1 Cases of the following petitioners are consolidated

herewith: Transpac Drilling Venture 1982-21, Asher Fensterheim

and Charles L. Pincus, Partners Other Than the Tax Matters

Partner, docket No. 22689-87; Transpac Drilling Venture 1982-21,

Asher Fensterheim, A Partner Other Than the Tax Matters Partner,

docket No. 19104-88; and Transpac Drilling Venture 1982-15,

Thaddeus A. and Stella M. Dukes, Partners Other Than the Tax

Matters Partner, docket No. 5791-90. 

T.C. Memo. 1996-208

UNITED STATES TAX COURT

TRANSPAC DRILLING VENTURE 1982-21, ASHER FENSTERHEIM, CHARLES L.

PINCUS, THOMAS D. CALLAHAN, DONALD W. DVORAK, AND THOMAS J.

WILLIAMS, PARTNERS OTHER THAN THE TAX MATTERS PARTNER,

ET AL.,1 Petitioners v.COMMISSIONER OF

INTERNAL REVENUE, Respondent

Docket Nos. 29181-86, 22689-87, Filed April 30, 1996.

 19104-88, 5791-90.

Stafford Smiley and Graeme W. Bush, for Asher Fensterheim.

Victoria J. Kanrek, Mary Ann Amodeo, and Anthony H. Jones,

for respondent.
2

MEMORANDUM FINDINGS OF FACT AND OPINION

CLAPP, Judge: These cases are before us on Asher

Fensterheim's Motion to Dismiss for Lack of Jurisdiction as to

Asher Fensterheim and to Strike (Fensterheim's Motion to Dismiss)

on the ground that he has entered into settlement agreements with

respondent pursuant to section 6224(c)(1) and, as a result, is no

longer a party to these proceedings pursuant to section

6226(d)(1)(A). The issue for decision is whether Asher

Fensterheim (Fensterheim) entered into settlement agreements with

respondent in Transpac Drilling Ventures 1982-15 and 1982-21 for

the taxable years 1982, 1983, and 1984. We hold that he did not.

All section references are to the Internal Revenue Code as

in effect for the years in issue, and all Rule references are to

the Tax Court Rules of Practice and Procedure.

FINDINGS OF FACT

These cases are consolidated for trial, briefing, and

opinion for the limited purpose of disposing of Fensterheim's

Motion to Dismiss. Some of the facts have been stipulated and

are found accordingly. We incorporate by reference the

stipulations of facts and attached exhibits.

Asher Fensterheim, resided in White Plains, New York, when

the petitions for readjustment of partnership items in these

cases were filed. Fensterheim is an attorney who specializes in

commercial law and insolvency.
3

During the taxable year 1981, Fensterheim was a partner in

Transpac Drilling Venture 1981-10 (Transpac partnership 1981-10),

docket No. 9906-90. Fensterheim's interest in Transpac

partnership 1981-10 resulted in a separate Tax Court case in

which a decision has been entered. Fensterheim's Motion to

Dismiss now before the Court does not involve Transpac

partnership 1981-10. Transpac partnership 1981-10 was not

subject to the unified audit and litigation procedures set forth

in sections 6221 through 6233 (the TEFRA provisions) enacted by

the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-

248, sec. 402(a), 96 Stat. 648, and amended retroactively by the

Deficit Reduction Act of 1984, Pub. L. 98-369, sec. 714(p)(1), 98

Stat. 494, 964.

During the taxable years 1982, 1983, and 1984, Fensterheim

was a partner in Transpac Drilling Ventures 1982-1, 1982-15, and

1982-21 (Transpac partnerships), and these Transpac partnerships

were subject to the TEFRA provisions. The principal place of

business of the Transpac partnerships was 230 Park Avenue, New

York, New York. Fensterheim and respondent agree that they have

settled Fensterheim's interests in the items related to Transpac

partnership 1982-1 for each of the years in issue. Items

relating to Transpac partnerships 1982-15 and 1982-21 remain at

issue for purposes of Fensterheim's Motion to Dismiss.

Transpac partnerships 1982-1, 1982-15, and 1982-21 were part

of respondent's Transpac national litigation project. Respondent
4

had assigned Michael Goldbas (Goldbas) as the lead attorney on

that project. The project encompassed over 2,000 partners, and

Goldbas was responsible for the administration and litigation of

the Transpac project.

