1994 Tax Ct. Memo LEXIS 442 | Tax Ct. | 1994
1994 Tax Ct. Memo LEXIS 442" label="1994 Tax Ct. Memo LEXIS 442" no-link"="" number="1" pagescheme="<span class=">1994 Tax Ct. Memo LEXIS 442">*442 An appriate order will be entered denying petitioners' motion to restrain collection of additions to tax under section 6653(a) and increased interest under section 6621(c) as moot, denying respondent's motion for entry of decision, and granting petitioners' motion for entry of decision in that a decision reflecting the foregoing and concessions herein shall be entered pursuant to Rule 155.
MEMORANDUM FINDINGS OF FACT AND OPINION
FAY,
1994 Tax Ct. Memo LEXIS 442" label="1994 Tax Ct. Memo LEXIS 442" no-link"="" number="2" pagescheme="<span class=">1994 Tax Ct. Memo LEXIS 442">*443 OPINION OF THE SPECIAL TRIAL JUDGE
WOLFE,
Respondent determined the following deficiencies in and additions to petitioners' Federal income taxes:
Additions to Tax Under | |||
Year | Deficiency | Sec. 6653(a)(1) | Sec. 6653(a)(2) |
1980 | $ 11,573 | $ 578.65 | -- |
1981 | 4,277 | 213.85 | 1 |
1982 | 18,473 | 923.65 |
Additions to Tax Under | ||
Year | Sec. 6659 | Sec. 6621(c) |
1980 | $ 3,471.90 | 2 |
1981 | 1,283.10 | |
1982 | 5,541.90 |
1994 Tax Ct. Memo LEXIS 442" label="1994 Tax Ct. Memo LEXIS 442" no-link"="" number="3" pagescheme="<span class=">1994 Tax Ct. Memo LEXIS 442">*444 The deficiencies above result from respondent's disallowance of claimed partnership losses which occurred in taxable year 1982. The deficiencies and related additions to tax for taxable years 1980 and 1981 result from respondent's disallowance of the claimed carrybacks from the taxable year 1982 to those taxable years. Petitioners dispute only respondent's assessment of the additions to tax under section 6653(a) and increased interest under section 6621(c).
Petitioners contend that they are not liable for the disputed additions to tax and increased interest under the terms of a piggyback agreement executed by counsel and filed with this Court, and we agree.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulated facts and attached exhibits are incorporated by this reference. At the time the petition was filed, petitioners resided in Tulsa, Oklahoma.
This case is part of a litigation project designated as the Plastics Recycling cases. In 1982, petitioner Carl Fisher acquired a 2.91-percent limited partnership interest in Esplanade Associates, a partnership which is part of the Plastics Recycling group. See
On June 9, 1987, this Court conducted a pretrial conference with counsel for the parties to Plastics Recycling cases for the purpose of setting guidelines for disposition of this group of cases. Petitioners' case was identified as part of the Plastics Recycling project in January of 1987. Petitioners' counsel was, therefore, invited to participate at the pretrial conference. In lieu of making an appearance at the pretrial conference, petitioners' counsel filed a written statement with the Court.
At the pretrial conference, counsel for numerous taxpayers and respondent's counsel discussed selection of test cases for the Plastics Recycling group. Counsel discussed the common issues and1994 Tax Ct. Memo LEXIS 442" label="1994 Tax Ct. Memo LEXIS 442" no-link"="" number="5" pagescheme="<span class=">1994 Tax Ct. Memo LEXIS 442">*446 distinguishing factors of various Plastics Recycling cases. The attorneys present at the pretrial conference agreed that two cases involving an owner of recycling equipment would be test cases. One of those cases concerned taxable year 1981 and the other concerned taxable year 1982. In addition, the attorneys agreed that probably at least one case involving a taxpayer who was a partner in one of the partnerships which leased the recycling equipment would be chosen as another test case.
On June 12, 1987, this Court ordered that the lead counsel for taxpayers in Plastics Recycling cases and respondent designate test or lead cases which would present all issues involved in the Plastics Recycling cases. In a letter dated August 14, 1987, respondent notified the Court that lead counsel for taxpayers and respondent had selected the following docketed cases as the lead cases in the Plastics Recycling group: (1)
In the letter of August 14, 1987, respondent stated: The Court already has identified the two
The letter was designated by respondent's counsel as a joint report to the Court and was mailed to all taxpayers or their representatives involved in the Plastics Recycling project, including petitioners' counsel.
