Dorchester Indus. Inc. v. Comm'r of Internal Revenue

• Decision Date: 29 April 1997
• Docket Number: 27121–93 and 23092–94.,Nos. 20515–93,20572–93,s. 20515–93
• Citation: 108 T.C. No. 16,108 T.C. 320
• Parties: DORCHESTER INDUSTRIES INCORPORATED, et al.,1 Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

108 T.C. 320

108 T.C. No. 16

DORCHESTER INDUSTRIES INCORPORATED, et al.,1 Petitioners,

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 20515–93

20572–93

27121–93 and 23092–94.

United States Tax Court.

April 29, 1997.

R has moved for entry of decisions based on an agreement with Ps to settle these cases. Two Ps argue that they never agreed to settle these cases and, even if they did, they have repudiated that agreement.

Held: Ps entered into a settlement agreement with R. R's motions for entry of decision will be granted with respect to all dockets (except with regard to W). Cole v. Commissioner, 30 T.C. 665 (1958), affd. 272 F.2d 13 (2d Cir. 1959), will not be followed to the extent that it indicates that a party to a settlement agreement that is not filed as a stipulation may repudiate that agreement up until (and including) the time the case is called for trial.

Paul R. Porreca, Bridgeton, NJ, Darryl S. Caplan, Mount Laurel, NJ, and Ian M. Comisky, Philadelphia, PA, for petitioner Dorchester Industries, Inc., docket No. 20515–93.

Ian M. Comisky, Todd C. Simmens, Philadelphia, PA, and Darryl S. Caplan, Mount Laurel, NJ, for petitioner Frank H. Wheaton, Jr., docket Nos. 20572–93, 27121–93 and 23092–94.

Robert D. Comfort, Gregg W. Winter, and Marc Sonnenfeld, Philadelphia, PA, for petitioner Mary B. Wheaton, docket Nos. 20572–93, 27121–93 and 23092–94.Patrick Whelan, William S. Garofalo, Leon St. Laurent, Newark, NJ, and Daniel K. O'Brien, for respondent.

HALPERN, Judge:

Respondent has determined deficiencies in Federal income tax and additions to tax in the following cases:

+-----------------------------------+
                ¦¦Docket No.¦Petitioner(s)¦Tax Years¦
                +-----------------------------------+
                

 20515–93 Dorchester Industries Inc. 1981, 1982, 1985, 1986
                 20572–93 Frank Wheaton, Jr.,        1979–1988
                          and Mary Wheaton
                 27121–93 Frank Wheaton, Jr.,        1989
                          and Mary Wheaton
                 23092–94 Frank Wheaton, Jr.,        1990
                          and Mary Wheaton
                

Respondent has moved for entry of decision with respect to each of those cases. Subsequent to respondent's moving for entry of decisions in the cases at docket Nos. 20572–93, 27121–93, and 23092–94, respondent and petitioner Mary Wheaton (Mary Wheaton) reached an agreement on and stipulated to the fact that Mary Wheaton is an innocent spouse within the meaning of section 6013(e). On that basis, respondent has conceded all deficiencies in income tax, additions to tax, and penalties determined with respect to Mary Wheaton. We accept respondent's concession and shall enter decisions accordingly.

Respondent asks that we enter decisions with respect to petitioners Dorchester Industries Inc. (Dorchester) and Frank Wheaton, Jr. (Frank Wheaton), based on a settlement agreement that respondent claims those petitioners entered into on November 6, 1995. We must determine whether Dorchester and Frank Wheaton did, in fact, enter into such an agreement and, if so, the consequence thereof. Respondent asks that we enter decisions with respect to Dorchester and Frank Wheaton as follows:

+-------------------------------------------+
                ¦Docket No. 20515–93 (Dorchester Industries)¦
                +-------------------------------------------¦
                ¦                                           ¦
                +-------------------------------------------+
                

   Additions to Tax
                

                 Sec.       Sec.       Sec
                 Year Deficiency 6653(b)(1) 6653(b)(2) 6661
                 1981 $ 92,643   $ 46,322   None       None
                 1982 89,411     44,706     1          None
                 1985 230,360    115,180    1          $57,590
                

+--------------------+
                ¦¦¦¦Additions to Tax ¦
                +--------------------+
                

                 Sec.          Sec
                 Year Deficiency 6653(b)(1)(A) 6653(b)(1)(B)
                 1986 $1,376     $1,032        1
                

+-------------------------------------------+
                ¦Docket No. 20572–93 (Frank H. Wheaton, Jr.)¦
                +-------------------------------------------+
                

                 Additions to Tax
                                 Sec
                 Year Deficiency 6653(b)
                 1979 $ 65,558   $ 32,779
                 1980 1,026,785  513,393
                 1981 926,036    463,018
                

+--------------------+
                ¦¦¦¦Additions to Tax ¦
                +--------------------+
                

                 Sec.       Sec.       Sec
                 Year Deficiency 6653(b)(1) 6653(b)(2) 6661
                 1982 $1,191,646 $595,823   1          $297,912
                 1983 587,593    293,797    1          146,898
                 1984 886,466    443,233    1          221,617
                 1985 1,145,974  572,987    1          286,494
                