Respondent mailed the tax matters partners of Transpac

partnerships 1982-15 and 1982-21 Notices of Final Partnership

Administrative Adjustments that set forth adjustments determined

by respondent for the taxable years 1982, 1983, and 1984.

In a letter dated September 25, 1990 (September 25th

letter), respondent mailed Fensterheim a separate Settlement

Agreement for Partnership Adjustments and Affected Items (Form

870-L(AD)) for each Transpac partnership, 1982-1, 1982-15 and

1982-21. Relevant portions of the September 25th letter state:

In re: Settlement of Tax Matters

Relating to Transpac

Drilling Venture

Dear Transpac Investor:

You are probably aware that the Service has

developed a settlement proposal with respect to matters

relating to the disallowance of the losses (and

credits) you reported from your Transpac Drilling

Venture. The pending settlement offer is that you

concede the full disallowance of all reported

partnership losses (and credits) and the Government

will concede all penalty issues. The interest on the

tax deficiencies resulting from this settlement will

run at 120% of the prevailing rate pursuant to I.R.C. §

6621(c).

* * * * * * *

In order to process the above described settlement

you must complete the enclosed form 870-L(AD) * * * in

the following manner: First, complete the section * *
5

* of the form entitled "Taxpayer(s) name(s), address

and zip code." * * *

* * * * * * *

Second, sign the form twice in the spaces entitled

"Signature of Taxpayer" and set forth the date you

signed the agreement. * * *

* * * * * * *

Please note that you are not obligated to accept

the above described settlement. After you have signed

and transmitted the enclosed forms, however, you will

not be able to retract your acceptance of the

settlement offer. * * *

* * * * * * *

After we receive the executed Form 870-L(AD) * * *

the form will be reviewed and executed by the Internal

Revenue Service. The settlement is not final until the

enclosed forms are signed by a representative of the

Internal Revenue Service. 

The September 25th letter also set forth the address to which the

completed forms should be mailed.

The Form 870-L(AD) contains the following language: "the

undersigned offers to enter into a settlement agreement"; "This

offer is subject to acceptance for the Commissioner"; "Unless and

until it is accepted, it will have no force or effect"; "If this

offer is accepted for the Commissioner"; and "Date accepted for

Commissioner".

In November 1990 at Fensterheim's law offices, Fensterheim

met with Goldbas on a matter unrelated to these cases. When the

meeting ended, Fensterheim and Goldbas met privately to discuss

Fensterheim's Transpac partnerships. The two met for about 30
6

minutes and discussed the September 25th letter, the forms that

Fensterheim received from respondent, and the procedure for

settling Fensterheim's interests in the Transpac partnerships.

Sometime after the November 1990 meeting, Fensterheim asked

Goldbas what the deficiencies would be if Fensterheim agreed to

settle in each of the Transpac partnerships. In a letter to

Fensterheim dated February 13, 1991, Goldbas sent computations of

Fensterheim's tax deficiencies for the taxable years 1982 through

1985 based on the disallowance of losses and deductions from the

Transpac partnerships, 1982-1, 1982-15, and 1982-21. Fensterheim

asked his accountant, John Milo (Milo), to review the

computations.

Milo recalculated the tax deficiencies shown in Goldbas'

letter of February 13, 1991, and mailed the recalculated figures

to Goldbas in a letter dated March 14, 1991.

On May 10, 1991, Goldbas mailed Fensterheim a stipulated

decision for Transpac partnership 1981-10 and a revised

computation of the tax deficiencies for the years 1982 through

1985 based on the disallowance of losses and deductions from

Transpac partnerships 1982-1, 1982-15, and 1982-21. The relevant

portion of Goldbas' May 10, 1991, letter states:

Pursuant to your request we have computed the

deficiencies for the 1982, 1983, and 1984 years

resulting from the disallowance of Transpac Drilling

Venture losses. As you are aware, you are a petitioner

in the partnership actions that control the 1982, 1983,

and 1984 tax years relating to the Transpac Drilling

Ventures in which you are a partner. You wanted a
7

computation before you executed the consent form which

will result in the settlement of your Transpac Drilling

Venture losses. These computations account for the

matters raised in your accountant's letter of March 14,

1991. Your accountant agreed with our computation of

the tax deficiencies for the 1983 and 1984 years and

requested that we consider certain items that related

to the 1982 year that were allegedly not considered in

the original computations that we submitted to you on

February 13, 1991. Accordingly, as agreed, you will

execute the agreements relating to the assessment for

the 1982 through 1985 tax years as soon as possible.