At the pretrial conference, respondent was asked to prepare Stipulation of Settlement agreements (piggyback agreements) with respect to the Plastics Recycling project, so that taxpayers1994 Tax Ct. Memo LEXIS 442" label="1994 Tax Ct. Memo LEXIS 442" no-link"="" number="7" pagescheme="<span class=">1994 Tax Ct. Memo LEXIS 442">*448 who did not wish to litigate their cases individually could agree to be bound by the results of the lead cases. After the lead counsel for taxpayers and respondent had agreed upon the lead cases, respondent's counsel prepared piggyback agreements and offered them to petitioners and other taxpayers.
The piggyback agreement, which is the underlying subject of this motion, was signed by counsel for petitioners and respondent and filed with the Court on September 12, 1988. In the piggyback agreement, petitioners agreed to be bound by the results of the three test cases. The piggyback agreement provided:
STIPULATION OF SETTLEMENT FOR TAX SHELTER ADJUSTMENTS With respect to all adjustments in respondent's notice of deficiency relating to the Plastics Recycling tax shelter, the parties stipulate to the following terms of settlement: 1. THE ABOVE ADJUSTMENT IS THE ONLY ISSUE IN THIS CASE; 2. The above adjustments, as specified in the preamble, shall be determined by application of the same formula as that which resolved the same tax shelter adjustments with respect to the following taxpayers: Names: Tax Court Docket No.: Names: Tax Court Docket No.: Names: Tax Court Docket No.: (hereinafter the CONTROLLING CASE); 3. All issues involving the above adjustments shall be resolved as if the petitioners in this case was/were the same as the taxpayers in the CONTROLLING CASE; a. If the Court finds that any additions to tax or the section 6621(c) interest are applicable to the underpayment attributable to the above-designated tax shelter adjustments, the resolution of the tax shelter issue and the applicability of such addition to tax or interest to that tax shelter issue in the CONTROLLING CASE, whether by litigation or settlement, shall apply to petitioners as if the petitioners in this case was/were the same as the taxpayers in the CONTROLLING CASE; 4. If the adjustment is resolved in the CONTROLLING CASE in a manner which affects the same issue in other years (e.g., * losses in later years or affects depreciation schedules), the resolution will apply to petitioners' later years as if the1994 Tax Ct. Memo LEXIS 442" label="1994 Tax Ct. Memo LEXIS 442" no-link"="" number="9" pagescheme="<span class=">1994 Tax Ct. Memo LEXIS 442">*450 petitioners in this case was/were the same as the taxpayers in the CONTROLLING CASE; 5. A decision shall be submitted in this case when the decision in the CONTROLLING CASE (whether litigated or settled) becomes final under 6. If the CONTROLLING CASE is appealed, the petitioners consents to the assessment and collection of the deficiency(ies), attributable to the adjustments formulated by reference to the Tax Court's opinion, notwithstanding the restrictions under 7. The petitioners in this case will testify or provide information in any case involving the same tax shelter adjustment, if requested; and 8. The petitioners in this case consents to the disclosure of all tax returns and tax return information for the purpose of respondent's discovering or submitting evidence in any case involving the same shelter adjustments.
The
The
On August 17, 1992, respondent assessed tax, additions to tax, and interest for the taxable year 1982 pursuant to our decision in the
OPINION
The motions for entry of decision here under consideration involve the interpretation and enforcement of a Stipulation of Settlement (the piggyback agreement) entered into by petitioners and respondent. The term "Stipulation of Settlement" in this case is essentially a misnomer. The piggyback agreement did not settle or compromise the matters in dispute but merely prescribed a procedure whereby those matters would be adjudicated. See
An agreement is a manifestation of mutual assent.
