T.C. Memo. 1996-17

UNITED STATES TAX COURT

GREGORY SUMMERS AND JUSTINE SUMMERS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16175-93. Filed January 22, 1996.

Before trial, the parties negotiated a settlement

specifying the manner of resolving this case. Ps now

seek to raise an issue as to the amount of income

subject to self-employment tax. This issue was not

raised or preserved by Ps in the pleadings or the

stipulated settlement agreement. Held: The issue

raised by Ps is a new issue that is not before the

Court.

Michael Weitzner, for petitioners.

James B. Biagi, for respondent.

MEMORANDUM OPINION

LARO, 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 June 13, 1994. 

We must decide whether the subject decision should reflect less

self-employment tax than determined by respondent. We hold that
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1 These amounts are the maximum amounts of self-employment

(continued...)

it should not. Section references are to the Internal Revenue

Code in effect for the years in issue.

Background

Petitioners resided in New Jersey when they petitioned the

Court. During the relevant years, Gregory Summers was a general

partner in Summers & Co. Summers & Co. provided professional

accounting and computer services.

Respondent issued petitioners a notice of deficiency (the

Notice) on April 26, 1993. The Notice reflected respondent’s

determination that petitioners did not file a Federal income tax

return for 1984 or 1985, and that petitioners’ taxable income for

those years was $166,778 and $119,972, respectively. In relevant

part, respondent determined the following items and amounts of

income:

 1984 1985 

Schedule C--Summers & Co $65,907 $44,834

Schedule E--Summers & Co 100,812 85,730

Partnership losses:

Summit Equities (4,195) --- 

CCA ( 59) ( 474)

In their petition, petitioners allege error with respect to all

of these amounts, except for the partnership losses.

The Notice also states that petitioners are liable for

self-employment tax with respect to 1984 and 1985 self-employment

income of $37,800 and $39,600, respectively.1 In their petition,
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1 (...continued)

income that is subject to the self-employment tax for those

years. Sec. 1402(b).

petitioners did not allege error with respect to this

determination.

The stipulation provides:

THE PARTIES HEREBY stipulate to the following

terms of settlement for all of the issues in the

above-captioned case. This stipulation disposes of all

the issues related to petitioners’ tax liability for

the 1984 and 1985 tax years. * * * The parties

stipulate to the following adjustments as reflected in

the statutory notice of deficiency.

* * * * * * *

2. Petitioners are not required to report

Schedule C gross receipts in the amounts of $65,907.00

for 1984 and $44,834.00 for 1985. Instead, petitioners

are required to report Schedule C gross receipts in the

amounts of $41,857.00 for 1984 and $33,198.00 for 1985. 

The gross receipts in both 1984 and 1985 were derived

from petitioner’s, Gregory Summers, accounting

business. The gross receipts for both 1984 and 1985

are subject to self-employment tax.

3. Petitioners are not required to report

Schedule E taxable income from Summers & Co, in the

amounts of $100,812.00 for 1984 and $88,730.00 for

1985. Instead, petitioners are required to report

Schedule E taxable income from Summers & Co. in the

amounts of $81,015.00 for 1984 and $40,134.00 for 1985. 

These adjustments are attributable to petitioners’

distributive share of Summers & Co. partnership income.

4. Petitioners are entitled to deduct Schedule E

partnership losses in the amounts of $4,254.00 for the

taxable year 1984 and $474.00 for the taxable year

1985, as stated in the statutory notice of deficiency.

* * * * * * *

THE PARTIES AGREE to this stipulation of settled

issues.
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Respondent submitted to the Court a decision document (the

Document) that she claims is in accordance with the Stipulation. 

By Order dated November 30, 1995, the Court directed petitioners

to respond to the Document. Petitioners allege in their response

that the 1984 self-employment tax shown in the Document is wrong. 

Petitioners allege in their response that their 1984

self-employment income equals the $41,857 of receipts shown in

the Stipulation, less: (1) A $3,351 loss from Summit Equities,

(2) a $31,562 loss from Diamond Leasing, and (3) a $2,567 loss

from AIG Investors. Petitioners allege in their response that

Gregory Summers “rendered substantial personal services“ to these

three entities.

Discussion

The compromise and settlement of tax cases is governed by

general principles of contract law. A settlement stipulation is

in essence a contract. Each party agrees to concede some rights

which he or she may assert against his or her adversary as

consideration for those secured in the settlement agreement. 

Saigh v. Commissioner, 26 T.C. 171, 177 (1956). Like contracts,

stipulations of settlement bind the parties thereto to the terms

thereof. Stamos v. Commissioner, 87 T.C. 1451, 1455 (1986). In

determining the proper meaning of the terms, 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); see also Brink v. Commissioner, 39 T.C. 602,
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606 (1962), affd. 328 F.2d 662 (6th Cir. 1964). We will enforce

a stipulation of settlement, whether filed or orally stipulated

into the record, unless justice requires that we do otherwise. 

Adams v. Commissioner, 85 T.C. 359, 375 (1985); Sennett v.

Commissioner, 69 T.C. 694 (1978); Saigh v. Commissioner, 26 T.C.

171, 177 (1956).

Petitioners ask the Court to enter a decision that reflects

their claim that their 1984 self-employment income equals an

amount not shown in the Stipulation. We refuse to do so. 

Whether petitioners incurred their claimed losses, and, if they

did, whether the losses were from self-employment, raises new

issues that are not before the Court. Petitioners’ pleadings

make no reference to these issues, and the Stipulation is silent

with respect thereto. The Stipulation does not even mention the

losses that petitioners now claim to have incurred in 1984. 

The Stipulation speaks for itself and shows that the parties

agreed to resolve this case in the manner set forth therein. The

Stipulation, voluntarily entered in settlement of this lawsuit,

must be given binding effect. The parties struck a bargain in

the Stipulation, and petitioners must live with the benefits and

burdens of it.

To reflect the foregoing,

An appropriate order will be

issued granting respondent's motion
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for entry of decision, and decision

will be entered in accordance 

with the Document.