t c no united_states tax_court dorchester industries incorporated et al petitioners v commissioner of internal revenue respondent docket nos filed date r has moved for entry of decisions based on an agreement with ps to settle these cases two ps argue that they never agreed to settle these cases and even if they did they have repudiated that agreement held ps entered into a settlement agreement with r r's motions for entry of decision will be granted with respect to all dockets except with regard to w 30_tc_665 affd 272_f2d_13 2d cir will not be followed to the extent that it indicates that a party to a settlement agreement that is not filed as a stipulation may repudiate that agreement up until and including the time the case is called for trial cases of the following petitioners are consolidated herewith frank h wheaton jr and mary b wheaton docket nos and paul r porreca darryl s caplan and ian m comisky for petitioner dorchester industries inc docket no ian m comisky todd c simmens and darryl s caplan for petitioner frank h wheaton jr docket nos and robert d comfort gregg w winter and marc sonnenfeld for petitioner mary b wheaton docket nos and patrick whelan william s garofalo leon st laurent and daniel k o'brien for respondent halpern judge respondent has determined deficiencies in federal_income_tax and additions to tax in the following cases docket no petitioner s tax years dorchester industries inc frank wheaton jr and mary wheaton frank wheaton jr and mary wheaton frank wheaton jr and mary wheaton respondent has moved for entry of decision with respect to each of those cases subsequent to respondent’s moving for entry of decisions in the cases at docket nos and respondent and petitioner mary wheaton mary wheaton reached an agreement on and stipulated to the fact that mary wheaton is an innocent spouse within the meaning of sec_6013 on that basis respondent has conceded all deficiencies in income_tax additions to tax and penalties determined with respect to mary wheaton we accept respondent’s concession and shall enter decisions accordingly respondent asks that we enter decisions with respect to petitioners dorchester industries inc dorchester and frank wheaton jr frank wheaton based on a settlement agreement that respondent claims those petitioners entered into on date we must determine whether dorchester and frank wheaton did in fact enter into such an agreement and if so the consequence thereof respondent asks that we enter decisions with respect to dorchester and frank wheaton as follows docket no dorchester industries additions to tax sec year deficiency b dollar_figure big_number big_number dollar_figure big_number big_number sec sec_6653 none none none dollar_figure the addition_to_tax under sec_6653 i sec_50 percent of the interest payable under sec_6601 with respect to the portion of the underpayment which is attributable to fraud which is the entire deficiency for each of the taxable years and additions to tax sec sec year deficiency b a b b dollar_figure dollar_figure the addition_to_tax under sec_6653 i sec_50 percent of the interest payable under sec_6601 with respect to the portion of the underpayment which is attributable to fraud which is the entire deficiency for the taxable_year docket no frank h wheaton jr additions to tax_year deficiency dollar_figure big_number big_number sec_6653 dollar_figure big_number big_number additions to tax_year deficiency b b dollar_figure big_number big_number big_number dollar_figure dollar_figure big_number big_number big_number big_number big_number big_number sec sec sec_1 the addition_to_tax under sec_6653 i sec_50 percent of the interest payable under sec_6601 with respect to the portion of the underpayment which is attributable to fraud which is the entire deficiency for the taxable years and additions to tax sec sec year deficiency b a b b dollar_figure dollar_figure big_number big_number dollar_figure -- big_number dollar_figure big_number -- sec sec big_number big_number none the addition_to_tax under sec_6653 i sec_50 percent of the interest payable under sec_6601 with respect to the portion of the underpayment which is attributable to fraud which is the entire deficiency for the taxable_year and dollar_figure of the deficiency for the taxable_year docket no frank h wheaton jr year deficiency sec_6662 dollar_figure dollar_figure docket no frank h wheaton jr year deficiency sec_6662 dollar_figure dollar_figure unless otherwise noted all section references are to the internal_revenue_code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure introduction findings_of_fact frank wheaton is married to mary wheaton and they resided in millville new jersey at the time their petitions in these cases were filed they made joint returns of income for the taxable calendar years through dorchester is a new jersey corporation it is engaged in shipbuilding and repair dorchester’s mailing address was in dorchester new jersey at the time its petition in this case was filed dorchester is a calendar-year taxpayer at all times relevant to the issues in these cases frank wheaton was the sole shareholder of dorchester frank wheaton has been the president of dorchester since at least the scheduled trial by order of the chief_judge dated date the cases at docket nos and the docketed cases were assigned to judge james s halpern for disposition by order dated date the docketed cases were consolidated and set on a special trial calendar to commence in philadelphia pennsylvania on date by order dated date the docketed cases were set for a pretrial conference on date in washington d c at that conference the court was informed that the trial in those cases would take approximately weeks the parties’ pretrial memoranda set forth more than issues respondent alone listed witnesses thousands of hours had gone into trial preparation the court conducted a lengthy discussion of the issues to be tried and the court determined that both the court and the parties would benefit if before commencing trial the parties could discuss their differences with an impartial third party who might suggest a basis for settlement of some or all of the items in issue accordingly by order dated date the court continued the cases for trial from date to date the parties were directed to meet with chief special_trial_judge peter j panuthos to discuss their differences and determine whether any or all of the items in issue might be disposed of by settlement a meeting with chief special_trial_judge panuthos commenced on date in washington d c