T.C. Memo. 2012-111
UNITED STATES TAX COURT
MATTHEW A. FARNER AND MARY B. FARNER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11313-08. Filed April 18, 2012.
John E. Rogers, for petitioners.
George W. Bezold and Mark J. Miller, for respondent.
MEMORANDUM OPINION
CARLUZZO, Special Trial Judge: This case for the redetermination of a
deficiency, commenced in response to a notice of deficiency dated February 1,
2008 (notice), is before the Court on petitioners’ motion to enforce stipulated
settlement, filed October 6, 2011 (petitioners’ motion). Respondent’s objection to
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petitioners’ motion is embodied in his response, filed November 16, 2011. A
hearing was conducted on petitioners’ motion on January 31, 2012, in Chicago,
Illinois. Counsel for the parties appeared and were heard.
The title of petitioners’ motion does not necessarily communicate the relief it
seeks. The case was closed by stipulated decision entered on April 27, 2011, that
became final as provided in section 74811 before petitioners’ motion was filed
(decision). Petitioners do not suggest that respondent has proceeded in a manner
inconsistent with the deficiency shown in the decision. Instead, it would appear that
petitioners take the position that the decision should be vacated because it does not
accurately represent the basis of settlement it purports to reflect. Respondent
disagrees. Resolving the dispute between the parties requires not only a review of
the procedural history of this case, but a review of events that preceded the issuance
of the notice as well.
Background
At the time the petition was filed, petitioners resided in Michigan.
Taking into account a deduction attributable to a loss from a certain
transaction or series of transactions (for convenience, transactional loss),
1
Section references are to the Internal Revenue Code of 1986, as amended.
Unless otherwise indicated, Rule references are to the Tax Court Rules of Practice
and Procedure.
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petitioners’ timely filed 2002 Federal income tax return shows a negative adjusted
gross income and no Federal income tax liability (original return). The effect of the
deduction for the transactional loss on petitioners’ 2002 Federal income tax liability
is shown in their amended 2002 return, filed April 13, 2004 (first amended return).
The first amended return shows petitioners’ adjusted gross income of $676,723.
The Federal income tax liability reported, but unpaid, with the first amended return,
$259,136, is computed as though petitioners are not entitled to a deduction for the
transactional loss. The amount shown as petitioners’ 2002 Federal income tax
liability on the first amended return was appropriately assessed on June 7, 2004.
See sec. 6201(a)(1).
Reverting to the position taken on the original return with respect to the
transactional loss, petitioners submitted another amended 2002 return, received by
respondent in February 2005 (second amended return). On the second amended
return, petitioners claim a $259,136 income tax refund, even though they had paid
no 2002 Federal income tax at the time they submitted the second amended return.
In effect, the second amended return is more in the nature of a claim for abatement,
which is not allowable under the Internal Revenue Code and which has not been
allowed by respondent. See sec. 6404(b).
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The $3,943 deficiency determined in the notice takes into account, among
other things, the income tax assessed pursuant to the first amended return. Line 12
on Form 4549-A, Income Tax Discrepancy Adjustments, included with the notice
shows “Total Tax Shown on Return or as Previously Adjusted” as “$259,136”. See
sec. 6211. The $52,615.80 section 6662(a) accuracy-related penalty imposed in the
notice is computed with reference to the amount shown in the notice as petitioners’
“Total Corrected Tax Liability”, $263,079, which amount, in turn, includes the
amount assessed pursuant to the first amended return.
The various issues raised in the pleadings include issues related to petitioners’
entitlement to a deduction for the transactional loss.
The case was set for trial on three occasions, each time continued upon joint
motion of the parties. According to each joint motion, the “main issues” in this case
were “present” in another case then pending before the Court, Summitt v.
Commissioner, 134 T.C. 248 (2010), involving taxpayers represented by the same
attorney that represents petitioners in this case. The joint motions create the clear
impression that the parties expected that the resolution of the Summitt case would
influence the resolution of this case. Paragraph 4 of the joint motion filed February
16, 2010, contains the following representations: “The parties anticipate that a
ruling on the issues in the Motion for Partial Summary Judgment in Summitt may
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resolve the same issues present in this case, and may also resolve the entire
case without the necessity of a trial”. The summary judgment referenced in the
February 16, 2010, joint motion for continuance was resolved in Summitt, which
held that the taxpayers did not recognize a loss that apparently arose from the
same or similar transaction or series of transactions giving rise to the transactional
loss. The decision entered on November 18, 2010, in Summitt reflects that
holding.
By notice dated December 14, 2010, this case was set for trial for the fourth
time, this time at the Chicago, Illinois, trial session set to begin on May 16, 2011.
By letter dated April 13, 2011, approximately one month before that trial session
was scheduled to begin, respondent’s counsel forwarded to petitioners’ counsel a
proposed decision document “along with a copy of the underlying Audit Statement
and supporting schedules”. There is no question that the letter along with its
attachments was received and reviewed by petitioners’ counsel; these documents
are attached to petitioners’ motion. Taking into account the assessment made from
the income tax liability reported on the first amended return, the audit statement
shows $261,449 as petitioners’ “Revised Liability” for 2002 Federal income tax.
