Estate of James T. Campion, Leona Campion v. Commissioner , 110 T.C. No. 16 ( 1998 )

110 T.C. No. 16UNITED STATES TAX COURT
ESTATE OF JAMES T. CAMPION, DECEASED, LEONA CAMPION, EXECUTRIX,
ET AL.,1 Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 12235-86, 22346-86, Filed March 5, 1998.
31310-86, 32931-86,
4142-87, 12476-87,
18986-87, 21147-87,
24227-87, 24013-88,
4646-89, 7300-89,
8272-89, 18502-89.
1
Cases of the following petitioners are consolidated
herewith: Ladd T. Tucek and Philamena Tucek, docket No. 22346-
86; Tony W. and Candace P. Dial, docket No. 31310-86; George M.
and Grace E. Collins, docket Nos. 32931-86 and 12476-87; James
and Lynne M. Lotta, docket Nos. 4142-87 and 7300-89; Alden B. and
Earlene Chase, docket No. 18986-87; Edward R. and Sandra Chase,
docket No. 21147-87; Thomas L. and Betty R. Saliba, docket No.
24227-87; Estate of James T. Campion, Deceased, Leona C. Campion,
Executrix, and Leona C. Campion, docket No. 24013-88; Scott K.
and Barbara F. Monroe and Charles R. and Iva M. Reif, docket No.
4646-89; Dwight V. and Christine G. Call, docket No. 8272-89; and
Michael and Mary Lee Rafferty, Jr., Thomas L. and Betty R.
Saliba, and Theodore L. and Rosemary L. Shebs, docket No. 18502-
89.
- 2 -
Petitioners (investors in the so-called Elektra
Hemisphere tax shelters) move for leave to file motions
under Rule 162 to vacate final decisions that have been
entered herein and to require respondent now to enter
into revised settlement agreements with petitioners
(that reflect settlement terms available from
respondent to investors in 1986, 1987, and 1988).
Held: Petitioners’ motions are denied.
Declan J. O'Donnell, for petitioners.
Michael W. Bitner, for respondent.
OPINION
SWIFT, Judge: This matter is before the Court in these
consolidated cases on petitioners’ motions for leave to file
motions to vacate decisions with attached motions to vacate under
Rule 162.
Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code for the years in
issue.
In each of these cases, petitioners and respondent settled
all issues, and final decisions have been entered. The 90-day
appeal period has expired, and petitioners now seek orders from
the Court vacating the decisions and requiring respondent to
enter into new settlement agreements with petitioners that would
- 3 -
reflect settlement terms that were available to investors in the
so-called Elektra Hemisphere tax shelters in 1986, 1987, and
1988.
The particular years before us in these consolidated cases
are 1979, 1980, 1981, and 1982 -- years prior to the effective
date of the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA), Pub. L. 97-248, 96 Stat. 324, partnership provisions.
In Vulcan Oil Tech. Partners v. Commissioner, 110 T.C. (1998),
with regard to 1983 and later years that are subject to the TEFRA
partnership provisions, other investors in the Elektra Hemisphere
tax shelters have filed motions similar to the instant motions.
Our opinion in Vulcan is also filed this date.
The underlying tax shelter investments that are involved in
these consolidated cases are referred to as investments in
certain Denver-based limited partnerships and were related to the
Elektra Hemisphere tax shelters that were the subject of
litigation in this Court in Krause v. Commissioner, 99 T.C. 132(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
- 4 -
involved in the test cases 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
petitioners herein entered into and that they now seek to set
aside 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).
Beginning in 1986, respondent made a number of offers to the
investors-taxpayers to settle tax adjustments that respondent had
determined involving the Elektra Hemisphere tax shelters,
including those in the Denver-based partnerships. Over the
years, respondent’s settlement position with regard to the issues
involved in 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 test cases approached trial, respondent’s settlement position
generally became more favorable to respondent and less favorable
to the investor-taxpayers. Each of respondent’s various
settlement positions contained time deadlines or termination
- 5 -
dates beyond which a particular settlement position would no
longer be available.
