Mathia v. Comm'r , 93 T.C.M. 653 ( 2007 )

T.C. Memo. 2007-4
UNITED STATES TAX COURT
JEAN MATHIA AND ESTATE OF DOYLE V. MATHIA, DECEASED,
JEAN MATHIA, PERSONAL REPRESENTATIVE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16483-05L. Filed January 8, 2007.
Mark W. Curnutte, for petitioners.
Ann L. Darnold, for respondent.
MEMORANDUM OPINION
MARVEL, Judge: This matter is before the Court on
respondent’s Motion for Relief From Stipulations pursuant to Rule
91(e)1.
1
All section references are to the Internal Revenue Code,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
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Background
Petitioner Jean Mathia resided in Grove, Oklahoma, when she
petitioned this Court on her own behalf and as personal
representative of the Estate of Doyle V. Mathia, her deceased
husband. Doyle V. Mathia (Mr. Mathia) and petitioner were
married and filed joint income tax returns for all relevant tax
years. Mr. Mathia died on February 19, 2000.
Mr. Mathia was a limited partner in Greenwich Associates
(Greenwich), a New York limited partnership subject to the
unified audit and litigation procedures of the Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec.
402(a), 96 Stat. 648, for the relevant tax years. He owned an
8.484-percent limited partnership interest in Greenwich at all
relevant times. Kevin Smith was the general partner and tax
matters partner (the TMP) of Greenwich.2
On August 3, 1990, the Commissioner issued Greenwich a
Notice of Final Partnership Administrative Adjustment for 1982
through 1984. The TMP timely filed a petition for review in this
Court pursuant to section 6226 (the Greenwich litigation).3 On
2
Sec. 6224(c)(3) authorizes the tax matters partner of a
partnership, as defined by the Code, to enter into a settlement
agreement that is binding on all partners who are not notice
partners or members of a notice group, i.e., those partners not
entitled to notice of administrative proceedings with respect to
the partnership.
3
Docket No. 24102-90.
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August 31, 2001, the parties submitted a decision document, which
we filed as a Stipulation of Settlement Between the TMP and
Respondent (the Greenwich settlement). On January 17, 2002, we
entered an order and decision resolving the Greenwich litigation.
On January 27, 2003, respondent assessed against petitioners
income tax deficiencies and interest attributable to the
Greenwich settlement. On October 27, 2003, petitioners paid all
of the tax, but not the interest, attributable to the Greenwich
settlement. On February 6, 2004, petitioners mailed to
respondent Forms 843, Claim for Refund and Request for Abatement
(interest abatement claims), with respect to the accrued interest
attributable to the Greenwich settlement.
On February 10, 2004, respondent issued to petitioners a
Final Notice--Notice of Intent to Levy and Notice of Your Right
to a Hearing for 1982 through 1984, and petitioners timely
requested a section 6330 hearing. On April 2, 2004, respondent
issued to petitioners a Notice of Federal Tax Lien Filing and
Your Right to a Hearing Under IRC 6320, for 1983 and 1984, and
petitioners timely requested a section 6320 hearing. On April 7,
2004, respondent denied petitioners’ interest abatement claims.
On May 5, 2004, petitioners submitted a request to respondent’s
Appeals Office to review the denial of their interest abatement
claims.
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On August 5, 2005, respondent issued to petitioners a notice
of determination with respect to the Notice of Intent to Levy and
a second notice of determination with respect to the Notice of
Federal Tax Lien Filing. On August 18, 2005, respondent issued a
notice of final determination denying petitioner’s interest
abatement claims. Petitioners timely filed a petition contesting
each of respondent’s determinations. Petitioners contend that
the period of limitations on assessment had expired before
respondent had assessed petitioners’ 1982-84 tax liabilities.
Petitioners further contend that respondent improperly denied
their interest abatement claims.
This case was scheduled for trial during the trial session
of the Court beginning March 6, 2006, at Oklahoma City, Oklahoma.
On March 6, 2006, the parties filed a Stipulation of Facts
(Stipulation) and a Joint Motion for Leave to Submit Case Under
Rule 122, which motion we granted that same day. The
Stipulation, which was signed by both parties, contains 21 pages
and states that “the parties agree to this Stipulation of Facts”
and “All stipulated facts shall be conclusive.” We established a
posttrial briefing schedule that required the parties to submit
their opening briefs on or before May 5, 2006.
