Chai v. Comm'r ( 2011 )

T.C. Memo. 2011-273
UNITED STATES TAX COURT
JASON CHAI, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13213-10. Filed November 17, 2011.
Frank Agostino and Jeremy M. Klausner, for petitioner.
Alan M. Jacobson, for respondent.
MEMORANDUM OPINION
KROUPA, Judge: This matter is before the Court on
respondent’s motion for partial summary judgment filed pursuant
to Rule 121.1 Respondent asks this Court to decide, as a matter
1
All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code in effect for the year at issue.
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of law, that the statute of limitations does not bar assessment
of tax attributable to certain partnership items of Jason Chai
(petitioner) that were converted to nonpartnership items for
2003. Our decision turns on whether petitioner validly agreed to
extend the applicable limitations period. We hold he did. We
therefore will grant respondent’s motion for partial summary
judgment.
Background
The following facts have been assumed solely for resolving
the pending motion. Petitioner resided in Connecticut at the
time he filed the petition. Petitioner filed a Federal income
tax return for 2003.
Petitioner participated in tax shelters promoted by Andrew
Beer (Beer) including one involving GST Partners, LP (GST).2
Petitioner and Beer were partners in Mercato Global Opportunities
Fund (Mercato), LP, which was the controlling partner of GST.
This made them indirect partners of GST. See sec. 6231(a)(10).
GST filed Form 1065, U.S. Return of Partnership Income, for
2003. Respondent investigated certain option transactions in
which GST engaged. Respondent requested in 2007 and in 2008 that
petitioner agree to extend the applicable limitations period to
assess tax attributable to petitioner’s GST partnership items for
2
GST is subject to the unified audit and litigation
procedures of the Tax Equity and Fiscal Responsibility Act of
1982, Pub. L. 97-248, sec. 401, 96 Stat. 648.
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2003. Petitioner consulted with Beer about respondent’s
requests. Petitioner had known Beer for many years, and Beer was
married to petitioner’s cousin.
Beer recommended that petitioner agree to respondent’s
requests. Petitioner did not consult with independent legal
counsel. Subsequently, petitioner and respondent timely executed
agreements (collectively, consents) consistent with the
provisions of section 6501(c)(4) and section 6229(b)(3) to extend
the applicable limitations period to assess tax attributable to
petitioner’s GST partnership items for 2003.
Respondent audited the partnership return that GST filed for
2003. Respondent determined that GST engaged in tax shelter
transactions. Respondent issued GST’s partners a Notice of Final
Partnership Administrative Adjustment (FPAA) for 2003 disallowing
certain losses. Petitioner elected under section 6223(e)(3)(B)
to convert his GST partnership items to nonpartnership items
(converted items) for 2003, which extended the applicable
limitations period to assess tax with respect to the converted
items. See sec. 6229(f). Respondent thereafter issued
petitioner a Notice of Adjustment (adjustment notice) for 2003.
Respondent issued both the FPAA and the adjustment notice within
the applicable limitations period as extended by the consents and
the conversion of petitioner’s GST partnership items to
nonpartnership items.
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Petitioner timely filed a petition for redetermination with
this Court. Respondent then filed this motion for partial
summary judgment.
Discussion
We are asked to decide whether respondent is entitled to
partial summary judgment that the statute of limitations does not
bar assessment of tax attributable to petitioner’s converted
items for 2003. Summary judgment is intended to expedite
litigation and avoid unnecessary and expensive trials. See,
e.g., FPL Group, Inc. & Subs. v. Commissioner, 116 T.C. 73, 74
(2001). Either party may move for summary judgment upon all or
any part of the legal issues in controversy. Rule 121(a). A
motion for summary judgment or partial summary judgment will be
granted if the pleadings and other acceptable materials, together
with the affidavits, if any, show that there is no genuine issue
as to any material fact and that a decision may be rendered as a
matter of law. See Rule 121(b); Elec. Arts, Inc. v.
