Vulcan Oil Tech. Partners v. Comm'r of Internal Revenue

• Decision Date: 05 March 1998
• Docket Number: 16768–88,24725–89.,No. 21530–87,21530–87
• Citation: 110 T.C. No. 15,110 T.C. 153
• Parties: VULCAN OIL TECHNOLOGY PARTNERS, Vanguard Oil Technology partners, Drake Oil Technology Partners, Dillon Oil Technology Partners, Derringer Oil Technology Partners–1981, Derringer Oil Technology Partners 1–1982, Crowne Oil Technology Partners, Carlton Oil Technology Partners, Ltd., American Energy Resources, Inc., Tax Matters Partner, et al.,1 v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

110 T.C. 153

110 T.C. No. 15

VULCAN OIL TECHNOLOGY PARTNERS, Vanguard Oil Technology partners, Drake Oil Technology Partners, Dillon Oil Technology Partners, Derringer Oil Technology Partners–1981, Derringer Oil Technology Partners 1–1982, Crowne Oil Technology Partners, Carlton Oil Technology Partners, Ltd., American Energy Resources, Inc., Tax Matters Partner, et al.,1

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 21530–87

16768–88

24725–89.

United States Tax Court.

March 5, 1998.

Declan J. O'Donnell, for movants.

Marilyn S. Ames and Dennis M. Kelly, for respondent.

OPINION

SWIFT, Judge:

This matter is before the Court in these consolidated cases on movants' motions, under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub.L. 97–248, 96 Stat. 324, partnership provisions and under Rule 245(b),² for leave to file untimely notices of election to participate with attached notices of election to participate, and motions, under Rule 50, to set aside settlement agreements and/or to require respondent now to enter into consistent settlement agreements. An evidentiary hearing was held on May 21, 1997, in regard to these motions.

The particular years before us in these consolidated cases are 1983, 1984, and 1985—years subject to the TEFRA partnership provisions. In Estate of Campion v. Commissioner, 110 T.C. ––––, (1998), with regard to years prior to the effective date of the TEFRA partnership provisions, other investors in the Elektra Hemisphere tax shelters have filed motions similar to the instant motions. Our opinion in Campion is also filed this date.

The underlying tax shelter investments that are involved in these consolidated cases constitute investments in seven Denver-based limited partnerships and are related to the so-called Elektra Hemisphere tax shelter investments that were the subject of litigation in this Court in Krause v. Commissioner, 99 T.C. 132, 1992 WL 178601 (1992), affd. sub nom. Hildebrand v. Commissioner, 28 F.3d 1024 (10th Cir.1994); Acierno v. Commissioner, T.C. Memo.1997–441; Karlsson v. Commissioner, T.C. Memo.1997–432; and Vanderschraaf v. Commissioner, T.C. Memo.1997–306.

In Acierno v. Commissioner, supra, we found that the Denver-based partnerships that are involved in the instant cases were similar to the Manhattan and Wichita partnerships that were involved in the lead test cases in the Elektra Hemisphere tax shelter project of Krause v. Commissioner, supra, and accordingly that the limited partners of the Denver-based partnerships who had not settled their cases with respondent were to be bound by the opinion in Krause. The settlements that most of the movants herein entered into, during 1994 and later years, are consistent with our decisions in Krause and the above-cited related cases (namely, no deductions are to be allowed to the taxpayers relating to their investments in the Elektra Hemisphere tax shelters, and the taxpayers are not to be held liable for additions to tax or penalties other than increased interest under section 6621(c) or its predecessor section 6621(d)) (hereinafter referred to as the no-cash settlements)

On an untimely basis, the majority of the movants herein now seek permission from the Court to file notices of election to participate in the instant TEFRA partnership proceedings for the purpose of seeking an order from the Court that would set aside the no-cash settlement agreements that they entered into and that would require respondent to enter into revised settlement agreements with movants consistent with the more favorable settlement terms that were available generally to investors in the Elektra Hemisphere tax shelters during 1986, 1987, and 1988 (namely, tax deductions were allowed for the amount of cash that investors had invested in the Elektra Hemisphere tax shelters and no additions to tax or penalties were imposed other than increased interest under section 6621(c) or its predecessor section 6621(d) (hereinafter referred to as the cash settlements)

The remaining movants herein have not yet entered into any settlement agreements with respondent relating to tax benefits movants claimed on their Federal income tax returns relating to their Elektra Hemisphere tax shelter investments. Such movants seek from the Court an order that would require respondent to now enter into settlement agreements with them consistent with the cash settlements that were available generally to investors in the Elektra Hemisphere tax shelters during 1986, 1987, and 1988.