respondent was represented by attorney william garofalo garofalo dorchester and the wheatons were represented by attorneys william gilson gilson and gary wodlinger wodlinger neither frank nor mary wheaton attended the meeting although frank wheaton was present in washington d c on the evening of date after their initial meeting with chief special_trial_judge panuthos gilson and wodlinger met with frank wheaton at his hotel in washington d c and expressed doubt as to the persuasiveness of certain of their key arguments frank wheaton told gilson and wodlinger that he would not appear or testify at trial gilson informed frank wheaton that he was the principal witness in about percent of the issues in the cases and that without him gilson and wodlinger had no chance gilson informed frank wheaton that if he did not testify there would be a default and a judgment for dollar_figure million-- dollar_figure million against you personally frank wheaton again said that he would not show up for trial he said that he did not have dollar_figure million he was not spending any more money and he was getting back to business frank wheaton instructed gilson and wodlinger to get a settlement number from the internal_revenue_service irs he did not instruct gilson and wodlinger to set any conditions on the settlement on the morning of date gilson and wodlinger met with garofalo and chief special_trial_judge panuthos gilson advised garofalo that frank wheaton wished to settle the cases garofalo told gilson that he would prepare a settlement offer based on the amount of tax and penalties for which respondent believed petitioners were liable respondent would only settle the instant cases if gilson submitted to respondent written settlement documents prior to a m on monday date and he had no authority to settle any dispute with frank and mary wheaton for a year not then before the court subsequently frank wheaton gilson wodlinger and garofalo left washington d c later on date garofalo transmitted a letter via facsimile to gilson the november letter the november letter contains attachments setting forth respondent’s proposed settlement figures with respect to the docketed cases in addition the attachments contain figures to settle the case at docket no which involves the tax_liability of frank and mary wheaton for the docketed cases and the case at docket no hereafter referred to together as the docketed cases the november letter required a response by a m on monday date the settlement figures proposed by respondent in attachments to the november letter are substantially the same as the figures contained in respondent’s motions for entry of decision except that the attachments contain calculations of interest that are not part of respondent’s motions for entry of decision including interest the attachments show amounts due in excess of dollar_figure million richard f riley riley and k martin worthy worthy are experienced tax attorneys associated with the law firm of hopkins sutter as partner and senior counsel respectively they had been retained by frank wheaton to consult with his trial counsel gilson and wodlinger regarding the docketed cases at frank wheaton’s request gilson and wodlinger conferred by telephone with riley and worthy during the weekend of november and concerning the proposed settlement during that weekend frank wheaton also spoke with riley and worthy and separately with wodlinger as a result of those conversations a consensus was formed among the various attorneys and frank wheaton to make a counteroffer to the government’s proposal contained in the november letter the counteroffer was to be percent of the amounts proposed by the government frank wheaton and his attorneys realized however that the government might not accept that counteroffer on the morning of monday date before speaking by telephone with garofalo gilson telephoned frank wheaton and asked for instructions if the government were to refuse the 75-percent counteroffer frank wheaton instructed gilson that in that circumstance he was to proceed and take the government’s number frank wheaton answered yes when gilson asked him if he realized that there would be a dollar_figure million judgment although there had been a discussion among the attorneys and a discussion between the attorneys and frank wheaton regarding frank wheaton’s inability to pay dollar_figure million and the possibility of negotiating some final payment obligation for both the docketed cases and other years under examination but not yet petitioned to the tax_court frank wheaton did not attach any condition to his instruction to gilson that if the government would not compromise he was to take the government’s number on the morning of date after speaking with frank wheaton gilson spoke by telephone with garofalo who rejected the 75-percent counteroffer garofalo then told gilson of certain minor changes to the government’s proposed settlement figures gilson made a note of those numbers gilson informed garofalo that the government’s proposals were acceptable at some point during the morning of date garofalo or his secretary transmitted by facsimile and gilson received a letter the november letter which made the changes to the government’s proposed settlement figures that had previously been communicated by garofalo to gilson by telephone and that reduced the settlement amount slightly the november letter was signed by patrick e whelan assistant district_counsel for the irs the november letter required a response by p m also at some point during the morning of date garofalo by telephone informed gilson that in light of gilson’s statement that the government’s proposals were acceptable he need not worry about the p m deadline and he should get his written response to garofalo as soon as possible later on date gilson faxed to frank wheaton a letter the november letter to wheaton that begins this letter will confirm the authority given to us to resolve the pending united_states tax_court matters involving calendar years through the november letter to wheaton then summarizes the events and discussions of the few days prior to the letter it states that earlier that day a report by telephone had been made by gilson to frank wheaton of the morning’s telephone conversation between gilson and garofalo and that frank wheaton had instructed gilson to continue to settle the matter it also states that consistent with the telephone report and resulting instruction correspondence accepting the government’s settlement proposal had been faxed simultaneously