Cinema '84, Richard M. Greenberg, Tax Matters Partner v. Commissioner

122 T.C. No. 13
UNITED STATES TAX COURT
CINEMA ‘84, RICHARD M. GREENBERG, TAX MATTERS PARTNER, Petitioner
v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 621-92. Filed March 23, 2004.
In this TEFRA partnership proceeding, the Court
entered an Order of Dismissal and Decision, and that
decision was appealed to the Court of Appeals for the
Second Circuit. The Court of Appeals affirmed in part
and reversed in part the decision of this Court, and,
in accord with the mandate, this Court issued an order
dismissing this case for lack of jurisdiction as to a
participating partner. The Court’s Order of Dismissal
and Decision is otherwise final under sec. 7481(a),
I.R.C.
M, a partner of the partnership who had not
previously participated in this proceeding, filed a
motion for leave to file notice of election to
participate out of time and lodged with the Court a
motion to vacate order of dismissal and decision and a
motion to be appointed tax matters partner.
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Held: The motion to vacate was properly submitted
to this Court, without leave of the Court of Appeals,
under Standard Oil Co. of Cal. v. United States, 429
U.S. 17 (1976), and Lydon v. Commissioner, 56 T.C. 128
(1971), is overruled and will no longer be followed
because of the Supreme Court decision.
Held, further, M has not alleged proper grounds
for vacating a final decision of this Court.
Held, further, the same standards apply for
vacating a final decision in a TEFRA proceeding as in a
deficiency case.
Thomas E. Redding, for movant Garlon J. Riegler.
Bradford A. Johnson, for respondent.
OPINION
DAWSON, Judge: This case was assigned to Special Trial
Judge Carleton D. Powell pursuant to the provisions of section
7443A(b)(5)1 and Rules 180, 181, and 183. The Court agrees with
and adopts the opinion of the Special Trial Judge set forth
below.
OPINION OF THE SPECIAL TRIAL JUDGE
POWELL, Special Trial Judge: This case is before the Court
on a Motion for Leave to File Notice of Election to Participate
Out of Time filed on behalf of Garlon J. Riegler (movant) on
1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect at relevant times. Rule
references are to the Tax Court Rules of Practice and Procedure.
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December 9, 2003. Together with that motion he lodged with the
Court a Motion to Vacate Order of Dismissal and Decision and a
Motion to be Appointed Tax Matters Partner.
This case is a so-called TEFRA partnership proceeding under
sections 6221-6233 and involves disallowed deductions claimed
with respect to a motion picture promotion. The Court held pre-
trial conferences on September 21-22, 1994, and on February 8,
1995. At those conferences, none of the partners who appeared
indicated a desire to prosecute this case or other similar cases.
Furthermore, there is no active tax matters partner in this case.
On July 10, 1995, respondent filed a Motion to Dismiss for
Failure to Properly Prosecute. That motion was held in abeyance
while the Court disposed of potentially dispositive motions
concerning certain partners who had elected to participate. The
Court disposed of those motions. See Greenberg Bros. Pship. #4
v. Commissioner, 111 T.C. 198 (1998), affd. in part and revd. in
part sub nom. Cinema ‘84 v. Commissioner, 294 F.3d 432 (2d Cir.
2002).
This case was calendared for hearing on respondent's Motion
to Dismiss for Failure to Properly Prosecute at the Special
Session of the Court held on July 6, 1999. The order provided
that “IF THERE IS NO APPEARANCE BY OR ON BEHALF OF A PARTNER WHO
WILL PROSECUTE THIS MATTER, THE COURT WILL DISMISS THIS CASE FOR
FAILURE TO PROPERLY PROSECUTE AND ENTER A DECISION SUSTAINING
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RESPONDENT'S DETERMINATION IN FULL.” The order was served on all
the partners who were still linked to the partnership proceeding.
At the hearing the only appearance was made by counsel for some
of the participating partners who asked the Court to delay the
dismissal for 90 days to determine whether there was any partner
who wished to proceed with the litigation and would become the
tax matters partner. That time was subsequently extended to
November 4, 1999. There was no appearance by any partner who
desired to prosecute this case. On June 23, 2000, respondent
filed a Notice of Consistent Agreement. By an Order of Dismissal
and Decision entered on September 1, 2000, respondent’s Motion to
Dismiss for Failure to Properly Prosecute filed July 10, 1995,
was granted, and respondent’s determinations of partnership
adjustments for the taxable years 1985, 1986, 1987, 1988, and
1989 were sustained.