Under respondent’s settlement position as of 1986, investors
generally were allowed tax deductions reflecting the full amount
of their cash out-of-pocket invested in the respective Elektra
Hemisphere tax shelter, and no penalties or additions to tax were
imposed other than increased interest under section 6621(c) or
its predecessor section 6621(d) (hereinafter referred to as the
cash settlement). Petitioners herein did not agree to settle the
tax deficiencies and additions to tax that respondent had
determined against them relating to their investments in the
Elektra Hemisphere tax shelters on that basis. Rather,
petitioners waited until after the opinion in Krause v.
Commissioner, supra, was rendered in 1992 and agreed to settle at
that time, or in later years, on the basis of respondent’s then
pending no-cash settlement position. Not only did petitioners
agree to settle, but petitioners signed stipulated decision
documents reflecting the no-cash settlement position, and such
decision documents were entered by the Court and are now final.
Petitioners allege that a structural defect or a fraud on
the Court occurred in settling these cases and that respondent,
under the TEFRA partnership statutory provisions, had a duty of
consistency to treat all taxpayers consistently and to make
- 6 -
available to all taxpayers at all points in time the most
favorable settlement terms that were offered to any taxpayer.
More specifically, petitioners allege --
(1) that the settlements that were agreed to in the
instant cases were premised on the erroneous fact that
no better settlements were available to the taxpayers;
(2) that because of the express language of section
6224(c)(2), the TEFRA partnership settlement procedures
apply to partnerships for all years, once partnerships
are subject to the general TEFRA partnership provisions
for any year;
(3) that, during 1994 and later years, when petitioners
entered into their settlements for the pre-TEFRA years
(1979-1982), petitioners and their counsel allegedly
were not notified by respondent of the prior, more
favorable cash settlements that other taxpayers during
1986, 1987, and 1988 had agreed to; and
(4) that (because of (2) above) the Elektra/Hemisphere
tax shelter partnerships’ pre-TEFRA years effectively
became, or should be treated as becoming, subject to
the TEFRA partnership settlement procedures. Thus,
petitioners herein allege that during 1994 and later
years they should have been allowed to settle their
cases consistent with the most favorable settlement
terms offered to any other taxpayers at any time.
Petitioners allege the existence of "a pervasive and
manufactured conspiracy" among respondent’s counsel to deprive
them and other taxpayers of the TEFRA settlement procedures for
pre-TEFRA years. Petitioners allege that the defective
settlement procedures that were utilized to settle the instant
cases also affected some 2,000 other settlement agreements and a
total of 12,000 case dispositions.
- 7 -
Petitioners’ overriding argument based on the TEFRA
statutory provisions is that this Court's jurisdiction over TEFRA
settlement procedures is broader than this Court's jurisdiction
over cases in general. Petitioners point to the "Except as
otherwise provided" language of section 6221 and to the language
of section 6224(c)(2). Petitioners interpret the language of the
latter section as providing that once a partnership becomes
subject to the TEFRA provisions for any year and for any purpose,
the partnership and each of its partners should be treated, for
settlement purposes, as becoming subject to the TEFRA partnership
provisions for all years. Petitioners then argue that under such
TEFRA settlement provisions they were entitled in 1994 and later
years, when they settled with respondent their particular Elektra
Hemisphere tax shelter cases, to be specifically informed of and
to take advantage of the most favorable settlement terms that
respondent ever offered any of the partners in the Elektra
Hemisphere tax shelters (namely, the cash settlements available
during 1986, 1987, and 1989).
