Source: https://law.justia.com/cases/federal/appellate-courts/F2/967/206/464657/
Timestamp: 2019-07-22 15:59:20
Document Index: 529158484

Matched Legal Cases: ['§ 6223', '§ 6226', '§ 6653', '§ 6226', '§ 6225', '§ 1291', '§ 6226', '§ 6231', '§ 6226', '§ 6231', '§ 301', '§ 301', '§ 6231', '§ 6224', '§ 6231', '§ 6223', '§ 7121', '§ 301', '§ 301']

Treaty Pines Investments Partnership, William F. Wallace, Apartner Other Than the Tax Matters Partner, Petitioner,james A. Garrity and Andrea S. Garrity, Appellants, v. Commissioner of Internal Revenue, Respondent-appellee, 967 F.2d 206 (5th Cir. 1992) :: Justia
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Treaty Pines Investments Partnership, William F. Wallace, Apartner Other Than the Tax Matters Partner, Petitioner,james A. Garrity and Andrea S. Garrity, Appellants, v. Commissioner of Internal Revenue, Respondent-appellee, 967 F.2d 206 (5th Cir. 1992)
US Court of Appeals for the Fifth Circuit - 967 F.2d 206 (5th Cir. 1992)
Thomas E. Redding, Redding, Coselli, Tinsley & Allie, Houston, Tex., for James A. Garrity and Andrea S. Garrity.
Sometime prior to March 13, 1987, the IRS conducted audits of a large number of partnerships that had been involved with the Hillcrest Government Securities trading programs1 and related entities for the years 1981 through 1984. Treaty Pines was among the audited partnerships. On March 13, 1987, the IRS mailed to the Tax Matters Partner2 and to all notice partners3 of Treaty Pines a Notice of Final Partnership Administrative Adjustment (FPAA) for the 1983 tax year. See I.R.C. § 6223(a) (2). On August 10, 1987, William F. Wallace, a Treaty Pines partner other than the Tax Matters Partner, filed in Tax Court a petition on behalf of Treaty Pines seeking a readjustment of partnership items in the FPAA. See id. § 6226(b) (1). The case was consolidated with approximately 800 other cases relating to Hillcrest Securities.
Sometime thereafter, the IRS promulgated a proposed blanket settlement offer4 to all partners involved in the Hillcrest cases. This offer expired February 29, 1988. According to the Commissioner, the terms of the offer required that a partner execute a Form 906 closing agreement5 in order to effectuate a binding settlement agreement; however, as the Garritys point out, there is no evidence in the record to support this. The IRS promulgated its settlement offer to Treaty Pines by way of the Tax Matters Partner. The Garritys assert that as a consequence, they did not receive actual notice that they were required to complete a closing agreement form.
By letter dated February 29, 1988, the Garritys purportedly accepted the settlement offer. However, they never signed a closing agreement form. For its part, the IRS, although it belatedly acknowledged receipt of the acceptance, never filed in Tax Court any record of a settlement with the Garritys. See T.C.R. 248(c) (1). The Garritys now say that the 1988 settlement was nonetheless valid and binding on the parties. The IRS vigorously disputes this. The question of the validity of the 1988 settlement agreement is central to this case.
Our records show that Mr. Garrity accepted the original settlement offer which expired as of February 29, 1989 [sic ]. The Court issued orders to all partners who had not agreed with the respondent prior to the May pre-trial hearings in Dallas. Mr. Garrity was not among the names submitted to the Court as unagreed. We did not represent that Mr. Garrity had not agreed at the May pre-trial hearing. Accordingly, we believe that Mr. Garrity is entitled to the standard Hillcrest settlement offer without the 5% addition to tax under I.R.C. § 6653(a) (1) as was available up until February 29, 1988.
On April 24, 1991, the Tax Court denied all the Garritys' pending motions. The court stated that the Garritys were attempting to raise the issue whether the IRS's assessment of tax was barred by the statute of limitations (which, according to the Garritys, commenced running on February 18, 1988), and held that it had no jurisdiction to determine this issue. Id. § 6226(f). The court further held that even if there were no jurisdictional impediment, it would not vacate its decision, because the Garritys offered no explanation for their failure to raise the issue earlier, and because to vacate the decision would delay the ultimate assessment of tax against other partners who had not settled. See id. § 6225(a).6
We have jurisdiction pursuant to 28 U.S.C. § 1291 and I.R.C. §§ 6226(g), 7482(a) (1). Jurisdictional questions are questions of law, reviewed de novo. See, e.g., Windfield v. Groen Div., Dover Corp., 890 F.2d 764, 766 (5th Cir. 1989); Voluntary Purchasing Groups, Inc. v. Reilly, 889 F.2d 1380, 1384-85 (5th Cir. 1989).
