In their testimony both Messrs. Shilliday and Chasmar

indicated a common understanding that petitioner did not want to

perform the analysis of the 1,500 work orders without some

agreement between the parties that the major component

methodology was going to be used to classify the work orders upon

which the settlement figures would be determined. Both also

understood that the proper classification of each of the work

order expenditures could still be disputed by Mr. Merkle. Both

Messrs. Shilliday and Chasmar testified that they worked together

to incorporate the terms of the settlement proposal into the

written SSR, and that Mr. Chasmar was given the opportunity to

review the draft of the SSR before its submission to Mr. Merkle

to make sure that the proposal was accurate. Mr. Shilliday

testified that after submitting the finalized SSR to Mr. Merkle,
 - 23 -

Mr. Shilliday explained in a telephone conversation with Mr.

Merkle that petitioner wanted Mr. Merkle to agree to use the

methodology for settlement purposes before petitioner performed

the analysis of the 1,500 work orders. Mr. Shilliday testified

that Mr. Merkle told him that he would look over the material.

Mr. Shilliday testified that in a subsequent telephone

conversation Mr. Merkle told him to go ahead with the deal, and

Mr. Shilliday conveyed this response to Mr. Chasmar.

Mr. Merkle testified that when Mr. Shilliday told him of

petitioner’s wish to have an up-front agreement, he told Mr.

Shilliday that he would not agree to be bound to use the

methodology without first knowing the results of its application.

Both Messrs. Shilliday and Merkle agree that Mr. Merkle told Mr.

Shilliday: “Go ahead with the deal” or “Proceed as proposed” or

words to that effect. Mr. Shilliday then told Mr. Chasmar “that

Mr. Merkle had given the green light to go ahead with the deal.”

The primary conflict is between Mr. Merkle’s testimony that

he told Mr. Shilliday that he would not agree to use the

methodology for settlement purposes without first knowing the

results of its application and Mr. Shilliday’s testimony that he

believed that Mr. Merkle agreed with the proposal to use the

methodology for settlement before knowing the results of its

application. We recognize that recollections of witnesses

regarding specific conversations can produce inconsistencies and
 - 24 -

that specific words and phrases can sometimes convey different

meanings depending on the context in which they are uttered. In

these situations, it is useful to look to contemporaneously

written documents and the contemporaneous actions of the parties

at key points.

The key document in this controversy is the SSR, which

states, in pertinent part, as follows:

Proposal for Settlement: It is proposed that each
Florida Power work order in controversy be inspected by
FPL’s utility regulation accounting department, and a
division of these work orders, between capital and
repair, be made on the basis of whether the item of
equipment being replaced is a major component of the
equipment or not.

The SSR contains a sample classification of 19 of the

approximately 1,500 disputed work orders using the proposed

methodology. The analysis in the SSR indicates that 11 work

orders totaling $2,676,768 should be capitalized and 8 work

orders totaling $1,403,903 should be classified as repairs. In

the SSR Mr. Shilliday warns that “These results may not be

representative of the entire body of contested work orders, since

only one plant was involved for a short period of time and that
 - 25 -

plant was a nuclear plant.”11 The SSR contains the following

recommendation:

It is recommended that you approve the major
component settlement system analysis and authorize FPL
to conduct the survey necessary to complete the
classification of the work orders in controversy. When
completed, I will check FPL’s analysis to ensure its
accuracy.

Mr. Chasmar reviewed the “proposal” in the SSR before its

submission to Mr. Merkle in order to be sure that both parties

understood what was being proposed. The SSR indicates that it is

Mr. Shilliday’s proposal, and it was signed by Mr. Shilliday.

The SSR does not state that it contains petitioner’s settlement

proposal or that the proposal was intended to bind both parties

to the methodology regardless of the results of its application.

The SSR fails to state that petitioner would not perform the work

necessary to classify the 1,500 work orders unless Mr. Merkle

first agreed to settle on the basis of the proposed methodology.