to garofalo and to frank wheaton in addition the november letter to wheaton states that riley’s office will take the lead in an offer_in_compromise and that it would be necessary for frank wheaton to provide a list of assets to the irs at some time in the future at p m on date gilson faxed a letter to garofalo the november response accepting the revised settlement proposal as set forth in your revised offer of this morning date the november response requests that garofalo advise the court of the settlement in order to avoid the necessity of appearing for trial on wednesday date in philadelphia pennsylvania garofalo informed the court of the settlement by order dated date upon information that the parties had reached a basis for settlement the court struck the docketed cases from the date philadelphia pennsylvania special trial session and ordered the parties to submit settlement documents to the court on or before date subsequent events sometime after date frank wheaton changed his mind on date garofalo mailed decision documents to gilson which reflected the basis for the settlement that had been reached frank wheaton refused to execute those decision documents as a result respondent moved for entry of decision in each of the docketed cases representation gilson and wodlinger entered their appearances as counsel for dorchester on date they entered their appearances as counsel for frank and mary wheaton in the remaining docketed cases by subscribing the petitions in those cases prior to entering their appearances in those remaining docketed cases gilson and wodlinger met with frank and mary wheaton to discuss representation with respect to frank and mary wheaton’s through taxable years gilson and wodlinger raised the question of separate counsel for frank and mary wheaton and for dorchester frank wheaton advised gilson and wodlinger that he did not want to retain additional attorneys and that he wanted gilson and wodlinger to represent all three parties mary wheaton stated that she did not want separate counsel and directed gilson and wodlinger to take their instructions from frank wheaton gilson and wodlinger raised the question of an innocent spouse defense for mary wheaton mary wheaton said that she did not want to raise that defense frank wheaton said that he was not going to have that defense raised gilson and wodlinger have withdrawn as counsel in all of the docketed cases i introduction opinion respondent has moved for entry of decision in each of these consolidated cases in accordance with a settlement agreement of the parties because respondent and petitioner mary wheaton mary wheaton have since reached an agreement on and have stipulated to the fact that mary wheaton is an innocent spouse within the meaning of sec_6013 there are no issues with respect to mary wheaton that we must address with respect to petitioners dorchester industries inc dorchester and frank wheaton jr frank wheaton we must determine whether those parties and respondent in fact entered into a settlement agreement and if so the consequences thereof at the conclusion of an evidentiary hearing that commenced on date the hearing the parties other than mary wheaton were directed to file briefs setting forth proposed findings_of_fact and argument the court set page limitations on the argument portions of the opening and answering briefs of and pages respectively the court stated that if additional pages for argument were desired a party would have to request leave of court to exceed the page limitations the argument portion of frank wheaton’s opening brief consists of pages however at its beginning it carries a footnote stating that due to the page limitations imposed by the court frank wheaton incorporates by reference arguments contained in certain previously filed papers frank wheaton did not ask for leave to exceed the page limitations imposed by the court accordingly the court will not incorporate into his brief the referenced arguments and deems him to have failed to raise any arguments not set forth plainly in either his opening or answering brief dorchester has failed to file an opening brief by its counsel paul porreca dorchester has given notice of its adoption of frank wheaton’s reply brief we assume that dorchester wishes to adopt the arguments made by frank wheaton in his opening brief ii settlement agreement a introduction a controversy before this court may be settled by agreement of the parties recently we have stated some general propositions regarding settlement agreements for almost a century it has been settled that voluntary settlement of civil controversies is in high judicial favor 216_us_582 171_us_650 a valid settlement once reached cannot be repudiated by either party and after the parties have entered into a binding settlement agreement the actual merits of the settled controversy are without consequence this court has declined to set_aside a settlement duly executed by the parties and filed with the court in the absence of fraud or mutual mistake 90_tc_315 42_tc_110 however a court will not force a settlement on parties where no settlement was intended 419_f2d_1197 d c cir a settlement is a contract and consequently general principles of contract law determine whether a settlement has been reached 52_tc_420 supplemented by 53_tc_275 a prerequisite to the formation of a contract is an objective manifestation of mutual assent to its essential terms heil v commissioner tcmemo_1994_417 17a am jur 2d contracts sec_27 and sec_28 williston on contracts sec_3 4th ed mutual assent generally requires an offer and an acceptance 17a am jur 2d contracts sec_41 an offer is the manifestation of willingness to enter into a bargain so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it restatement contract sec_2d sec_24 in a tax case it is not necessary that the parties execute a closing_agreement under sec_7121 in order to settle a case pending before this court but rather a settlement agreement may be reached through offer and acceptance made by letter or even in the absence of a writing lamborn v commissioner tcmemo_1994_515 settlement offers made and accepted by letters are enforced as binding agreements haiduk v commissioner tcmemo_1990_506 see also himmelwright v commissioner tcmemo_1988_114 manko v commissioner tcmemo_1995_10 b authority if a settlement agreement was reached here it was not reached by frank wheaton negotiating directly on his own behalf and on behalf of dorchester respondent was represented by attorney william garofalo garofalo and