Webb v. Commissioner
| Decision Date | 31 October 1994 |
| Docket Number | Docket No. 11415-85. |
| Citation | 68 T.C.M. 1106 |
| Parties | Roscoe C. Webb, Jr. v. Commissioner. |
| Court | U.S. Tax Court |
Mark Bernsley, for the petitioner. Alan Kline and Paulette Segal, for the respondent.
Supplemental Memorandum Opinion
This case is presently before us on petitioner's motion to vacate the decision entered in this case.
In Webb v. Commissioner [Dec. 46,947(M)], T.C. Memo. 1990-556, we sustained respondent's disallowance of petitioner's claimed deductions for distributive losses resulting from his investment in Far West Drilling Associates (FWDA), which was one of the six limited partnerships that composed the Petro-Tech National Litigation Project.1 We also sustained respondent's additions to tax. On April 10, 1991, we entered a decision in this case. Because no appeal was taken within 90 days, the decision became final on July 9, 1991. Secs. 7481, 7483.2
On December 27, 1991, petitioner filed an untimely motion for leave to file a motion to vacate the decision.3 On February 3, 1992, respondent filed an objection to this motion. On February 27, 1992, petitioner filed a reply to respondent's objection. On March 17, 1992, we denied petitioner's motion for leave to file the motion to vacate on the ground that there was no factual or legal basis for vacating and setting aside the April 10, 1991, final decision of this Court.
On May 11, 1992, petitioner appealed our denial of his motion for leave to file the motion to vacate the decision. On February 14, 1994, the United States Court of Appeals for the Ninth Circuit filed a Memorandum and entered a Judgment, remanding this case with instructions to grant leave for petitioner to file his motion to vacate our April 10, 1991, decision. The Memorandum of the Court of Appeals stated that petitioner's motion seeks to vacate this Court's decision for lack of jurisdiction, citing Billingsley v. Commissioner [89-1 USTC ¶ 9194], 868 F.2d 1081, 1085 (9th Cir. 1989).
On March 17, 1994, in compliance with the mandate of the Court of Appeals, this Court by Order granted petitioner's motion for leave to file motion to vacate decision out of time, and directed the Clerk of the Court to file the motion to vacate decision. On March 29, 1994, petitioner filed a Brief on Remand in support of his motion to vacate the decision. On July 1, 1994, respondent filed a Response to Petitioner's Brief on Remand.
After a July 27, 1994, telephone conference with counsel for the parties, this Court reviewed its legal file and discovered what appeared to be an untimely petition filed in this case.4 Thus, on August 1, 1994, we issued an Order to Show Cause why this case should not be dismissed for lack of jurisdiction and to show cause why the decision entered on April 10, 1991, should not be vacated. On August 8, 1994, the Clerk of the Court was ordered to provide the parties with a copy of the face of the envelope which contained the petition. The Court instructed the parties to produce evidence that the petition was timely filed. On August 30, 1994, Mr. Bernsley (counsel for petitioner) filed a declaration along with a photocopy of a photocopy of the receipt for certified mail, which matches the certified mail number on the envelope that contained the petition. The date stamped on the certified receipt is 1, and the year is 1985. The month is illegible. Nevertheless, on September 6, 1994, the parties filed a Supplemental Stipulation of Facts, wherein they agreed that petitioner timely mailed the petition in this case on May 1, 1985.
Petitioner's motion to vacate the decision raises two issues: (1) Whether respondent's agents possessed delegated authority to enter into the closing agreement with respect to a tax year (1981) that was at issue in an already-docketed Tax Court case; and (2) if the closing agreement is valid, whether section 7121(b) permits the parties in a docketed Tax Court case to limit the Court's jurisdiction by way of a closing agreement that was not specially pleaded as an avoidance or affirmative matter pursuant to Rule 39 prior to the Court's trial, opinion, and decision.
On February 1, 1985, respondent timely mailed a notice of deficiency to petitioner and Lydia M. Webb (Mrs. Webb).5 The notice disallowed the $104,033 in losses reflected on petitioner and Mrs. Webb's joint 1981 Federal income tax return, which related to their investment in FWDA. The petition in this case was filed on May 6, 1985. It was executed by Carl M. Hunts (Mr. Hunts), as attorney for petitioner. The answer was filed on June 17, 1985.
On April 1, 1987, the parties executed and filed a stipulation of settled issues, which resolved all the issues in petitioner's case except for those relating to his investment in FWDA.