In light of the status of the current partnership

actions, we will provide 30 additional days for the

execution of the Form 870-L agreements that we have

provided in order to resolve the tax deficiencies

relating to Transpac partnership items for the 1982

through 1985 years.

Milo reviewed the computations, revised them, and mailed the

revised computations to Goldbas in a letter dated June 3, 1991.

After unsuccessful attempts to reach Goldbas by phone,

Fensterheim sent a letter to Goldbas via Federal Express dated

June 7, 1991, stating that he wanted to discuss the various

settlement documents. After receiving Fensterheim's letter,

Goldbas called Fensterheim, and they discussed the various

documents.

On June 10, 1991, Fensterheim and his wife executed the Form

870-L(AD) for Transpac partnership 1982-1. They also executed

the stipulated decision for Transpac partnership 1981-10. 

Fensterheim gave the executed documents to his secretary, Apryl

Deshler (Deshler).

On June 14, 1991, Fensterheim was in Boston, and he called

Deshler and instructed her to send the Form 870-L(AD) for
8

Transpac partnership 1982-1 and the stipulated decision document

relating to Transpac partnership 1981-10 to Goldbas. Deshler

prepared a cover letter dated June 14, 1991, and she signed

Fensterheim's name on his behalf. The relevant portion of the

letter states:

Re: Asher and Deborah Fensterheim

Transpac Drilling Venture

1982-1 

 Tax Years 1982, 1983, and 1984

Dear Mr. Goldbas:

In accordance with our telephone conversation, I

am forwarding to you form 870-L(AD) Settlement

Agreement for Partnership Adjustments and Affected

Items, which has been signed by both Asher Fensterheim

and Deborah Fensterheim.

I also enclose four copis [sic] of the Stipulation

and Decision in the Tax Court case, Docket No. 9906-90,

which has likewise been signed by both Asher

Fensterheim and Deborah Fensterheim.

I would appreciate your calling me upon receipt of

the enclosed as I would like to discuss with you what

the next steps will be.

On June 14, 1991, Deshler mailed a package to Goldbas that

contained the following: (1) The cover letter dated June 14,

1991, signed on behalf of Fensterheim by Deshler; (2) an executed

Form 870-L(AD) related to Transpac partnership 1982-1 for the

taxable years 1982, 1983, and 1984, bearing Fensterheim's and his

wife's original signatures, together with the accompanying

Schedule of Adjustments; and (3) the stipulated decision for

Transpac partnership 1981-10 bearing Fensterheim's and his wife's
9

original signatures. Fensterheim did not examine the contents of

this package.

 Deshler did not testify at trial, and Fensterheim made no

attempt to contact Deshler to ascertain whether she had any

recollection of the events that transpired on June 14, 1991.

Respondent received the package mailed by Deshler and

processed the executed Form 870-L(AD) for Transpac partnership

1982-1 and the stipulated decision for Transpac partnership 1981-

10. Respondent's personnel had no personal knowledge and no

recollection of the package's being received or of the contents

of the package.

On July 22, 1991, respondent's authorized representative

countersigned the Form 870-L(AD) for Transpac partnership 1982-1,

and a copy of the countersigned Form 870-L(AD) was sent to and

received by Fensterheim. Fensterheim was aware that respondent

had 1 year from the date of settlement to assess his partnership

liabilities.

In October 1991, respondent filed two Notices of Settlement

with the Court. Each Notice of Settlement related to Transpac

partnership 1982-1. The Notices of Settlement indicated that

Fensterheim and respondent had entered into a binding settlement

on July 22, 1991, as to all partnership items related to Transpac

partnership 1982-1. Respondent served the Notices of Settlement

on Fensterheim. At no time did respondent file with this Court,

or serve on Fensterheim, any Notice of Settlement for
10

Fensterheim's partnership items in Transpac partnership 1982-15

or Transpac partnership 1982-21.

