T.C. Memo. 1996-358

UNITED STATES TAX COURT

JOHN W. AND MARY ANNE ANTOINE, ALBERT G. AND LOUISE A. CHURIK, 

JOHN R. AND SUSAN E. ROSS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 27533-87. 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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1Although petitioners received separate deficiency notices,

they filed a collective petition.

2Unless 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 John and Mary Anne Antoine resided in Bryan,

Texas, when they petitioned the Court. Petitioners Albert and

Louise Churik resided in New Kensington, Pennsylvania, when they

petitioned the Court. Petitioners John and Susan Ross resided in

Pittsburgh, Pennsylvania, when they petitioned the Court.1 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

June 2, 1987, respondent determined deficiencies in, additions

to, and increased interest on petitioners John and Mary Anne

Antoine's Federal income tax as follows:2

 Additions to Tax and Increased Interest 

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

1982 $9,951 $497.55 1 $2,179.27 2

1 50% of the interest due on the deficiency.

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

By notice of deficiency dated June 8, 1987, respondent determined

deficiencies in, additions to, and increased interest on

petitioners Albert and Louise Churik's Federal income tax as

follows:
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Additions to Tax and Increased Interest 

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

1981 $5,207 $260.35 1 $1,529.40 2

1982 4,148 207.40 1 948.60 2

1 50% of the interest due on the deficiency.

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

By notice of deficiency dated June 10, 1987, respondent

determined deficiencies in, additions to, and increased interest 

on petitioners John and Susan Ross' Federal income tax as

follows:

 Additions to Tax and Increased Interest 

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

1981 $6,362 $318.10 1 $1,908.60 2

1982 4,035 201.75 1 1,210.50 2

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

same formula as that which resolved the same tax

shelter adjustments with respect to the following

taxpayers:
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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) which 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 January 16, 1996. 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 John and Mary Anne Antoine maintain that their notice

of deficiency does not reflect income-averaging and fails to

account properly for a sales tax deduction. 
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Petitioners Albert and Louise Churik claim that their

deficiency notice does not reflect their pro rata share of a

partnership deduction that stems from a guaranteed payment and

fails to account properly for a sales tax deduction. Petitioners

John and Susan Ross claim that their notice of deficiency does

not reflect their pro rata share of a partnership deduction that

stems from a guaranteed payment, does not reflect incomeaveraging, fails to account properly for a sales tax deduction,

and fails to account accurately for an investment tax credit in

1981. 

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 agreement,

and the objections raised in petitioners' above-referenced

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

Respondent, however, concedes petitioners John and Mary Anne

Antoine's claim to a sales tax deduction. Respondent also

concedes petitioners John and Susan Ross' arguments regarding the

investment tax credit and the sales tax deduction.

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
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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

surrounding its execution. Robbins Tire & Rubber Co. v.

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

Petitioners request that we instruct respondent to prepare a

decision document that incorporates several noncomputational

adjustments. We decline this invitation. The adjustments sought

by petitioners are not addressed in the stipulation agreement 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 its content 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, and petitioners

must live with its benefits and burdens.
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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.