T.C. Memo. 1996-357

UNITED STATES TAX COURT

ROBERT W. AND PATRICIA A. WILLIAMS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 9954-87. Filed August 6, 1996.

Larry Kars, for petitioners.

Cheryl B. Harris, for respondent.

MEMORANDUM OPINION

WRIGHT, Judge: This matter is before the Court on

respondent's motion for entry of decision in accordance with a

stipulation of settlement (the stipulation) filed October 11,

1994. We must decide whether the subject decision should reflect

several adjustments that are not reflected in the stipulation. 
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1Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect during the years at issue,

and all Rule references are to the Tax Court Rules of Practice

and Procedure.

Background

Petitioners resided in Pittsburgh, Pennsylvania, when they

petitioned the Court. This case is part of respondent's tax

shelter litigation project entitled "Scheer". Scheer involves a

partnership organized to purchase and market video tapes. By

notice of deficiency dated January 27, 1987, respondent

determined deficiencies in, additions to, and increased interest

on petitioners' Federal income tax as follows:1

 Additions to Tax and Increased Interest 

Year Deficiency Sec. 6653(a)(1) Sec. 6653(a)(2) Sec. 6659 Sec. 6621(c) Sec.

6661

1981 $24,350.02 $1,217.50 1 $6,945.76 2 ---

1982 24,586 1,229.30 1 5,310.60 2 $1,721

1 50% of the interest due on the deficiency.

2 120% of the interest payable under sec. 6601. 

In the stipulation, petitioners agreed to be bound by the

test case entitled Pinto v. Commissioner, docket No. 17407-86. 

This Court entered a decision in the Pinto case on January 18,

1995. The stipulation provides:

With respect to all adjustments in respondent's

notice of deficiency relating to the Scheer Project tax

shelter, more specifically, the limited partnership

entitled Richard II, Ltd., the parties stipulate to the

following terms of settlement:

1. THE ABOVE ADJUSTMENTS ARE THE ONLY ISSUES IN

THIS CASE WITH RESPECT TO ALL PARTIES;

2. The above adjustments, as specified in the

preamble, shall be redetermined by application of the
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same formula as that which resolved the same tax

shelter adjustments with respect to the following

taxpayers:

Names: Melvin and Barbara Pinto

Tax Court Docket No.: 17407-86

(hereafter the CONTROLLING CASE)

3. All issues involving the above adjustments

shall be resolved as if the petitioners in this case

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 I.R.C. §

7481;

* * *

The parties agree to this STIPULATION OF SETTLEMENT.

Respondent filed a motion for entry of decision with this

Court on October 30, 1995. Attached as an exhibit to said motion

was a decision document (the Document) that respondent claims to

be in accordance with the stipulation. By Order dated November

7, 1995, the Court directed petitioners to show cause why

respondent's above-referenced motion should not be granted. 

Petitioners filed their response on December 13, 1995. They

contend that respondent's determinations involve incorrect

calculations and suggest that corrections are necessary before a

decision can be entered in this case. More specifically,

petitioners claim that respondent's determination omits various

ordinary losses, fails to recognize an investment tax credit
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carry-forward, and does not fully account for an itemized

deduction involving a sales tax.

By Order dated April 16, 1996, the Court directed respondent

to address petitioners' above-referenced response. On June 10,

1996, respondent filed her response. Respondent principally

argues that petitioners are bound by the stipulation, and the

objections raised in petitioners' above-referenced response

amount to new issues that are not now before the Court. 

Respondent, however, concedes petitioners' sales tax argument.

Discussion

The general principles of contract law govern the compromise

and settlement of tax cases. In essence, settlement stipulations

are contracts, and this Court is bound to enforce them. Stamos

v. Commissioner, 87 T.C. 1451, 1454 (1986). During the process

of negotiation, each party agrees to concede rights that may be

asserted against his or her adversary as consideration for those

secured in the agreement. Saigh v. Commissioner, 26 T.C. 171,

177 (1956). We enforce settlement stipulations unless justice

requires otherwise. Adams v. Commissioner, 85 T.C. 359, 375

(1985); Saigh v. Commissioner, supra. We also enforce

stipulations where the parties agree to be bound by the outcome

of a test case. Hillman v. Commissioner, T.C. Memo. 1982-468. 

In determining the proper meaning of the terms of settlement, we

look to the language of the stipulation and the circumstances
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surrounding its execution. Robbins Tire & Rubber Co. v.

Commissioner, 52 T.C. 420, 435-436 (1969). 

Petitioners ask the Court to instruct respondent to prepare

a decision document that incorporates several noncomputational

adjustments. We decline to do so. The adjustments sought by

petitioners are not addressed in the stipulation and involve

issues that are not now before the Court. The stipulation is

clear and shows that the parties agreed to resolve this case in

the manner set forth therein. It was incumbent upon petitioners'

counsel to understand the significance of the stipulation before

agreeing to it on behalf of petitioners. The stipulation was

voluntarily entered into and must be given binding effect. The

interests of justice do not require otherwise. The parties

struck a bargain in the stipulation, and petitioners must live

with both its benefits and burdens. 

Respondent requests that the Court impose against

petitioners and their counsel a penalty pursuant to section

6673(a)(1) and (2). In support of this request, respondent

contends that petitioners advanced arguments primarily for the

purpose of delaying entry of decision. In the exercise of our

discretion, we shall not grant respondent's request.

To reflect the foregoing, 

An appropriate order will be issued

granting respondent's motion for

entry of decision, and decision

will be entered accordingly.