Plugging petitioners’ revised 2002 Federal income tax liability as shown on the
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audit statement into the equation contemplated by section 6211 results in the
deficiency shown on the decision entered in this case.
Discussion
Taking into account (1) the pleadings, (2) the consequences of this Court’s
holding in Summitt, and (3) the attachments to the above-referenced letter, leads to
the inescapable conclusion that the decision reflects petitioners’ concession of their
entitlement to a deduction for the transactional loss. According to respondent, they
made such a concession; according to petitioners, they did not.
Quite the contrary, according to petitioners. As they view the matter, the
decision reflects respondent’s concession of their entitlement to a deduction for the
transactional loss as claimed on their original return. If the deficiency determined in
the notice had been computed with reference to petitioners’ original return, then we
might agree with them; but it was not, and we do not.
Respondent’s version of the terms of the settlement that underlie the decision
is supported not only by what is included in the record, but also by what is missing.
Because the Court does not have overassessment jurisdiction in a case for the
redetermination of a deficiency, see Gisholt Mach. Co. v. Commissioner,
4 T.C. 699 (1945), respondent’s concession of petitioners’ entitlement to a
deduction for the transactional loss, if made, could have only been given effect by:
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(1) the abatement of the overassessment petitioners claimed, or (2) a stipulation or
other agreement between the parties that acknowledged petitioners’ entitlement to
such an abatement. It is obvious that there has been no abatement, and there is no
evidence of any such stipulation or other agreement.
To the extent that petitioners or their attorney misunderstood the terms of the
“agreement” referenced in, and effected by the decision, the misunderstanding, at
best, represents a unilateral mistake. This Court does not recognize a unilateral
mistake as one of the narrowly circumscribed grounds for vacating a decision, final
or not.2 Abatti v. Commissioner, 859 F.2d 115 (9th Cir. 1988), aff’g 86 T.C. 1319
(1986); Stamm Int’l Corp. v. Commissioner, 90 T.C. 315, 321-322 (1988); Gamsby
v. Commissioner, T.C. Memo. 1997-453.
We have further considered petitioners’ entitlement to relief under the
circumstances described in rule 60(b) of the Federal Rules of Civil Procedure, which
rule from time to time and as appropriate, we apply in this Court. See Rule 1(a);
2
The Tax Court Rules of Practice and Procedure do not provide for relief
from a final decision. A final decision, however, can be vacated upon a showing
that the Court was without jurisdiction to enter it or that the decision was entered in
furtherance of a fraud on the Court. See Billingsley v. Commissioner, 868 F.2d
1081, 1084-1085 (9th Cir. 1989); Abatti v. Commissioner, 859 F.2d 115, 117
(9th Cir. 1988), aff’g 86 T.C. 1319 (1986); Brannon’s of Shawnee, Inc. v.
Commissioner, 69 T.C. 999, 1002 (1978); Casey v. Commissioner, T.C. Memo.
1992-672. Neither condition applies here.
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Brannon’s of Shawnee, Inc. v. Commissioner, 69 T.C. 999, 1000-1001 (1978).
Rule 60(b) of the Federal Rules of Civil Procedure provides relief from a final
“judgment, order or proceeding” upon grounds recited in six subparts, only two of
which have potential application here.
Rule 60(b)(1) of the Federal Rules of Civil Procedure provides relief upon a
showing of “mistake, inadvertence, surprise, or excusable neglect”. The
attachments to the letter forwarding the proposed decision document to petitioners’
counsel eliminate the possibility that the decision was entered by surprise or on
account of excusable neglect. There is no showing that the decision, entered by
agreement, was reached inadvertently, and the reference to “mistake” means mutual
mistake, see La Floridienne J. Buttgenbach & Co. v. Commissioner, 63 F.2d 630
(5th Cir. 1933), which, as noted, is a situation not present here. Petitioners are not
entitled to relief under rule 60(b)(1) of the Federal Rules of Civil Procedure.
Rule 60(b)(6) of the Federal Rules of Civil Procedure provides that relief is
available “for any other reason that justifies” it. The relief available under that rule
is considered “exceptional or extraordinary ”. Olle v. Henry & Wright Corp., 910
F.2d 357, 365 (6th Cir. 1990); Estate of Miller v. Commissioner, T.C. Memo.
1994-25. That rule, however, is applied only “as a means to achieve substantial
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justice”, Hopper v. Euclid Manor Nursing Home, Inc., 867 F.2d 291, 294 (6th Cir.
1989), in a situation where principles of fundamental fairness compel relief.
Alluding to the merits of the substantive issues in this case, petitioners suggest that
it would be unfair to allow the decision to stand. We are in no position at this stage
of the proceedings to opine on the merits of petitioners’ claim to the deduction for
the transactional loss. Nevertheless, we cannot ignore the Court’s holding in
Summitt. Allowing the decision to stand so as to achieve similar results in different
cases involving similar issues hardly violates principles of fundamental fairness.
Otherwise, petitioners have not offered a specific reason for granting relief under
rule 60(b)(6) of the Federal Rules of Civil Procedure, and from our review of the
record none is obvious to us.
To reflect the foregoing,
An appropriate order will be
issued denying petitioners’ motion.