Commissioner, 118 T.C. 226, 238 (2002). The moving party has the
burden of proving that no genuine issue of material fact exists
and that it is entitled to judgment as a matter of law. See,
e.g., Rauenhorst v. Commissioner, 119 T.C. 157, 162 (2002). The
party opposing summary judgment must set forth specific facts
showing that there is a genuine issue for trial and may not rely
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merely on allegations or denials in the pleadings. Rule 121(d);
see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Respondent argues that the FPAA and the adjustment notice
were issued before the applicable limitations period expired and
therefore the statute of limitations does not bar the assessment
of tax attributable to petitioner’s converted items. Petitioner
argues that the FPAA and the adjustment notice were untimely
because the consents he executed are invalid on grounds of undue
influence by Beer. Accordingly, respondent is entitled to
partial summary judgment if we hold that there are no issues of
material fact and that as a matter of law the consents are valid
and not obtained through undue influence.
We apply general contract principles in interpreting,
applying and deciding the enforceability of waiver documents.
See Mecom v. Commissioner, 101 T.C. 374, 384 (1993), affd.
without published opinion 40 F.3d 385 (5th Cir. 1994); see also
Horn v. Commissioner, T.C. Memo. 2002-207. A party whose assent
to a contract is induced by undue influence of a person who is
not a party to the contract may void the contract unless the
other party to the contract in good faith and without reason to
know of the undue influence either gives value or materially
relies on the contract. 1 Restatement, Contracts 2d, sec. 177(3)
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(1981).3 Undue influence is the unfair persuasion of a party by
a person who dominates the party, or who, because of the
relationship between them, the party is justified in assuming
will not act inconsistent with his or her welfare. Id. sec.
177(1).
Even if we assume that Beer had the requisite domination
over or relation to petitioner, petitioner has failed to allege
facts sufficient to show that Beer used unfair persuasion to
induce his assent to the consents. The ultimate question with
unfair persuasion is whether the party’s assent was produced by
means that seriously impaired the party’s free and competent
exercise of judgment. Id. sec. 177, comment b. Here, petitioner
merely alleges that he consulted with Beer before executing the
consents and that Beer recommended that he execute them. We find
nothing in these allegations that demonstrates Beer persuaded
petitioner to agree to the consents by means that seriously
impaired his ability to exercise his own free and competent
judgment.
Petitioner merely alleges that he was unduly influenced. He
failed to allege facts sufficient to show that Beer unfairly
3
We consistently have found the Restatement of Contracts is
a good source for identifying general contract principles. See
Mecom v. Commissioner, 101 T.C. 374, 385 (1993), affd. without
published opinion 40 F.3d 385 (5th Cir. 1994); Kronish v.
Commissioner, 90 T.C. 684, 693 (1988); see also Trout v.
Commissioner, 131 T.C. 239, 250-251 (2008).
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persuaded or influenced him to agree to the consents and thus
cannot establish a necessary element of undue influence.
Consequently, respondent is entitled to partial summary judgment
that the consents were not obtained through undue influence by
Beer. See Celotex Corp. v. Catrett, supra at 322 (holding
summary judgment is appropriate where the objecting party fails
to make a showing sufficient to establish the existence of an
element essential to that party’s case and on which that party
will bear the burden of proof at trial).
We hold that there is no genuine issue of material fact and
that, as a matter of law, the consents were not the product of
undue influence. We therefore conclude that respondent is
entitled to judgment as a matter of law that the statute of
limitations does not bar the assessment of tax attributable to
the converted items for 2003. Accordingly, we shall grant
respondent’s motion for partial summary judgment.
We have considered all arguments the parties made in
reaching our holdings, and, to the extent not mentioned, we find
them moot, irrelevant, or without merit.
To reflect the foregoing,
An appropriate order granting
respondent’s motion for partial
summary judgment will be issued.