dorchester and frank wheaton were represented by attorneys william gilson gilson and gary wodlinger wodlinger no question has been raised as to frank wheaton's authority to act on behalf of dorchester of which he was president and sole shareholder frank wheaton and dorchester do question however the authority of gilson to enter into any settlement agreement on their behalf whether an attorney has authority to act on behalf of a taxpayer is a factual question to be decided according to the common_law principles of agency 85_tc_359 70_tc_623 under common_law principles of agency authority may be granted by express statements or may be derived by implication from the principal's words or deeds dahl v commissioner tcmemo_1995_179 disanza v commissioner tcmemo_1993_142 affd 9_f3d_1538 2d cir casey v commissioner tcmemo_1992_672 john arnold executrak systems inc v commissioner tcmemo_1990_6 estate of quirk v commissioner tcmemo_1995_234 we have no doubt that gilson received express authority from frank wheaton to settle the cases at docket nos and the docketed cases on the basis presented by the government indeed frank wheaton conceded at the hearing that he authorized gilson and wodlinger to enter into an agreement with the internal_revenue_service irs frank wheaton testified they gilson and wodlinger said they had talked to mr riley and they all agreed that the best thing for us to do was to agree to the statements of the irs and that would amount to a dollar_figure million fine but i said as long as mr riley and you two gilson and wodlinger think that's the thing to do you're my counsel i guess we'll have to do so emphasis added in response to questioning by the court frank wheaton testified that he instructed gilson to enter into a settlement agreement on the terms presented by the government and then subsequently decided that he did not want to settle the cases frank wheaton also testified that he understood that the settlement agreement would encompass the docketed cases and would not affect petitioners' tax_liabilities with respect to any_tax years not before the court under these circumstances we find that gilson possessed express authority to enter into the settlement agreement on behalf of dorchester and frank wheaton c offer and acceptance on date garofalo transmitted a letter via facsimile to gilson the november letter the november letter contains respondent’s proposed settlement figures for the docketed cases the november letter required a response by a m on monday date in a telephone conversation with gilson during the morning of that monday garofalo told gilson of certain changes to those proposed settlement figures gilson told garofalo that the government’s proposals were acceptable at some point during the morning of date garofalo or his secretary transmitted by facsimile and gilson received a letter the november letter which made the changes to the government’s proposed settlement figures that were previously communicated by garofalo to gilson by telephone and which reduced the settlement amount slightly the november letter required a response by p m also by telephone during the morning of date garofalo extended the p m deadline contained in the november letter at p m on date gilson faxed a letter to garofalo the november response accepting respondent’s revised offer of date dorchester and frank wheaton point to some uncertainty in garofalo’s testimony concerning whether he faxed the november letter to gilson or whether he had his secretary fax that letter dorchester and wheaton conclude that respondent has failed to prove that the november letter was transmitted to gilson on date they view the november letter as a proposal and not a definite offer they argue a prerequisite to the formation of an agreement is the manifestation of mutual assent to material terms by all the parties lamborn v commissioner t c memo consequently there must be a meeting of the minds on material terms in order to reach an agreement 9_f3d_282 3d cir this intended agreement the november letter purports to conclude cases involving eleven calendar years between and issues and numerous penalties this document outlined above simply does not show a settlement was ever reached of a case of this complexity and magnitude the attachments to the november letter contain a great amount of detail supporting respondent’s proposed settlement figures for the docketed cases on the morning of date by telephone garofalo made certain minor changes to those proposed settlement figures which changes were confirmed by the november letter the november letter was faxed to and received by gilson during the morning on date we base that finding principally on garofalo’s testimony that he believed that the november letter was faxed to gilson pincite a m on date and gilson’s testimony that he recollects reviewing the november letter on date moreover the november response refers to garofalo’s revised offer of this morning date we are convinced that the proposed settlement figures conveyed to gilson by way of the november letter and modified somewhat on date by way of the november letter constitute the definite and material terms of an offer to settle the docketed cases and we so find dorchester and frank wheaton argue that the november response faxed by gilson to garofalo pincite p m was too late and thus no agreement was reached we do not agree first gilson accepted the government’s proposals during his telephone conversation with garofalo during the morning of date the november letter however called for a written acceptance the november letter extended the time for the written acceptance to p m by telephone during the morning of date garofalo extended the p m deadline contained in the november letter it is hornbook law that if an acceptance fails to comply with a time requirement in an offer the time requirement may be waived e g jaeger williston on contracts sec_53 pincite 3d ed not infrequently an offeror who has imposed a limit of time in his offer does not care to insist upon it and by further negotiations may indicate a continued willingness to stand by the terms of his offer any such manifestation of continued willingness is in effect a new offer which may be accepted and if accepted will ripen into a new contract fn ref omitted we have no doubt that the time requirement contained in the november letter was waived and that the november response was a timely acceptance of an offer made by respondent and we so find indeed respondent relied on that response in informing the court that no trial was