TAX COURT OPINION

Case: Thomas J. Ratke & Bonnie F. Ratke
Docket Number: 9641-01L
Judge: Chabot
Opinion Type: memo
Filed: 05/28/2008
Pages: 18

ADM. RECORDED ERVICE CAL. STAT. . . JUDGE FILES T.C. Memo. 2008-145 UNITEÓ STATES TAX COURT THOMAS J. AND BONNIE F. RATKE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent* Docket No. 9641-OlL.. Filed May 28, 2008. In connection with Ps' motions under secs. 7430 IsR.C. 1986, Ps move to compel and 6673(a) (2), stipulations under Rule 91(f), Tax Court Rules o'f Practice and Procedure. compel. R objects to the motion to 1. Held: R's general objections to the motion to compel are overruled. 2. " Held, further, R's objections to specific proposed stipulations are sustained in large part and overruled in part. *This opinion supplements Ratke v. Commissioner, T.C. Memo. 2004-86, and 129 T.C. 45 (2007). ! SERVED MAY 2 8 2008 J ck B. Schiffman, for petitioners. Robert.M. Fowler, for respondent. SUPPLEMENTAL MEMORANDUM. OPINION CHABOT, Judae: This matter is before us on petitioners' motion' to compel stipulations pursuant to Rule 91(f),1 in connection with their motion for award of reasonable litigation and administrative costs under section 74302 as well as their motion for sanctions under section 6673(a) (2) in the. instant collection proceeding. The issues for decision are: (1) Whether petitioners' motion to compel stipulations was . filed timely; (2) whether petitioners' motion tá compel stipulations sufficiently comports with the requirements of Rule 91(f); and (3) whether petitioners' proposed stipulations should be deemed admitted. 1 Unless indica.ted otherwise, all Rule references are to the Tax Court Rules of Practice and Procedure. 2 Unless indicated otherwise, all section references are to sections of the Internal Revenue Code of 1986 as in effect for proceedings òommenced· on the day the petition in the instant case was filed. - 3 - Background When the petition was filed in the instant case, petitioners resided in Arizona. The parties have fi.led fairly extensive stipulations with respect to petitioners' motions under sections 7430 and 6673(a) (2); these stipulations and the stipulated exhibits are incorporated herein by this reference. Petitioners' deficiency case in this Court was settled and decision 'was entered.pursuant to the parties' stipulated agreement. A dispute arose regarding the meaning of that stipulated agreement, leading to the instant collections case. This dispute was resolved in petitioners' favor by our opinion in Ratke v. Commissioner, T.C..Memo. 2004-86. Thereafter, petitioners moved for an award of costs under section 7430 and later.moved for sanctions under section 6673(a) (2). In connection with these motions, petitioners moved to require disclosure of two memoranda'. Our opinion in Ratke v. Cómmissioner, 129 T.C. 45 (2007), resolved that matter in respondent's favor.. Petitioners' motion to compel stipulations, also in connection with petitioners' motions under sections 7430. and 6673(a) (2), is the matter before us at this stage of the proceedings in the instant case. A. Parties' Contentions; Conclusions Discussion. .Petitioners contend that the matters proposed for stipulation·are "relevant to critical factual issùes" the Court will need to cons,ider when ruling on petitioners' motions under sections 7430 and 6673(a) (2). Respondent argues: (1) Petitioner.s' motion is untimely; (2) petitioners' motion does not comport with the requirements of Rule 91(f); and (3) petitioners' proposed stipulations are not appropriate for stipulation. Petitioners' motion to compel stipulations is timely and, in general, sufficiently compórts with the requirements of Rule 91(f). We shall grant petitioners' motion as to: (1) The first sentence of petitioners' proposed stipulation 3, (2) petitioners' proposed stipulation 4, and (3) the first sentence of petitioners' proposed stipulation 8. In all other respects, we shall deny petitioners' motion. B. Analysis 1. In General The stipulation process is "the bedrock of Tax Court practice" and is designed "as an aid to the more expeditious trial of cases as well as for settlement purposes." Branerton Corp. v. Commissioner, 61 T.C. 691, 692 (1974). The stipulation process serves the same function with respect to disposition of posttrial motions, such as the motions in the instant case, as the process serves with respect to trials. See, e.g., Goettee v. Commissioner, 124 T.C. 286, 290, 293, 294 (2005), affd. 192 Fed. Appx·. 