Keenan v. Commissioner, 685 F. App'x 622

Jerry and Cynthia Keenan (Taxpayers) entered a stipulation with the Commissioner agreeing to be bound by the Tax Court's ultimate decision in Curcio v. Commissioner regarding tax consequences and the applicability of the § 6662 accuracy-related penalty.
Curcio was decided against the Taxpayers' position; thereafter the Commissioner sought entry of decision in the Keenan case consistent with that result.
Taxpayers attempted to be relieved from the stipulation as to the penalty, arguing relief is appropriate when refusing would produce "manifest injustice."
The Tax Court issued an order (Dec. 3, 2014) precluding a motion to set aside the stipulation as untimely, concluding the Keenan(s) failed to comply with an earlier show-cause order (Jan. 23, 2014).
The appellate panel found the Tax Court erred: the Jan. 23 order required a response only after the Commissioner filed a proposed decision, and the Commissioner had not filed that proposed decision before the Dec. 3 order—so the Tax Court’s timeliness ruling rested on a clear factual mistake.
Because the erroneous order effectively foreclosed meaningful consideration of the Taxpayers’ request and caused prejudice, the Ninth Circuit vacated and remanded; costs taxed to the Commissioner.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Taxpayers could be relieved from stipulation re: § 6662 penalty	Relief warranted because enforcing stipulation would produce manifest injustice	Enforcement is appropriate under stipulation; Taxpayers missed deadlines so relief is untimely	Vacated Tax Court decision and remanded because Tax Court relied on a factual error that prevented timely motion and caused prejudice
Whether the Tax Court properly concluded the motion was untimely	Jan. 23 order required show-cause only after Commissioner filed proposed decision; no proposed decision filed before Dec. 3	Tax Court: Taxpayers failed to comply with Jan. 23 order and thus untimely	Court held Tax Court abused discretion by misreading timing requirement and basing exclusion on incorrect fact
Whether the Taxpayers suffered prejudice from the Tax Court’s order	Prejudice shown because order effectively precluded meaningful opportunity to present motion	Commissioner disputes prejudice / emphasizes procedural noncompliance	Appellate court found prejudice because the Tax Court’s error foreclosed fair consideration
Proper remedy for Tax Court’s error	Vacatur and remand for further proceedings	Uphold decision denying relief as untimely	Vacated and remanded; costs taxed to Commissioner

Bail Bonds by Marvin Nelson, Inc. v. Comm’r, 820 F.2d 1543 (9th Cir. 1987) (taxpayer may be relieved from stipulation when manifest injustice would result)
United States v. Baker, 790 F.2d 1437 (9th Cir. 1986) (definition of manifest injustice in postsentencing context cited by analogy)
United States v. Hinkson, 585 F.3d 1247 (9th Cir. 2009) (abuse-of-discretion standard and review principles)
Curcio v. Comm’r, 689 F.3d 217 (2d Cir. 2012) (governing decision on Benistar 419 plan tax consequences referenced in stipulation)
Estate of Trompeter v. Comm’r, 279 F.3d 767 (9th Cir. 2002) (requirement that a court detail reasoning when denying relief)