On April 27, 2006, approximately 1 week before opening
briefs were due, we had a conference call with the parties at the
request of respondent’s counsel. During that conference call,
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respondent’s counsel stated that she wanted to move for relief
from two of the previously agreed stipulations because she
believed that the stipulations were in error. After ascertaining
from petitioners’ counsel that he objected to respondent’s
request for relief, we suspended the briefing schedule to permit
respondent to file a motion for relief from the stipulations by
order dated April 27, 2006.
On May 5, 2006, respondent filed a Motion for Relief from
Stipulations (motion), requesting relief from paragraphs 22 and
34 of the Stipulation (the disputed stipulations) pursuant to
Rule 91(e) but did not file a motion to vacate the March 6, 2006,
order granting the parties’ Joint Motion for Leave To Submit Case
Under Rule 122 (March 6, 2006, order).4 Paragraph 22 of the
Stipulation states that Mr. Mathia was not a notice partner or a
member of a notice group of Greenwich. Paragraph 34 of the
Stipulation provides that Mr. Smith, as the TMP, had the
authority to bind all of Greenwich’s partners to the stipulation
of settlement. Respondent now contends that Mr. Mathia was a
notice partner and, therefore, was not automatically bound by the
stipulation of settlement under section 6224(c)(3). Respondent
4
Rule 91(e) provides that a stipulation shall be treated as
a conclusive admission by the parties, “unless otherwise
permitted by the Court or agreed upon by those parties.” Rule
91(e) also provides that “The Court will not permit a party to a
stipulation to qualify, change, or contradict a stipulation in
whole or in part, except that it may do so where justice
requires.”
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moves for relief from the disputed stipulations because they
“include legal conclusions which are erroneous” and “so that the
record is consistent and accurate”. On June 5, 2006, petitioners
filed a response opposing the motion. Neither party requested a
hearing on respondent’s motion, and we are satisfied that a
hearing is not necessary to rule on the motion.
Discussion
The stipulation process is considered “the bedrock of Tax
Court practice” and acts “as an aid to the more expeditious trial
of cases”. Branerton Corp. v. Commissioner, 61 T.C. 691, 692
(1974). Stipulations eliminate burdensome and unnecessary
discovery and result in “an orderly trial with a full and fair
exposition of the facts.” Teller v. Commissioner, T.C. Memo.
1992-402. Stipulations narrow controversies to their essential
issues of dispute, Estate of Quirk v. Commissioner, 928 F.2d 751,
759 (6th Cir. 1991), affg. in part and remanding in part T.C.
Memo. 1988-286, and materially assist a court in managing its
caseload, see Stamos v. Commissioner, 87 T.C. 1451, 1456 (1986).
Generally, a stipulation of fact is binding on the parties,
and the Court is bound to enforce it. Rule 91; Stamos v.
Commissioner, supra at 1454. Rule 91(e) provides an exception by
permitting relief from the binding effect of a stipulation where
justice so requires. Courts generally enforce stipulations
unless “manifest injustice” would result. Bokum v. Commissioner,
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992 F.2d 1132, 1135-1136 (11th Cir. 1993), affg. 94 T.C. 126
(1990); Bail Bonds by Marvin Nelson, Inc. v. Commissioner, 820
F.2d 1543, 1547 (9th Cir. 1987), affg. T.C. Memo. 1986-23;
Clendenen v. Commissioner, T.C. Memo. 2003-32, affd. 345 F.3d 568
(8th Cir. 2003).
Given the importance of the stipulation process to this
Court, our reluctance to relieve a party of a stipulation it
negotiated and executed is understandable. Permitting challenges
to otherwise binding stipulations of fact undermines the
stipulation process and injects uncertainty into our litigation
process, often after the record is closed. See, e.g., La. Land &
Exploration Co. v. Commissioner, 90 T.C. 630, 649 (1988); Logsdon
v. Commissioner, T.C. Memo. 1997-8 (relief from stipulation
denied where the taxpayer sought to introduce evidence not in the
record to support his motion and the Commissioner would be
prejudiced by the lack of opportunity to develop the stipulated
position at trial); Grasso v. Commissioner, T.C. Memo. 1994-479
(relief from stipulation denied when taxpayer contended for the
first time in his posttrial brief that he mistakenly agreed to
the stipulation). Although we have discretion to modify or set
aside a stipulation of fact that is clearly contrary to the facts
established by the record, Cal-Maine Foods, Inc. v. Commissioner,
93 T.C. 181, 195 (1989), we do not set aside a stipulation of
fact that is consistent with the record simply because one party
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claims the stipulation is erroneous, see Rule 91(e); Logsdon v.