Respondent emphasizes that the no-cash settlements that
petitioners now seek to disavow are based on and are consistent
with the results of the test cases that were decided with respect
to the Elektra Hemisphere tax shelters. Krause v. Commissioner,
99 T.C. 132 (1992); see also Acierno v. Commissioner, T.C. Memo.
1997-441. Respondent argues that petitioners (having refused to
- 8 -
settle in 1986, 1987, or 1988, having “waited out” the litigation
of the Krause test cases until our opinion therein was rendered
in 1992 and until the appeal thereof became final in 1994, 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.
Petitioners acknowledge that under the TEFRA partnership
provisions the redetermination jurisdiction of this Court is
generally limited (with an exception not applicable here) to
taxable years beginning after September 3, 1982. Petitioners,
however, cite the language of section 6224(c)(2) and argue that
the TEFRA partnership settlement procedures apply to every
partnership year once the partnership is subject to the general
TEFRA partnership provisions for any year.
Section 6224(c)(2) provides, in pertinent part, as follows:
SEC. 6224(c)(2). Other partners have right to enter
into consistent agreements.--If the Secretary enters into a
settlement agreement with any partner with respect to
partnership items for any partnership taxable year, the
Secretary shall offer to any other partner who so requests
settlement terms for the partnership taxable year which are
consistent with those contained in such settlement
agreement. * * *
We disagree with petitioners' interpretation of section
6224(c)(2). Section 407 of TEFRA, 96 Stat. 610-671, expressly
and specifically provides that its provisions, including the
- 9 -
settlement procedures of section 6224, apply only to partnership
taxable years beginning after September 3, 1982, with an
exception not here relevant. Section 407(a)(1) of TEFRA, 96
Stat. 670, provides as follows:
Except as provided in paragraph (2), the
amendments made by sections 402, 403, and 404 shall
apply to partnership taxable years beginning after the
date of the enactment of this Act. [Sept. 3, 1982.]
Further, petitioners' interpretation is belied by the plain
language of the statute, which refers to a "partnership taxable
year". The statute by its terms does not require that a
settlement made with a partner in respect of a partnership's
taxable year be extended to another partner for an earlier
taxable year. A fortiori, no such requirement would seem to
exist if the later year is covered by the TEFRA procedures and
the earlier year is not.
In Consolidated Cable, Ltd. v. Commissioner, T.C. Memo.
1990-657, affd. without published opinion 995 F.2d 222 (5th Cir.
1993), we implicitly recognized that the TEFRA partnership
provisions did not apply to partnership taxable years that began
before September 4, 1982.
In Ackerman v. Commissioner, T.C. Memo. 1996-315, the
taxpayers entered into settlement agreements for 1982, 1983, and
1984 (that were subject to the TEFRA provisions), and we held
- 10 -
that respondent was not precluded from making different
adjustments for 1981, a year not covered by the prior settlement
for the later TEFRA years and not covered by the TEFRA settlement
procedures. See also Gridley v. Commissioner, T.C. Memo. 1997-
210, in which we noted that the TEFRA settlement procedures did
not apply to pre-TEFRA years.
In Fisher v. Commissioner, T.C. Memo. 1994-434, a duty on
respondent to extend similar settlements was found to exist as to
all taxpayers, but such duty was based not on any statutory
requirements of TEFRA but on express contractual agreements that
had been entered into by the taxpayers to be bound by results of
subsequent test cases, and we concluded that a corresponding duty
of disclosure was imposed on respondent to inform all taxpayers
as to the outcome of the test cases. In Fisher, when some of the
test cases were settled, other taxpayers in the group of related
cases had a contractual right to be informed of the settlement
and to settle their cases on the same basis. Fisher is
distinguishable from the facts of the instant cases.
Absent proof that a taxpayer has been singled out for
disparate treatment based on impermissible considerations such as
race or religion, and absent contractual agreements to the
contrary, respondent is not required to offer the same settlement
terms to similarly situated taxpayers. Norfolk S. Corp. v.
- 11 -
Commissioner, 104 T.C. 13, 58-59, supplemented by 104 T.C. 417(1995); Davis v. Commissioner, 65 T.C. 1014, 1022 (1976).