Respondent has no record of having received from Fensterheim

in 1991 an executed Form 870-L(AD) for either Transpac

partnership 1982-15 or Transpac partnership 1982-21.

In 1991 and 1992, respondent's Albany District Counsel

maintained settlement logs that constituted a record of documents

pursuant to Rule 248(c) received from Internal Revenue service

centers. During those years, respondent's Albany District

Counsel did not maintain a log reflecting: (1) Communications

from taxpayers about possible settlements; (2) receipt of Forms

870-L(AD) submitted by taxpayers; or (3) Forms 870-L(AD) received

from taxpayers by respondent's service centers.

On March 11, 1992, respondent attempted without success to

deliver to Fensterheim informal discovery requests for Transpac

partnership 1982-21. Respondent delivered these documents to

Fensterheim on June 23, 1992.

In a letter to Goldbas dated July 30, 1992, Fensterheim

stated that he had settled the various Transpac partnerships and

had paid the deficiencies.

In a letter to Fensterheim dated August 28, 1992, Rosalyn C.

Shaughnessy (Shaughnessy), a paralegal in respondent's Albany

District Counsel office, advised Fensterheim that respondent's

records indicated that Fensterheim and respondent had settled
11

Transpac partnership 1982-1 but not Transpac partnerships 1982-15

and 1982-21.

In a letter to Shaughnessy dated September 9, 1992,

Fensterheim stated that he had settled his interests in each

Transpac partnership, 1982-1, 1982-15, and 1982-21. Fensterheim

enclosed with his letter copies of three Forms 870-L(AD), one for

each Transpac partnership, 1982-1, 1982-15, and 1982-21. 

Fensterheim's and his wife's signatures appeared on each of the

Forms 870-L(AD), but there were no signatures by respondent's

authorized representative.

In a letter to Fensterheim dated October 13, 1992, Goldbas

informed Fensterheim that duplicate settlement packages for the

Transpac partnerships 1982-15 and 1982-21 would be sent to him

and that he should execute and return them to the Andover Service

Center. Fensterheim did not execute these duplicate settlement

documents.

OPINION

Under the TEFRA provisions, the tax treatment of partnership

items is decided at the partnership level in a unified

partnership proceeding rather than separate proceedings for each

partner, Boyd v. Commissioner, 101 T.C. 365, 369 (1993), and

"affected items", items affected by the treatment of partnership

items (e.g. certain additions to tax), only can be assessed

following the conclusion of the partnership proceeding. See sec.

6225(a); Maxwell v. Commissioner, 87 T.C. 783, 791 n.6 (1986). 
12

The assessment of tax attributable to partnership items of a

partnership subject to the TEFRA provisions shall be made with

respect to any partner during the period provided by section

6229(a) through (f). A settlement agreement converts partnership

items to nonpartnership items, and the partner that enters into

the settlement agreement is no longer treated as a party in the

partnership proceeding. Secs. 6226(d)(1)(A), 6231(b)(1)(C). The

period for assessment shall not expire before 1 year after the

settlement agreement is entered into. Sec. 6229(f).

Fensterheim argues that by virtue of settlement agreements

entered into with respondent for Transpac partnerships 1982-15

and 1982-21, he is no longer a party to these partnership

proceedings. Respondent argues that Fensterheim and respondent

have not entered into settlement agreements in Transpac

partnerships 1982-15 and 1982-21, and, therefore, Fensterheim

remains a party to these partnership proceedings.

General contract law principles govern tax case settlements. 

Robbins Tire & Rubber Co. v. Commissioner, 52 T.C. 420, 435-436,

supplemented by 53 T.C. 275 (1969); Smith v. Commissioner, T.C.

Memo. 1991-412. Where the intent of the parties to settle is

evident and the terms of the settlement are otherwise

ascertainable, then a tax settlement agreement may be binding

even if it consists only of letters of offer and acceptance. 

Treaty Pines Invs. Partnership v. Commissioner, 967 F.2d 206, 211

(5th Cir. 1992); Haiduk v. Commissioner, T.C. Memo 1990-506. 
13

Fensterheim argues that respondent's September 25th letter

constitutes an offer and that sometime prior to May 10, 1991, he

orally accepted respondent's offer. Respondent argues that the

September 25th letter does not constitute an offer. We agree

with respondent.