All of the movants herein seek permission from the Court to file notices of election to participate in the instant TEFRA partnership proceedings solely for purposes of obtaining from the Court an order requiring respondent to enter into settlements with them consistent with the terms of the cash settlements.

Beginning in 1986, respondent's settlement position with regard to investments in the Elektra Hemisphere tax shelters reflected the cash settlement terms to which many investors, during 1986, 1987, and 1988, agreed, including many investors who had invested in the seven Denver-based Elektra Hemisphere partnerships. Over the years, however, respondent's settlement position relating to the Elektra Hemisphere tax shelters has changed, and terms of the settlement offers that respondent has made available to investors have changed accordingly. As time progressed and as the Krause v. Commissioner, supra, lead test cases approached trial, respondent's settlement position generally became less favorable to investors and more favorable to respondent. Each of respondent's various settlement positions contained time deadlines or termination dates beyond which a particular settlement position would no longer be available to investors.

As indicated, after the opinion in Krause v. Commissioner, supra, was rendered by this Court, many of the movants herein agreed to settle on the basis of respondent's then pending no-cash settlement position.

In the instant motions, movants allege that a structural defect or a fraud on the Court occurred in obtaining from movants the above-referenced no-cash settlements and that respondent had, and has, under the TEFRA partnership provisions, a continuing duty of consistency to treat all investors in the Elektra Hemisphere tax shelters consistently and to affirmatively now make available to all investors the most favorable settlement terms that ever were offered to any of the investors.

More specifically, movants allege—

(1) that the no-cash settlements that were agreed to by movants herein during 1994 and later years were premised on the erroneous fact that no better settlements were available to investors;

(2) that during 1994 and later years, when the no-cash settlements that movants now seek to set aside were entered into, movants and their counsel allegedly were not aware of the prior more favorable cash settlements that other taxpayers had entered into during 1986, 1987, and 1988; and

(3) that under the TEFRA partnership provisions movants herein, during 1994 and later years, should have been and should now be allowed to settle their tax adjustments relating to their investments in the Elektra Hemisphere tax shelters consistently with the cash settlements offered in prior years.

Movants further allege the existence of “a pervasive and manufactured conspiracy” among respondent's counsel to deprive movants herein and other taxpayers of proper TEFRA partnership settlement procedures. Movants contend that the allegedly defective settlement procedures respondent utilized in obtaining settlements with movants herein affected thousands of investors in the Elektra Hemisphere tax shelters.

In response, respondent emphasizes that the no-cash settlements that movants agreed to and that they now seek to disavow are based on and are consistent with the results of the above-cited test cases. Respondent argues that movants herein (having refused to settle on a cash basis in 1986, 1987, and 1988, having “waited out” the litigation of the lead test cases until our opinion in Krause v. Commissioner, supra, was rendered in 1992, and now not liking the results) are simply the victims of their own procrastination or litigation strategy, not of any structural defect or fraud on the Court.

Respondent also emphasizes that, under the TEFRA provisions, respondent had no affirmative obligation to notify movants that, in earlier years, some of the Elektra Hemisphere investors settled their disputes with respondent relating thereto on any particular terms.

Respondent responds further that—

(1) movants did not make timely requests for consistent settlements during the time period when respondent's cash settlement position was open to all Elektra Hemisphere investors;

(2) that there is no requirement that respondent specifically notify each investor of each settlement agreement; and

(3) with regard to the specific settlement agreements that movants entered into, movants have not shown any fraud, malfeasance, or misrepresentation as a basis for setting aside the settlement agreements.

We agree with each of respondent's arguments.

The evidence indicates that the cash settlements that, during 1986, 1987, and 1988, many investors entered into with respondent reflected a date of September 30, 1986, by which date, under the terms of respondent's offer to settle, investors needed to notify respondent of their willingness to settle on that basis. Those investors who so notified respondent were allowed in 1986, 1987, and 1988 to finalize the related computations under the cash settlements.

The schedule below sets forth the specific dates on which respondent mailed notices of Final Partnership Administrative Adjustments (FPAA's) to the Denver-based partnerships with respect to 1983, 1984, and 1985 and also the latest dates on which cash settlement agreements were finalized with partners in each of the partnerships: ³

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