In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 14-1216

MARCIA BILLHARTZ, Executor of the 

Estate of Warren Billhartz,

Petitioner-Appellant,

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

____________________

Appeal from the United States Tax Court.

No. 12999-10 — Maurice B. Foley, Judge.

____________________

ARGUED MAY 28, 2015 — DECIDED JULY 23, 2015

____________________

Before FLAUM, KANNE, and SYKES, Circuit Judges.

FLAUM, Circuit Judge. Warren Billhartz left over $20 million to his four children when he died. When his Estate filed 

its estate tax return with the IRS, it claimed a deduction for a 

large portion of that amount—over $14 million. The IRS disallowed the deduction in full and issued the estate a notice 

of deficiency. The Estate then petitioned the United States 

Tax Court for redetermination of the deficiency, and a trial 

date was set. Before trial, though, the Estate and the Com-
2 No. 14-1216

missioner of Internal Revenue (“Commissioner”) agreed to a 

settlement, under which the Commissioner conceded 52.5% 

of the claimed deduction. Soon after the settlement, however, Billhartz’s children sued the Estate in state court; the children claimed that they were entitled to a larger portion of 

their father’s fortune and that their prior acceptance of a 

lesser amount had been obtained fraudulently. At that point, 

the Estate asked the Tax Court to vacate the settlement on 

the basis that, were the children to prevail in state court, the 

settlement would bar the Estate from claiming an estate tax 

refund for any additional amount paid to the children. The 

Tax Court rejected the Estate’s arguments, and entered a decision reflecting the terms of the settlement agreement. 

We affirm. The Tax Court did not abuse its discretion by 

refusing to set aside the settlement. 

I. Background

Warren Billhartz (“Billhartz”) married his first wife, 

Norma, in 1955. They had three daughters (Jan, Jean, and 

Susan) and one son (Ward). Billhartz and Norma divorced in 

1978. In connection with the divorce, they entered into a 

Marital Settlement Agreement, which they filed with the 

Circuit Court for Madison County, Illinois. Only one part of 

that agreement is relevant to this appeal—the statement that 

“Husband covenants and agrees with Wife that an amount 

equal to one-half of the estate of Husband will be given in 

his Will to the children of the parties described in this 

Agreement, in equal shares.” 

Billhartz married his second wife, Marcia, in 1979, and 

they remained married until his death, in 2006. Following 

his remarriage, Billhartz executed a will and a trust. At the 
No. 14-1216 3

time of his death, virtually all of his assets were either held 

in the trust or in joint tenancy with Marcia. The trust named 

Marcia and Ward as co-trustees. Under the terms of the trust, 

the trustee was to set aside an amount sufficient to purchase 

an annuity that would pay Norma $3,000 monthly. Of the 

remaining funds, 6% was left to each of Billhartz’s three 

daughters, and 16% was left to Ward; the rest went to Marcia 

and to Billhartz’s sister. To summarize: According to the 

Marital Separation Agreement, the four children were to receive 50% of Billhartz’s “estate” (an undefined term), divided

evenly. In the end, though, they cumulatively ended up with 

less than 34% of Billhartz’s assets, divided unevenly. Nonetheless, after receiving notice of this discrepancy, all four 

children executed an agreement (the “2007 Waiver Agreement”), in which they accepted the lesser shares set out for 

them in the trust and waived all potential claims they may 

have been able to assert against either the Estate or the trust. 

The payments to the children totaled approximately $20 million; each daughter received about $3.5 million, while Ward 

received $9.5 million.

The Estate filed its estate tax return, signed by Marcia 

and Ward as co-executors, on May 21, 2007. Among other 

deductions, the Estate claimed a deduction of approximately 

$14 million for amounts passing to the children, equal to $3.5 

million per child (even though Ward actually received significantly more). The Estate does not explain why it did not deduct the full amount paid to Ward, though we suspect it has 

to do with Billhartz’s promise in the Martial Settlement 

Agreement to leave his children equal shares of his estate.

The Estate claimed the deduction under 26 U.S.C.

§ 2053(a)(3), which permits deductions of claims against the 

Estate for an indebtedness founded on a promise or agree-
4 No. 14-1216

ment that was contracted bona fide and supported by adequate consideration. See id. § 2053(c)(1)(A). According to the 

Estate, the amounts paid to the children through the trust 

were paid in settlement of a debt owed to them by Billhartz

pursuant to his contractual obligation under the Marital Settlement Agreement.

The Commissioner issued the Estate a notice of deficiency that disallowed in full the $14 million deduction and determined a tax deficiency of about $6.6 million. The Estate 

then petitioned the Tax Court for a redetermination of the 

deficiency amount. A trial date was set for April 18, 2012. But 

before trial, on April 5, the Estate accepted the Commissioner’s settlement offer, in which the Commissioner agreed to 

concede 52.5% of the original $14 million deduction. The 

parties notified the Tax Court of the settlement the next day, 

and the trial was removed from the docket. On April 24, after a conference call with the parties, the court ordered them 

to submit by July 24 a decision document reflecting the 

terms of the settlement.