212, 223 (4th Cir. 2006); Hono v. Commissioner, 100 T.C. - 5 - 88, 89-90, 92 (1993). Rule 91 governs the Court's approach to stipulåtions, as well'as the mechanical process by which stipulations are made. See Rule 23.0(a). We have set forth in the margin portions of Rule 91 that are helpful to our analysis of the motion now before us, and also portions that the parties must consider in their continued dealings in the instant case.3 3 Rule 91 provides, in pertinent part, as follows: (cid:16)042Rule 91. STIPULATIONS FOR TRIAL (a) Stipulations Required: (1) General: The parties are required to stipulate, extent to which. complete or qualified agreement can or fairly should be reached, all matters not privileged regardless of , which are relevant to the pending case, to the fullest law to fact. whether such matters involve fact or opinion or the application of required to be st.ipulated are all facts, all documents and papers or contents or aspects thereof, and all evidence·which fairly should not be in dispute. Where the truth or authenticity of facts or evidence claimed to be relevant by one party is not disputed, an Included in matters (cid:16)042objection on the ground of materiality or relevance may is not to be regarded be noted.by any other party but as just cause for refusal to stipulate. requirement of stipulation applies under this Rule without regard to where the burden of proof may lie with respect Documents or papers or other exhibits annexed to or filed with the stipulation shall-be considered to be part of the stipulation. to the matters involved. The * * * * * * * (e) Binding Effect: A stipulation shall.be to the extent of its terms, as a conclusive treated, admission by the parties to the stipulation, unless otherwise permitted by the Court or agreed upon by those parties. stipulation to qualify, change, or contradict a The Court will not permit a party to a (continued...) We consider first the question of the timeliness of petitioners' motion.to compel stipulations, then the effect of the specific requirements of, Rule 91(f), then the application of Rule 91 to each of the stipulations petitioners seek to compel. 3(...co'ntinued) stipulation in whole or in part, except that it may do so where justice -requires. admissions therein shall be binding and have effect only in the pending case and not for any other purpose, and cannot be used aga·inst any of in any other case or proceeding. A stipulation and the the parties thereto . . (f) Noncompliance by a Party: (1) Motion To the case from a for an If, after the date of issuance of a party has refused or failed show with particularity and by separately Compel.Stipulation: trial notice in a case, to confer with an adversary with respect to entering · into a stipulation in accordance·with this Rule, or a party has refused or failed to make such a stipulation of any matter within the terms of this Rule, the party proposing to stipulate.may, at a time not later than 45 days.prior to the date set for call of trial calendar, file a motion with the Court order directing the delinquent party to show cause why the matters covered in the motion should not be deemed admitted for the purposes of shall numbered paragraphs each matter which is claimed for stipulation; specific stipulation which the moving party proposes with respect make available to the Court and the other parties each document or other paper as to which the moving party desires a stipulation; reasons, and basis for claiming, with respect such matter, (D) show that opposing counsel or the other parties have had reasonable access to those sources or basis for stipulation and have been informed of stïpulation; and (E) show proof of service of a copy of the motion on opposing counsel or the other parties. to each such matter and annex thereto or (B) set forth in expr.ess language the that it should be stipulated; (C) set forth the sources, to each (A) the case. The motion the reasons for 2. Timeliness Respondent argues that petitioners' motion to compel stipulations is not timely. Respondent points out that petitioners' motion to compel stipulations was filed shortly before the parties were scheduled to file their legal memoranda on petitioners' motions under sections 7430 and 6673(a) (2). Respondent further claims that the Court's scheduling orders clearly anticipated that the stipulation process would have been completed at the late date petitioners filed·their Rule 91(f) motion." Petitioners contend that the cause of their motion to compel, and the resulting delay in further proceedings in their motions under sections 7430 and 6673(a) (2), was respondent's refusal to agree to their proposed stipulations. Both sides agree that the "45-day rule" of Rule 91(f) (1) does not strictly apply to petitioners' motion to compel stipulations. We have examined the materials submitted by both sides on th.is matter. These materials show that the stipulation process, which had hithertö produced much material that was submitted to the C.ourt, was breaking down. Petitioners' motion to compel has contributed to the delay, but the basic cause was each side's lncreasing unwillingness to resolve stipulation disputes in a reasonable manner. Petitioners' motion essentially served to bring this breakdown to the attention of the Court. We have concluded.that the purposes of Rule 91 would not be served by sustaining respondent's timeliness objection to the granting of petitioners' motion to compel stipulations. We hold for petitioners on this matter. 