Commissioner, supra.
Respondent argues that the disputed stipulations contain
erroneous legal conclusions and requests that we remove them.
Although we are not bound by stipulations of law, see Bokum v.
Commissioner, 94 T.C. 143, respondent’s argument fails to
acknowledge that stipulations of law may bind the parties to the
stipulation as a matter of contract law, see Stamos v.
Commissioner, supra at 1455. In Estate of Quirk v. Commissioner,
supra at 759, the Court of Appeals for the Sixth Circuit
explained that the stipulation process allows the parties to
concede both factual and legal issues that they might otherwise
have litigated, noting that “In fact, narrowing disputes to the
essential disputed issues is the primary function of
stipulations.” A court is not required to relieve a party from
erroneous stipulations of law, particularly when the stipulation
is part of a negotiated settlement. See, e.g., Stanley v.
Commissioner, T.C. Memo. 1991-20.
We also disagree with respondent’s characterization of the
disputed stipulations as containing stipulations of law. At
most, the stipulations in question contain mixed statements of
fact and law. As petitioners point out in their response
opposing respondent’s motion,
even if the Court determines that stipulations 22 and
34 do “include legal conclusions” as asserted by
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Respondent, this should not be a basis for relief for
Respondent, because at most, stipulation[s] 22 and 34
are applications of law to fact, which is expressly
permitted under Tax Court Rule 91(a).
The truth of petitioners’ statement can be seen by examining the
disputed stipulations.
Stipulation 22 provides that “Neither the Petitioner nor
Doyle V. Mathia, deceased, was a notice partner in Greenwich or a
member of a notice group as described in I.R.C. §6223(b)(2).”
Stipulation 34 provides that “At all times relevant to the
pending matter, Smith possessed the authority to bind both
Greenwich and all of its partners, including Doyle V. Mathia,
deceased, to a settlement agreement with the Respondent.”
Implicit in each of the stipulations is a set of facts and the
application of law to those facts. Stipulation 22 refers to
“notice partner” and “notice group”, two terms that are defined
by sections 6231(a)(8) and 6223(b)(2), respectively. Section
6231(a)(8) defines a notice partner as “a partner who, at the
time in question, would be entitled to notice under subsection
(a) of section 6223 (determined without regard to subsections
(b)(2) and (e)(1)(B) thereof).” Section 6223 provides the rules
governing when and how notices of the beginning and completion of
administrative partnership-level proceedings must be given by the
Secretary to the partners. Section 6223(b) provides a special
notice rule for partnerships with more than 100 partners.
Section 6223(b)(2) requires the Secretary to give the notice
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required by section 6223(a) to a notice group defined as “a group
of partners in the aggregate having a 5 percent or more interest
in the profits of a partnership” if the notice group has
requested such notice and designated one of its members to
receive the notice. In order to find that Mr. Mathia and/or
petitioner were members of a notice group, the record would have
to contain evidence that Greenwich was a partnership with more
than 100 partners, that a notice group was properly formed and
that petitioner and Mr. Mathia were members of it, and that a
member of the notice group was properly and timely designated in
accordance with section 6223(b)(2) and applicable regulations.
In order to enable us to find that petitioner and/or Mr. Mathia
were notice partners, the record would have to establish they
were entitled to notice under section 6223(a) without regard to
the provisions of section 6223(b)(2) (dealing with notice to a
notice group involving a partnership of more than 100 partners)
and section 6223(e)(1)(B) (dealing with the effect of the
Secretary’s failure to give notice involving a partnership of
more than 100 partners). Petitioner and/or Mr. Mathia would be
entitled to notice only if their names and addresses, as well as
information sufficient to enable the Secretary to determine that
they were entitled to receive notice under section 6223(a), had
been furnished timely to the Secretary.
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The above discussion illustrates the heart of the problem
presented by respondent’s motion. At the present time, this case
is fully stipulated under Rule 122. If respondent’s motion were
granted, this Court’s March 6, 2006, order directing that this
case proceed as a fully stipulated case would have to be vacated,
a period for discovery related to the disputed stipulations would
have to be set, and a trial, in all likelihood, would have to be
held to develop the facts regarding whether the TMP had the
authority, on the date he executed the stipulation of settlement,
to bind all of Greenwich’s partners to the Greenwich settlement.