The order of dismissal and decision was appealed with
respect to the Court’s holding that certain partners were not
entitled to a consistent settlement and whether one partner,
Karin M. Locke, was still properly before the Court. The Court
of Appeals for the Second Circuit affirmed as to the first issue
and reversed as to the second. Cinema ‘84 v. Commissioner,
supra. The Mandate of the Court of Appeals for the Second
Circuit was filed May 21, 2002, and no petition for a writ of
certiorari was filed. On March 24, 2003, the Court issued an
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order dismissing Karin M. Locke for lack of jurisdiction in
conformity with the Mandate of the Court of Appeals for the
Second Circuit. The decision of this Court became final on April
23, 2003. See sec. 7481(a)(3)(B).
On December 9, 2003, a Motion for Leave to File Notice of
Election to Participate Out of Time (motion for leave) was filed
on behalf of movant. The motion alleges that movant is a partner
in the Cinema ‘84 partnership and requests that he be appointed
the tax matters partner for the partnership. With the motion,
movant lodged with the Court a motion to vacate order of
dismissal and decision and a motion to be appointed tax matters
partner.
The raison d’être of movant’s motion for leave is to have
the Court vacate its decision entered September 1, 2000, that
sustained respondent’s determinations with regard to the taxable
years 1985, 1986, 1987, 1988, and 1989 of Cinema ‘84. In
resolving the question whether leave should be granted, we must
first decide whether the Court’s decision should be vacated.
That decision was entered September 1, 2000, and modified on
March 24, 2003, pursuant to the Mandate of the Court of Appeals
for the Second Circuit. With respect to all the partners who had
not previously settled, with the exception of Karin M. Locke, the
Court’s decision was affirmed by the Court of Appeals for the
Second Circuit and is final.
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1. Authority of the Tax Court To Vacate a Decision
While not raised in the motion to vacate lodged with the
Court, the initial question is whether this Court has the
authority to reopen a case where the decision of this Court has
been affirmed, modified, or reversed by the Court of Appeals. In
Lydon v. Commissioner, 56 T.C. 128 (1971), the Court was faced
with a “Motion for Leave to File a Petition to Reopen Proofs
[sic]” filed after the decision of this Court had been affirmed
by the Court of Appeals.2 The gravamen of the motion was that
the decision of this Court was based on perjured testimony. We
assumed that the allegation was correct. Nonetheless, we found
that the motion was “analogous to one filed in a Federal District
Court under Rule 60(b) of the Federal Rules of Civil Procedure”,
id. at 129, and we applied the then majority view “that since the
decided cases reveal that Rule 60(b) * * * does not change the
usual requirement of leave of the appellate court, a fortiori,
such leave is required where, as is the case herein, the Federal
Rules of Civil Procedure are not technically applicable to this
Court”, id. at 131.
In Transp. Manufacturing & Equip. Co. v. Commissioner, T.C.
Memo. 1971-178, a decision of this Court had been appealed to the
2
See Lydon v. Commissioner, T.C. Memo. 1964-27, affd. 351
F.2d 539 (7th Cir. 1965).
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Court of Appeals for the Eighth Circuit, but taxpayer had not
raised a specific issue on appeal.3 The case was remanded to
this Court on other grounds, and taxpayer sought to have our
original decision vacated as to the issue that had not been
appealed. This Court, in rejecting taxpayer’s argument, noted:
decisions of this Court may be reviewed by the Courts
of Appeals and by those courts alone. In turn,
judgments of the Courts of Appeals with respect to * *
* decisions of this Court may be reviewed by the
Supreme Court and by that Court alone. Our assumption
of jurisdiction to amend a judgment of the Eighth
Circuit [in this case] would be, in effect, a review of
that court’s judgment, and, hence, a transgression not
only of the traditional jurisdictional limits described
in William D. Lydon, supra, but also of the statutory
jurisdictional limits established by section 7482(a).
The final word on a trial court’s authority to reopen a
decision or judgment after it has been affirmed, modified, or
reversed by a Court of Appeals, however, had not been spoken. In
Standard Oil Co. of Cal. v. United States, 429 U.S. 17 (1976),
the Supreme Court affirmed the judgment of a lower court.
Subsequently, after the mandate of the Supreme Court was issued,
the corporation moved to recall the mandate and have the lower
court’s judgment set aside under rule 60(b) of the Federal Rules
of Civil Procedure. The Supreme Court recognized:
that in the past both this Court and many Courts of
Appeals have required appellate leave before the
District Court could reopen a case which had been
3
See Transp. Manufacturing & Equip. Co. v. Commissioner,
T.C. Memo. 1968-189, affd. in part and vacated in part 434 F.2d
373 (8th Cir. 1970).