The next relevant events took place in Illinois state court, 

where, on June 12, 2012, Warren’s daughters filed two lawsuits against the Estate, contending that the 2007 Waiver 

Agreement had been procured by fraud; Ward, after resigning as co-trustee, filed a similar lawsuit. The children argued 

that Marcia had intentionally and fraudulently concealed 

documents from them and had threatened to withhold any 

of the trust money from the children unless they signed the 

waiver. And, even though the 2007 Waiver Agreement mentioned the terms of the Marital Settlement Agreement, the 

children asserted that they did not became aware of their 
No. 14-1216 5

right to 50% of the estate, and of the value of the estate, until

the Estate brought the Tax Court case in 2012. 

On July 6, 2012, because of the new state court lawsuits, 

the Estate asked the Tax Court for an extension of time to 

submit the decision document, and the court granted a 90-

day extension. Then, on October 1, the Estate moved to restore the case to the general docket, arguing that it should be 

entitled to deductions under 26 U.S.C. § 2053 for any additional payments to the children arising from the state court 

litigation, and therefore that the settlement amount would 

have to be recalculated in the event of additional payments. 

The Commissioner opposed that motion, and instead moved 

for entry of a decision consistent with the terms of the parties’ settlement agreement. The Estate opposed entry of a decision, arguing that the agreement had been predicated on a 

mutual mistake of fact—i.e., that the amount owed by the 

Estate to the children had been finally determined by the 

2007 Waiver Agreement. The Estate also argued that the settlement should be set aside because the Commissioner knew 

that Billhartz’s daughters were thinking of suing the Estate 

in state court; by not providing the Estate with that information, the Estate argued, the Commissioner committed

fraudulent misrepresentation. The Estate conceded, however, that it had knowingly and voluntarily entered into the 

settlement agreement with the Commissioner.

While these motions were pending in the Tax Court, the 

Estate reached a settlement with the children in their state 

court lawsuits. As part of that settlement, the Estate agreed 

to pay each of the daughters an additional $1,450,000. The 

Estate informed the Tax Court of this development.
6 No. 14-1216

On June 14, 2013, the Tax Court denied the Estate’s motion to restore the case to the general docket and granted the 

Commissioner’s motion for entry of decision. The Tax Court 

also denied the Estate’s subsequent motion to vacate the decision and order. The Estate now appeals, invoking our jurisdiction to review the decisions of the Tax Court. See 26 

U.S.C. § 7482(a)(1).

II. Discussion

We review the Tax Court’s decision to enforce a settlement agreement for an abuse of discretion. Wilson v. Wilson, 

46 F.3d 660, 664 (7th Cir. 1995) (noting that a district court’s 

decision to enforce a settlement agreement is reviewed for 

an abuse of discretion); see also Freda v. Comm’r, 656 F.3d 570, 

573 (7th Cir. 2011) (“We review decisions of the tax court in 

the same manner and to the same extent as decisions of the 

district courts in civil actions tried without a jury.” (internal 

quotation marks omitted)). The Tax Court’s denial of a motion to vacate a final decision is also reviewed for an abuse of 

discretion. Drobny v. Comm’r, 113 F.3d 670, 676 (7th Cir. 

1997). 

Before delving into the Estate’s legal arguments, some 

background is helpful to understanding why it wants the settlement set aside. By settling this case, the parties essentially 

determined once and for all the total amount that the Estate 

could deduct as a result of its payments to Billhartz’s children. That is because of 26 U.S.C. § 6512(a), which provides 

that, once the Tax Court’s jurisdiction is invoked with respect 

to an estate tax return, no claim for a refund may be filed 

with respect to any future matter related to that return. That 

provision did not overly concern the Estate when it took this 

case to the Tax Court, as it didn’t anticipate having to make 
No. 14-1216 7

future refund claims—it believed that there would be no 

more payments to the children. When the children sued, 

however, the Estate was suddenly faced with the possibility 

that it would have to pay the children more money; even 

worse, § 6512 would bar the Estate from obtaining a refund 

for those payments, assuming that they were deductible.1

The Estate’s settlement with the Commissioner allows the 

Estate to deduct 52.5% of the $14 million the Estate originally 

thought it could deduct based on the 2007 Waiver Agreement. But, since the Estate ended up paying the children 

more than it expected to (an additional $1,450,000 to each 

daughter), it now seeks to deduct more. 

