Estate of Jones v. C.I.R.

• Decision Date: 10 July 1986
• Docket Number: No. 84-1468,84-1468
• Citation: 795 F.2d 566
• Parties: -6372, 86-2 USTC P 13,675 ESTATE OF Ralph L. JONES, Deceased, Zepha H. Jones, Executrix, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 566

795 F.2d 566

58 A.F.T.R.2d 86-6372, 86-2 USTC P 13,675

ESTATE OF Ralph L. JONES, Deceased, Zepha H. Jones Executrix, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 84-1468.

United States Court of Appeals Sixth Circuit.

Argued May 7, 1985.

Decided July 10, 1986.

Alan C. Housholder (argued), Nashville, Tenn., Quentin L. Housholder, for petitioner-appellant.

Fred T. Goldberg, Jr., Chief Counsel, I.R.S., Washington, D.C., Glenn L. Archer, Jr., Michael L. Paup, Tax Div., Dept. of Justice, William S. Estabrook, Patricia A. Willing (argued), for respondent-appellee.

Before ENGEL and JONES, Circuit Judges and EDWARDS, Senior Circuit Judge.

ENGEL, Circuit Judge.

The Estate of Ralph L. Jones, Zepha H. Jones, Executrix (hereinafter "Taxpayer") appeals the decision of the Tax Court denying the enforcement of an alleged agreement entered into between the parties in March, 1983, settling the estate's federal estate tax liability. Taxpayer contends that the Tax Court was in error in holding either that there was not a valid settlement or that the settlement was based on a mutual mistake of fact. We affirm.

The facts surrounding the negotiation of the settlement agreement between Taxpayer's representative and Appeals Officer Harold L. Best of the Internal Revenue's Appeals Division were stipulated and are therefore largely undisputed. Ralph L. Jones died a resident of Gallatin, Sumner County, Tennessee, on August 22, 1978. On May 21, 1979, his widow, as executrix, executed a United States estate tax return, form 706, and the return was received by the I.R.S. on May 24, 1979.

The alternate valuation date of February 22, 1979, was used in valuing the assets of the estate reported on the estate tax return. ¹ One of the assets reported on the decedent's return was a sixty-five percent limited partnership interest in Cedarbrook Apartments, Ltd., whose principle asset was an apartment complex. After examining the estate tax return, the District Director proposed a number of increases in the value of decedent's assets.

On December 11, 1981, Taxpayer filed a protest and requested that the case be referred to the Internal Revenue's Appeals Division. On May 13, 1982, Taxpayer was served with a statutory notice of deficiency in the estate tax due in the amount of $285,501.09. One of the adjustments in the notice was an increase in the value of the interest owned by decedent in the partnership which owned the Cedarbrook Apartments. This increase is our only concern in this appeal.

On August 12, 1982, Taxpayer filed a petition with the Tax Court contesting the deficiency. On October 12, 1982, the Commissioner of the Internal Revenue Service filed his answer. In the latter part of November, 1982, the case was referred to the Appeals Division for consideration. On November 29, 1982, Appeals Officer Harold L. Best wrote a letter to Taxpayer's attorney stating that it would be mutually advantageous if the issues in this case could be settled without a trial. Thereafter, Internal Revenue Service form letter 1220(RO) (Rev. 5-82), dated March 10, 1983, and signed by Appeals Officer Best, was sent to Taxpayer's attorney, advising him that a settlement had been approved. Also attached to this letter was a document entitled "DECISION." This document recited that--

Pursuant to agreement of the parties in the above-entitled case, it is

ORDERED and DECIDED: That there is a deficiency in estate tax due from the petitioner in the amount of $60,786.80.

On this document there was also a space for the signature of a judge of the Tax Court and a further stipulation at the bottom of the decision with spaces for signing by Taxpayer's attorney and for a signature by the Chief Counsel of the Internal Revenue Service. Neither the Tax Court nor the Chief Counsel ever affixed their signatures to these documents.

The March 10, 1983, form letter signed by Appeals Officer Best and sent to Taxpayer's attorney also stated:

I have prepared a proposed stipulation-decision document to be filed with the United States Tax Court reflecting the agreement we reached during consideration of your case. If you approve, please sign and return the original and one copy of the stipulation-decision document. Individual petitioners should sign the stipulation exactly as the names appear in the case caption. The remaining copy of the document and the copy of the statement of income tax changes (if enclosed) are for your files.

The letter further recited that "the settlement we reached ... has been approved," and then stated that "after approval, the stipulation is forwarded to District Counsel for filing with the Tax Court. The Tax Court will notify you at entry of the stipulation."