Petitioners argue that if all open years of a partnership
(including pre- and post-TEFRA years) are not treated as governed
by the TEFRA settlement procedures, certain accounting and
financial statement difficulties arise. Even if true,
petitioners have offered no authority to the effect that such
accounting and financial statement difficulties would override
the TEFRA statutory provisions that expressly provide that only
partnership years beginning after September 3, 1982, are subject
to the TEFRA partnership provisions.
Petitioners' allegations that a fraud has been committed on
the Court are vague, confusing, and misdirected. Authority
exists for setting aside a final decision of this Court based
upon a fraud on the Court. See Kenner v. Commissioner, 387 F.2d
689, 691 (7th Cir. 1968); Abatti v. Commissioner, 86 T.C. 1319,
1323 (1986), affd. 859 F.2d 115 (9th Cir. 1988). But cf. Harbold
v. Commissioner, 51 F.3d 618 (6th Cir. 1995). The cases,
however, make it clear that such relief is very limited, as
explained below:
A finding of fraud on the court is justified only by
the most egregious misconduct directed to the court
itself, such as bribery of a judge or jury or
fabrication of evidence by counsel, and must be
supported by clear, unequivocal and convincing
evidence. [Landscape Properties, Inc. v. Vogel, 46
F.3d 1416, 1422 (8th Cir. 1995) (quoting In re
- 12 -
Coordinated Pretrial Proceedings in Antibiotic
Antitrust Actions, 538 F.2d 180, 195 (8th Cir. 1974);
citations omitted).]
See also Browning v. Navarro, 826 F.2d 335, 345 (5th Cir. 1987).
As suggested, the evidence and allegations that petitioners
offer in support of their allegations of a fraud upon the Court
are extremely vague and unsupported, and they call for little
further discussion. We note that petitioners’ counsel herein and
petitioners’ prior counsel represented many taxpayers who were
involved in the Elektra Hemisphere tax shelters, and petitioners'
former and/or present counsel likely have been aware, for many
years, of all settlement positions that were made available by
respondent.
Assuming, arguendo, that respondent’s counsel -- in 1994 and
later years after the Krause v. Commissioner, 99 T.C. 132 (1992),
test case opinion was rendered -- did not specifically inform
petitioners’ counsel of all prior settlement positions that were
available to investors in the Elektra Hemisphere tax shelters,
there would be no basis for finding that a fraud has occurred on
the Court. As explained above, TEFRA settlement procedures do
not apply to these cases involving pre-TEFRA years, and there
existed no obligation on respondent’s counsel in these cases to
inform all petitioners of each and every settlement position
available to investors.
- 13 -
Lastly, we emphasize that the credible factual evidence
submitted in connection with petitioners’ motions establishes
that petitioners and all other investors in the Elektra
Hemisphere tax shelters were treated consistently by respondent
and were given the same opportunity to settle their tax disputes
with respondent on the same terms and with the same time
deadlines. The disposition of cases involved in the Elektra
Hemisphere tax shelters followed specific time frames, and each
different settlement position of respondent, which appears to
have been adequately communicated to all investors in the Elektra
Hemisphere tax shelters, was based on the "hazards of litigation"
as perceived by respondent at a particular point in time.
In years after the Krause v. Commissioner, supra, test case
opinion was filed, petitioners herein finally chose to agree to
respondent’s pending settlement offer, at which time the only
available settlement position available to investors in the
Elektra Hemisphere tax shelters was that which was accepted by
petitioners and which was reflected in the decisions that were
entered (namely, the no-cash settlements).
Petitioners’ arguments and evidence fail to establish any
"scheme of secrecy" regarding the availability of respondent’s
various settlement positions that were available to taxpayers who
had invested in the Elektra Hemisphere tax shelters.
- 14 -
For the reasons stated, petitioners’ motions for leave to
file motions to vacate will be denied.
Appropriate orders will
be issued.