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reviewed on appeal. The requirement derived from a
belief that an appellate court’s mandate bars the trial
court from later disturbing the judgment entered in
accordance with the mandate. It has also been argued
that the appellate-leave requirement protects the
finality of the judgment and allows the appellate court
to screen out frivolous Rule 60(b) motions. [Id. at 18;
fn. ref. and citations omitted.]
The Supreme Court, however, held:
In our view, the arguments in favor of requiring
appellate leave are unpersuasive. Like the original
district court judgment, the appellate mandate relates
to the record and issues then before the court, and
does not purport to deal with possible later events.
Hence, the district judge is not flouting the mandate
by acting on the motion. Furthermore, the interest in
finality is no more impaired in this situation than in
any Rule 60(b) proceeding. Finally, we have confidence
in the ability of the district courts to recognize
frivolous Rule 60(b) motions. Indeed, the trial court
“is in a much better position to pass upon the issues
presented in a motion pursuant to Rule 60(b)”.
The appellate-leave requirement adds to the delay
and expense of litigation and also burdens the
increasingly scarce time of the federal appellate
courts. We see no reason to continue the existence of
this “unnecessary and undesirable clog on the
proceedings.” [Id. at 18-19; citations omitted.]
In light of Standard Oil Co. of Cal., we conclude that Lydon
v. Commissioner, supra, and its progeny are no longer viable. In
Lydon we analogized the situation to that of a district court
under rule 60(b) of the Federal Rules of Civil Procedure and
relied on, inter alia, Hazel-Atlas Co. v. Hartford Co., 322 U.S.
238 (1944), Tribble v. Bruin, 279 F.2d 424 (4th Cir. 1960), and
Home Indem. Co. v. O’Brien, 112 F.2d 387 (6th Cir. 1940). The
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reasoning in those cases was specifically rejected by the Supreme
Court in Standard Oil Co. of Cal. v. United States, supra.
It may be argued that our opinion in Transp. Manufacturing &
Equip. Co. v. Commissioner, supra, also rests on the language of
section 7482(a) and is not governed by the same principles as
cases under rule 60(b) of the Federal Rules of Civil Procedure,
notwithstanding the analogy drawn in Lydon. Section 7482(a),
however, provides that the review of Tax Court decisions shall be
“in the same manner and to the same extent as decisions of the
district courts in civil actions tried without a jury”. If a
district court could not entertain a motion to vacate without the
intervention of the Court of Appeals, it would follow that the
Tax Court also cannot, and this was the holding of Lydon and its
progeny. On the other hand, the converse is that, if the
district courts can entertain motions to vacate, the Tax Court
can do likewise. Accordingly, because of the Supreme Court’s
holding in Standard Oil Co. of Cal., we will no longer follow the
Lydon case or its progeny. We hold that the Tax Court has the
authority to act on a motion to vacate a decision that has been
affirmed, reversed, or modified by the Court of Appeals.
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2. Standards for Vacating a Final Decision
Notwithstanding the authority to act on such a motion, the
authority of the Tax Court to vacate a decision that has become
final is limited. In Taub v. Commissioner, 64 T.C. 741 (1975),
affd. without published opinion 538 F.2d 314 (2d Cir. 1976), the
taxpayer in a deficiency case sought to vacate a decision that
had become final. We noted that as a general rule the finality
of a decision is absolute. Id. at 750; see also Lasky v.
Commissioner, 235 F.2d 97 (9th Cir. 1956), affd. per curiam 352
U.S. 1027 (1957); Abatti v. Commissioner, 86 T.C. 1319, 1323
(1986), affd. 859 F.2d 115 (9th Cir. 1988). We also noted that
“we have jurisdiction to set aside a decision which would
otherwise be final where there is ‘fraud on the court.’” Taub v.
Commissioner, 64 T.C. 751 (citing Toscano v. Commissioner, 441
F.2d 930 (9th Cir. 1971)); Kenner v. Commissioner, 387 F.2d 689
(7th Cir. 1968); see also Drobny v. Commissioner, 113 F.3d 670
(7th Cir. 1997), affg. T.C. Memo. 1995-209; Senate Realty Corp.
v. Commissioner, 511 F.2d 929 (2d Cir. 1975).