+-------------------+
                ¦¦¦Additions to Tax ¦
                +-------------------+
                

                Sec.          Sec.          Sec.    Sec
                Year Deficiency 6653(b)(1)(A) 6653(b)(1)(B) 6661    6662
                1986 $1,141,552 $856,164      $285,388      —
                1987 940,833    533,332       1             177,777 $45,945
                1988 559,806    419,855       None          139,952 —
                

+-------------------------------------------+
                ¦Docket No. 27121–93 (Frank H. Wheaton, Jr.)¦
                +-------------------------------------------¦
                ¦                                           ¦
                +-------------------------------------------+
                

 Year Deficiency Sec. 6662
                 1989 $235,948   $47,189.60
                

Docket No. 23092–94 (Frank H. Wheaton, Jr.)
                

 Year Deficiency  Sec. 6662
                 1990 $230,981    $46,196
                

Unless otherwise noted, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.

FINDINGS OF FACT

Introduction

Frank Wheaton is married to Mary Wheaton, and they resided in Millville, New Jersey, at the time their petitions in these cases were filed. They made joint returns of income for the taxable (calendar) years 1979 through 1990.

Dorchester is a New Jersey corporation. It is engaged in shipbuilding and repair. Dorchester's mailing address was in Dorchester, New Jersey, at the time its petition in this case was filed. Dorchester is a calendar-year taxpayer.

At all times relevant to the issues in these cases, Frank Wheaton was the sole shareholder of Dorchester. Frank Wheaton has been the president of Dorchester since at least 1991.

The Scheduled Trial

By order of the Chief Judge dated January 19, 1995, the cases at docket Nos. 20515–93, 20572–93, and 27121–93 (the 1993 docketed cases) were assigned to Judge James S. Halpern for disposition. By order dated February 14, 1995, the 1993 docketed cases were consolidated and set on a special trial calendar to commence in Philadelphia, Pennsylvania, on October 30, 1995. By order dated October 19, 1995, the 1993 docketed cases were set for a pretrial conference on October 26, 1995, in Washington, D.C. At that conference, the Court was informed that the trial in those cases would take approximately 3–1/2 weeks. The parties' pretrial memoranda set forth more than 70 issues; respondent, alone, listed 60 witnesses. Thousands of hours had gone into trial preparation. The Court conducted a lengthy discussion of the issues to be tried, and the Court determined that both the Court and the parties would benefit if, before commencing trial, the parties could discuss their differences with an impartial third party, who might suggest a basis for settlement of some or all of the items in issue. Accordingly, by order dated October 27, 1995, the Court continued the cases for trial from October 30, 1995, to November 8, 1995. The parties were directed to meet with Chief Special Trial Judge Peter J. Panuthos to discuss their differences and determine whether any or all of the items in issue might be disposed of by settlement.

A meeting with Chief Special Trial Judge Panuthos commenced on November 2, 1995, in Washington, D.C. Respondent was represented by attorney William Garofalo (Garofalo). Dorchester and the Wheatons were represented by attorneys William Gilson (Gilson) and Gary Wodlinger (Wodlinger). Neither Frank nor Mary Wheaton attended the meeting, although Frank Wheaton was present in Washington, D.C. On the evening of November 2, 1995, after their initial meeting with Chief Special Trial Judge Panuthos, Gilson and Wodlinger met with Frank Wheaton at his hotel in Washington, D.C., and expressed doubt as to the persuasiveness of certain of their key arguments. Frank Wheaton told Gilson and Wodlinger that he would not appear or testify at trial. Gilson informed Frank Wheaton that he was the principal witness in about 90 percent of the issues in the cases and that, without him, Gilson and Wodlinger had no chance. Gilson informed Frank Wheaton that, if he did not testify, there would be a default and a judgment for $41 million—“$40 million against you [personally]”. Frank Wheaton again said that he would not show up for trial. He said that he did not have $40 million, he was not spending any more money, and he was getting back to business. Frank Wheaton instructed Gilson and Wodlinger to get a settlement number from the Internal Revenue Service (IRS). He did not instruct Gilson and Wodlinger to set any conditions on the settlement.

On the morning of November 3, 1995, Gilson and Wodlinger met with Garofalo and Chief Special Trial Judge Panuthos. Gilson advised Garofalo that Frank Wheaton wished to settle the cases. Garofalo told Gilson that (1) he would prepare a settlement offer based on the amount of tax and penalties for which respondent believed petitioners were liable, (2) respondent would only settle the instant cases if Gilson submitted to respondent written settlement documents prior to 11:00 a.m., on Monday, November 6, 1995, and (3) he had no authority to settle any dispute with Frank and Mary Wheaton for 1991, a year not then before the Court. Subsequently, Frank Wheaton, Gilson, Wodlinger, and Garofalo left Washington, D.C.

Later on November 3, 1995, Garofalo transmitted a letter via facsimile to Gilson (the November 3 letter). The November 3 letter contains attachments setting forth respondent's proposed settlement figures with respect to the 1993 docketed cases. In addition, the attachments contain figures to settle the case at docket No. 23092–94, which involves the tax liability of Frank and Mary Wheaton for 1990 (the 1993 docketed cas...