Mr. Shilliday believes that Mr. Merkle gave oral approval to

petitioner’s proposal to use the methodology to settle the

repairs issue. However, nothing in the SSR or any other

documents prepared by the representatives and employees of

11
The analysis of the 19 sample work orders resulted in
approximately 66 percent of the amount in dispute being
capitalized and approximately 34 percent being expensed as
repairs. Subsequently, the analysis in the CSM of all of the
approximately 1,500 work orders resulted in approximately 52
percent of the amount in dispute being capitalized and
approximately 48 percent being expensed as repairs.
 - 26 -

petitioner or respondent during the approximately 7 months

between Mr. Shilliday’s telephone conversation with Mr. Merkle in

September 2002 and the various drafts of Mr. Carney’s letter to

Mr. Merkle in April 2003 states that either party thought there

was a binding agreement to use the methodology for settlement of

the repairs issue. Considering that over $350 million of

deductions was at stake in the repairs issue for the docketed

years addressed in this opinion, one might reasonably expect some

written confirmation, or at least contemporaneous internal

memoranda or writings, memorializing a settlement. After

significant pretrial discovery, no such documents materialized.

Petitioner’s representatives and employees apparently never

made a contemporaneous written note or memorandum of petitioner’s

understanding of a binding agreement or its terms. Petitioner’s

counsel never sent a contemporaneous written confirmation of

petitioner’s understanding of a settlement and its terms to

respondent. Only after nearly 7 months did petitioner’s counsel

write to Mr. Merkle alleging that the parties had a prior

agreement. Until that point petitioner’s counsel consistently

referred to a “proposed settlement” on both its internal

documents and in correspondence with respondent.

Similarly, respondent never sent anything in writing to

petitioner to confirm a methodology agreement with petitioner.

No internal writings prepared by respondent’s representatives,
 - 27 -

including Mr. Shilliday, stated that there had been a settlement

as to methodology. To the contrary, in a spreadsheet documenting

the status of all of the FPL issues, the repairs issue was

considered an “Open Issue” until at least November 4, 2002, well

after Mr. Merkle’s alleged consent to a settlement agreement

occurred. As we have already mentioned, this spreadsheet was

attached to an e-mail Mr. Merkle sent to, among others, Mr.

Shilliday, and contained the following pertinent phrase: “I have

also verbally reviewed this list with Bob Carney and we are in

general agreement with the items at issue and status, i.e.

Resolved, Dispute, Pending trial.” Mr. Shilliday did not contact

Mr. Merkle to dispute the “open” status of the repairs issue on

the spreadsheet. Finally, the last page of the proposed CSM that

Mr. Shilliday prepared on the repairs issue indicates that a

settlement had yet to be finalized: “Conclusion: That the

proposal for settlement be accepted.” This was followed by a

signature line for Mr. Merkle. It is undisputed that Mr. Merkle

never signed the proposed CSM on the repairs issue.

As the moving party, petitioner bears the burden of proof.

Petito v. Commissioner, T.C. Memo. 2000-363; see also Pietanza v.

Commissioner, 92 T.C. 729, 736 (1989), affd. without published

opinion 935 F.2d 1282 (3d Cir. 1991); S. Cal. Loan Association v.

Commissioner, 4 B.T.A. 223 (1926). After considering the entire

record in this matter, we find that the evidence is insufficient
 - 28 -

for us to conclude that the parties entered into a binding

agreement to use the major component methodology to settle the

repairs issue.

Petitioner argues in the alternative that Mr. Shilliday’s

statement to Mr. Chasmar that Mr. Merkle had given “the green

light” is binding on respondent, regardless of whether Mr. Merkle

actually agreed to use the methodology. Petitioner was aware

that Mr. Shilliday did not have authority to bind respondent and

that Mr. Merkle was the only person who had that authority.

Unauthorized acts taken by Government agents do not bind the

Government. United States v. Killough, 848 F.2d 1523, 1526 (11th

Cir. 1988); Gardner v. Commissioner, 75 T.C. 475, 477-478 (1980);

Webb v. Commissioner, T.C. Memo. 1994-549 (and cases cited

therein), affd. without published opinion 68 F.3d 482 (9th Cir.

