T.C. M em o . 2 0 1 7 -8 4

UNITED STATES TAX COURT

NEIL L. WHITESELL AND TRACY L. WHITESELL, Pet it io n ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 2 6 2 30 -1 5
. Fi l edM ay 1 8 , 2 0 1 7
.
Nei l L. Wh it es el l an dTracy L. Wh i t es el l , p ro s e. J o el D. M cM ah an , fo r res p o n den t .

M EM ORANDUM OPINION PARIS, J u d g e: Ina n o t ice o f d efi ci en cy res p o n den td et erm i n edd efi ci en ci es i n p et i ti o n ers ’ Fed eral i n co m e t ax o f $ 2 ,8 6 2 , 0 5 4 an d$ 8 1 ,8 93 fo r 2 0 1 1 an d 2 0 1 2 ,- 2
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[* 2 ] res p ect i v el y . Res p on d en t al s o d et erm i n edan ad d i t i o n t o t ax fo r fai l u re t o t i m el y fi l e u nd er s ect i o n 6 6 51 (a)(1 ) 1 o f $ 6 9 6 , 2 0 6 .5 0 fo r 2 0 1 1
. OnOct o b er 2 0 , 2 01 6 , res p o nd en tfi l eda m o t io n fo r p art ial s u m m ary ju d g m en tu n d er Ru l e 1 2 1
. Th e i s s u es are: (1 ) wh et h er t h e ex p irat i o n o f t he p eri o d s o f l i m i t at io n fo r as s es s m en t o f d efi ci en ci es at tri bu t ab l e t o th e S
co rp o rat i o ns ’ i n co m e b arred res p o n d en tfro m d et erm i n i n g fl o wth ro u g h i n co m e fo r M r. Wh i t es el l fro m

h i s wh o l l y

o wn edS co rp o rat i on s an d(2 ) wh et h er p et i t i o n ers
an d res p on d en t en t eredi n t o a co n tract s et t l i n g p et i t i o n ers ’ i n co m e t ax l iab i l i t i es fo r 2 0 1 1 an d 2 0 1 2. Th e Co u rth o l d s fo r res p o nd en t o n b ot h i s s u es an dwi l l g ran t
res p o n d en t’ s m o t i o n fo r p art i al s u m m ary ju d g m en t . Back gro u n d Th e Co u rtd eri v es th e fo l l o wi n g fact s fro m th e p art i es ’ p l ead in g s an d
m o ti o n p ap ers , i n cl ud i n g ex h i b i t s an daffi dav i t s . Th ey are s t at eds o l el y

fo r t h e p u rp os e o f d eci d i n g res p o n den t ’ s m o ti o n fo r p art i al s u m m ary ju dg m en t an d n o tas fi nd i ng s o f fact i n th i s cas e. See Ru le 1 (b ); Fed . R. Ci v . P. 5 2 (a); Co o k v
.

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de i n effect fo r t h e y ears i n i s s u e, an dal l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re.- 3
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[* 3 ] Co m m i s s i o n er, 1 1 5 T.C. 1 5 , 1 6 (2 0 0 0 ), aff’ d , 2 6 9 F.3 d 8 54 (7 th Ci r. 2 0 0 1 ). Pet i t io n ers res i d edi n Fl ori da wh en th ey t im el y fi ledth ei r p et i t io n . 2 I. Pet i t i o ners ’ 2 0 1 1 an d2 0 1 2 Fed eral Tax Return s OnOct o b er 1 2 , 2 01 2 , p et i t i on ers fi l ed th ei r Fo rm 1 04 0 , U.S. In d i vi du al In co m e Tax Return , fo r 2 0 11 . OnOct o b er 1 5 , 2 0 13 , p et i t io n ers fi ledth ei r Fo rm 1 0 4 0 fo r 2 01 2. Res p o n d en ti s su edt o p et i t i o n ers a n o t i ce o f d efi ci en cy fo r t h ei r 2 0 11 an d 2 0 1 2 t ax y ears o n J u l y

2 7 , 2 0 1 5 . Th e ad

j u s t m en t s i n t h e n o t ice o f d efi ci en cy i n cl u d edam o u n ts thatfl o wedth ro u g h fro m M r. Wh i t es el l ’ s wh o ll y

o wn edS
co rp o rat i o ns --Wh i t es el l In t ern at i o nal Co rp . (W IC), NLW Ho l d i n g s , LLC (NLW ), 3
an d Wh it es el l Co rp . W IC an dNLW

fi ledth ei r Fo rm s 1 1 2 0S, U.S. In co m e Tax Retu rn fo r an S Co rp o rat i o n , fo r 2 0 1 1 o n Sep t em b er 1 7, 2 0 1 2 . NLW

fi l edi ts Fo rm

1 1 2 0 S fo r 2 0 1 2 o n Sep t em

b er 1 6 , 2 0 1 3
. Res p o n den td i dn o ti s s u e a n o t i ce o f d efi ci en cy t o
an y o f M r. Wh i t es el l ’ s S co rp o rat i o n s .

