T.C. Memo. 1996-306

UNITED STATES TAX COURT

MAYER AND NINETTE STISKIN, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 36140-86. Filed July 8, 1996.

In 1980, P became a limited partner in a tax

shelter limited partnership. In 1986, the Commissioner

issued a notice of deficiency for 1982 relating to

deductions claimed in connection with the limited

partnership, and Ps filed a petition in this Court. In

1988, 2 years after the case was docketed in this

Court, Ps signed a Form 906, "Closing Agreement on

Final Determination Covering Specific Matters." 

Held: The closing agreement did not oust this

Court of jurisdiction.

Held, further, the closing agreement itself was in

any event void because signed on behalf of the IRS by

an Associate Chief of Appeals who did not have the

authority to enter into a closing agreement in a case

docketed in this Court. Delegation Order No. 97 (Rev.

19), 47 Fed. Reg. 19842 (May 7, 1982); Delegation Order

No. 225 (Rev. 1), 52 Fed. Reg. 13008 (Apr. 20, 1987).
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1 Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue. All

Rule references are to the Tax Court Rules of Practice and

Procedure.

Peter L. Ente, for petitioners.

Marcie B. Harrison, for respondent.

MEMORANDUM OPINION

RAUM, Judge: The Commissioner determined a deficiency in

petitioners' 1982 Federal income tax in the amount of $7,686, and

additions to tax and increased interest as follows:

Sec. 6653(a)(1)1 Sec. 6653(a)(2) Sec. 6661 Sec. 6621

 $384.30 50% of the interest $768.60 120% of the

due on $7,686 adjusted rate

This matter is before us on the Commissioner's Motion for Summary

Judgment and/or Entry of Decision and Petitioners' Motion for

Leave to File Amendment to Petition.

Petitioners, Mayer and Ninette Stiskin, are husband and

wife. They resided in New York, New York, at the time their

petition in this case was filed. Use of the word petitioner in

the singular will refer to petitioner husband. In 1980,

petitioner became a limited partner in Opal Leasing Associates

("Opal Leasing" or "the partnership"), a limited partnership. 

His interest in Opal Leasing continued at least into 1982.

On June 13, 1986, the Commissioner issued a notice of the

foregoing deficiency to petitioners for the taxable year 1982. 
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The notice of deficiency disallowed losses claimed by petitioners

from Opal Leasing on the ground that petitioner was not "at risk"

within the meaning of section 465 with respect to his investment

in the partnership. 

Petitioners filed their petition with this Court on

September 8, 1986. Subsequently, on March 4, 1988, they signed a

Form 906, "Closing Agreement on Final Determination Covering

Specific Matters". The form was signed by the IRS

representative, Associate Chief, NYC Appeals, on March 24, 1988.

Under the closing agreement, petitioners were entitled to an

ordinary deduction from taxable income for 1980 in the amount of

$6,027, "being equal to 100% of taxpayer's investment in the

partnership". The agreement further provided that petitioners

were not entitled to any deductions of losses or credits in

connection with Opal Leasing for any other taxable year. Also,

petitioners would not be liable for additional interest under

section 6621(c) or for any additions to tax on any portion of any

deficiency arising under the closing agreement. 

The IRS did not immediately implement the closing agreement. 

Meanwhile, there was pending in this Court a tax shelter case

involving facts similar to those present here, Thornock v.

Commissioner, 94 T.C. 439 (1990). In that case this Court found

that, as here, the initial nonrecourse financing, the guarantees

made to the partners by other participants in the transaction,

together with other features of the transaction, such as the
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essentially offsetting nature of the various lease and note

payments, resulted in a protection against loss for the limited

partners under section 465(b)(4). Id. at 450-452. The Court

held that the limited partners in the partnership there involved,

Tiger Lily, had no real economic liability on the partnership

debt, and hence were not "at risk" with regard to the partnership

notes. Therefore, the taxpayers were not entitled to flowthrough deductions on their income tax returns for those years. 

Id. at 450. Both Opal Leasing and Tiger Lily were 2 of

approximately 160 partnerships included in the so-called EMC

Equipment Leasing Project. The Commissioner contends that the

financial structure of the transaction in Opal Leasing is

factually indistinguishable from the financial structure of the

transactions in Thornock for purposes of section 465(b)(4).

