Dixon v. Commissioner
| Decision Date | 07 September 2006 |
| Docket Number | Docket No. 4201-84.,Docket No. 10588-83.,Docket No. 8070-90.,Docket No. 40159-84.,Docket No. 13477-87.,Docket No. 9532-94.,Docket No. 30010-85.,Docket No. 10931-84.,Docket No. 29643-86.,Docket No. 7205-94.,Docket No. 20119-84.,Docket No. 17993-95.,Docket No. 28723-84.,Docket No. 35608-86.,Docket No. 17646-83.,Docket No. 17992-95.,Docket No. 38965-84.,Docket No. 621-94.,Docket No. 22783-85.,Docket No. 9382-83.,Docket No. 27053-83.,Docket No. 19464-92.,Docket No. 30979-85.,Docket No. 479-89.,Docket No. 15907-84.,Docket No. 17642-83.,Docket No. 38757-84. |
| Citation | 92 T.C.M. 245 |
| Parties | Jerry and Patricia A. Dixon, et al., v. Commissioner. |
| Court | U.S. Tax Court |
These cases continue before the Court on petitioners Richard and Fiorella Hongsermeier's motion under Rule 1612 for reconsideration of our Memorandum Opinion in T.C. Memo. 2006-90 (Dixon VI). Petitioners' motion arises from litigation using a test case procedure that resulted in Dixon v. Commissioner [Dec. 47,801(M)], T.C. Memo. 1991-614 (Dixon II), vacated and remanded sub nom. DuFresne v. Commissioner [94-1 USTC ¶ 50,286], 26 F.3d 105 (9th Cir. 1994), on remand Dixon v. Commissioner [Dec. 53,314(M)], T.C. Memo. 1999-101 (Dixon III), supplemented by [Dec. 53,832(M)] T.C. Memo. 2000-116 (Dixon IV), revd. and remanded [2003-1 USTC ¶ 50,194] 316 F.3d 1041 (9th Cir. 2003) (Dixon V). On the ensuing remand, Dixon VI responded to the Dixon V primary mandate with regard to the sanction imposed against respondent; and Dixon v. Commissioner [Dec. 56,511(M)], T.C. Memo. 2006-97 (Dixon VII), and Young v. Commissioner, T.C. Memo. 2006-189, responded to the Dixon V ancillary mandate with regard to petitioners' appellate attorney's fees and costs incurred in Dixon V.
In Dixon V, as a sanction against respondent for the fraud on the court perpetrated by respondent's attorneys in the trial of the test cases that had resulted in the decisions in favor of respondent against the test case petitioners in Dixon II, the Court of Appeals mandated that "terms equivalent to those provided in the settlement agreement" between the IRS and test case petitioners John R. and Maydee Thompson (the Thompsons) be extended to test case petitioners and all other taxpayers properly before that court. Dixon v. Commissioner [2003-1 USTC ¶ 50,194], 316 F.3d at 1047. It left to this Court's "discretion the fashioning of such judgments which, to the extent possible and practicable, should put these taxpayers in the same position as provided for in the Thompson settlement." Id. n. 11.
Petitioners primarily ground their motion for reconsideration of Dixon VI, regarding the sanction to be imposed on respondent, on allegations that respondent engaged in attempts at a continued coverup of the fraud of respondent's attorneys and that this Court did not properly address that alleged continued misconduct in Dixon VI.3 Petitioners ask the Court to reopen the record in Dixon VI and impose additional sanctions on respondent for respondent's alleged continued misconduct. Because the Court is considering similar allegations by other taxpayers in motions for leave to file motions to vacate stipulated decisions that were never appealed and have become final, we granted petitioners' motion for reconsideration and ordered and received respondent's response to petitioners' motion. However, we conclude in this Supplemental Memorandum Opinion that the law of the case and the primary mandate of the Court of Appeals in Dixon V preclude us in the cases at hand from conducting any further inquiry into respondent's misconduct and from imposing any additional sanction on respondent with respect to cases of taxpayers, including petitioners, who were properly before that court.4
For purposes of this motion, we incorporate our findings in Dixon III and IV, as modified by Dixon V and VI. We begin by setting forth the background pertinent to this Supplemental Memorandum Opinion.