2 Ab s en ta s t i p u l at io n t o t h e co n trary , th i s cas e i s ap p eal ab le t o t h e U.S. Co u rto f Ap p eal s fo r t h e El ev en th Ci rcu i t, an dth e Co urtfo l l ows p reced en to f t h at co u rtthati s s quarel y

o n p o in t . See s ec. 7 4 8 2 (b ); Go l sen v . Co m m i ss i o n er, 5 4 T.C. 7 4 2 (1 9 7 0 ), aff’ d , 4 4 5 F.2 d9 8 5 (1 0 th Ci r. 1 9 7 1 ).

3 Th e p art i es h av e s t i pu l at edth at du ri n g al l rel ev an t t i m es NLW Ho l d i n g s , LLC, i s a S co rp o rat i o n fo r Fed eral i n co m e t ax p u rp o s es .- 4
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[* 4 ] II. Pet i t i o ners ’ Offer-i n -Co m p ro m i s e OnDecem

b er 2 8, 2 01 5 , aft er t h ei r p et i ti o n was fi l edwi th th e Co u rt , 4 p et i t i o n ers m ai l edt o th e In t ern al Rev en ue Serv ice (IRS) a m o d i fi edFo rm 6 5 6 -L, Offer i n Co m

p ro m i se (Do ubtas t o Li ab i l i ty ) (OIC), fo r th ei r Fed eral i n co m e t ax l i ab i l i t i es fo r 2 0 06 th ro ug h 2 0 12 , i n cl u d i ng l i ab il i ti es res u lt i n g fro m the rel at ed fl owt h ro u g h en t i t ies
. Pet it i o n ers s ub s t an t i al l y m o d i fi edth e t erm s an dco n d i t i o n s
o f t h e Fo rm

6 56 -L b y cro s s i n g o u ts en t en ces i n s ub s ect i o n s (b ) an d(d ) an d
cro s s i n g o u ten t irel y

s ub s ect i o ns (k ), (l ), an d(m ). Al o ng wi th t h ei r OIC, p et i t i o n ers t en dered a $ 3 m il li o n ch eckas s at i s fact i on o f t h ei r 2 0 06 th ro ug h 2 0 1 2 t ax l i ab i l i t i es . 5

4 Th e p et it i o n was fi l edo n Oct o b er 2 1 , 2 01 5
. 5 In th ei r res p on s e t o res p o n d en t ’ s m o t i o n fo r p art i al s u m m ary ju d g m en t , p et i t i o n ers s t at ed th atth e $ 3 m i l l i o n was a cal cu l at i on o f t h e t ax wi th i n t eres tt o a s p eci fi c d at e. Pet it io n ers d i dn o treq u es tfro m the IRS an am o u ntt o p ay o ff t h ei r o u t s t an d i n g t ax l i ab i l i t i es .- 5
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[* 5 ] Th e IRS recei v edthei r OIC an dd ep os i t edth e $ 3 m i l l i o n ch eck
. 6 A few week s l at er, o n J an u ary

2 1 , 2 0 1 6 , th e IRS s en tp et i t i o ners a l et t er i nfo rm i n g th em th ati twas retu rn i ng th ei r OIC. OnFeb ru ary 9 , 2 0 16 , th e IRS s en t p et i t io n ers
an o th er l et t er co n fi rm i n g th ati th adcl o s edi t s fi l e o n th ei r OIC an d was i n th e p ro ces s o f refu n d i n g t h ei r $ 3 m i l li o n d ep o s itb ecau s e o f t h e m o d i fi edt erm s an d
co n di t i o n s . Pet i t i on ers h av e n o tp ro v i d edth i s Co u rtwi th a co p y o f t h e ret u rn ed ch eck , b u tth ey

d i dp ro v i d e a b an kacco u n ts t at em en trefl ect i ng a d ep os i to f $ 3
m i l l io n o n Ap ri l 8 , 2 0 16
. Di s cu ss i o n Su m m ary ju d g m en ti s i n t en d edt o ex p ed i te l i t i g at i o n b y av o i d i n g
u n n eces saryan dex p en s iv e t ri al s . Fl a. Peach Co rp . v . Co m m is s i o n er, 9 0 T.C. 6 78 , 6 8 1 (1 98 8 ). Su m

m ary ju dg m en ti s ap p ro p ri at e i f t he p l ead i n g s , an s wers t o i n t erro g at o ri es , d ep os i ti on s , ad m i s s i o n s , an dan y o th er accep tab l e m at eri al s , t o g et h er wi th t h e affi d av i t s , i f an y , s h o w thatth ere i s n o g en ui n e i s s u e as t o an y

6 Th es e fact s are i n ferred i n fav o r o f p et i t i o n ers b ecau s e t hi s cas e i s b efo re th e Co u rto n res p o n d en t ’ s m o t io n fo r p art i al s u m m ary ju dg m en t . See Naft el v . Co m m i s s i o n er, 8 5 T.C. 5 27 , 5 2 9 (1 9 8 5 ). Th ey are d eri v edfro m a l eg al m em o ran du m

s ub m i t t edwi th p et i t i o n ers ’ res p o n s e. Th e m em o ran du m was n o t ad dres s edt o p et it i o n ers an d was p rep aredb y a l aw fi rm

th ati s n o trep res en t i n g p et i t i o n ers b efo re t hi s Co u rt . Inad d i t i o n , th e IRS co rres po n d en ce d at edJ an u ary 2 1 an dFeb ru ary