Subsequent to the decision in Thornock, this Court decided

another case involving equipment leasing, Waters v. Commissioner,

T.C. Memo. 1991-462, affd. 978 F.2d 1310 (2d Cir. 1992). Waters

concerned taxpayers who invested in partnerships the financial

structures of which were similar to those in Thornock, in that

the partnerships used nonrecourse financing, guarantees, and the

offsetting of lease and note payments. This Court held that the

taxpayers in Waters were not "at risk" within the meaning of

section 465(b)(4) with respect to their investment in the

equipment leasing transaction. The Second Circuit affirmed,

holding that the result was required, as in Thornock, by the
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initial nonrecourse financing and the guarantees made to the

partners by other participants in the transaction, together with

other features of the transaction, such as the essentially

offsetting nature of the various lease and note payments. Id.

The Commissioner contends that the financial structure of the

transaction in Opal Leasing is indistinguishable from the

financial structure of the transactions in Waters for purposes of

section 465(b)(4).

 On March 24, 1994, the IRS sent petitioners proposed

decision documents, based on the decision in Thornock v.

Commissioner, 94 T.C. 439 (1990), reflecting the terms of the

closing agreement. On September 9, 1994, the IRS sent

petitioners a letter reminding them that they had failed to sign

and return the proposed decision documents and requesting that

they do so as soon as possible. When petitioners did not return

the signed decision documents, the Commissioner filed a motion

for summary judgment to enforce the terms included in both the

closing agreement and the proposed decision documents. 

Petitioners filed a response to the motion for summary judgment

as well as their own motion for leave to amend their petition. 

In each, they contend, in reliance upon section 7121(b)(2), that

"Entry of Decision in this docketed case would have the

prohibited effect of setting aside the Closing Agreement". No

such contention had previously been made, and petitioners' motion

to amend their petition seeks for the first time to inject the
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2 In substance, by preventing this Court from entering a

(continued...)

issue in the case, in an attempt to oust this Court of

jurisdiction over the entire case.

Section 7121(b)(2) provides that in any legal proceeding, a

closing agreement "shall not be annulled, modified, set aside, or

disregarded." Petitioners' position appears to be that since the

parties settled using the closing agreement, the Tax Court is

deprived of the power to determine the amount of the deficiency. 

In the motion for leave to amend their petition, petitioners

argue, in substance, that by affirmatively pleading the closing

agreement, the Court would be without jurisdiction and would be

required to dismiss the case. According to petitioners, a

closing agreement coupled with affirmative pleading ousts the Tax

Court of jurisdiction pursuant to section 7121(b).

Petitioners challenge only the enforcement of the closing

agreement by this Court. They do not respond to the Government's

position that their case is factually indistinguishable from

Thornock v. Commissioner, 94 T.C. 439 (1990), or Waters v.

Commissioner, supra. Nor do they contest the amount of the

deficiency agreed to in the closing agreement. But they do press

the highly dubious contention that even though this Court

obtained jurisdiction by the filing of their petition (on

September 8, 1986), it would be divested of jurisdiction by the

subsequent (March 1988) closing agreement.2 
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2(...continued)

decision against them, petitioners obviously seek to prevent the

Commissioner from assessing a deficiency against them based upon

the closing agreement, because a closing agreement standing alone

arguably may not give the Commissioner the right to make an

assessment absent a waiver by petitioners. Cf. sec. 6213(a).

First, the jurisdictional point may be dealt with summarily. 

Once the Court, as here, has jurisdiction, it may not thereafter

be divested of jurisdiction. See, e.g., Main-Hammond Land Trust

v. Commissioner, 17 T.C. 942, 956 (1951), affd. 200 F.2d 308 (6th

Cir. 1952); Browning v. Commissioner, T.C. Memo. 1974-80. 

Second, petitioners' position is based upon the untenable

assumption that there was a valid closing agreement to begin

with. In our judgment, no valid closing agreement was even

entered into. The closing agreement here involved was signed by

the Associate Chief, NYC Appeals, who had no authority to do so

on behalf of the Commissioner.