It is important to understand, however, that the operation of § 6512 does not make this case unique. When parties 

to a civil suit reach a settlement, they are usually barred 

from later tearing up that agreement or filing a new lawsuit

when they learn new information—not because of statute, 

but because of the terms of the settlement. And, of course, 

for cases that make it to trial, the doctrine of res judicata 

blocks future legal action based on the same claims. Settlements are meant to substitute certainty for risk, but that does 

not make them risk free. By settling, parties close the door to 

new information; that’s risky, because they do not know 

whether new information will be helpful or harmful. A party 

may later come to believe that it received a bad (or good) 

deal, but only rarely will that provide grounds for setting 

aside the settlement.

 1 We express no opinion as to whether the Estate’s payments to Warren 

Billhartz’s children are rightly deductible under § 2053(a)(3).
8 No. 14-1216

For these reasons, courts should be hesitant to set aside 

settlements that are reached knowingly and voluntarily by 

the parties. See Glass v. Rock Island Refining Corp., 788 F.2d 

450, 454–55 (7th Cir. 1986). The Tax Court has its own test, 

laid out in Dorchester Industries Inc. v. Commissioner, for determining when to set aside a settlement. 108 T.C. 320, 335 

(1997), aff’d, 208 F.3d 205 (3d Cir. 2000). When, as here, a “settlement agreement ha[s] led to the vacation of the trial date 

and would have led to entry of [a] decision[] had the parties

complied with their agreement,” a motion to vacate a settlement agreement will be denied “[a]bsent a showing a lack of 

formal consent, fraud, mistake, or some similar ground.” Id.

The Estate presents two grounds that it contends meet

this standard. First, it relies on the doctrine of mutual mistake of fact, arguing that “the parties’ belief that the Estate’s 

debt to the Children had been finally determined” by the 

2007 Waiver Agreement “was a basic factual assumption underlying the April 2012 Settlement.” It was a basic factual 

assumption, the Estate argues, because “the parties negotiated the April 2012 Settlement as a percentage of the Original 

Deduction that arose directly out of the” 2007 Waiver 

Agreement. As it turns out, the Estate argues, the amount 

actually paid by the Estate to the children was not finalized 

by the 2007 Waiver Agreement, and so the settlement was 

reached while the parties were mistaken about a key “fact.”

A contract can be voided under the doctrine of mutual 

mistake if, at the time the contract was made, both parties 

were mistaken “as to a basic assumption on which the contract was made,” and the mistake “has a material effect on 

the agreed exchange of performances.” United States v. Williams, 198 F.3d 988, 944 (7th Cir. 1999) (citing Restatement 
No. 14-1216 9

(Second) of Contracts § 151(1) (1981)). Here, though, we 

struggle to see how the finality of the Estate’s payments to 

the children could have been a basic factual assumption underlying the settlement when the amount the Estate wanted 

to deduct ($14 million) was different from the amount the 

Estate agreed to pay the children in the 2007 Waiver Agreement ($20 million). (Recall that the Estate attempted to deduct less than the full amount that it paid to Ward.) The Estate has not explained how or why it chose the $14 million 

amount, so we don’t know how or even if it would have 

changed if the amount originally paid to the children had 

been different. 

More fundamentally, though, “rules governing rescission 

for either mutual or singular mistake are inapplicable where, 

as here, a party’s erroneous prediction or judgment about 

future events is involved.” United States v. Sw. Elec. Coop., 

Inc., 869 F.2d 310, 315 (7th Cir. 1989). The Estate failed to 

foresee the children’s lawsuit; there was no fact about which

the parties were both mistaken at the time they reached the 

settlement. The Estate had made a $14 million deduction 

claim. Both parties knew this at the time, and it was a key 

background fact when the settlement was reached. It was 

true at the time, and the fact that the Estate now wants to 

claim a larger deduction does not render the previous deduction amount false. And that $14 million claim—not the 

amount actually paid to the children—was the basis for the 

Commissioner’s settlement offer. The Commissioner surely 

did not care how much was actually paid to the children or 

whether that amount was final; rather, he cared only about 

the amount claimed by the Estate as a deduction. 
10 No. 14-1216

Second, as we alluded to above, the Estate’s argument is 

contrary to the very nature of settlements. Consider a lawsuit arising out of a car accident, in which the plaintiff, after 

consulting with an auto mechanic, initially claims $1000 in 

damages. The defendant does not think he is actually liable, 

but fears a large jury verdict and offers to settle for 40% of 

the plaintiff’s claim ($400). The plaintiff accepts the settlement, but a couple of weeks later her car breaks down, and 

she discovers that the damage from the accident was more 

extensive than she initially thought—closer to $2000. Under 

the Estate’s theory, the plaintiff could then try to vacate the 

settlement because the parties were “mistaken” as to a 

“fact”—i.e., that the amount of damage to the plaintiff’s car 

had been finally determined at the time of the settlement. 