9 , 2 0 16 , referen cedi n th e m em oran du m h av e n o tb een p ro v i d ed t o thi s Co u rt .- 6
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[* 6 ] m at eri al fact an dth ata d eci s i o n m ay b e ren d ered as a m at t er o f l aw. Ru l e 1 2 1 (b ); Su n ds tran dCo rp . v . Co m m i ss i o ner, 9 8 T.C. 5 1 8 , 5 2 0 (1 9 9 2 ), aff’ d , 1 7 F.3 d9 6 5 (7 th Ci r. 1 9 9 4); Naft el v . Co m m i s s i o n er, 8 5 T.C. 5 2 7 , 5 29 (1 9 8 5 ). Part ial s u m

m ary ad ju d i cat i o n m ay

b e m ad e wh i ch d oes n o t d is p o s e o f al l i s s u es i n th e cas e. Naft el v . Co m

m i s s i o ner, 8 5 T.C. at5 2 9; s ee al so Ru l e 1 2 1 (b ). Th e
m o vi n g p art y

b ears th e b urd en o f p ro v in g th atn o g en u i n e i s s u e o f m at eri al fact
ex i s t s an dth ata d eci s i o n m ay b e ren d eredas a m at t er o f l aw. Naft el v . Co m m i s s i o n er, 8 5 T.C. at 5 2 9
. In d eci d i ng wh et her t o g ran ts u m m ary ju d g m en t , the Co urtv i ews th e fact u al
m at eri al an di n feren ces drawnfro m th at m at eri al i n th e l i gh tm o stfav orab l e t o th e
o p p o s i n g p art y . Id . Ho wev er, t h e p arty o p p o si ng s u m

m ary ju d g m en tm ay

n o t
s i m p l y res tup o n th e m ere al l eg at i o n s o r d en i al s o f h i s p lead i ng s . Th e ad v ers e p art y m u s t s etfo rt h s p eci fi c fact s , i n affi d av i ts o r o th erwi s e, s h o wi n g the ex i s t en ce
o f a g en u i n e i s s u e fo r t ri al . Ru l e 1 2 1 (d ); Cel o tex Co rp . v . Cat ret t , 4 7 7 U.S. 3 1 7 , 3 2 2 (1 98 6 ). Pet i t i o ners h av e n o ti d en t i fi edd i s p ut es as t o an y g en u i n e i s s u e o f m at eri al fact rel at edt o th e i s s u es i n res p o n d en t ’ s m o t i o n fo r p art i al s u m m ary ju d gm en t . Acco rd in g ly , p art i al s u m m ary ju d g m en t i s ap p ro p ri at e i n th is cas e.- 7
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[* 7 ] I. Wh et h er t he Peri o d s fo r As s es sm en tHav e Ex p i red Res p o n d en td et erm i n edth at M r. Wh i t es el l h adfl o wth ro ug h i n co m e at tri b u t ab l e t o i n co m e o ri g i nat i n g i n tran s act i o n s o f s ep arat e t ax ab l e S
co rp o rat i o ns . Pet it i o n ers arg u e t h atth e S co rp orat io n s ’ p eri o d s fo r as ses s m en t
s h o u ldg o v ern wh et h er res p o n den tm ay m ak e a t i m el y

ad ju s t m en tt o an y

o f t h ei r Fo rm s 1 0 4 0 fo r an y

i t em rel at edt o th e co rp o rat e en t i t i es . Res p o nd en tco n t en d s th atth e p eri o dfo r as s es s m en ti s d et erm i n edb y th e t ax p ay ers ’ retu rn an dn o tb y th e ret urn s o f rel at ed en t i ti es wh o s e at tri b u t es fl o wth ro u g h t o th e t ax p ay ers ’ retu rn . Gen eral ly , th e Co m m i s s i o n er’ s au th o ri ty

t o as s es s i n co m e t ax d efi ci en ci es i s l i m i ted t o a p eri oden d i n g three y ears aft er t h e fi l i n g o f t h e t ax p ay ers ’ retu rn . See
s ec. 6 5 01 (a). “ Th e s t atu t e o f l im i t at i o n s i s an affi rm at iv e d efen s e, an d th e p art y i n t erp o s i ng i tm

us t s peci fi cal l y

p l eadi tan d carryth e b u rd eno f s ho wi ng i t s ap p li cab i l i ty .” Ro b i n so n v . Co m m i s s i o n er, 1 1 7 T.C. 3 08 , 3 1 2 (2 0 01 ); s ee Ru l e 1 4 2 ; Al d er v . Co m

m i s si o ner, 8 5 T.C. 5 3 5 , 5 4 0 (1 9 8 5 ). Gen eral ly , s t atu t es l i m i t i n g th e as s es s m en tan dco l l ect i on o f t ax are s tri ct l y co ns tru edi n t h e Go v ern m en t ’ s fav o r. Bad aracco v . Co m m i s s i o n er, 4 6 4 U.S. 3 8 6 , 3 9 1 (1 9 8 4 ). Th e p art i es fo cu s o n th e t erm “ retu rn ” i n s ect io n 6 50 1 (a): “ [T] h e am o u n t o f
* * * t ax i m

po s edb y th i s t i t l e s h al l b e as s es sedwi th i n 3 y ears aft er t h e ret u rn was- 8
-