3. Requirements of Rule ·91(f)--Conditions Necessary for Filino Motion; Format of Motion Respondent argues that the conditions necessary for filing a motion under Rule 91(f) have not been met because respondent has neither refused nor failed to either confer with petitioners regarding the stipulations or stipulate any matter within the terms of Rule 91. Respondent also contends. that petitioners' motion to compel stipulations does not comply with four of the five form requirements specified in the text of Rule 91(f) (1).4 Petitioners reply that respondent's efforts were not enough to complete the stipulati.on process. Also,' petitioners attach additional communications, including two communications after petitioners' motion to compel stipulations was filed, proposing numerous other stipulations. By and.large, respondent's analysis of the formal defects in petitioners' motion is correct. However, we have concluded that 4 Respondent concedes only that petitioners' motion complies with Rule 91(f) (1) (E) certificate of service on respondent's counsel. in that it includes the required it is better to take those defects into account in analyzing petitioners' specific proposed stipulations rather than to deny petitioners' motion in toto. We hold for petitioners on this matter, but not completely. 4. Petitioners' Proposed Stipulations Petitioners, in their motion to compel stipulations, interspersed numbered paragraphs headed "Matters Claimed For Stipulation" with numbered paragraphs headed "Proposed Stipulations". In the response to petitioners' motion, respondent followed petitioners' numbering system. To facilitate our analysis and the parties' understanding, we will'also use petitioners' numbers for the proposed stipulations--2, 3, 4, 5, 6 and 6(a), 7, 8, and 13 and 13(a)--in this report. We have reproduced the proposed stipulations literally as they appear in petitioners' motion. Any stipulations resulting from our action on petitioners' motion to compel stipulations shall be appropriately renumbered to take into account the stipulations already filed in the instant case; also, minor errors shall be corrected. (a) Proposed Stipulation 2 2. When a case is settled and the.stipulated is prepared by an appeals officer, it to review the computational documents (audit decision document is Respondent's policy to require its litigation. Counsel statement) in the computational documents (audit statement) are consistent with the amounts that are required to be set forth in the·stipulated decision. to determine.whether the amounts set forth If the amounts set - 10 - forth in the computational documents (audit statement) are not consistent with the amounts that are required to be set forth in the stipulated decision, Respondent's litigating Counsel assuring that any agreements between the, parties of additional amounts that are set forth in the computational documents (audit statement) as being owed are stipulated to as a "below the line" stipulation in the stipulated decision filed with the Tax Court. is responsible for Rule.91(a) (1) provides: Included in matters requi·red to be stipulated are. all facts, all documents and papers or contents or aspects thereof, 'and all evidence which fairly should not be in dispute. [Emphasis added.]· * * * Respondent states: Respondent does not believe that he has any policy resembling what petitioners have described, especially one referring to the particular "responsibility" of attorneys. Respondent offered to stipulate to a provision of.its manual discussing the situation similar to the situation petitioners have described in paragraph 2. its . Petitioners failed, in both their motion papers and their reply to respondent's response, to present any source, reason, or basis (see Rule 91(f) (1) (C)) for our concluding that respondent has the policy described in petitioners.' proposed stipulation 2. In the light of respondent's denial, and taking into account respondent's.offer to stipulate a provision in respondent's manual, we conclude that we shall not compel stipulation of petitioners' proposed stipulation '2. We hold for respondent on this matter; - 11 - (b) Proposed Stipulation 3 3. Respondent's attorney Ann WelhafW was Respondent's litigation Counsel 96.© She was responsible for reviewing the computational documents (audit statement) and the stipulated decision document prepared by Appeals Officer.'Cary Reese in the prior Tax Coprt case (Docket No. 5931-96). in Docket No. 5931- Respondent's response does not deny the truth of the first sentence of petitioners'·proposed stipulation 3. As to the second sentence, respondent states: the duties of There are no policies that spell out that petitioners respondent's attorneys1in the detail are seeking to attribute.. * * Respondent notes that the parties have stipulat.ed that Ms. Welhaf reviewed the proposed decision document. Second Supplemental Stipulation of ·Facts. See ¶ 39. of the * Petitioners failed, in'both their motion papers and their reply to respondent's response, to present any source, reason, or basis (see Rule 91(f) (1) (C)) for our concluding that respondent has the po.licy described in the second sentence of petitioners' proposed stipulation 3. In·the light of respondent's failure to deny the truth of the matter stated in the first sentence, respondent's denial of the truth of the matter stated in the second sentence, and respondent's noting that the parties had already stipulated Welhaf's actions, we conclude that we shall 5 Ann Welhaf is referred to as Welhaf in our opinion in Ratke v. Commissioner, 129 T.C. 45, 47 (2007). 