In Abeles v. Commissioner, 90 T.C. 103 (1988), this Court
held that it had the authority to vacate an otherwise final
decision in a situation where the Court never acquired
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jurisdiction over the petitioner. Accord Billingsley v.
Commissioner, 868 F.2d 1081 (9th Cir. 1989); Brannon’s of
Shawnee, Inc. v. Commissioner, 69 T.C. 999 (1978).
This Court has also vacated a final decision in the
situation where there was a clerical error in the decision
document that was not discovered until after the decision had
become final. See Michaels v. Commissioner, 144 F.3d 495 (7th
Cir. 1998), affg. T.C. Memo. 1995-294.4
The Court of Appeals for the Sixth Circuit held that a final
decision of the Tax Court could be vacated in situations
involving a mutual mistake. Reo Motors, Inc. v. Commissioner,
219 F.2d 610 (6th Cir. 1955). However, in a more recent case,
Harbold v. Commissioner, 51 F.3d 618, 622 (6th Cir. 1995), the
Court of Appeals for the Sixth Circuit held that Reo Motors, Inc.
was overruled by the Supreme Court in Lasky v. Commissioner, 352
U.S. 1027 (1957), and that the Court of Appeals for the Sixth
Circuit would no longer follow the rationale of Reo Motors, Inc.
3. Movant’s Grounds for Vacating the Decision
Irrespective of which standard of the cases discussed above
is used, movant’s allegations fall far short for purposes of
vacating our decision in this case. He alleges that the named
4
The Court of Appeals for the Eighth Circuit has held that
the Tax Court lacks jurisdiction to vacate a final decision in
the absence of “extraordinary circumstances.” See Ark. Oil &
Gas, Inc. v. Commissioner, 114 F.3d 795, 798 (8th Cir. 1997).
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tax matters partner (TMP), Richard M. Greenberg, was in
bankruptcy and was disqualified as the TMP. This is correct.
Movant then asserts that either the Tax Court or respondent
should have appointed a new TMP. This ignores the fact that,
since 1995, the Court attempted in vain to find a limited partner
who would be willing to serve as the TMP. Finally, movant
alleges that the Court’s affirmance of respondent’s
determinations created a whipsaw that “is patently unreasonable,
unfair, unjust and inequitable.” We are willing to assume that
this is also correct. But the fact is that none of these
allegations, standing alone or together, constitute a fraud on
the Court or other valid reason for vacating a final decision of
this Court.5
In concluding, we note that the decided cases regarding
vacating a final decision of the Court involve so-called
deficiency cases rather than TEFRA partnership cases. The
current section 7481(a) is derived from section 1005(a) of the
Revenue Act of 1926, ch. 27, tit. X, 44 Stat. 10. The
legislative history states:
Inasmuch as the statute of limitations upon assessments
and suits for collection, both of which are suspended
during review of the Commissioner’s determination,
commences to run upon the day upon which the Board’s
5
Indeed, we note that, putting aside the problem with the
finality of the decision, the movant offers no explanation as to
the reason for his failure to timely move to participate in this
proceeding.
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[of Tax Appeals] decision becomes final, it is of
utmost importance that this time be specified as
accurately as possible. In some instances in order to
achieve this result the usual rules of law applicable
in court procedure must be changed. * * * [S. Rept. 52,
69th Cong., 1st Sess. (1926), 1939-1 C.B. (Part 2) 332,
360.]
The legislative history of the TEFRA proceeding specifies that
“The principles of section 7481(a) shall govern in determining
the date on which a court decision becomes final.” H. Conf.
Rept. 97-760, at 608 (1982), 1982-2 C.B. 600, 666.
As the Court of Appeals for the Ninth Circuit observed,
Congress in enacting section 7481 “was conscious of the need that
‘finality’ be clearly defined, so that the process of collection
can proceed unimpeded.” Toscano v. Commissioner, supra at 932.
While this concern is apparent in deficiency cases, its force is
at least as great in TEFRA partnership cases. The liability of
not just one taxpayer is at stake; rather, it is the liabilities
of potentially all of the partners in the partnership. Thus, if
we were to vacate a final decision in a TEFRA case, the result
clearly would impede the collection process. We believe,
therefore, that the reasoning underlying the cases restricting
the vacating of final decisions of this Court applies, perhaps
even more strongly, to partnership cases.
There are no viable grounds for vacating the final decision
in this case. Accordingly, granting movant’s motion for leave
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would be nothing more than an act of futility, and the motion
will be denied.
An order denying the Motion
for Leave to File Notice of
Election to Participate Out of Time
will be issued.