[* 8 ] fi led ”. (Em

p h as i s ad d ed .) Here, t h e ques t i o n i s wh et h er t h e “ retu rn ” referred t o i s t h ato f t h e s h areh o l d er o r t h e S co rp o rat i o ns . Th i s Co u rth as co n s i s t en t l y h el d t hatth e rel ev an t“ return ” fo r d et erm i n i n g wh et h er t h e p eri o dfo r as s es s m en th as ex p i redu n d er s ect i o n 6 50 1 (a) i s th ato f t h e t ax p ay er wi th res pect t o wh o m th e Co m m i s s i o n er s eek s t o d et erm i n e a d efi ci en cy . See Ro b i n s o n v . Co m

m i s s i on er, 1 1 7 T.C. at3 1 3 ; Lard as v . Co m m i s s i o n er, 9 9 T.C. 4 9 0 , 4 9 3 (1 9 9 2) (an dcas es ci t edth ereat ). Th e Co u rth as reach edth at co n cl u s i o n i rres p ect i v e o f wh et h er t h e ad ju s t m en tco n cern edth e t ran s act io n s o f an ot h er en t i t y
o r wh eth er th aten t it y

was t ax ab l e. See Lard as v . Co m m i s s io n er, 9 9 T.C. at4 9 3
. Pet i t i o ners ’ arg u m en tap p ears t o fo cu s o n a p rev i o us co n fl i ctam o n g s tU.S. Co u rt s o f Ap p eal s t h ataro se aro u n d1 9 9 2 o v er wh et h er t h e p eri o dfo r as s es s m en t
o f a p as s th ro ug h co rp o rat e en t i ty o r a s hareh o l d er co n tro l l edth e Co m m i s s i o n er’ s
au th o ri ty t o d et erm i n e a d efi ci en cy fo r an i t em

fl o wi n g fro m

th e co rp o rat i o n t o the
s h areh o ld er. 7 InBu fferd v . Co m m i s s i o n er, 5 0 6 U.S. 5 2 3 (1 9 9 3), t h e Sup rem e

7 Th e U.S. Co u rt s o f Ap p eal s fo r t h e Seco n d , Fi ft h, an d El ev en th Ci rcu i t s h el dth atth e fi li n g o f t h e s h areh o l d er’ s retu rn co nt ro l l edth e p eri o dfo r as ses s m en t . See Green v . Co m

m i ss i o n er, 9 6 3 F.2 d7 8 3 (5 th Ci r. 1 9 9 2), aff’ g Bro dy v . Co m m i s s i o n er, T.C. M em o . 1 9 9 1 -7 8 ; Feh l h ab er v . Co m m i s s i o ner, 9 5 4 F.2 d6 5 3 (1 1 th Ci r. 1 9 9 2 ), aff’ g 9 4 T.C. 8 6 3 (1 9 9 0); Bu fferd v . Co m m is s i o n er, 9 5 2 F.2 d 6 7 5 (2 d Ci r. 1 99 2 ), aff’ g T.C. M em o . 1 9 91 -7 0
. Th e U.S. Co u rto f Ap p eal s fo r t h e Ni n th Ci rcu i th el dth atth e fi l i ng o f t h e p as s th ro ug h co rp o rat e en t i ty ’ s retu rn co n tro l l edth e p eri o dfo r as s es s m en t . See Kel l ey v . Co m m i s s io n er, 8 7 7 F.2 d7 56

(co n ti n u ed ...)- 9
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[* 9 ] Co u rtres ol vedthatco n fl i cti n th e co n t ex t o f a S co rp o rat i o n an di t s
s h areh o ld er b y

h o l d i n g th at ad

ju s t m en t s t o a s h areh o l d er’ s i nco m e are g o v ern edb y th e s h areh o l d er’ s p eri o dfo r as s es s m en t . Th e Sup rem e Co u rtal s o i n t erp ret edth e t erm “ retu rn ” i n s ect i o n 6 5 0 1(a) t o b e t h e ret u rn o f t h e t ax p ay er ag ai n st wh o m th e d efi ci en cy

i s d et erm i n edo r t o b e as ses s ed . Id
. at5 2 7. Aft er Bu fferd was rel eas ed , Co n g res s en act edth e Tax p ay er Rel i ef Acto f 1 9 9 7 , Pub . L. 1 0 5 -3 4 , s ec. 1 2 8 4 , 1 1 1 St at . at1 0 3 8 , wh ich i n p artam en d eds ect i o n 6 5 0 1 (a). On e o f i t s s p eci fi cal l y i n t en d edp u rp o s es was t o cl ari fy th is i s su e wi t h
res p ectt o S co rp o rat io n s . See Ro b i n s o n v . Co m m is si o n er, 1 1 7 T.C. at 3 17 (an d l eg i s lat i v e h i s to ry ci t edth ereat ). Th e l eg is l at i v e h i s t o ry ex p l ai ns th atth e n ew p ro v is i o n i s i n t en dedt o cl ari fy th atth e ret u rn th ats t art s th e ru nn i n g o f t h e p eri o d
o f l i m i t at i o n s o n as s es s m en t fo r a t ax p ay er i s t h e ret u rn o f t h e t ax p ay er an dn o tth e retu rn o f an o ther “ p ers on ” 8 fro m wh o m th e t ax pay er h as recei ved an i t em o f i n co m e, g ai n , l o s s , d edu ct i on , o r cred i t . See H.R. Rep t . No
. 1 0 5 -1 4 8 , at6 0 9 -6 1 0 (1 9 9 7), 1 9 97 -4 C.B. (Vo l . 1 ) 3 2 3 , 9 3 1 -9 3 2 ; S. Rep t . No . 1 0 5 -3 3 , at2 7 7 -2 7 8 (1 9 9 7), 1 9 97 -4 C.B. (Vo l . 2 ) 1 0 6 7 , 1 3 5 7 -1 3 5 8 ; H.R. Co nf. Rep t . No . 1 0 5 -2 2 0 , at