necessary the contractual prerequisites of offer and acceptance are present the november letter the november letter the november response and the surrounding circumstances constitute the objective manifestation of mutual assent to the essential terms of a settlement agreement the agreement that was reached is the agreement proposed in the november letter as modified during the morning telephone conversation of date which is all set forth in the november letter we believe that the parties entered into a contract to settle the docketed cases and we so find d repudiation by order dated date upon information that the parties had reached a basis for settlement the court struck the cases at docket nos and the docketed cases from the date philadelphia pennsylvania special trial session the november special trial session and ordered the parties to submit settlement documents to the court on or before date on date garofalo mailed decision documents the decision documents to gilson the decision documents address not only the docketed cases but also the case at docket no the docketed_case which deals with frank and mary wheaton’s tax_year the docketed cases and the docketed_case being referred to together as the docketed cases frank wheaton refused to execute the decision documents at the hearing the court asked frank wheaton why he believed the trial did not start on date he answered that he assumed that the trial did not start because he had agreed to the government’s settlement proposals he testified that the reason he had refused to execute the decision documents was because he had changed his mind about the settlement sometime after date dorchester and frank wheaton argue that frank wheaton was free to repudiate his agreements with the government when he was presented with the decision documents some time soon after date among the general propositions set forth above section ii a are that a settlement is a contract and a valid settlement once reached cannot be repudiated by either party nevertheless the law is well established that a court has some power to set_aside a settlement stipulation filed with it but its discretion will not be exercised unless good cause is shown 26_tc_171 in 85_tc_359 we set forth criteria appropriate for determining when we should exercise our discretion to modify or set_aside a settlement stipulation the party seeking modification must show that the failure to allow the modification might prejudice him discretion should be exercised to allow modification where no substantial injury will be occasioned to the opposing party refusal to allow modification might result in injustice to the moving party and the inconvenience to the court is slight citations omitted in himmelwright v commissioner tcmemo_1988_114 we faced a situation similar to that which we face with respect to the docketed cases in the himmelwright case we had canceled a trial in reliance on the representation of counsel for one of the parties that a settlement agreement had been reached we enforced that agreement memorialized in a letter from the taxpayer’s counsel to the commissioner’s counsel by analogizing the taxpayer’s request to be relieved of the agreement to a motion to vacate a settlement agreement filed on the eve of trial in 90_tc_315 the commissioner moved to vacate a settlement agreement negotiated shortly before trial was scheduled to commence we stated that the settlement agreement had led to the vacation of the trial date and would have led to entry of decisions had the parties complied with their agreement and the court’s order with respect to settlement documents id pincite because of those circumstances we stated that more stringent standards were applicable than the criteria set forth in adams v commissioner supra we stated that the moving party had to satisfy standards akin to those applicable in vacating a judgment entered into by consent in such cases the parties are held to their agreement without regard to whether the judgment is correct on the merits id pincite absent a showing of lack of formal consent fraud mistake or some similar ground a judgment entered by consent will be upheld e g 276_us_311 those same principles are applicable here the court struck the docketed cases from the november special trial session in reliance on the representation made by the parties that they had reached a basis for settlement dorchester and frank wheaton have failed to prove fraud mistake or some similar ground accordingly they are bound by the terms of the settlement with respect to the docketed cases the situation is different with respect to the case at docket no the docketed_case which deals with frank and mary wheaton’s tax_year the docketed_case was not set for trial at the november special trial session it was noticed for trial on date in philadelphia pennsylvania which trial was continued trial was not imminent on date when respondent and frank wheaton entered into the settlement agreement the docketed_case is thus unlike himmelwright v commissioner supra and we need not apply the stringent eve-of-trial standards of stamm intl corp v commissioner supra for good cause shown we may refuse to implement the settlement agreement as it applies to the docketed_case cf saigh v commissioner supra pincite stating that rule with respect to a settlement stipulation we apply the criteria set forth in adams v commissioner supra since the settlement agreement entered into by respondent and petitioners amounts to a virtual capitulation by petitioners it does not appear that respondent gave up much of anything to get a settlement of the docketed_case or would be substantially injured were we to modify the settlement agreement with respect to the docketed_case respondent might be forced to try that case but that possibility exists for any decision to set_aside a settlement agreement if attention is focused only on the docketed_case the court has not been unduly inconvenienced nevertheless frank wheaton has failed to prove that a failure to modify the settlement agreement would result in an injustice being done to him he consulted with four attorneys after receiving respondent’s settlement proposal two of those attorneys richard f riley and k martin worthy are experienced tax attorneys frank wheaton has not alleged that respondent tried to deceive him by including the docketed_case in the settlement proposal indeed it appears that the docketed_case was included in the settlement proposal at frank wheaton’s request in order to settle as many tax years as possible frank