On April 23, 1987, Barry C. Feldman (Mr. Feldman) of Mints, Fraade & Zeiger, P.C., filed an entry of appearance for petitioner in this case. On August 13, 1987, Frederick M. Mints and Jay L. Zeiger, both of Mints, Fraade & Zeiger, also filed entries of appearance for petitioner. On January 7, 1988, the Court granted Mr. Hunts's motion to withdraw as counsel.
On December 30, 1987, Sharon Katz-Pearlman (who was at the time the Government's project attorney for the Petro-Tech National Litigation Project), mailed a letter to Mr. Feldman, petitioner's attorney, with respect to the Petro-Tech cases, which clearly outlined the terms of the settlement offer for each of the Petro-Tech cases. The letter stated as follows:
In the event that the administrative files do not indicate that the offer was made prior to the filing of the Tax Court petition, your firm will have thirty (30) days from the date of filing with the Tax Court (as indicated by the filing date stamped on the petition by the Tax Court) in which to provide this office with an acceptance of the offer and the necessary substantiation. If this information is not received within the thirty (30) day period, the offer shall be deemed rejected by the petitioner and will not be renewed. Please note that there will be no exceptions to this procedure and that it will be firmly adhered to by this office.
Neither Mr. Feldman nor petitioner replied to this letter.
On February 3, 1988, while this case was pending in this Court, Revenue Agent Rochelle Ramirez mailed a letter to petitioner and Mrs. Webb from the Los Angeles District Office (hereinafter the February 3 letter). In the letter petitioners were informed that their 1982 Federal income tax return had been selected for examination as a result of their status as investors in FWDA. The letter further invited them to settle certain aspects of petitioner's FWDA investment. The offer stated:
[the taxpayer] will be allowed a deduction in the initial year of the partnership in the amount of 75% of [the taxpayer's] total out-of-pocket; [the taxpayer] will concede all deductions arising from the partnership for all years. The government will concede the penalties pursuant to I.R.C. section 6653(a), 6659 and 6661; [the taxpayer] must concede the increased interest rate pursuant to I.R.C. section 6621(c).
Petitioner was further informed that, if he accepted the offer, the IRS "will furnish [him] with either a Form 870-AD and/or Closing Agreement."6
Enclosed with the February 3 letter was a form that provided petitioner with the opportunity to either accept or reject respondent's settlement offer. On April 13, 1988, petitioner signed the form but failed to indicate whether he accepted or rejected the settlement. He did, however, attach copies of three checks indicating that he had contributed $30,000, $30,440.56, and $32,800 to FWDA on December 10, 1981, March 1, 1982, and February 28, 1983, respectively.
On May 26, 1988, petitioner executed a Form 906, "Closing Agreement on Final Determination Covering Specific Matters" (the closing agreement) with respect to tax year 1981. On June 3, 1988, Leslie McKinney, a revenue agent, and an IRS section chief (whose signature on the closing agreement is illegible), in the Los Angeles district office signed the Form 906 on behalf of the Commissioner. The substantive terms of the closing agreement were similar to the offer proposed in the February 3 letter.7
On June 8, 1988, the Court set August 8, 1988, as the trial date for petitioner's case. On July 7, 1988, the Court granted respondent's motion for leave to file an amendment to her answer. Thus, the amendment to answer was filed, in which respondent raised the additions to tax pursuant to sections 6653(a)(1) and (2) and 6659, and additional interest pursuant to section 6621(c).
During the trial, the closing agreement was not brought to the Court's attention by petitioner, his counsel, or respondent's counsel.8 The Memorandum Findings of Fact and Opinion, T.C. Memo. 1990-556, was filed on October 25, 1990. Our decision was entered on April 10, 1991.
The first time the Court became aware of the closing agreement's existence was on December 27, 1991 (more than 8 months after the decision was entered), when newly retained counsel for petitioner, Mr. Bernsley, filed a motion for leave to file a motion to vacate the decision.9 In the motion petitioner argued that the Court had exceeded its jurisdiction by "disregarding" the closing agreement, and that such unauthorized action provided grounds for vacating the decision. Petitioner further asserted that the Court was obligated to vacate its decision because respondent's "failure" to inform the Court of the closing agreement constituted a fraud on the Court.
On February 3, 1992, respondent objected to this motion. Respondent argued that petitioner had shown neither that there had been fraud on the Court nor that the Court lacked jurisdiction to enter its decision. In any event, respondent contended that the closing agreement was invalid because it had not been executed by an individual with sufficient authority to...
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