7 (...co n t in u ed ) (9 th Ci r. 1 9 8 9 ), rev ’ g T.C. M em o . 1 98 6 -4 0 5.

8 Sec. 7 7 0 1(a)(1 ) d efi n es “p ers o n” t o m ean an d i ncl u d e “ an i n d i v i du al , a tru s t , es tat e, p art n ers h ip , as s o ci at i o n , co m p an y o r co rp orat io n .”- 1 0 -

[* 1 0 ] 7 0 2 -7 03 (1 9 9 7 ), 1 9 97 -4 C.B. (Vo l . 2 ) 1 45 7 , 2 1 7 2-2 1 7 3 ; s ee al s o Ro b i n s o n
v . Co m m i s s i o n er, 1 1 7 T.C. at3 1 7 . Th erefo re, t h e co nt ro l l i n g retu rn fo r each p eri o do f l im i t at i o n fo r as s es sm en ti n th i s cas e i s p et it i o n ers ’ res p ect iv e Fo rm 1 0 4 0 --n otth e co rres p o n d i n g Fo rm s 1 12 0 S o f t h e rel at edS co rp o rat i o ns . Pet i t i o ners fi l edth ei r 2 0 1 1 Fo rm 1 04 0 o n Oct o b er 1 2 , 2 0 1 2 , an dth ei r 2 0 1 2 Fo rm 1 0 4 0 o n Oct o b er 1 5 , 2 0 1 3 . Th e n o ti ce o f d efi ci en cy fo r p et it i on ers ’ 2 0 1 1
an d 2 0 1 2 t ax y ears was i s s u edo n J u l y 2 7, 2 0 1 5 , wh i ch was wi th i n th e 3 -y ear p eri o do f l im i t at i o n s o n as s es s m en tfo r each y ear i n i s s u e. Acco rd in g l y , res p o n d en t i s n o tt i m e b arred fro m as s es s in g i n co m e t ax at tri b ut ab l e t o th e fl owt h ro u g h i n co m e fo r M r. Wh i t es el l fo r p et i t i o n ers ’ t ax y ears 2 0 1 1 an d2 0 1 2
. See s ec. 6 5 0 1 (a); Bu fferdv . Co m m i ss i o ner, 5 0 6 U.S. 5 2 3 ; Ro bi n s o n v . Co m m i s s i o n er, 1 1 7 T.C. at3 1 9; s ee al s o s ec. 6 5 0 3 (a) (p ro v id i n g th atthe p eri o do f l i m i tat i on s s hal l b e s u s p en d edfo r t he p eri oddu ri ng wh ich th e Secret ary i s p ro h ib i t edfro m

m ak in g the as s es s m en t o r a p ro ceed i n g i n Tax Co u rtb eco m es fi nal an dfo r 6 0 d ay s th ereaft er). II. Wh et h er Pet it i o n ers Set t l ed Th ei r 2 0 1 1 an d 2 0 1 2 In co m e Tax Li ab il i t i es In Decem b er 2 0 15 , aft er th e p et i t i o n was fi l ed , p et i t i o n ers t en d eredt o th e IRS a $ 3 m i l l i o n ch eckwi th th ei r OIC fo r t h ei r t ax y ears 2 0 0 6 th ro u g h 2 0 1 2
. Pet i t io n ers arg ue t h atu n d er t h e Un i fo rm Co m m erci al Co d e (UCC), t h ei r OIC was- 1 1 -

[* 1 1 ] accep t edwh en th e IRS n eg o t i at edth e ch eckan dd i d n o t rejectthei r OIC wi th i n 9 0 d ay s o f recei p t . Res p o n d en targ ues th atn eg o t i at i o n o f a ch eckd o es n o t
co n st i tu t e acco rdan ds at i s fact i o n an dth atth e UCC d o es n o t g o v ern th e p ower o f th e IRS t o ad m i n i s t er t h e Fed eral i n co m e t ax at i on s y s tem . On ce a cas e i s d o ck et ed i n thi s Co u rt , a wel l -s et t l edl eg al fram ewo rk ap p li es . Th atfram ewo rk co m p ri s es g en eral p ri n ci p l es reg ard in g th e en fo rcem en t
o f s et t lem en t s i n th e Tax Co u rtth atwere s eto uti n Do rch es t er In du s ., In c. v . Co m m i s s i o n er, 1 0 8 T.C. 3 2 0 , 3 3 0 (1 9 9 7) (q uo t i n g M an k o v . Co m m is si o n er, T.C. M em o. 1 9 9 5 -1 0 ), aff’ dwi th o u tp ub l i s h ed o p i n i on , 2 08 F.3 d 2 0 5 (3 d Ci r. 2 0 0 0 ), as fo l l o w s :