The Tax Court erred in holding that it lacked jurisdiction to rule on the validity of the 1988 settlement agreement. It failed to consider that the settlement, if valid, would convert the Garritys' partnership items to nonpartnership items, I.R.C. § 6231(b) (1) (C), and thus would eliminate the basis for the court's subject matter jurisdiction with respect to these items. Id. § 6226(f). It follows, therefore, that the Tax Court could enforce its order of February 11, 1991 against the Garritys only if the 1988 settlement was invalid. Because a court is entitled to determine its own jurisdiction, Familia De Boom v. Arosa Mercantil, S.A., 629 F.2d 1134, 1137 (5th Cir. 1980), cert. denied, 451 U.S. 1008, 101 S. Ct. 2345, 68 L. Ed. 2d 861 (1981), the Tax Court could, and was required to, determine the validity of the settlement. See Triangle Investors Ltd. Partnership v. Commissioner, 95 T.C. 610, 613-16 (1990) (Tax Court inquired into validity of notice of FPAA in order to determine whether invalid notice would serve as basis for dismissal for lack of jurisdiction).
The court obviously was concerned that if the Garritys were right about the 1988 settlement, any tax liability might be barred by limitations, and if the proceedings were reopened, tax liabilities of other partners also might be barred by limitations. The heart of this matter is whether the Garritys are to be permitted to litigate the question whether the 1988 settlement offer was accepted. The Tax Court attempted to deprive them of that opportunity by refusing to consider the issue on which depended its jurisdiction to inflict such deprivation. The jurisdictional challenge was properly before the court and should have been considered without regard to the Garritys' motivations for raising it and regardless of when the challenge was raised. Brannon's of Shawnee, Inc. v. Commissioner, 69 T.C. 999, 1000, 1004 (1978).B. The 1988 Settlement Agreement Was Valid and Binding on the Parties.
The Garritys maintain that a settlement agreement as to partnership items was concluded on February 29, 1988 and has remained in effect ever since. They correctly point out that general contract law principles govern tax case settlements. Robbins Tire & Rubber Co. v. Commissioner, 52 T.C. 420, 435-36 (1969); Quinones v. Commissioner, 55 T.C.M. (CCH) 1121 (1988). In particular, a tax settlement agreement is binding even if it consists only of letters of offer and acceptance; no formal stipulation of settlement, filed decision document, or closing agreement is necessary. Haiduk v. Commissioner, 60 T.C.M. (CCH) 864, 865-66 (1990). Therefore, the Garritys argue, their letter of February 29, 1988 was sufficient to serve as an acceptance of the IRS's proposed settlement.
We agree. The Garritys' letter of February 29, 1988 was a valid and binding acceptance of the IRS's settlement offer, and this acceptance was not invalidated by the Garritys' subsequent failure to sign a Form 906 closing agreement. As the IRS conceded at oral argument, there is nothing in the record before us to indicate that signature of a Form 906 was a requirement of acceptance, nor anything to indicate that the Garritys were made aware of this supposed requirement. The record contains no copy of the settlement offer. Neither does it contain any postal receipts or other evidence to support the Commissioner's contention that the Garritys actually received the offer.7 It may be that the Garritys learned of the offer from the Tax Matters Partner, and that they were familiar with the offer's substantive content but not its formal technicalities; we do not know. What is in the record before us is the Garritys' letter of February 29, 1988, purporting to accept the settlement offer, and the IRS's letter of December 18, 1991, purporting to confirm the existence of the settlement. On this basis we conclude that the parties agreed to a settlement in 1988. Our conclusion is reinforced by the Tax Court's failure to include the Garritys in the May 1990 hearing. The lateness of the Garritys' motions to determine status is consistent with our conclusion that a settlement had been reached.