wheaton cannot assert that he was not fully cognizant of the terms for settling the docketed_case or that he did not approve that settlement in fact beyond the assignments of error and averments in the petition he has failed to argue that there is any merit to his claims with respect to the docketed_case he has not informed us what witnesses he would call what they would testify to or what other evidence he would present all we know is that frank wheaton changed his mind with respect to settling that case frank wheaton has failed to prove that any injustice would result by holding him to his bargain and he has failed to convince us that we should exercise our discretion to modify the settlement agreement as it applies to the docketed_case finally we are not compelled to allow frank wheaton to repudiate the settlement agreement with respect to the docketed_case because of what we said in 30_tc_665 affd 272_f2d_13 2d cir in the cole case we refused to redetermine deficiencies in accord with certain proposed stipulations that we found had not been executed by the commissioner and had not been filed in the court as stipulations after finding that the proposed stipulations had not been accepted or signed on behalf of the commissioner we added moreover even if it be assumed that either stipulation had been signed petitioner would not be entitled to have an order entered disposing of the case upon the basis of such document this court will of course enter an order adjudicating liability in accordance with an agreement of the parties for the existence of such agreement shows that there is no longer any controversy between them and once a stipulation is filed by both sides it is binding upon them cf fred m 26_tc_171 but where for whatever reason the parties are not in agreement at the time the case is called for trial it is wholly irrelevant in this connection that they may have been in agreement at some earlier time the inquiry into whether respondent’s chief_counsel had signed the stipulations in this case is therefore beside the point furthermore the mere signing of a paper while retaining custody of it does not necessarily render it an operative document until it is delivered or until some appropriate action is taken with respect thereto it is far from clear that the signer may not scratch out his signature id emphasis added in 795_f2d_566 6th cir affg tcmemo_1984_53 the court_of_appeals for the sixth circuit the sixth circuit upheld this court’s determination that a settlement was not validly executed because it had not been filed with the court and had not been signed by or on behalf of the chief_counsel although it had been approved by an irs appeals officer this court had relied on the cole case which the sixth circuit quoted in part beginning its quotation with the underscored language set forth above the sixth circuit acknowledged that had it been passing on a settlement agreement independently reached by ordinary litigation it might well have concluded that such agreement should be enforced it concluded however that this court had not erred as a matter of law in reaching its conclusion this court however has not been consistent in interpreting or even acknowledging the cole case for example in nelson bros inc v commissioner tcmemo_1991_52 we cast doubt on whether an agreement could be repudiated before trial we emphasized what we had said in the cole case about the mere signing of a proposed stipulation not always being sufficient evidence that the parties were in agreement we continued instead delivery of the stipulation or other appropriate action would be needed in order for this court to accept that a binding agreement was reached by the parties therefore in the cole case we did not state that the parties while in agreement before trial could cancel the agreement if they were no longer in agreement when the case was called for trial id in haiduk v commissioner tcmemo_1990_506 we enforced a settlement agreement evidenced only by an exchange of letters between the parties we did not even mention the cole case the repudiation language in the cole case does not recite a rule_of contract law cf estate of jones v commissioner supra pincite it appears to implement this court’s inherent power to regulate what will be tried before it see saigh v commissioner t c pincite we have reconsidered the cole case and we can see no reason to empower a party to a settlement agreement with the authority unilaterally to set that agreement aside upon a showing of sufficient cause we have the power to modify the agreement saigh v commissioner supra in light of those considerations we will not follow the cole v commissioner supra case to the extent it indicates that a party to a settlement agreement that is not filed as a stipulation may repudiate that agreement up until and including the time the case is called for trial e setting aside the agreement dorchester and frank wheaton argue that each was ill-served because in addition to representing them gilson and wodlinger represented mary wheaton dorchester and frank wheaton claim that gilson and wodlinger faced a blatant and nonwaivable conflict of interest in representing both mary and frank wheaton that conflict they claim arises because mary wheaton had available to her an innocent spouse defense under sec_6013 and one element of that defense is that the understatement_of_tax on the joint_return be attributable to grossly_erroneous_items of frank wheaton see sec_6013 e certainly one spouse’s claim that she he is an innocent spouse can present a conflict of interest to counsel trying to represent both spouses if indeed the spouses do have differing interests with respect to any issue in a case our rules provide that counsel must secure informed consent of the client withdraw from the case or take whatever other steps are necessary to obviate the conflict of interest rule f on rare occasion we require separate representation of persons with differing interests even if an apparent waiver has been obtained e g para techs trust v commissioner tcmemo_1992_575 although gilson and wodlinger may have believed that there was some chance that mary wheaton could succeed with an innocent spouse defense they were far from convinced that such a claim would succeed wodlinger testified that he believed that mary wheaton failed two of the tests for innocent spouse relief gilson and wodlinger discussed both the innocent spouse defense and separate representation with mary wheaton and she stated that she did not want separate counsel and