“ Fo r al m o s t a cen tu ry , i th as b een s et t l edth atv o lu n t ary s et t lem en to f ci v i l co n tro vers i es i s i n h i g h ju d i ci al fav o r. W i l li am s v . Fi rs t Nat l
. Ban k , 2 1 6 U.S. 5 82 , 5 9 5 (1 9 1 0 ); St . Lo u i s M i n in g & M i l l i n g Co . v . M o n t an a M i ni ng Co ., 1 7 1 U.S. 6 5 0 , 6 5 6 (1 8 9 8 ). A v al i ds et t l em en t , o n ce reach ed , can n otb e rep u d i at edb y ei th er p art y , an d aft er t h e p art i es h av e en t ered in t o a b i nd i ng s et t l em en t ag reem en t , th e act u al m eri t s o f t h e s et t l edco n tro v ers y are wi th o u tco n s equen ce. Th i s Co u rt h as d ecl i nedt o s etas i d e a s et t l em en tdu l y ex ecu t edb y th e p art i es an d fi ledwi th th e Co u rti n the ab s en ce o f frau do r m u tu al m i st ak e. St amm In t l
. Co rp . v . Co m

m is s i o n er, 9 0 T.C. 3 1 5 (1 98 8 ); Sp ect or v . Co m m is s i o n er, 4 2 T.C. 1 1 0 (1 9 6 4 ). Ho wev er, a co u rtwi l l n o tfo rce a s et t l em en to n p art i es wh ere n o s et t l em en twas i nt en d ed . Au t era v . Ro b in s o n , 4 1 9 F.2 d1 1 9 7 (D.C. Ci r. 1 9 6 9 ).”

“ A s et t l em en ti s a co n tract an d , co n s equ en t l y , g en eral p ri n ci p l es o f co n tractl aw d et erm i n e wh et h er a s et t lem en th as b een reach ed
. Ro b bi n s Ti re & Rubb er Co . v . Co m m is s i o n er, 5 2 T.C. 4 2 0 , 4 3 5 -4 3 6 ,- 1 2 -

[* 1 2 ] s up p l em en t ed b y

5 3 T.C. 2 75 (1 9 6 9 ). A p rereq u i s i t e t o the fo rm at i on o f a co n tract i s an o b

ject i v e m an i fes t at i o n o f m u tu al as s en tt o i t s es s en t i al t erm s . Hei l v . Co m m i s s i o n er, T.C. M em o . 1 9 9 4 -4 1 7 ; 1 7 A Am . J ur. 2 d , Co nt ract s , s ecs . 2 7 an d 2 8 (1 9 9 1 ); 1 W i l li s t o n o n Co n tract s , s ec. 3 : 5 (4 th ed .1 9 9 0 ). M u tu al as s en t g en eral l y req u ires an o ffer an d an accep t an ce. 1 7 A Am . J u r. 2 d , Co n tract s, s ec. 4 1 (1 9 9 1). ‘ A n o ffer i s the m an i fes t at i o n o f wi l li n g nes s t o en ter i n t o a b arg ai n , s o m ad e as t o ju s t ify

an ot h er p ers o n i n u n ders t an d in g th ath i s as sen t t o th atb arg ai n i s i n v i t edan dwi l l co n cl u d e i t . ’ 1 Res t at em en t , Co n tract s 2 d , s ec. 2 4 (1 98 1 ).” See al s o M cM u l l env . Co m m i ss i o n er, T.C. M em o. 2 0 1 5 -2 1 9 ; FPL Gro up , In c. v . Co m m i s s i o n er, T.C. M em o . 2 0 0 8 -1 4 4
. In o rd er fo r the Co u rtt o d et erm i n e th atth e p art i es en tered i n t o a v al id
s et t l em en t , th e Co u rtm

u s td et erm i n e as a p rereq u is i t e wh et h er t h e p art i es
o b ject i vel y m an i fes t edm

utu al as s en tt o s et t l e p et i t i on ers ’ i n co m e t ax l i ab i l i t i es fo r 2 0 1 1 an d2 0 1 2 . Inth i s Co u rt , d ep en d i n g o n th e fact s an dci rcu m s t an ces o f a cas e,
m u tu al as s en tcan b e o b

j ect iv el y m an i fes t edb y

co n ces s i o n s , co m

p ro m i s es , an d
s et t l em en t s an d m em o ri al i zedi n v ari o u s way s , i n cl u d i n g the p art i es ’ ex ecu t i o n o f
a s t i p u l at i o n o f s et t l ed i s s u es o r a s t i p u l at i o n o f s et tl em en t . “ [A] s et t l em en t
s t ip u l at i o n i s i n al l es s en t i al ch aract eri st ics a m u tual co n tract b y

wh i ch each p art y g ran t s t o th e o th er a co n ces si o n o f s o m e ri g h t s as a co ns i d erat i o n fo r th os e s ecu red
an d th e s et tl em en t s t i p u l at i on i s en t i t l edt o al l o f t he s an ct i ty o f an y o th er
co n tract . ” Sai g h v . Co m