6 Docket No. 5931-96 is described in our opinion in Ratke v. Commissioner, 129 T.C. at 46, and is there referred to as the 1996 case. - 12 - compel stipulation of the first sentence of petitioners' proposed stipulation 3 and we shall not compel stipulation of the second. sentence. We hold in part for petitioners and in part for respondent on this issue. (c) Proposed Stipülation 4 . 4. Ann Welhaf approved the stipulated decision prepared by Appeals Officer Cary Reese by initialing the "initialed copy" of the.stipulated decision and forwarded the original stipulated decision to Doreen Susi, Respondent's supervisory attorney, signature. Doreen Susi signed the stipulated decision document and.forwarded it to the Tax Court for entry as The stipulated decision the decision of the Tax Court. approved by Ann Welhaf did not have a "below the line" stipulation.that referenced the $12,655 assessment made by Respondent documents (audit statement) that was set forth in the, computational in Docket No. 5931=96. for her . Respondent's response is: .4. The matters.contained in paragraph 4. have already been stipulated to in paragraphs 40. and 55. of the Second Supplemental Stipulation of Facts. Respondent does not deny the truth of the matters in petitioners' proposed stipul·ation.4, and so we conclude that.we shall compel.this stipulation. We hold for petitioners' on this issue. (d) Proposed Stipulation 5 5. The attached time sheets for Attorney Ann indicate any time was charged by Ann Welhaf do not Welhaf statement) document prepared by Appeals Officer Cary Reese in Docket No. 5931-96. that accompanied the stipulated'decision for reviewing the computational documents (audit - 13 - The timesheets (apparently, six pages attached to petitioners' motion as exhibit 1) do not indicate what specific work Welhaf did on the 1996 case. Thus, petitioners' proposed stipulation's focus on a particular item that is not on the timesheets does not advance our understanding of what did or did not happen during the c^ourse of the 1996 case. Letters attached to respondent's response and petitioners' reply show that the parties made efforts tö deal with what Welhaf did or did not do with re(cid:0)541pect to the computational documents accompany1ng the stipulated decision document in the 1996 case. Those attached letters foster a hope that the parties may be able to stipulate as to Welhaf's actions. In the meanwhile, petitioners' proposed stipulation 5 is not helpful, and it appears to have a potential for misleading the Court. Accordingly, we conclude that we shall not compel stipulation of petitioners' proposed stipulation 5. We hold for respondent on this matter. . However, we expect the parties to stipulate the relevant underlying.information. (e) Proposed Stipulations 6 and 6(a) 6. Ann Welhaf did not review the computational documents (audit statement) accompany1ng the stipulated decision prepared by Appeals Officer Cary Reese in Docket No. 5931-96.. 6(a). .ALTERNATIVE TO NO. 6 ABOVE: Ann Welhaf did review the computational documents (audit statement) accompanying the stipulated decision prepared by Appeals Officer Cary Reese in Docket No. 5931-96. - 14. - If the words in petitioners' proposed stipulation 6 have the same mean1ng as the same words in petitioners' proposed stipulation 6(a),7 then at least one of the proposed stipulations cannot be true.. If petitioners offer alternatives that cannot. both be true, then they have failed to comply with their obligation to demonstrate that either alternative "fairly should not be in dispute", within the meaning-of Rule 91(a) (1).8 We will not enter into a discussion as to whether these alternatives properly are contradictories or contraries. The 'truth may be far more nuanced. We hold for respondent on this matter but expect the parties to work out proper stipulations. See our comments with respect to proposed stipulation 5. (f). Proposed Stipulation 7 7. Other than the reference to the $12,655 in the computation documents (audit assessment statement) provided to the Ratkes' Counsel with the stipulated decision, administrative file in Docket No. 5931-96 or in Ratkes' Counsel, David Bosse's file that Appeals Officer Cary there is no documentation in the 7 (1981) Statutes 224 (1975)). ·See, e.g., Zuanich v. Commissioner, 77 T.C. 428, 443 n.26 (quoting Dickerson, The Interpretation and Application of 8 Rule 91(f) (3) provides that a failure·to respond to a matter, or an evasive or not fairly directed response to a matter, will result in that matter's being deemed stipulated. The structure established by Rule 91(f) does not accommodate the simultaneous offering of alternative stipulations that cannot both be true. - 15 - Reese informed the Ratkes' Counsel of the $12,655 assessment made by Respondent after the Tax