But, of course, that’s not right: by agreeing to a settlement, 

the plaintiff waived any right to later argue that she actually 

deserved more than she previously asked for. It makes no 

difference that the settlement was calculated as a percentage 

of the amount claimed by the plaintiff—all monetary settlement amounts can be expressed as a percentage of the 

amount claimed by the plaintiff. 

The Estate’s second argument in favor of setting aside the 

settlement is its claim that the Commissioner made a misrepresentation during settlement negotiations by knowingly 

omitting a material fact—specifically, that the children 

“might initiate a new lawsuit against the estate.” The Estate 

asserts that, at some time between February and April 2012 

(before the settlement was reached), the Commissioner’s 

counsel spoke with Billhartz’s daughter Jean, and Jean stated 

that she was considering consulting with an attorney to see if 

she could sue the Estate. 
No. 14-1216 11

An alleged misrepresentation by omission will only void 

a contract when the omitting party “knows that disclosure of 

the fact would correct a mistake of the other party as to a 

basic assumption on which the party is making the contract.” Jordan v. Knafel, 880 N.E.2d 1061, 1071–72 (Ill. App. Ct. 

2007)2 (citing Restatement (Second) of Contracts § 161(b) 

(1981)). All the Commissioner knew, however, was that Jean 

might sue. The Estate, of course, knew that as well—anyone 

might sue at any time, especially people who have a colorable argument that they were shorted millions of dollars from

their father’s estate. Jean’s statement was far too nebulous to 

cause the Commissioner to know that disclosure of the 

statement would correct any mistaken assumption made by 

the Estate; a plan to consider speaking to a lawyer is a far cry 

from a concrete plan to sue. Moreover, regardless of what 

the Commissioner knew about Jean’s plans, he did not know 

the Estate’s beliefs regarding the likelihood that she would 

sue, and therefore he could not have known that disclosing 

Jean’s plans would have corrected a mistaken belief held by 

the Estate. 

Additionally, the Estate was in a much better position 

than the Commissioner to anticipate the children’s litigation, 

meaning that the Commissioner’s omission likely wouldn’t 

have changed the Estate’s views regarding the likelihood of a 

lawsuit. In their state court suits, the children claimed that 

the Estate had fraudulently induced them into accepting the 

2007 Waiver Agreement. If those claims were valid, the Estate should have expected a lawsuit; if it committed fraud, it 

certainly would have known. On the other hand, it is possi-

 2 Both parties agree that Illinois law applies to the contract aspects of this 

case.
12 No. 14-1216

ble that the children’s claims were meritless. In that case, it is 

possible that the lawsuits came as a surprise to the Estate

and that the Commissioner’s knowledge regarding Jean’s 

plans could have alerted the Estate to the possibility of a 

suit. But, in that scenario, the Commissioner’s omission 

would have been harmless, as the Estate would not have had 

to make further payments to the children.3

Finally, aside from the Dorchester test, the Estate argues 

that the Tax Court, by refusing to delay entry of its decision 

until after the state court cases had been adjudicated, violated Treasury Regulation § 20.2053-4(a)(2), which states, 

“Events occurring after the date of a decedent’s death shall 

be considered in determining whether and to what extent a 

deduction is allowable under section 2053.” As is clear from 

its plain language, however, this regulation was irrelevant in 

this case, as the Tax Court never made a determination as to 

“whether and to what extent a deduction [was] allowable.” 

Rather, the parties’ settlement conclusively established the 

amount that the Estate could deduct. It was not the province 

of the Tax Court to determine whether this amount was correct.4

 3 There was, of course, ultimately a settlement in the children’s cases, but 

that does not change the analysis. Perhaps no fraud occurred, and the 

Estate chose to settle in order to dispose of the cases. The Estate’s choice 

to voluntarily pay the children extra money should not affect the Commissioner’s right to what was agreed upon in the settlement in this case. 

Or, perhaps there was fraud, and the children gave up the possibility of a 

larger payday in favor of a settlement. In that case, the Estate should 

have predicted the suit, meaning that any omission by the Commissioner 

was harmless.

4 The Estate also argues that the Tax Court abused its discretion by not 

stating its reasons for rejecting the Estate’s claims of mutual mistake and 
No. 14-1216 13

III. Conclusion

The Tax Court did not abuse its discretion in denying the 

Estate’s motion to vacate the parties’ settlement. The judgment of the Tax Court is therefore AFFIRMED.

 

misrepresentation. This argument was raised for the first time in the Estate’s reply brief, and therefore we will not consider it, as “it is wellsettled that arguments first made in the reply brief are waived.” TAS Distrib. Co., Inc. v. Cummins Engine Co., Inc., 491 F.3d 625, 630 (7th Cir. 2007).