m i s s i o n er, 2 6 T.C. 1 7 1 , 1 7 7 (1 9 5 6 ); M cM u l l en v .- 1 3 -

[* 1 3 ] Co m

m i s si o n er, at * 3 . Ho wev er, a s et t l em en tag reem en tm ay b e reach ed th ro u g h o ffer an daccep tan ce m ad e b y l et t er, o r ev en i n the ab s en ce o f wri t i n g . See Do rch es t er In du s ., In c. v . Co m m i s s i o n er, 1 0 8 T.C. at3 3 0 ; Hai dukv . Co m m i s s i o n er, T.C. M em o . 1 9 9 0 -5 0 6 (h o l d in g th atfo rm al s t i p u l at io n s o f
s et t l em en tare n o tab s o l u t e p rereq u i s i tes t o an ag reem en t t o s et t le i f t h e p art i es ’ i n t en tan dth e s et t l em en t t erm s are o th erwi s e as cert ai n ab l e). Th e p art i es h av e n o tfi l edwi th th e Co urtan y d o cu m en tm em ori al i zi n g
s et t l em en to f t he i s s u es fo r p et i t i o n ers ’ t ax y ears 2 0 1 1 an d2 0 1 2 , n or h av e t h e p art i es m an i fes t edm

u tu al as s en tth ro u gh an o ffer an daccep t an ce. Pet i t io n ers arg u e t h atth ei r s ub m i ss io n o f th e OIC wi th t h e $ 3 m i l li o n ch eck , t o get h er wi th th e IRS’ n eg o t i at i o n o f t he ch eck , co n s t i tut edan acco rdan ds at i s fact i o n u n der t h e UCC an dth u s m eet s th e m utu al as s en treq ui rem en t fo r a co n tract . Ho wev er, t h e U.S. Go vern m en t , as the s o v erei g n , i s n o tb o u n db y s u ch St at e s t atu t es as th e UCC. See Bu rn etv . Harm el , 2 8 7 U.S. 1 0 3 , 1 1 0 (1 9 3 2 ); Tex . Learn i ng Tech . Grp
. v . Co m m i s s i o n er, 9 6 T.C. 6 8 6, 6 9 3 (1 9 9 1 ), aff’ d , 9 5 8 F.2 d1 2 2 (5 th Ci r. 1 9 9 2 ); Bear v . Co m

m i ss io n er, T.C. M em o . 1 9 9 2 -6 9 0 , 1 9 9 2 W L 3 5 4 00 4 , at* 2 , aff’ d wi th o u tp ub l i s hedo p i n i o n , 1 9 F.3 d 2 6 (9 th Ci r. 1 99 4 ). In an y ev en t , p et i ti o n ers ’ s ub m i s s io n o f t h e OIC o n Decem b er 2 8 , 2 01 5 , d o es no ti l l u s trat e t h e IRS’ as s en t . By l et t er d at ed J anu ary

2 1 , 2 0 1 6 , th e IRS- 1 4 -

[* 1 4 ] n o t i fi edp et i t i o n ers thatth ei r OIC wo ul db e ret u rn ed al o n g wi th th ei r $ 3
m i l l io n d ep o s i t. Th e IRS al s o n o t i fi edp et i t i o n ers i n a s eco n d l et t er d at edFeb ru ary 9 , 2 01 6 , th atth e reas o n fo r reject i n g th e OIC was p et i t io n ers ’ m o d ify i n g i t s t erm s
an d co n d i t i o n s . Un d er a co n tract l aw an al y s i s , res p o n d en treject edp et i t i o n ers ’
o ffer; th u s , there was n o s et t l em en t . See, e.g ., An g le v . Co m m i s s io ner, T.C. M em o. 2 0 1 6 -2 7
. Pet i t i o ners fu rt h er arg ue t h atb y cas h i n g th ei r ch eck , th e IRS accep t edth ei r OIC. Th i s arg um en ti s i n co rrect . Th e IRS cas h i n g a ch eckd o es n o tn eces s ari l y
m ean th atth e IRS h as accep t edth e o ffer. See Cu rri er v . Co m m i ss i o n er, T.C. M em o. 2 0 1 1 -1 1 3 (h o l d i n g t h atth e t ax p ay er’ s ch eckd i dn o tco ns t i tu t e fu l l p aym en t o f h i s t ax l i ab i li t i es an dth e t ax p ay er d i dn o ten ter i n t o a b i nd i n g ag reem en twi th th e Co m

m i s s i o n er t o co m

p ro m is e h i s t ax l i ab i l i t i es ); Keh ew v . Co m m i s s i o n er, T.C. M em o . 1 9 8 3 -3 5 4 (h o l d in g th atth e s i m p l e accep t an ce an d
cas h i n g o f a ch eckt en dered b y a t ax p ay er d o es n o t rep res en ta fi nal d et erm i n at i on b i n d i n g up o n th e Go vern m en tas th e reci pi en to f th e fu n d s ). Ad d it i on al l y , p et i t i o n ers u n d ers to o d atth e t i m e t h ey s ub m i t tedth ei r OIC th atth ei r p aym en t co u ldb e ret u rn ed . Onth ei r m o d i fi ed Fo rm 6 5 6 -L, p et i t i o n ers
o ffered t o p ay $ 3 m i l l i o n an dh an dwro t e “ p u rs u an tt o s ect io n 4 Term s - 4 b ”. Sect i o n 4 (b ) o f t h e Term s s t at es : “ If t h e IRS reject s o r retu rn s the o ffer * * * , th e- 1 5 -