The September 25th letter explains that, in order to process

the settlement, the taxpayer must complete the Form 870-L(AD),

sign the Form 870-L(AD), and mail the completed Form 870-L(AD) to

respondent at a specified address. We conclude that the

September 25th letter did not constitute an offer to Fensterheim

from respondent. The September 25th letter outlines the

settlement proposal and the steps necessary to complete the

settlement. In addition, the September 25th letter must be read

in light of the Form 870-L(AD). The language set forth in the

Form 870-L(AD) reinforces the conclusion that the September 25th

letter does not constitute an offer from respondent. See Estate

of Ray v. Commissioner, T.C. Memo. 1995-561; Gillilan v.

Commissioner, T.C. Memo. 1993-366; H Graphics/Access, Ltd. v.

Commissioner, T.C. Memo. 1992-345; Brookstone Corp. v. United

States, 74 AFTR 2d 6025, 94-2 USTC par. 50,474 (S.D. Tex. 1994),

affd. without published opinion 58 F.3d 637 (5th Cir. 1995).

Assuming, arguendo, that Fensterheim received an offer from

respondent, Fensterheim has failed to show that he accepted the

alleged offer. Fensterheim asserts that he orally accepted

respondent's offer, but he sets forth no facts to support this
14

conclusion. The communications that took place between September

25, 1990, and May 10, 1991, related to ascertaining final

computations and making clear the steps necessary to achieve a

settlement. The purpose was to satisfy Fensterheim and answer

his questions preliminary to signing the Forms 870-L(AD). 

Nothing that transpired constituted a settlement agreement. 

Fensterheim relies entirely on the language in the May 10, 1991,

letter from Goldbas stating: "Accordingly, as agreed, you will

execute the agreements relating to the assessment for the 1982

through 1985 tax years as soon as possible." The quoted language

does not indicate that a settlement had been reached.

In the letter of May 10, 1991, Goldbas stated "You wanted a

computation before you executed the consent form which will

result in the settlement of your Transpac Drilling Venture

losses" and "we will provide 30 additional days for the execution

of the Form 870-L agreements that we have provided in order to

resolve the tax deficiencies relating to the Transpac partnership

items for the 1982 through 1985 years." This language indicates

that no settlement had been reached between Fensterheim and

respondent as of that date. Nothing in Goldbas' letter indicates

that a settlement had been reached or would be reached without

the Forms 870-L(AD).

Fensterheim next argues that on June 14, 1991, Deshler

mailed respondent three executed Forms 870-L(AD), one for each

Transpac partnership, 1982-1, 1982-15, and 1982-21. Fensterheim
15

contends that respondent somehow lost the Forms 870-L(AD) for

Transpac partnerships 1982-15 and 1982-21. Fensterheim concludes

that respondent's failure to process the Forms 870-L(AD) for

Transpac partnership 1982-15, and 1982-21 does not affect the

validity of the settlements. Respondent contends that the

package mailed by Deshler did not contain executed Forms 870-

L(AD) for Transpac partnerships 1982-15 and 1982-21.

Fensterheim has not shown that the package mailed by Deshler

contained executed Forms 870-L(AD) for Transpac partnerships

1982-15 and 1982-21. The cover letter dated June 14, 1991,

signed by Deshler on behalf of Fensterheim contains the following

caption:

Re: Asher and Deborah Fensterheim

Transpac Drilling Venture

1982-1

Tax Years 1982, 1983, and 1984

The body of that letter states "I am forwarding to you form 870-

L(AD) Settlement Agreement for Partnership Adjustments and

Affected Items, which has been signed by both Asher Fensterheim

and Deborah Fensterheim." The caption and the quoted sentence

refer to a single Form 870-L(AD), which supports respondent's

argument that the package mailed by Deshler did not contain Forms

870-L(AD) for Transpac partnerships 1982-15 and 1982-21. The

signed stipulated decision for the already settled Transpac

partnership 1981-10 was also forwarded with this letter. The

signed stipulated decision for Transpac partnership 1981-10 was
16

mentioned in the body of the letter but not in the caption. It

was processed in due course and is not in issue here. We find it

improbable that Deshler would include the Forms 870-L(AD) for

Transpac partnerships 1982-15 and 1982-21 without comment in the

caption or the body of the letter, particularly where the Form

870-L(AD) for Transpac partnership 1982-1 and the stipulated

decision for Transpac partnership 1981-10 were so clearly

identified.

