T.C. Memo. 1996-360

UNITED STATES TAX COURT

THOMAS R. AND MARGARET KENNEDY, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 28309-88. 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

an adjustment that is 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 Winter Haven, Florida, when they

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

shelter litigation project entitled "Scheer". The Scheer project

involves a partnership organized by Lawrence Scheer to purchase

and market video tapes. By notices of deficiency dated August 2,

1988, 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)

1981 $10,316.29 $ 515.82 1 $1,956.70 2

1982 7,663.00 383.15 1 2,298.90 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;
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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:

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 15, 1995. They

contend that respondent's determination fails to account properly

for a 1981 investment tax credit and a 1981 sales tax deduction.

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

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

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 reflects their argument regarding an

investment tax credit. We decline to do so because the
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adjustment sought by petitioners is not addressed in the

stipulation and is not computational in nature. The stipulation

agreement 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.