[* 1 5 ] IRS wi l l retu rn an y am o un tp ai dwi th th e o ffer.” Un d er IRS g u id el i n es fo r OICs , p aym en t s o r d ep o s i t s recei v edwi th th e OIC are ei th er p l aced i n a n o n i n t eres t -b eari n g acco un t , s t am p edn o n n eg o ti ab l e an dreturn ed , o r p o s t edt o a t ax p ay er’ s acco u nt an dp ro ces s edth ro ug h “p ap er ch eck co nv ers i o n ”. See In t ern al Rev enu e M an u al (IRM ) p t. 5
. 8 .2 .8 (J u ly 2 8, 2 0 1 5 ) (s o rt s an dp aym en t p ro ces s i n g ). On ce a d et erm i n at i o n h as b een m ad e wi th res p ect t o an OIC, d ep o si t s o n accep t ed OICs wi l l b e ap pl i edag ai n stth e t ax p ay er’ s l i ab i li ty an dd ep o si t s o n wi th drawn , reject ed , o r retu rn edo ffers wi l l b e refu n dedt o th e t ax p ay er. See i d . p t . 5 .1 9.7 .2 .1 2 .3 (J an . 8 , 2 0 1 4) (d is p o s i t i o n o f OIC d ep o s i t s ). Res po n d en treject ed p et i t i o n ers ’ OIC an ds ub s equen t l y retu rn edth ei r $ 3 m i l l i o n d ep os i ti n acco rd an ce wi th th o s e g u i d el i n es . Al t ern at i v el y , p et it i o n ers arg u e t h atth ei r OIC was d eem edaccep t ed u n d er th e UCC b ecau s e t h ei r o ffer was n o treject edwi th i n 9 0 d ay s. Th e fact s
s u rro u n d i n g th i s OIC an d t h e IRS’ res p o ns e--s etfo rt h i n p et i ti o n ers ’ res po n s e t o
res p o n d en t’ s m o t i o n fo r p art i al s u m m ary ju d g m en t , s ee s up ra n o t e 5 --cl earl y s h o w th e IRS’ t i m el y

reject i o n o f t h ei r OIC an dretu rn o f t h ei r $ 3 m i l l io n d ep o s i t . See
s ec. 7 1 22 (f); Ho rnb ack er v . Co m m i s s i o n er, T.C. M em o . 2 0 1 6-6 5 , at* 2 2 (h o l d i n g th atth e IRS h as up t o 24 m o nt h s t o p ro ces s an OIC). M o re i m p o rt an tl y , the U.S. Go v ern m en t , as th e s o v erei gn , i s n o t b ou n db y St at e s t atu t es s u ch as the UCC.- 1 6 -

[* 1 6 ] See Bu rn et v . Harm el , 2 87 U.S. at1 1 0 ; Bear v . Co m m i s s i o n er, 1 99 2 W L 3 5 4 0 0 4 , at* 2 . Acco rd i ng l y , th ere i s n o o b ject iv e m an i fes t at io n o f m u tual as s en t b y th e p art i es t o s et t l e p et i t i o n ers ’ t ax l i ab i l it i es fo r 2 0 1 1 an d2 0 1 2 an dn o
s et t l em en tfo r t h e Co u rtt o en fo rce. III. Co n cl u si o n Befo re t h e Co u rti s a p et i t i o n fo r red et erm i n at i o n o f p et i t i on ers ’ 2 0 1 1 an d 2 0 1 2 Fed eral i n co m e t ax d efi ci en ci es res u lt i ng fro m fl owt h ro u g h i n co m e fro m M r. Wh i t es el l ’ s wh o ll y

o wn edS co rp o rat i o n s . Th e n o t i ce o f d efi ci en cy fo r p et i t i o n ers ’ 2 0 11 an d2 0 1 2 t ax y ears was i s s uedwi th i n b o th p eri od s o f l i m i t at i o n fo r as ses s m en t . Th e p art i es h av e n o tfi l eda s et tl em en ts t i p ul at i o n wi th th e Co u rt as t o p et i t i o n ers ’ 2 0 11 an d2 0 1 2 t ax y ears ; an dth ere i s n o s et t l em en to r co n tract t o
s et t l e t h ei r i n co m e t ax l iab i l i t i es fo r 2 0 1 1 an d 2 0 1 2 fo r t h e Co u rtt o en fo rce b ecau s e th ei r OIC was reject edt i m el y . Acco rd i ng l y , th e Co u rtwi l l g ran tres p o n d en t ’ s m o t i o n fo r p art i al s u m m ary ju d g m en t . Th e Co urth as co ns i d eredal l o f t h e arg u m en t s m ad e b y th e p art i es , an d t o the ex t en tth ey

are n o tad dres s edh erei n , th ey are co n s i d eredu n n eces s ary , m o o t , i rrel ev an t , o r wi th o u tm eri t .- 1 7 -

[* 1 7 ] To refl ectth e fo reg o i n g , Anap p ro p ri at e o rd er wi ll b e i s s u ed
.