Fensterheim had no personal knowledge of what Deshler mailed

to respondent on June 14, 1991. He was out of town at the time. 

Fensterheim did not produce Deshler at trial, and Fensterheim has

failed to show that he made a reasonable attempt to locate

Deshler. Fensterheim testified that his inquiry into Deshler's

whereabouts consisted of checking his telephone index for her

number. Fensterheim testified that Deshler had moved "out West",

but that he made no attempt to locate her through telephone

listings or any other means. Under these circumstances, we infer

that, had Fensterheim produced Deshler to testify at trial, her

testimony would have been unfavorable to him. Wichita Terminal

Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162

F.2d 513 (10th Cir. 1947). We also note that Fensterheim's

accountant, Milo, was not called to testify. He might have been

able to shed some light on the discussions, the extent and timing

of Fensterheim's tax knowledge, and Fensterheim's intent.
17

Fensterheim should have been well aware that he had not

settled Transpac partnerships 1982-15 and 1982-21. In October

1991, respondent served Notices of Settlement on Fensterheim that

indicated a settlement of all partnership items related to

Fensterheim's interests in Transpac partnership 1982-1. 

Fensterheim also received a copy of the Form 870-L(AD) related to

Transpac partnership 1982-1 that had been countersigned by

respondent's authorized representative. Fensterheim received no

such Notices of Settlement or Forms 870-L(AD) related to Transpac

partnerships 1982-15 and 1982-21, and Fensterheim never inquired

as to whether these documents would be forthcoming.

Respondent's authorized representative countersigned the

Form 870-L(AD) for Transpac partnership 1982-1 on July 22, 1991. 

Fensterheim was aware that respondent had 1 year from the date of

settlement to assess his partnership liabilities. We do not

consider it a coincidence that Fensterheim's letter of July 30,

1992, to Goldbas was the first indication that Fensterheim

considered his interests in Transpac partnerships 1982-15 and

1982-21 settled.

We conclude that the package mailed by Deshler on June 14,

1991, did not contain executed Forms 870-L(AD) for Transpac

partnerships 1982-15 and 1982-21.

Fensterheim next argues that the copies of the Forms 870-

L(AD) for Transpac partnerships 1982-15 and 1982-21 that he

mailed to respondent on September 9, 1992, served to "ratify and
18

reaffirm" the settlement he had reached with respondent. This

argument is without merit.

Fensterheim's letter of September 9, 1992, did not purport

to be a settlement. It was merely correspondence in which

Fensterheim alleged that all of his interests in the Transpac

partnerships had been settled in 1991.

Respondent's authorized representative did not execute the

Forms 870-L(AD) for Transpac partnerships 1982-15 and 1982-21,

and we have found that there were no settlement agreements for

Transpac partnerships 1982-15 and 1982-21 for Fensterheim to

"ratify and reaffirm".

Subsequent to Fensterheim's letter of September 9, 1992,

Goldbas sent a duplicate set of settlement documents to

Fensterheim covering Transpac partnerships 1982-15 and 1982-21,

which Fensterheim ignored. If Fensterheim had intended finally

to consummate the settlement in September 1992, as suggested in

his alternative argument, he could easily have done so by signing

the duplicate set of settlement documents.

Fensterheim was his own only witness. He was clear and

positive regarding facts favorable to him, but vague and cavalier

with respect to matters adverse to him. He seemed to know the

difference. He was well prepared. After listening to

Fensterheim's testimony and observing him on the stand, we do not

find his version of the facts to be believable. We conclude that
19

Fensterheim developed a well thought-out scheme to slip one (or

two) by respondent. It did not work.

We hold that Fensterheim and respondent did not enter into 

settlement agreements for Transpac partnerships 1982-15 and 1982-

21 for the taxable years 1982, 1983, and 1984, and Fensterheim

remains a party to these partnership proceedings.

To reflect the foregoing,

An Order will be issued denying

Fensterheim's Motion to Dismiss.