Court petition was filed in Docket No. 5931-96. Respondent "does not agree that the statement is accurate." We cannot tell from petitioners' motion to compel stipulations,·respondent/ s response, and petitioners' reply, whether petitioners' proposed stipulation 7 "fairly should not be in dispute", within the meaning of Rule 91(a) (1). Accordingly, we shall not·compel petitioners' proposed stipulation 7. We hold for respondent on this issue. However, the parties· should be able to stipulate relevant matters. If respondent contends there are documents in the administrative file or in petitioners' former' counsel's file that show that petitioners' former counsel was informed of the assessment, then the parties should stipulate those documents and perhaps the parties' conflicting interpretations of those documents. (g) Proposed Stipulation 8 8. Respondent did not put a freeze code on the Had Respondent put a freeze code on the Ratkes' 1993 account after the Notice of Deficiency was mailed. Ratkês' account, additional would not have been assessed by Respondent after the Ratkes' petition was filed with the Tax Court No. 5931-96. thé $12,655 reported by the Ratkes as tax on their Second Amended Return for 1993 in Docket Respondent does not object to the·first sentence of this proposed stipulation but contends the second sentence is "purely speculative." - 16 - Petitioners have not explained why they believe the $12,655 would not have been assessed had a freeze code been placed on their acco.unt. .They have neither cited nor included in their motion to compel stipulations or their reply any part of- a manual or other authority on this matter. Even if they had cited or included such material, the most we could conclude would be in terms of "oughtness" and like:lihood. Oughtness and likelihood may turn out to be significant in resolving petitioners' motions under sections 7430 and 6673(a) (2), but they are not the·same as the absolute statement in the second sentence of proposed stipulation 8. We conclude that we shall compel the stipulation of the first sentence, but not the second sentence, of petitioners' proposed stipulation 8. . We hold in part for petitioners and in part for respondent on this issue. (h) Proposed Stipulations 13 and 13(a) 13.· Respondent changed its litigation strategy in having the Tax Court vacate the set.forth in the Notice of Determination and in the Chief Counsel's Memorandum of January 16, 2002 because Respondent determined this strategy would not be successful stipulated decision in Docket No. 5931-96 and reenter a new decision in that case that set forth the $12,655 assessment as a deficiency. relitigated the Ratkes' assessment Proceeding before Judgè Foley. At trial, Respondent's in the Collection Due Process Review Instead, Respondent liability for the $12,655 - 17 - Còunsel pursued a litigation strategy, which would have had the Tax Court recognize the $12,655 disputed assessment as an agreed deficiency that was subject to collection. 13. (a). ALTERNATIVE TO NO 13 ABOVE: Respondent changed its litigation strategy set forth in the Notice of Determination and in the Chief Counsel's Memorandum of January 16, 2006W because it determined [to be competed by Respondent............................). Instead, Respondent the $12,655 assessment Review Proceeding before Judge Foley. At trial, Respondent's Counsel pursued a litigation strategy, which would have had the Tax Court recognize the in the Collection Due Process litigated the Ratkes' liability for (cid:16)042$12,655 disputed assessment as an·agreed deficiency that, was subject to collection. See our comments- in (e) Proposed Stipùlations '6 and 6(e), supra p. 14. We shall not compel petitioners' proposed stipulations 13 and 13(a). We hold for respondent on this matter. e The stipulation process should enable each side to put its best foot forward and not·have to waste everyone's time and energy on matters which fairly should not be in dispute. When the Court has the impression that the parties are' engaging in obstructive wrangling, rather than constructive cooperation in stipulating, it is just a short step to a conclusion that the. obstructors do not have good feet to put forward. In the instant 9 We assume petitioners intend to refer to the memorandum dated Jan. 16, 2002, which was one of the memoranda dealt with in our opinion ·in Ratke v. Commissioner, 129.T.C. 45 (2007), and therein sometimes referred to as the Hyman memorandum. at 47. See id. - 18 - proceeding, the parties already have ·filed extensive stipulations. They should be able to agree to stipulations that clarify the 'disputed matters' dealt with in petitioners' motion to compel stipulat'ions. Then we can deal properly with petitioners' motions under sections 7.430 and 6673(a) (2). For now', we choose to regard both sides' efforts in connection with petitioners' motion to.compel stipulations as an unwelcome but brief detour in an otherwise productive stipulation process. An appropriate order will be issued orantina in part and denvina·in part petitioners' motion to compel stipulations.