did not want to raise the innocent spouse defense she instructed gilson and wodlinger to take their instructions from frank wheaton frank wheaton directed gilson and wodlinger not to raise an innocent spouse defense we believe that gilson and wodlinger did obtain informed consent from mary wheaton to represent both her and frank wheaton with respect to the docketed cases and we so find moreover nothing in the record puts these cases into the same category as para techs trust v commissioner supra so that we would require separate counsel even with an apparent waiver although mary wheaton and respondent did on date stipulate that mary wheaton is an innocent spouse for tax years through we do not take that stipulation as determinative of the fact that frank and mary wheaton had a nonwaivable conflict dorchester and frank wheaton also argue that besides a conflict of interest gilson and wodlinger had no authority to enter into a joint settlement because they had no authority to do so on behalf of mary wheaton we do not believe that gilson and wodlinger lacked authority with respect to mary wheaton first mary wheaton had told gilson and wodlinger to take their direction from frank wheaton we have found that frank wheaton authorized a settlement of the docketed cases second mary wheaton has stipulated with respondent that gilson and wodlinger had authority to enter into a settlement of the docketed cases on her behalf mary wheaton’s authority stipulation which settlement was set forth in an exchange of correspondence between the parties dated date in mary wheaton’s response to respondent’s motions for entry of decision mary wheaton’s response she avers that she was neither consulted with respect to the settlement nor did she authorize the purported settlement or have any knowledge of it in mary wheaton’s response she also claims that she has been in poor health during the period of this litigation and has relied totally on her husband from the various papers filed in these cases by frank wheaton and by mary wheaton and from other evidence in the record we conclude that mary wheaton did not involve herself in these cases and relied on her husband for leadership and direction indeed in his affidavit attached to mary wheaton’s response frank wheaton states she mary wheaton has never been involved in any of my many business ventures she has very little if any knowledge of any of these ventures or of this proceeding we believe that mary wheaton gave frank wheaton full authority to represent her interests in these cases and to make decisions on her part that reflects the instruction that mary wheaton gave to gilson and wodlinger that they take their instructions from frank wheaton we find that gilson and wodlinger had authority to enter into a settlement with respect to the docketed cases on behalf of mary wheaton we have found that gilson and wodlinger obtained an informed waiver from mary wheaton and had authority to enter into a joint settlement we also find that there was no showing of prejudice to either dorchester or frank wheaton on account of the simultaneous representation of mary wheaton dorchester has not favored us with a brief so we have no idea what it might claim frank wheaton claims that his representation was materially limited he states that in date he was totally unaware that if his wife claimed to be an innocent spouse her assets would not be available should they settle he depended on their existence and availability should the parties settle first we do not believe that frank wheaton was unaware of the innocent spouse defense he is the one that stated to gilson and wodlinger that he was not going to have that defense raised second he has not demonstrated to us that his wife had any substantial separate assets or even if she did that he would have any claim to those assets should respondent choose to pursue him for the full amount of the settlement figures in the docketed cases in which he and mary wheaton are petitioners in any event sec_6013 imposes joint_and_several_liability for the tax on spouses making a joint_return of income and therefore frank wheaton’s liability is independent of the existence of mary wheaton’s separate assets f rescission lastly dorchester and frank wheaton argue that respondent has rescinded her agreement with dorchester and frank wheaton by entering into a subsequent agreement with mary wheaton allowing her to claim innocent spouse relief the innocent spouse agreement dorchester and frank wheaton claim that mary wheaton’s assets are no longer available to satisfy the dollar_figure million settlement respondent’s counsel has unilaterally pulled the rug out from under mr wheaton as a preliminary matter we fail to see how that argument benefits dorchester on the facts as we understand them nothing in the code or the settlement agreement makes either mary or frank wheaton responsible for dorchester’s liability or vice versa dorchester has failed to show any protected right or interest that is affected by respondent’s agreement with mary wheaton dorchester is entitled to no relief on account of respondent’s agreement with mary wheaton also we fail to see that any protected right or interest of frank wheaton is affected by the innocent spouse agreement first nothing in either the november letter the november letter or the november response makes frank wheaton’s income_tax_liability contingent in any way upon mary wheaton’s continuing to be liable for her joint_return liability second sec_6013 provides that the signers of a joint_return are jointly and severally liable for any_tax due that fact was a significant factor in our denying relief to taxpayers making claims similar to frank wheaton’s in himmelwright v commissioner tcmemo_1988_114 and garvey v commissioner tcmemo_1993_354 frank wheaton’s primary concern appears to be economic he expected mary wheaton to contribute to payment of the deficiency as explained in estate of ravetti v commissioner tcmemo_1989_45 however the right of contribution with which frank wheaton is concerned is a matter to be resolved under state law frank wheaton is entitled to no relief on account of respondent’s agreement with mary wheaton iii conclusion dorchester frank wheaton and respondent entered into a settlement agreement in the docketed cases for the reasons stated we shall grant respondent’s motion with respect to dorchester in docket no grant respondent’s motions with respect to frank wheaton in docket nos and we shall deny respondent’s motions to the extent that they ask for entry