On March 14, 1983, Taxpayer's attorney signed and hand delivered the decision document to Appeals Officer Best. On April 6, 1983, Taxpayer mailed to Appeals Officer Best a check made payable to the Internal Revenue Service in the amount of $60,786.80 with a letter that this check was to pay the tax due on the estate of Ralph L. Jones. The check was thereafter negotiated by the Internal Revenue Service District Director's Office. On April 11, 1983, Appeals Officer Best again wrote to Taxpayer's attorney. The letter advised that the settlement had been approved and that the stipulated decision had been forwarded to the District Counsel for filing with the United States Tax Court.

On June 1, 1983, Taxpayer's attorney returned a call made to him on May 31, 1983, by Appeals Officer Best. During the conversation, Mr. Best informed the attorney that the decision document would not be executed on behalf of the Internal Revenue Service. Mr. Best explained that there was an inaccurate statement in the protest which Taxpayer had filed in 1981 with respect to the mortgage on the Cedarbrook Apartments.

In this protest, Taxpayer had represented that, "also in February of 1979, it was impossible to assume existing FHA mortgages." Taxpayer also had represented that, "Much of the value of the Cedarbrook Apartment in 1981 was attributable to the $2,200,000.00 7% [FHA] mortgage which could be assumed in the summer of 1981, but which could not be assumed in February of 1979." Taxpayer now concedes that these statements were inaccurate. The parties now appear to agree that in February, 1979, the alternative valuation date elected by Taxpayer, Federal Housing Administration mortgages on apartments such as Cedarbrook could be assumed by a responsible person who was acceptable to the mortgagee and the FHA; the FHA did consider and allow, on a case-by-case basis, second mortgages in hardship cases and cases involving extenuating circumstances.

It was upon becoming aware of these facts that Appeals Officer Best informed the Taxpayer's attorney that the decision document would not be filed with the Tax Court. Mr. Best also suggested that Taxpayer should revise her proposal of settlement to reflect an increased value of the Cedarbrook Apartments due to the assumability of the FHA mortgage. Taxpayer's attorney advised Mr. Best that Taxpayer would insist upon consummation of the settlement previously agreed upon.

On June 14, 1983, Taxpayer filed a "Motion for Order of Settlement" which the Tax Court characterized as "Petitioner's Motion for Entry of Decision." In her motion, and at oral argument, Taxpayer took the position that at the time Appeals Officer Best negotiated the settlement and at the time of the approval of that settlement, the exclusive jurisdiction to settle this case was in the Appeals Officer and his superior under the provisions of 26 C.F.R. Sec. 301.7701-9 (1983); 26 C.F.R. Sec. 601.106 (1983); Delegation Order No. 60 (rev. 5), 1979-2 C.B. 482; and Delegation Order No. 66 (rev. 10), 1980-1 C.B. 571, as supplemented and amended by Delegation Order No. 190, 1982-1 C.B. 350. Taxpayer contended that pursuant to these regulations Appeals Officer Best settled the case with her attorney in accordance with the grant of exclusive jurisdiction to the Regional Commissioners or their delegates to settle cases pending before the United States Tax Court for a period of four months. Taxpayer also maintained that, although these regulations call for the signing of the stipulation on behalf of the Chief Counsel of the Internal Revenue Service by a properly authorized Regional or District Counsel, this requirement is "purely a ministerial function" and should have no effect on the validity of the settlement signed by Appeals Officer Best.

On January 31, 1984, the Tax Court issued a Memorandum Opinion denying Taxpayer's Motion for Entry of Decision. Estate of Ralph L. Jones, deceased, Zepha H. Jones, Executrix v. Commissioner of Internal Revenue, T.C.M. (P-H), 1984-53. The Tax Court based its decision on two alternative grounds: first, the court held that the settlement was not validly executed because "[t]he decision document was never filed with the Court and never signed by or on the behalf of the Chief Counsel, who is the representative of the Commissioner in this Court." The court also held that even if the settlement was validly executed, it should not be enforced in this case because the settlement was agreed upon by Appeals Officer Best in reliance on a misstatement of fact by Taxpayer's counsel. Moreover, "[a]ssuming the misstatement of fact was totally unintentional on the part of [Taxpayer's] counsel, we conclude that the settlement was based on a mutual mistake of fact. The fact was a very material one in that, as [Taxpayer's] attorney argued in the protest in which the inaccurate statement was made, the financing arrangements in connection with an apartment complex have great influence on the value of the property." ² Accordingly, the Tax Court denied Taxpayer's Motion for Entry of Decision. This appeal followed.

I.

Taxpayer's first ground for reversal is that the Tax Court erred when it concluded that the settlement agreement was not validly...