1995).12

12
Petitioner relies heavily on Sun Oil Co. v. Behring
Props., Inc., 480 F.2d 310 (5th Cir. 1973). In Sun Oil a party
to a land sale made another party his agent for purposes of
assenting to changes in the contract transferring title. The
agent, in alleged disregard of instructions from the party,
agreed to an extension of time for executing the contract. The
Court of Appeals for the Fifth Circuit held that because the
third party dealing with the agent had no notice regarding the
limitations on the agent’s authority, and nothing in the course
of dealing or the relative positions of the parties gave the
third party any indication that the agent exceeded its authority,
the party was bound by the agent’s unauthorized representations.

Petitioner argues that Mr. Shilliday had authority to
communicate Mr. Merkle’s acceptance of petitioner’s offer to
petitioner and that petitioner had no notice that Mr. Shilliday’s
(continued...)
 - 29 -

As previously mentioned, the facts do not establish that Mr.

Merkle approved a settlement agreement. It is also not clear

that Mr. Shilliday conveyed to Mr. Merkle an “offer” from

petitioner to enter into a binding agreement to use the major

component methodology regardless of the results it might produce.

The SSR does not state that FPL would not do the work necessary

to classify the work orders unless Mr. Merkle first agreed to a

settlement using the major component methodology. Mr. Chasmar

reviewed the SSR in order to make sure that the proposal therein

was accurate. Mr. Chasmar did not suggest that language be

inserted into the SSR that would require a binding agreement by

the parties to use the major component methodology before

petitioner’s classification of the 1,500 disputed work orders,

nor did the SSR address how any disputes regarding the proper

classification of work orders would be resolved. Neither party

produced contemporaneously prepared documentation indicating that

a binding settlement had been made. Under the circumstances, the

fact that Mr. Shilliday told Mr. Chasmar that Mr. Merkle had

given “the green light to go ahead with the deal” is too

12
(...continued)
communications regarding Mr. Merkle’s alleged acceptance were
inaccurate or unauthorized. The instant case is distinguishable
from Sun Oil in that the third party in that case had no notice
regarding the limitations of the agent’s authority to assent to
changes. Petitioner knew that Mr. Shilliday never had authority
to assent to anything. At best his authority was limited to
conveying Mr. Merkle’s assent.
 - 30 -

ambiguous to create a binding contract to settle, even if Mr.

Shilliday was authorized to convey Mr. Merkle’s response to a

proposal by petitioner.

Petitioner also argues that, in the absence of a contract or

apparent authority, respondent is estopped from refusing to adopt

the major component methodology. “‘[T]he doctrine of equitable

estoppel is applied against the Government “with the utmost

caution and restraint.”’” Kronish v. Commissioner, 90 T.C. 684,

695 (1988) (quoting Boulez v. Commissioner, 76 T.C. 209, 214-215

(1981), affd. 810 F.2d 209 (D.C. Cir. 1987)). The elements

necessary to succeed on an estoppel claim against the Government

are as follows:

The following conditions must be satisfied before
equitable estoppel will be applied against the
Government: (1) A false representation or wrongful,
misleading silence by the party against whom the
opposing party seeks to invoke the doctrine; (2) an
error in a statement of fact and not in an opinion or
statement of law; (3) ignorance of the true facts; (4)
reasonable reliance on the acts or statements of the
one against whom estoppel is claimed; and (5) adverse
effects of the acts or statement of the one against
whom estoppel is claimed. See Kronish v. Commissioner,
supra at 695, and cases cited therein; Foam Recycling
Associates v. Commissioner, T.C. Memo. 1992-645. Thus,
estoppel requires a finding that a claimant relied on
the Government’s representations and suffered a
detriment because of that reliance. Schuster v.
Commissioner, 312 F.2d 311 (9th Cir. 1962), affg. 32
T.C. 998 (1959), affg. in part and revg. in part First
Western Bank & Trust Co. v. Commissioner, 32 T.C. 1017
(1959); Boulez v. Commissioner, supra; Estate of
Emerson v. Commissioner, 67 T.C. 612, 617-618 (1977);
Underwood v. Commissioner, 63 T.C. 468 (1975), affd.
535 F.2d 309 (5th Cir. 1976).
 - 31 -

Norfolk S. Corp. v. Commissioner, 104 T.C. 13, 60 (1995), affd.