Petitioners maintain that the clear language of the piggyback agreement binds them to the results of all three of the cases which are designated as "the CONTROLLING CASE" in the piggyback agreement. Petitioners contend that they are entitled to the most favorable disposition of "the CONTROLLING CASE" with respect to all issues common to the Plastics Recycling project. They assert that respondent was required to offer them the
Respondent on the other hand asks us to interpret the piggyback agreement so that petitioners are only bound by the results of the
We disagree with both parties' suggested interpretations of the piggyback agreement. Our view is that under the piggyback agreement petitioners were bound to the results in all three lead cases with respect to the issues of additions to tax under section 6653(a) and increased interest under section 6621(c). We further interpret the piggyback agreement as imposing an obligation on respondent upon disposition of two of the lead cases, the
We do not hold that petitioners necessarily are entitled to the most favorable disposition of "the CONTROLLING CASE." If they had been informed of the settlement of two of the lead cases, petitioners would not have been entitled to wait until all of the lead cases had been resolved and then select the one whose resolution was most favorable to them. Under the unusual circumstances of this case, respondent agreed with petitioners that the case would be controlled by the results in the
A settlement stipulation is a contract.
Our function is to give the agreement a construction that is reasonable, capable of being carried into effect and in accord with the parties' intentions. See if the expression used and the language of the instrument is merely ambiguous, the rules of construction with respect to doubtful or ambiguous contracts or documents are applicable here. Upon this ground we have the right and it is our duty to determine what * * * the parties intended by the expression used. An instrument is clearly ambiguous and is open to construction when its1994 Tax Ct. Memo LEXIS 442" label="1994 Tax Ct. Memo LEXIS 442" no-link"="" number="18" pagescheme="<span class=">1994 Tax Ct. Memo LEXIS 442">*459 words, taken literally, lead to absurdity or have no meaning or when two meanings could be given. * * * It is a primary rule of construction of documents that the Court must if possible ascertain and give effect to the mutual intention of the parties and in doing this greater regard is to be had to the clear intent of the parties than to any particular words which they may have used in the expression of their intent. * * * [Citations omitted.]
Accordingly, we first look within the "four corners" of the piggyback agreement to ascertain whether the agreement is ambiguous. The agreement defines "the CONTROLLING CASE" as both
The piggyback agreement's terms seem clear on the face of the document. However the terms of the agreement lead to absurd results because the three cases which were designated "the CONTROLLING CASE" were not consolidated for trial or settlement and resulted in conflicting outcomes with respect to the issues of additions to tax under section 6653(a) and increased interest under section 6621(c). The two
Since the three cases which were designated "the CONTROLLING CASE" had different results and petitioners were bound to all three cases, it is unclear upon which case petitioners' case is to be decided. The language 1994 Tax Ct. Memo LEXIS 442" label="1994 Tax Ct. Memo LEXIS 442" no-link"="" number="20" pagescheme="<span class=">1994 Tax Ct. Memo LEXIS 442">*461 of the piggyback agreement clearly states that petitioners are bound by the results of all three lead cases in the Plastics Recycling group, but it does not provide for disposition of the case in issue if the three lead cases have divergent results. Therefore, the contract is ambiguous, and we may look to extrinsic evidence to ascertain the parties' intentions. See
Respondent asserts that petitioners were bound solely by the results of the
Respondent maintains that in entering into the piggyback agreement the parties intended for partners of limited partnerships that leased recycling equipment to be bound only by the
Respondent's counsel's letter, which he labeled a joint report, indicates that partners of lessee partnerships are to be treated differently than Schedule C equipment owners. It states that the two
The additions to tax for negligence under section 6653(a) and increased interest due to tax-motivated transactions under section 6621(c) are issues which are common to all of the cases in the Plastics Recycling group. The record as a whole does not indicate that these issues differ in any material respect for nonpartner owners of recycling equipment and partners of limited partnerships which leased the recycling equipment. The basic circumstances in each case concern the valuation of the recycling equipment, and those circumstances and the values of the identical machines are the same, regardless of whether the machines were held in the name of an individual or a partnership. Additions to tax under section 6653(a) and section 6621(c) increased interest are issues common to all three of the cases which were designated as 1994 Tax Ct. Memo LEXIS 442" label="1994 Tax Ct. Memo LEXIS 442" no-link"="" number="23" pagescheme="<span class=">1994 Tax Ct. Memo LEXIS 442">*464 "the CONTROLLING CASE" and petitioners' case. Respondent's counsels' so-called joint report does not support respondent's interpretation of the piggyback agreement, but instead contradicts it.
