Kraasch v. Comm'r of Internal Revenue, Docket No. 8704-74.
| Citation | 70 T.C. 623 |
| Decision Date | 03 August 1978 |
| Docket Number | Docket No. 8704-74. |
| Parties | OTTO H. and AGNES J. KRAASCH, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
The petition in this case upon which the Court's order of dismissal and decision was entered on Feb. 6, 1975, was filed and signed in the names of petitioners by their tax consultant. Petitioners claimed they had not authorized or approved the filing of the petition and moved to modify the dismissal and decision for lack of jurisdiction. At a hearing on petitioners' motion, evidence was introduced showing that petitioners did not personally sign the petition. Held: On this record petitioners failed to establish by clear and convincing evidence that their agent's acts were unauthorized. Therefore, the motion to modify the order of dismissal and decision for lack of jurisdiction will be denied. Richard Daly, for the petitioners.
Alan Summers, for the respondent.
This matter is before the Court on petitioners' motion to modify the order of dismissal and decision in this case, pursuant to Rule 123(c), Tax Court Rules of Practice and Procedure. At issue is whether the Tax Court lacked jurisdiction because the petition was not personally signed by petitioners, who claim that their agent acted without their authority or approval.
The pertinent facts are summarized below.
Respondent sent a statutory notice of deficiency to petitioners on August 2, 1974, determining deficiencies in petitioners' Federal income taxes and additions to tax as follows:
+-------------------------------------+
¦ ¦ ¦Addition to tax ¦
+------+------------+-----------------¦
¦Year ¦Deficiency ¦sec. 6653(a)1 ¦
+------+------------+-----------------¦
¦ ¦ ¦ ¦
+------+------------+-----------------¦
¦1971 ¦$1,482 ¦$74.10 ¦
+------+------------+-----------------¦
¦1972 ¦875 ¦44.00 ¦
+-------------------------------------+
Petitioners Otto Kraasch and Agnes Kraasch, husband and wife, reside in Trinidad, Calif. They filed joint Federal income tax returns for the years in issue with the Internal Revenue Service Center at Fresno, Calif.
On November 4, 1974, a petition was filed with this Court bearing the purported signatures of both petitioners and seeking a redetermination of the deficiencies and additions to tax for the years 1971 and 1972. The notice of deficiency was attached to the petition.
On December 19, 1974, respondent filed a motion to dismiss for failure to state a claim upon which relief can be granted. On December 24, 1974, the Court ordered petitioners to file a proper amended petition by January 24, 1975, or the case would be dismissed and a decision entered in favor of respondent. An amended petition was never filed. An order of dismissal and decision was then entered by the Court on February 6, 1975. Sometime in August 1975, respondent seized funds from petitioners' bank account.
On October 20, 1975, petitioners filed a motion to modify the order of dismissal and decision. The motion was prepared by their attorney, Richard Daly, and stated that the Court lacked jurisdiction because petitioners neither signed the petition nor authorized anyone else to file or sign it on their behalf. An exhibit was attached to the motion bearing the true signatures of both petitioners.
After a hearing on the matter at Los Angeles the Court ordered, on June 11, 1976, that all documents purportedly signed by petitioners be sent to the Federal Bureau of Investigation (FBI) Laboratory for a handwriting examination. As a result of the examination the FBI Laboratory determined that the signatures on the petition were not those of petitioners.
A second hearing on petitioners' motion was held at San Francisco, Calif., on June 8, 1978, at which time both petitioners testified. In addition, Richard Kerr, respondent's revenue agent, testified.
Upon consideration of the evidence submitted at the Los Angeles and San Francisco hearings, the Court determined the following facts. Mr. Ted Watkins of Carson City, Nev., served as petitioners' accountant and tax consultant. He handled all the tax matters of petitioners and advised them on business and tax questions. Petitioners first employed Mr. Watkins at least 10 years ago when he lived in California. Mr. Watkins is not an attorney and he is not admitted to practice before the Tax Court. He prepared petitioners' Federal income tax returns, pursuant to their direction and authorization, for the years 1970 through 1974, the last return being completed in 1975 shortly before respondent seized the funds in petitioners' bank account. He also served as resident agent from July 1, 1975, to July 1, 1976, for the Janna Corp., a company incorporated by petitioners in 1973 under Nevada law, and he prepared employer's returns for them when necessary.
Petitioners and Mr. Watkins were in regular contact by telephone. All tax correspondence received by petitioners from respondent or from the Court was opened, sometimes read, and then forwarded to Mr. Watkins.
When petitioners received a summons from respondent to appear for audit, they came with their records but refused to produce them for respondent's examination. They informed respondent's agent, Mr. Kerr, that upon advice of Mr. Watkins they would only produce their records in Court and at that time would also plead the Fourth and Fifth Amendments to the Constitution of the United States. Mr. Watkins prepared the petition in this case in petitioners' names and sent to them copies of the petition and all other documents he filed with the Court.
Petitioners terminated Mr. Watkins' employment as their tax consultant when they employed Mr. Daly in August 1975 after respondent seized the funds in their bank account.
The petition in this case was filed and signed in the names of petitioners by Mr. Watkins. Petitioners claim they had not authorized or approved his acts and moved to modify the dismissal for lack of jurisdiction, pursuant to Rule 123(c), Tax Court Rules of Practice and Procedure.
Rule 123(c) provides: “For reasons deemed sufficient by the Court and upon motion expeditiously made, the Court may set aside a default or dismissal or the decision rendered thereon.” Rule 123(c) was adapted from rule 55(c) of Federal Rules of Civil Procedure which provides:
For good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b).
When interpreting Fed. R. Civ. P. 60(b), the courts have stressed that (1) granting such a motion is within the sound discretion of the trial court and (2) proving the existence of fraud or other misconduct or other cause of relief is upon the moving party. Atchison, Topeka & Santa Fe Railway Co. v. Barrett, 246 F.2d 846 (9th Cir. 1957); England v. Doyle, 281 F.2d 304 (9th Cir. 1960); Wilkin v. Sunbeam Corp., 466 F.2d 714 (10th Cir. 1972), cert. denied 409 U.S. 1126 (1973). In the England case the Court of Appeals held that the burden of proof on the moving party to set aside a judgment or order because of fraud upon the court is to establish such fraud by clear and convincing evidence. In Toscano v. Commissioner, 52 T.C. 295, 298 (1969), decision vacated on other grounds 441 F.2d 930 (9th Cir. 1971), the Tax Court stated:
At the very least it must be established clearly and convincingly that the former decision was obtained as a direct result of fraud and it should also be shown that the fraudulent conduct was deliberately undertaken to influence the Court in its decision.
Petitioners contend that Mr. Watkins acted beyond the scope of his employment because they were to be first advised of any actions to be taken and because they did not authorize him to sign their names to any petition in this case. To the contrary, respondent argues that petitioners have failed to offer the clear and convincing evidence necessary to warrant reopening the Court's decision entered in this case. Respondent also cites Carstenson v. Commissioner, 57 T.C. 542 (1972), and contends that “whether or not petitioners actually signed the petition is irrelevant since they impliedly authorized their tax accountant who prepared their returns to file the petition on their behalf.”
After careful consideration of all the evidence, we think Mr. Watkins acted as the authorized agent of petitioners. In our opinion he acted within the scope of his employment when he signed the petition. His conduct was of the same general nature as, or incident to, that which he was employed to perform. Petitioners knew and permitted Mr. Watkins to handle their tax affairs generally. The...
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