140 F.3d 240 (4th Cir. 1998).

The elements of estoppel are not met in this case. While

there have been some misunderstandings, petitioner’s argument

that it reasonably relied on a false representation while in

ignorance of the true facts is inconsistent with the previously

discussed evidence. The testimony indicates that the statements

made at the time of the alleged agreement were ambiguous. This,

combined with the contemporaneous actions of the parties and the

lack of any contemporaneous documentation memorializing an

alleged agreement on methodology, indicates that there was no

false representation on which petitioner reasonably relied.

In addition to the general requirements, in order to

establish estoppel against the Government, there must be

detrimental reliance by the party claiming the benefit of the

doctrine. Boulez v. Commissioner, supra at 215. Estoppel

applies against the Government only if, among the other required

elements, the Government’s wrongful act causes a serious

injustice. Watkins v. U.S. Army, 875 F.2d 699, 707 (9th Cir.

1989). Relative to more than $350 million of claimed deductions

at stake in this case, the $10,000 petitioner spent to perform

the analysis of the 1,500 work orders is a minor cost to

petitioner, insufficient to be considered a “serious injustice”.

Accordingly, “we conclude that the acts of reliance by petitioner
 - 32 -

do not involve the level of detriment necessary to bring the

instant case within the category of those ‘rare instances’ where

respondent should be estopped.” Boulez v. Commissioner, supra at

216; see also Estate of Emerson v. Commissioner, 67 T.C. 612, 618

(1977).

Finally, the terms of the methodology agreement alleged by

petitioner are too indefinite to form an enforceable settlement

agreement. Indefiniteness and uncertainty as to any of the

essential terms of an agreement have often been held to prevent

the creation of an enforceable contract. 1 Corbin, Corbin on

Contracts, sec. 4.1, at 525 (1993). A contract whose terms are

so indefinite, uncertain, and incomplete that the reasonable

intentions of the contracting parties cannot be fairly and

reasonably distilled from them is not enforceable. Nelson Bros.,

Inc. v. Commissioner, T.C. Memo. 1991-52 (citing Cook v. Brown,

393 So. 2d 1016, 1018 (Ala. Civ. App. 1981)). When the evidence

clearly shows, either by reason of definite language or

otherwise, that the only (and the complete) subject matter that

is under consideration is left for further negotiation and

agreement, there is no contract. 1 Corbin, supra at 531.

It is undisputed that Mr. Merkle retained authority to

approve or dispute any of the classifications of the work orders

that had been tentatively agreed to by petitioner and Mr.

Shilliday. It is also undisputed that Mr. Merkle never approved
 - 33 -

the classifications and never agreed to the final settlement

figures proposed in the CSM, and there was no agreed mechanism

for resolving disputes as to the application of the methodology.

Without an agreement on the proper classification of the 1,500

work orders, an essential element of an enforceable settlement

agreement was missing.13

To reflect the foregoing,

An appropriate order will

be issued denying petitioner’s

motions to enforce settlement

agreement.

13
Petitioner’s counsel suggest that disputes over the
proper classification of any of the 1,500 work orders could be
resolved by the Court. However, this would place the Court in
the position of deciding key issues that the parties were to
decide as part of the alleged settlement and could likely involve
a trial over potentially complicated issues. A trial was what
the alleged settlement was intended to avoid. When Mr. Shilliday
was asked why he had not prepared a CSM in September instead of
the SSR he testified: “I just don’t think, at least I don’t do
settlements in theory. We have to reduce the theory to a number
otherwise the theory is useless to the Court. The parties have
to, especially in a settlement, we have to do the numbers.”
 - 34 -

APPENDIX

CC:LM:RFP:SLATL:TL-5271-96; 25084-96; 6653-00; August 27, 2002
10811-00
RJShilliday

SETTLEMENT STATUS REPORT

The Repair v. Capital Issue

In re: FPL Group Inc. v. Commissioner
Docket Numbers 5271-96; 25084-96; 6653-00; 10811-00

ISSUE: Are costs incurred by FPL to perform work on
its utility equipment deductible as ordinary,
unnecessary [sic] business expenses under Section 162
or must they be capitalized under Sections 263 and
263A? This is not an issue involving “heavy
maintenance visits” nor does it involve the “plan of
rehabilitation doctrine.” This case involves the
substitution or replacement of parts on FPL’S utility
equipment involving both major components of that
equipment and portions of the major components, which
are not significant portions of the equipment that
materially increase the value and substantially prolong
the useful life of the equipment.