Respondent determined deficiencies and additions to tax against petitioners and other taxpayers who participated in tax shelter programs (the Kersting project) promoted by Henry F.K. Kersting (Kersting). Respondent's determinations resulted in the commencement in this Court of more than 1,800 cases arising from the disallowance of deductions claimed by participants in the Kersting programs. Most such participants who filed petitions in this Court signed "piggyback agreements" with respondent, agreeing to be bound by the outcome of test cases that had been selected by respondent's trial attorney and Brian Seery (Seery), the attorney originally retained by Kersting to provide representation in the Tax Court to participants in his programs.
Following Seery's withdrawal, Kersting engaged Robert J. Chicoine (Chicoine) and Darrell D. Hallett (Hallett) to represent the participants in his programs in the Tax Court. Some such participants, including the Thompsons (who were test case petitioners), separately retained Luis C. DeCastro (DeCastro) to represent them in the Tax Court.
DeCastro obtained 20-percent reduction settlements on behalf of some of the Kersting project participants he represented, as did Chicoine and Hallett on behalf of other nontest case petitioners. Chicoine and Hallett disclosed the 20-percent reduction settlement to the test case and nontest case petitioners who had inquired about the possibility of a more advantageous settlement than the 7-percent reduction project settlement respondent had been offering.
Chicoine and Hallett's settlement efforts displeased Kersting. Kersting fired Chicoine and Hallett and retained Joe Alfred Izen, Jr. (Izen), to try the Kersting project test cases on behalf of the petitioners.
Before the trial of the Kersting project test cases, DeCastro, on behalf of the Thompsons, and respondent's trial attorney, Kenneth W. McWade (McWade), with his immediate supervisor, William A. Sims (Sims), agreed to a secret settlement they did not disclose to respondent's management, the attorneys or other test case petitioners, or the Tax Court. The purpose and effect of this settlement was to provide refunds to the Thompsons that were used to pay DeCastro's attorney's fees to represent the Thompsons in the test case trial as consideration for the Thompsons' staying in the test case array and Mr. Thompson's testifying at the test case trial.
McWade also entered into a secret pretrial settlement with pro se test case petitioners John R. and E. Maria Cravens (the Cravenses) that was much less advantageous to them than the Thompson settlement was to the Thompsons or the 20-percent reductions obtained by DeCastro and by Chicoine and Hallett was to other Kersting program participants. The Cravens settlement was on the order of but slightly less advantageous to the Cravenses than respondent's 7-percent reduction project settlement offer, which had been available to Kersting project participants during 1982 through 1988.
In Dixon II, the Court sustained almost all of respondent's deficiency determinations in the test cases. After the Court entered decisions for respondent in the test cases in accordance with Dixon II, respondent's management discovered the Thompson and Cravens settlements and disclosed them to the Court. On June 9, 1992, respondent filed motions for leave to file motions to vacate the decisions entered against the Thompsons, the Cravenses, and another test case petitioner, Ralph J. Rina (Rina). Respondent asked the Court to conduct an evidentiary hearing to determine whether the undisclosed agreements with the Thompsons and the Cravenses had affected the trial of the test cases or the opinion of the Court. In the meantime (on May 14, 1992), the other test case petitioners, who continued to be represented by Izen, had appealed the Court's decisions against them.
On June 22, 1992, the Court granted respondent's motions to vacate the decisions filed in the Thompson and Cravens cases and denied respondent's request for an evidentiary hearing. By order dated June 22, 1992, the Court also denied respondent's motion to vacate the decision against Rina, on the ground that the testimony, stipulated facts, and exhibits relating to the Thompson and Cravens cases had no material effect on the Court's Dixon II opinion as it related to Rina.
On July 22, 1992, Izen filed a motion for reconsideration of the Court's order denying respondent's motion to vacate the decision in the Rina case. By order dated August 4, 1992, the Court denied Izen's motion for reconsideration.5
On July 16, 1992, DeCastro had filed a motion for entry of decision in favor of the Thompsons in accordance with the terms of their settlement with respondent. Respondent's motion for entry of decision and supporting memorandum in opposition to DeCastro's motion for entry of decision disclosed to the Court the facts that had been uncovered in respondent's investigation. These included the fact that the purpose and effect of the Thompson settlement was to provide refunds to the Thompsons that were used to pay DeCastro's attorney's fees to...
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