Respondent has not requested that the Court’s March 6, 2006,
order be vacated. However, petitioners dispute respondent’s
factual allegations in support of his motion, and, as a matter of
fundamental fairness, petitioners would be entitled to a trial.
By submitting this case fully stipulated pursuant to Rule
122, the parties waived their respective rights to introduce
evidence at trial. Granting respondent relief from the disputed
stipulations would undoubtedly prejudice petitioners, because
petitioners can no longer introduce evidence supporting those
stipulations absent an order vacating our March 6, 2006, order
and setting this case for trial. See Korangy v. Commissioner,
T.C. Memo. 1989-2, affd. 893 F.2d 69 (4th Cir. 1990).
If we grant respondent’s motion, we would be compelled to
set this case for trial, and the parties would have to expend
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considerable time and effort developing and presenting evidence
on the issue of whether Mr. Mathia was bound by the TMP’s
execution of the Greenwich settlement. Resetting this case for
trial would prejudice petitioners, see Stamm Intl. Corp. v.
Commissioner, 90 T.C. 315, 321 (1988), who would be forced to
prepare for trial and litigate factual issues resolved in the
Stipulation, see Korangy v. Commissioner, supra. Such a
substantial change in the procedural setting of this case would
burden this Court’s resources and those of the parties. See id.
“‘These unnecessary burdens on the system are unreasonable and
unfair from the standpoint of everyone involved.’” Id. (quoting
Brooks v. Commissioner, 82 T.C. 413, 430 (1984), affd. without
published opinion 772 F.2d 910 (9th Cir. 1985)).
It is reasonable to assume that respondent had or could have
had access to his administrative file before he entered into the
disputed stipulations and that respondent had or should have had
all of the necessary facts to determine whether petitioners were
bound by the Greenwich settlement between the TMP and the
Commissioner in the Greenwich litigation before he entered into
the disputed stipulations. See Tate & Lyle, Inc. & Subs. v.
Commissioner, T.C. Memo. 1996-80, revd. on other grounds 87 F.3d
99 (3d Cir. 1996). Respondent has not alleged any exceptional
circumstances in this case justifying respondent’s sudden change
in position and explaining why respondent did not conduct a
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proper investigation before he executed the Stipulation. Under
the circumstances of this case, we believe that justice is best
served by holding the parties to the terms of the Stipulation.
See id.
Respondent also moves for relief from the referenced
stipulations “so that the record is consistent and accurate”.
However, we do not agree that our denial of relief would lead to
an inconsistent or inaccurate result. The only evidence offered
by respondent to demonstrate that the disputed stipulations are
wrong consists of an undated copy of Form 886-Z, Partners’ or S
Corporation Shareholders’ Shares of Income, bearing the name
“Greenwich Associates” and references to taxable years 8212,
8312, and 8412 (48 pages), and a letter dated August 3, 1990,
which appears to be a transmittal letter but which does not refer
to Form 886-Z. The documents are not authenticated, are not
stipulated to by the petitioners, and are not sufficient to
establish that the disputed stipulations are erroneous.
Moreover, respondent does not allege that the documents are newly
discovered or that the documents were not available to him before
the Stipulation was executed and the motion to submit the case
under Rule 122 was filed.
Because the parties agreed in their joint motion, which we
granted, to submit the case under Rule 122, the record in this
case is limited to the pleadings and the Stipulation. At this
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late date, we shall not consider documents outside those
submitted with the pleadings or Stipulation. The disputed
stipulations are consistent with each other and with the rest of
the evidentiary record. The parties entered into the disputed
stipulations on their own accord; there is no evidence of any
fraud or duress.
Respondent claims that he mistakenly agreed to the disputed
stipulations. If respondent erred, however, his mistake was
unilateral. Responsibility rested with respondent’s counsel to
understand the significance of the disputed stipulations and to
examine his case thoroughly before agreeing to the disputed
stipulations. See Korangy v. Commissioner, supra. We perceive
no injustice in holding the parties to the terms of the
Stipulation.
For the reasons described, we shall deny respondent’s Motion
for Relief from Stipulations.
An appropriate order
will be issued.