Proposal for Settlement: It is proposed that each
Florida Power work order in controversy be inspected by
FPL’s utility regulation accounting department, and a
division of these work orders, between capital and
repair, be made on the basis of whether the item of
equipment being replaced is a major component of the
equipment or not.

The definition of major component is to be
controlled by part 116 of the Federal Energy Regulatory
Commission Regulations governing FPL’s utility
accounting practices. A copy of this regulation is
enclosed. Under the major component settlement
methodology, if an entire blower or fan, for example,
is being replaced on a piece of equipment, the work
order involved will be classified as capital. If on
the other hand the seals on the blower or fan are being
replaced, that work order would be classified as a
 - 35 -

repair. The reason FPL capitalized the blower or fan
seals for utility accounting purposes is that
Commission Regulations allow major component
sub-accounts to be established at the discretion of the
utility. These sub-accounts break the major component
down into various minor sub-components.

For illustration of the workings of this
settlement methodology, a group of work orders
previously supplied to the Internal Revenue Service by
FPL was selected by the undersigned to be tested under
the classification system. The nonconsecutive work
orders are numbered 1011 to 1642. The classification
of these work orders under the major component system
is as follows:

Capital or
Work Order Repair
Number Equipment Amount Classification
1011 Instrument C
1093 Flowmeter C
1104 Seals $163,062 R
1111 Turbo Changer $53,718 R
1155 Pump C
1227 Rotating Assy. $38,137 R
1241 Motor C
1281 Strainers $300,000 R
1373-1374 Tank C
1412 Valve C
1429 Snubbers $350,000 R
1465 Breaker Switch C
1522 Monitor C
1523 Control C
1529 Bearing $113,168 R
1546 Panel $298,700 R
 - 36 -

1564 Motor C
1570 Governor C
1642 Impeller $87,118 R

Eleven of the twenty work order items are major
components of equipment resulting in the capitalization
of work in an amount totaling $2,676,768. The
remaining nine work orders were classified as repairs
for a total of $1,403,903. These results may not be
representative of the entire body of contested work
orders, since only one plant was involved for a short
period of time and that plant was a nuclear plant.

It is recommended that you approve the major
component settlement system analysis and authorize FPL
to conduct the survey necessary to complete the
classification of the work orders in controversy. When
completed, I will check FPL’s analysis to ensure its
accuracy.

Basis for Decision: The prototype for the major
component system is Rev. Rul. 2001-4, 2001-1 C.B. 295.
This ruling involves the aircraft industry and
concludes that in situation three described in the
ruling, the taxpayer is required to capitalize the cost
of all work performed on the aircraft because the work
involved replacements of major components. The other
underpinning of the ruling, with respect to situation
three, is that significant portions of substantial
structural parts were also replaced, but that situation
is not presented in FPL since only replacements of
components are involved.

The adoption of a hard and fast rule that anything
other than the replacement of a major component, given
the detailed list of major components as developed by
the Federal Energy Regulatory Commission, is a system
that can be used by the taxpayer for classification
purposes and monitored by Internal Revenue Service
without interjecting extensive subjective analysis into
the problem solving arena. The elimination of FPL’s
minor component sub-accounts for tax accounting
purposes preserves FERC’s utility accounting in its
purest form by disregarding FPL’s discretionary
sub-accounts for tax purposes.
 - 37 -

Previously, all attempts at settlement by
reference to the general capitalization requirements of
the code and regulations have resulted in failure.
What is needed to resolve this issue in FPL is a
relatively simple and objective system which eliminates
engineers and utility expert witnesses from the
accounting process. A copy of Revenue Ruling 2001-4 is
enclosed for your convenience, together with work order
1523 as an example of a typical FPL record, which is
driving the classification process.

I will be happy to discuss the background of this
issue with you at your convenience together with the
change of the accounting method issue which has been
the subject of so much rancor between the parties.
Under this settlement approach, the change of
accounting method issue will not be addressed and a
permanent system of accounting will await the
completion of the IRR process.

Special Trial Attorney
CC: LN:RFP:SLCHI:ATL