The Garritys concede that they contemplated signing a Form 906 closing agreement as to so-called affected items and interest. See I.R.C. §§ 6231(a) (5), 7121. However, they urge that this had nothing to do with their acceptance of the settlement offer. We agree. Under 26 C.F.R. § 301.7121-1(d) (1) as interpreted by the court in Haiduk, once a tax case is docketed in the Tax Court, there is no requirement that a settlement of that case be concluded by way of a section 7121 closing agreement.8 The Garritys' partnership items were the sole subject matter of the Tax Court proceeding, and the Garritys could settle their case with respect to these partnership items without a closing agreement, and without regard to whether a closing agreement was contemplated or completed as to affected items and interest. The Commissioner's argument to the contrary misses the mark. Although 26 C.F.R. § 301.7121-1(d) (1) specifies that all closing agreements shall be on forms prescribed by the IRS, it does not state that all settlement agreements shall be on such forms, and Haiduk holds that binding settlement agreements may be concluded without closing agreements. Moreover, the Commissioner's cited cases, which support strict construction of section 7121 and its accompanying regulations, all concern putative settlements entered into by lower-level IRS officials who lacked proper authority to settle. E.g., Botany Worsted Mills v. United States, 278 U.S. 282, 288-89, 49 S. Ct. 129, 131-32, 73 L. Ed. 379 (1929) (construing predecessor statute to section 7121); Brooks v. United States, 833 F.2d 1136, 1146 (4th Cir. 1987); Dorl v. Commissioner, 507 F.2d 406, 407 (2d Cir. 1974). No such concern is implicated here.
The Hillcrest Government Securities trading programs were tax shelters promulgated by Hillcrest Securities Corp., a subsidiary of the Dallas-based Hillcrest Equities, in the early 1980s. The programs involved sham transactions in government securities, with the aim of generating fictitious tax losses with no genuine risk to investors. From 1981 through 1984, limited partnerships across the country were formed to take advantage of the Hillcrest programs. Ultimately their investments led to some 800 tax cases, including the instant case. No one really knows how many taxpayers were affected by all the Hillcrest cases, although some estimates place the figure as high as 7000. The vast majority of the cases have been settled
I.R.C. § 6231(a) (7) defines "tax matters partner" as follows:
The tax matters partner of any partnership is--
Under the Internal Revenue Code, a Tax Matters Partner has certain authority to act on behalf of the partnership in its dealings with the IRS. For example, the Tax Matters Partner may bind certain other partners to abide by settlement agreements entered into with respect to administrative proceedings relating to the determination of partnership items at the partnership level. Id. § 6224(c) (3).
I.R.C. § 6231(a) (8) defines "notice partner" as "a partner who, at the time in question, would be entitled to notice under subsection (a) of section 6223 (determined without regard to [certain special rules for partnerships with more than 100 partners]." I.R.C. § 6223(a), in turn, provides:
The Secretary shall mail to each partner whose name and address is furnished to the Secretary notice of--
(c) Settlement agreement.--In the absence of a showing of fraud, malfeasance, or misrepresentation of fact--
(1) Binds all parties.--A settlement agreement between the Secretary and 1 or more partners in a partnership with respect to the determination of partnership items for any partnership taxable year shall (except as otherwise provided in such agreement) be binding on all parties to such agreement with respect to the determination of partnership items for such partnership taxable year....
(2) Other partners have right to enter into consistent agreements.--If the Secretary enters into a settlement agreement with any partner with respect to partnership items for any partnership taxable year, the Secretary shall offer to any other partner who so requests settlement terms for the partnership taxable year which are consistent with those contained in such settlement agreement....
I.R.C. § 7121 and regulations promulgated thereunder, 26 C.F.R. § 301.7121-1, provide that the Secretary may enter into a written agreement with the taxpayer as to liability, and that such agreement shall be conclusive as to the matters agreed upon except in cases of fraud, malfeasance, or misrepresentation of material fact. The regulations provide in particular that " [a]ll closing agreements shall be executed on forms prescribed by the Internal Revenue Service," 26 C.F.R. § 301.7121-1(d) (1)
The IRS states that by letter dated June 25, 1991, the Garritys concluded a set of closing agreements that render this appeal moot. Inasmuch as the closing agreements are not part of the record, we decline to address this issue
On the whole, the record is sparse. The IRS asserts that this is because the sheer volume of paperwork associated with the Hillcrest cases precluded the filing of all correspondence with the Tax Court. Nevertheless, we cannot presume the existence of correspondence or other documents that might support the IRS's position, but must proceed on the basis of the record as it stands
We express no opinion as to whether, as the Garritys urge, section 6224(c) provides a statutory source of settlement authority independent of section 7121