Delegation Order No. 97 provides that "Chiefs and Associate

Chiefs of Appeals Offices * * * are hereby authorized in cases

under their jurisdiction (but excluding cases docketed before the

United States Tax Court) to enter into and approve a written

agreement with any person relating to the Internal Revenue tax

liability of such person * * * for a taxable period or periods

ended prior to the date of agreement and related specific items

affecting other taxable periods." (Emphasis added.) Delegation

Order No. 97 (Rev. 19), 47 Fed. Reg. 19842 (May 7, 1982), was
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3 Delegation Order No. 225 provides as follows:

1. The Associate Commissioner (Operations), Assistant

Commissioners (Examination) and (International),

Regional Commissioners, Assistant Regional

Commissioners (Examination), District Directors,

Service Center Directors, and Compliance Center

Director, Chiefs, Examination Division, and Examination

Managers and Supervisors GM-13 and GM-14 in Districts,

Service Centers and Compliance Center are hereby

authorized in cases under their jurisdiction to enter

into and approve a written agreement with any person

relating to the Internal Revenue liability, of such person (or of

the person or estate for whom he/she acts) to close pre-ERTA tax

shelter commodity issues 

* * * and other tax shelter initiative issues based on

settlement positions reached by Chief Counsel or

Appeals on the specific shelter where the initial

investment was made prior to January 1, 1983. These

agreements will be executed on * * * Form 906, Closing

Agreement on Final Disposition Covering Specific

Matters. The authority delegated herein extends only

to tax shelter issues, including penalties or related

statutory issues that must be adjusted due to

settlement of the tax shelter issues. * * *

2. The authorities contained in this order * * *

amends and supplements Delegation Order No. 97 (as

revised). * * *

amended and supplemented by Delegation Order No. 225 (Rev. 1), 52

Fed. Reg. 13008 (Apr. 20, 1987), effective Oct. 31, 1987.3 Read

together, these delegation orders preclude specified officers of

the IRS, including Associate Chiefs of Appeals, from entering

into closing agreements regarding tax shelter cases docketed in

the Tax Court, where, as here, the investment was made prior to

January 1, 1983. Webb v. Commissioner, T.C. Memo. 1994-549,

affd. without published opinion 68 F.3d 482 (9th Cir. 1995).
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4 Even if the response and the motion for leave to amend are

considered separately, petitioners' motion for leave to amend

should be denied in any event. Rule 41(a) allows a party to

amend its petition within 30 days after it is served or by leave

of the Court if "justice so requires". We note that 10 years

have passed since the original petition was filed, and 8 years

have passed since petitioners signed the closing agreement

admitting their liability for the taxes involved here. Granting

petitioners' motion might have the anomalous result of relieving

(continued...)

An agreement entered into by an unauthorized act of an agent

of the United States is null and void. "[T]he United States is

not bound by the unauthorized acts of its agents, nor is it

estopped to assert lack of authority as a defense." Dorl v.

Commissioner, 507 F.2d 406, 407 (2d Cir. 1974), affg. per curiam

T.C. Memo. 1973-145. The closing agreement in this case was

executed by an Associate Chief of Appeals. Since the case was

already docketed in the Tax Court when the closing agreement was

signed, the Associate Chief of Appeals here did not have

authority to sign the closing agreement on behalf of the

Commissioner. Thus, the closing agreement is void. Dorl v.

Commissioner, supra at 407; Webb v. Commissioner, T.C. Memo.

1994-549.

Both Petitioners' Response to Respondent's Motion for

Summary Judgment and petitioners' motion for leave to amend are

based on the closing agreement. Both raise the same point: That

because of the closing agreement, the Court lacks jurisdiction

pursuant to section 7121 and must dismiss the case. Since the

closing agreement is void, these arguments must fail.4
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4(...continued)

them of liability for taxes they have admitted they owe. See

supra note 2. To paraphrase Rule 41(a), justice does not so

require here.

 

5 Although the closing agreement is void and the notice of

deficiency would appear to control, we will not order that

petitioners be liable for the additions to tax or increased

interest. The IRS in its Memorandum of Law in support of its

motion for summary judgment concedes the issue. It states "Based

upon the foregoing, it is prayed that the Court enter a decision

reflecting a deficiency in the amount of $7,686.00 for the

taxable year 1982, with no additions to tax pursuant to I.R.C. §§

6653(a)(1), 6653(a)(2) and 6661."

Petitioners do not now dispute the substance of the

transaction, nor do they now appear to challenge their liability

for the deficiency, additions to tax, and increased interest

determined in the notice of deficiency.5 We note that although

the closing agreement is void, granting the motion for summary

judgment or entering a decision in favor of the Commissioner in

fact ironically implements the terms of the closing agreement,

upon which petitioners rely in their attempt to prevent the Court

from entering a decision against them.

To reflect the foregoing,

An order will be entered

granting the Commissioner's

motion for summary judgment

and denying petitioners'

motion for leave to file

amendment to petition.