Medkiff v. Comm'r

T.C. Memo. 2007-334
UNITED STATES TAX COURT
MICHAEL L. MEDKIFF, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21823-05. Filed November 7, 2007.
Michael L. Medkiff, pro se.
Jonathan H. Sloat, for respondent.
MEMORANDUM OPINION
MARVEL, Judge: This matter is before the Court on
respondent’s motion for entry of decision, as supplemented, under
Rule 50.1
1
All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code, as amended.
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Background
Petitioner resided in Los Angeles, California, when his
petition was filed.
During 2002 (and apparently in 2003 as well), petitioner
owned a 90-percent interest in Great American Poolcare, LLC
(Great American). Great American filed a Form 1065, U.S. Return
of Partnership Income, for 2002, which reported a loss of
$166,743.2 Great American attached to its 2002 return a Form
4562, Depreciation and Amortization, that reported a tentative
section 179 deduction of $21,028. However, because of the
applicable business income limitation,3 the deduction was not
claimed on Great American’s 2002 return or utilized in the
calculation of Great American’s 2002 loss. Instead, Great
American carried over its tentative 2002 section 179 deduction to
2003.
Sometime before August 29, 2005, respondent examined
petitioner’s 2002 and 2003 returns, including petitioner’s
distributive share of Great American’s 2002 net loss. On
2
Respondent ultimately conceded the audit adjustments to
Great American’s 2003 return. Consequently, the record does not
include the details of Great American’s return for 2003.
3
Under sec. 179(b)(3), the amount allowed as a deduction is
limited to the taxpayer’s aggregate taxable income derived from
the active conduct of a trade or business. Since Great American
reported a loss, it could not claim the deduction under sec. 179.
Sec. 179(b)(3)(B) allows a taxpayer to carry over an unused
deduction to future years in which the taxpayer reports taxable
business income.
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August 29, 2005, respondent issued to petitioner a notice of
deficiency that, among other things, adjusted petitioner’s
distributive share of Great American’s net loss for 2002.
On November 18, 2005, petitioner’s petition for a
redetermination of deficiencies for 2002 and 2003 was filed.
Petitioner alleged that respondent improperly denied auto/truck,
amortization, and bad debt expenses claimed for 2002 and all
other expenses claimed in 2003. The petition did not raise Great
American’s 2002 tentative section 179 deduction that Great
American had carried over to 2003. On January 17, 2006,
respondent’s answer was filed. This case was calendared for
trial on February 5, 2007, in Los Angeles, California.
On February 5, 2007, counsel for respondent appeared at the
calendar call, announced that the parties had reached a
settlement, and lodged a copy of a fully executed stipulation of
agreed issues (stipulation). Neither petitioner nor a
representative for petitioner appeared at the calendar call.
As pertinent to the issue before us, the stipulation states
as follows:
The parties agree that the adjustments set forth
in the Notice of Deficiency * * * are settled as
follows:
1. Sch. E Inc/Loss-Partnership/S-Corp adjustment
of $263,380 for the 2002 year - Petitioner concedes
$183,261; respondent concedes $80,119.
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2. Sch. E Inc/Loss-Partnership/S-Corp adjustment
of $164,608 for the 2003 year - Respondent concedes in
full.
3. Self-employment tax and SE AGI adjustments
for the 2002 and 2003 years - These are computational
adjustments and will be imposed on the adjustments to
Sch. E Inc/Loss-Partnership/S-Corp.
* * * * * * *
The stipulation also states that there are no additional issues
for trial.4 The stipulation is signed by both petitioner and
counsel for respondent.5
When we received the stipulation, we directed the parties to
submit a stipulated decision to the Court by March 7, 2007. On
January 31, 2007, respondent mailed to petitioner a decision
document reflecting the deficiency and penalty that respondent
maintains results from the stipulation. On February 17, 2007,
petitioner’s power of attorney, Jackson Behar, informed
respondent for the first time that petitioner wanted to utilize
Great American’s 2002 tentative section 179 deduction in
calculating petitioner’s 2002 deficiency.
4
Petitioner conceded the tax imposed on qualified plans for
2002 and the accuracy-related penalty under sec. 6662, neither of
which affect our decision in this case.
5
Respondent noted that on Feb. 28, 2007, the holder of
petitioner’s power of attorney, Jackson Behar, stated that
petitioner claimed not to have signed anything. However,
respondent was not able to contact petitioner to confirm such
claim, and petitioner has not raised the issue before the Court.
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On March 2, 2007, respondent filed the motion for entry of
decision. We ordered petitioner to file a response on or before
March 30, 2007. To date, petitioner has not submitted any
response to the Court.
