Toscano v. Comm'r of Internal Revenue

• Decision Date: 19 May 1969
• Docket Number: Docket No. 50975.
• Citation: 52 T.C. 295
• Parties: JOHN J. TOSCANO AND JOSEPHINE C. TOSCANO, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

52 T.C. 295

JOHN J. TOSCANO AND JOSEPHINE C. TOSCANO, PETITIONERS

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 50975.

Tax Court of the United States.

Filed May 19, 1969.

George H. Zeutzius, for the petitioners.

Robert B. Hill, for the respondent.

Petitioners' motion, under Rule 19(f), Tax Court Rules of Practice, for special leave to file out of time a motion to vacate a decision of this Court entered in 1955 pursuant to a stipulation of the parties on the ground that fraud was perpetrated on the Court in obtaining such decision, denied.

OPINION

DRENNEN, Judge:

We have before us a motion filed by Josephine C. Zelasko for special leave to file out of time a motion to vacate a prior decision of this Court on the ground that fraud was perpetrated on the Court in obtaining such decision. The motion to vacate was lodged with the Court.

In a statutory notice of deficiency dated July 16, 1953, respondent determined deficiencies in the income taxes of John J. Toscano and Josephine C. Toscano and additions to tax for the years 1946 through 1950. Respondent based the deficiencies upon allegedly unreported income computed by him on the net worth plus nondeductible expenditures method. John J. Toscano and Josephine C. Toscano filed a timely joint petition with this Court seeking a redetermination of the deficiencies for the years 1946 through 1950.

On March 21, 1955, petitioners John J. Toscano and Josephine C. Toscano together with respondent in docket No. 50975 filed a settlement stipulation with this Court in which they stipulated deficiencies and additions to tax under sections 293(b), 294(d)(1)(A), and 294(d)(2) of the 1939 Code for the years 1947, 1949, and 1950, and no deficiencies for the years 1946 and 1948. Decision was entered by this Court pursuant to such stipulation on March 28, 1955.

After the death of John J. Toscano in July 1962, the respondent sought to collect from Josephine the unpaid deficiencies and additions to tax, plus interest. Josephine and her wholly owned corporation, Enterprises Unlimited, Inc., were unsuccessful in an action to enjoin collection from them of Federal income taxes assessed against John J. and Josephine C. Toscano. Enterprises Unlimited, Inc. v. Davis, 340 F.2d 472 (C.A. 9, 1955).

On July 1, 1968, Josephine (under the name of Josephine C. Zelasko) filed a motion under Rule 19(f)¹ of the Tax Court Rules of Practice for special leave to file an attached motion to vacate the Tax Court's 1955 judgment and decision on the ground that such judgment and decision were procured by fraud upon the Court. Respondent filed an objection to petitioners' motion for special leave to file and requested a hearing. Affidavits and some 25 exhibits were also lodged with this Court by Josephine in support of the motion to vacate. On August 21, 1968, a hearing on petitioners' motion for special leave to file was held, after which the Court took the motion under advisement. The parties have filed briefs in support of their respective positions in which were discussed both the motion for leave to file out of time and the more substantive issue involved in petitioners' motion to vacate.

A threshold question is whether this Court has the jurisdiction to vitiate its former decision long after it has become final under the terms of section 7481 of the Code. Ordinarily, the granting or denial of a motion under Rule 19(f) is a discretionary matter, cf. Commissioner v. Meldrum & Fewsmith, Inc., 230 F.2d 283 (C.A. 6, 1956), affirming 20 T.C. 790; but under the circumstances here present the exercise of that discretion may depend on other issues. There appears to be some conflict among the Courts of Appeals on this point. In Kenner v. Commissioner, 387 F.2d 689 (1968), the Court of Appeals for the Seventh Circuit held that the Tax Court does have the power to inquire into the integrity of its own decision even when such decision has become final but only in the extreme situation where such decision was produced by ‘fraud upon the court.’ But see Jefferson Loan Co. v. Commissioner, 249 F.2d 364 (C.A. 8, 1957), which holds that the Tax Court has no equitable jurisdiction to set aside a decision after it has become final even where fraud has been demonstrated. It should be pointed out, however, that no ‘fraud on the court,’ as we understand the meaning of the phrase and as explained later in our opinion, was involved in the Jefferson Loan Co. case. There, the petitioner-corporation's president and accountant had falsified income in order to conceal losses and financial weaknesses of the corporate taxpayer and the petitioner's income tax liability and personal holding company tax liability determined in the Tax Court decision (under written stipulation) were based on these false income figures.

In the light of this uncertainty it seems prudent to at least examine the substantive question involved in the motion to vacate before we decide whether to grant the motion for special leave to file out of time. In doing so we must first understand the limitations of the phrase ‘fraud on the court.’ Some guidelines are at hand.

The court in the Kenner case carefully defined ‘fraud on the court’ as embracing ‘only that species of fraud which does, or attempts to, defile the court itself, or is a fraud perpetrated by officers of the court so that the judicial machinery can not perform in the usual manner its impartial task of adjudging cases that are presented for adjudication.’ The court cites 7 Moore's, Federal Practice, sec. 60.33, p. 512 (2d ed.), for this definition. To this definition, the text in Moore's adds the following qualification: ‘Fraud inter partes, without more, should not be a fraud upon the Court * * * .’

An illustration of the type or degree of fraud contemplated by the phrase ‘fraud on the court’ appears in Hazel-Atlas Glass Co. v. Hartford Empire Co., 322 U.S. 238 (1944). In that case Hartford had defrauded the Patent Office by helping along its application for a patent through the use of an article written and caused to be published by certain of its attorneys and officials under the name of an ostensibly disinterested expert. Later, in a patent infringement action against Hazel-Atlas, Hartford defrauded the Court of Appeals for the Third Circuit through the use of this spurious article and obtained a favorable judgment. In 1941 Hazel-Atlas commenced an action in the Court of Appeals for the Third Circuit to set aside the judgment entered against it in 1932 on the ground that such judgment had been obtained by fraud. The Supreme Court held that the earlier judgment against Hazel-Atlas had been fraudulently obtained and should be set aside, stating in part as follows:

This is not simply a case of a judgment obtained with the aid of a witness who, on the basis of after-discovered evidence, is believed possibly to have been guilty of perjury. Here * * * we find a deliberately planned and carefully executed scheme to defraud not only the Patent Office but the Circuit Court of Appeals.²

With these standards before us we have carefully considered the petitioner's arguments and her various affidavits and exhibits. The purported fraud...