The transcript of the pretrial conference does not persuade us to adopt respondent's assertion that petitioners were only bound by the outcome of the
At the time of the pretrial conference, all of the cases under discussion, except the two
The transcript of the pretrial conference is not clear as to whether the parties agreed that the
The letter drafted by the Committee For the Defense of Plastics Recycling Tax Shelter Investments does not aid respondent. The letter dated July 17, 1992, was an invitation and plea for Plastics Recycling taxpayers to contribute to a fund to finance the appellate litigation in the
The general contract principle of contra proferentem weighs heavily against respondent in this case. The principle states that an ambiguous provision in a written document is construed more strongly against the person who selected the language.
Additionally, we note that no Schedule C owners of equipment entered into piggyback agreements with respondent concerning the Plastics Recycling project. If we were to accept respondent's argument, resolution of the
The language of the piggyback agreement clearly states that petitioners are bound by the results of all three lead cases. After reviewing the extrinsic evidence, we are not persuaded that in executing the piggyback agreement the parties intended to bind petitioners only to the
The three lead cases, however, resulted in divergent results with respect to the issues of section 6653(a) additions to tax and section 6621(c) increased interest. We must therefore decide which result will be applied to petitioners.
The two
The terms of the agreement clearly indicate that the results of "the CONTROLLING CASE" are decisive for purposes of the case at hand. There is no indication that petitioners or their attorneys were told of the settlement of the
Upon notification of the
1994 Tax Ct. Memo LEXIS 442" label="1994 Tax Ct. Memo LEXIS 442" no-link"="" number="30" pagescheme="<span class=">1994 Tax Ct. Memo LEXIS 442">*471 In their post hearing brief petitioners assert a claim for litigation costs in an unspecified amount pursuant to
Administrative and litigation costs may only be claimed, unless conceded by respondent, upon written motion to this Court filed after the issuance of an opinion determining the issues in the case, or after the parties have settled all issues in the case other than litigation costs.
To reflect the foregoing,
Footnotes
1. All section references are to the Internal Revenue Code in effect for the years at issue, unless otherwise indicated. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
1. 50 percent of the interest payable with respect to the portion of the underpayment attributable to negligence. ↩
2. The notice of deficiency refers to sec. 6621(d). This section was redesignated as sec. 6621(c) by sec. 1511(c)(1)(A) of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085, 2744. For simplicity, we will refer to this section as sec. 6621(c). The annual rate of interest under sec. 6621(c) for interest accruing after December 31, 1984, equals 120 percent of the interest payable under sec. 6601 with respect to any substantial underpayment attributable to tax-motivated transactions.↩
2. In an Order dated June 3, 1988, this Court designated the
Provizer case as a replacement for theFine↩ case as one of the lead cases in the Plastics Recycling group.3. See
, 153 Ct. Cl. 638">649, 287 F.2d 910">287 F.2d 910, 287 F.2d 910">915-916 (1961), requiring the Government to notify the private party to an agreement about settlement of a test case controlling the agreement:Socony Mobil Oil Co. v. United States , 153 Ct. Cl. 638">153 Ct. Cl. 638It seems that such a premature termination of what was expected to be a test case would not have been anticipated by Texaco, the other party to the suspension agreement. Unless the Government advised it of the settlement, it would have had to be most diligent in watching the District Court's judgment docket in order to file its suit in time after the "final decision" of the test case.
We think that when the Commissioner has entered into an agreement for the suspension of the statute of limitations until the final decision in a test case, and thereafter participates in the frustration of the purpose of the agreement by preventing the test case from going to a decision on the merits, a fair interpretation of the agreement makes the suspension run until the earlier of the following two events: (1) The other party to the agreement has had notice of the premature termination of the test case, * * * ↩
4. In the Tax Reform Act of 1986, Pub. L. 99-514, sec. 1551(d), 100 Stat. 2752, Congress amended
sec. 7430↩ effective for amounts paid after September 30, 1986, in civil actions or proceedings commenced after December 31, 1985. The petition in this case was filed on July 7, 1986, and petitioners' motion for litigation costs is thus governed by the provisions of the 1986 Act.