On or about March 15, 2007, petitioner mailed to respondent
a document titled “Limited Opposition to Motion To Confirm
Decision; Declaration of Jackson Behar in Support Thereof”
(limited opposition), but he did not file the limited opposition
with this Court.6 On March 27, 2007, respondent filed a
supplement to his motion for entry of decision and included
petitioner’s limited opposition as an exhibit. In his limited
opposition, petitioner objects to respondent’s failure to include
Great American’s tentative section 179 expense deduction in
calculating Great American’s 2002 profit/loss and asserts that
respondent’s failure adversely affects the calculation of
petitioner’s income tax deficiency for 2002. However, petitioner
does not dispute that he entered into the stipulation or that the
stipulation reflects the settlement reached by the parties.
Neither party has requested an evidentiary hearing on
respondent’s motion, and we conclude that a hearing is not
necessary to decide respondent’s motion.
6
The limited opposition was filed in the names of both
petitioner and Don Ticinovich, another partner of Great American,
but only lists petitioner’s docket number.
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Discussion
A controversy before this Court may be settled by agreement
of the parties. Dorchester Indus. Inc. v. Commissioner, 108 T.C.
320, 329 (1997), affd. without published opinion 208 F.3d 205 (3d
Cir. 2000). A settlement is a contract, and general principles
of contract law apply in interpreting the settlement. Id. at 330
(citing Robbins Tire & Rubber Co. v. Commissioner, 52 T.C. 420,
435-436, supplemented by 53 T.C. 275 (1969)). A settlement may
be reflected in a formal written agreement or more informally,
such as in an offer and acceptance made by an exchange of
letters. Id. (citing Lamborn v. Commissioner, T.C. Memo. 1994-
515). Written settlement agreements are enforced as binding
agreements. Id. (citing Haiduk v. Commissioner, T.C. Memo. 1990-
506).
Ordinarily, once a settlement has been reached, it cannot be
repudiated by either party. Id. However, we may relieve a party
of an otherwise binding settlement agreement if the party can
show a lack of formal consent, fraud, mutual mistake, or other
similar ground. Id. at 335; Revell v. Commissioner, T.C. Memo.
2007-37; see also Stamm Intl. Corp. v. Commissioner, 90 T.C. 315,
321-322 (1988).
Both parties signed the stipulation in this case creating an
enforceable, binding settlement agreement between them. Counsel
for respondent notified the Court on the day of trial that a
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settlement had been reached between the parties, and he lodged
the stipulation on behalf of both parties. Based on the parties’
representation that a settlement of all outstanding issues had
been reached, we canceled the trial and set a deadline for the
submission of a signed decision document.
Petitioner did not file a response to respondent’s motion
with this Court. On that ground alone, we could conclude that
petitioner has failed to demonstrate any proper basis to relieve
him of the consequences of the stipulation. However, petitioner
belatedly submitted to respondent a document described as a
“limited opposition”, and that document has been furnished to the
Court by respondent. For the sake of clarity and completeness,
we address it here.
In petitioner’s limited opposition, petitioner argues only
that he believed the stipulation included the section 179
deduction. However, petitioner fails to indicate whether he made
any attempt to verify the relevant calculation or to ascertain
how Great American’s 2002 section 179 deduction was actually
utilized by Great American. At best, petitioner’s response
outlines an oversight, and at worst, petitioner’s response
suggests a decision not to verify timely the correctness of
respondent’s calculation. Under either scenario, petitioner made
a mistake, and it appears that the mistake was unilateral. A
unilateral mistake is an insufficient ground for disregarding a
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stipulation. Revell v. Commissioner, supra; see also Dorchester
Indus. Inc. v. Commissioner, supra at 330; Stamm Intl. Corp. v.
Commissioner, supra at 320-321.7
Petitioner did not raise any issue regarding Great
American’s 2002 tentative section 179 deduction in his petition,
and he apparently did not raise it during settlement
negotiations. Petitioner asserted that he was entitled to the
benefit of the tentative section 179 deduction only after the
stipulation had already been executed and lodged with this Court
and after respondent had prepared a decision document in
accordance with the stipulation. Petitioner simply waited too
long to raise an issue regarding Great American’s 2002 tentative
section 179 deduction and its effect, if any, on the calculation
of Great American’s 2002 net profit/loss.
Petitioner has failed to demonstrate any proper basis for
relieving him of the stipulation. Petitioner has not shown that
there was any lack of formal consent, fraud, mutual mistake, or
other similar ground for disregarding the stipulation. See
7
The stipulation contains a concession by respondent that
petitioner does not address but should. In the stipulation,
respondent concedes in full the “Sch. E Inc/Loss-Partnership/S-
Corp. adjustment of $164,608 for the 2003 year”. The record does
not disclose whether that adjustment involves Great American, but
in all likelihood it does. Great American elected to carry over
its tentative sec. 179 deduction to 2003. Petitioner does not
trace the use of the 2002 sec. 179 deduction by Great American
and does not explain how the deduction was handled on Great
American’s 2003 return.
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Dorchester Indus. Inc. v. Commissioner, 108 T.C. 330, 334-335.
Consequently, we shall grant respondent’s motion, as
supplemented, and enter a decision consistent with the settlement
reached between the parties.
To reflect the foregoing,
An appropriate order
and decision will be entered.