of decisions with respect to mary wheaton and we shall enter decisions with respect to mary wheaton in docket nos and in accordance with the innocent spouse agreement appropriate orders and decisions will be entered reviewed by the court cohen chabot swift jacobs gerber wells ruwe colvin beghe chiechi laro vasquez and gale jj agree with this majority opinion whalen j did not participate in the consideration of this opinion parr j concurring i agree with the result reached in this case i write separately however to emphasize that nothing in the majority opinion should be understood to limit the sound discretion of the court to reject an agreement between the parties where good cause is shown and the interests of justice require it it is easy to imagine a situation not here present where an agreement between the parties may not be in the interests of justice for instance agreements that would abuse the process of this court would usurp the court’s control_over its calendar or that would be contrary to sound public policy should not be enforced 85_tc_359 chabot jacobs and laro jj agree with this concurring opinion foley j dissenting with respect to the three docketed cases i agree with the majority we should hold the parties to their stipulation if however a stipulation has not been filed with or relied upon by the court and either party objects to its enforcement the stipulation generally should not be enforced in 30_tc_665 affd 272_f2d_13 2d cir we stated once a stipulation is filed by both sides it is binding upon them cf fred m 26_tc_171 but where for whatever reason the parties are not in agreement at the time the case is called for trial it is wholly irrelevant in this connection that they may have been in agreement at some earlier time i agree with respect to the docketed_case we should not enforce the parties' prior agreement


department of the treasury internal_revenue_service washington d c date ct-505292-99 cc pa dpl b1 number release date uilc internal_revenue_service chief_counsel_advice memorandum for matthew magnone district_counsel newark cc ner njd new from david l fish chief branch disclosure privacy law cc pa dpl subject request for advice on money laundering notification letter this is in response to your memorandum dated date seeking our assistance as to whether there are any disclosure and or privacy_act issues concerning criminal investigation ci ’s proposal to send money laundering notification letters to american businesses which have received narco-laundered proceeds after the indictment and arrest of the targets in a money laundering operation this document is not to be cited as precedent issue sec_1 do the money laundering notification letters consist of or contain items of the targets’ or businesses’ return_information such that disclosure is governed by sec_6103 do the disclosure restrictions imposed by the privacy_act of u s c sec_552a apply to the money laundering notification letters is the retention of the money laundering notification letters in a database retrievable by the names of the targets and or recipients a system of records if so what privacy_act obligations must be followed conclusion sec_1 yes and no the money laundering notification letters do not contain the targets’ return_information however the letters consist in their entirety of the recipients’ return_information to the extent that the target’s name amount of laundered payments and the source of the proceeds that ci proposes to include in the money laundering notification letters are collected in the course of a pure title or money laundering investigation which does not relate to the determination of the existence or possible existence of liability or the amount of liability of the target under title_26 those items of information are not return_information subject_to the confidentiality rules of sec_6103 the letters themselves however are compiled by ci with respect to the businesses’ possible liability under sec_6050i so that they are the businesses’ return_information probably not since the target’s name amount of laundered payments and the source of the proceeds are items of information drawn from the criminal investigation management information system cimis and or treasury enforcement communication systems tecs the items of information are contained in the target’s record which is maintained in an agency system of records however since the target’s name amount of laundered payments and the source of the proceeds are sourced in the public record of the money laundering proceedings the inclusion of this information in the money laundering notification letters to the businesses does not constitute a disclosure within the meaning of the privacy_act so long as the money laundering notification letter recipients are not individuals or sole proprietors the letters themselves would not be subject_to disclosure restrictions of the privacy_act probably not so long as the money laundering notification letters are not maintained in a database in which the letters are indexed by or cross-referenced to the names of the targets or sole_proprietor recipients then the database does not constitute a system of records for which federal_register notice publication is required if it is determined that the letters will be maintained in a database that is operated with this retrieval cross-referencing feature then prior to establishing the database the irs must publish notice in the federal_register of a new or altered system of records facts the chief ci new jersey district has proposed that after the indictment and arrest of targets in pure title or money laundering operations any american businesses that received laundered narcotics proceeds from targets would be sent a money laundering notification letter notification letter from ci indicating that the business had received laundered money specifically the notification letter would to the extent the letter recipients are sole proprietors then disclosure of the entirety of the letter or the fact that the letter was sent to a particular businessman would be subject_to the restrictions on disclosure imposed by u s c sec_552a b a pure title or investigation is one where no related statute determination has been made and thus is not a tax_administration investigation in such pure title or cases returns and return_information cannot be accessed by ci unless the identify the laundered payments the source of those payments a detailed explanation of how the business can recognize if payments received were the proceeds of narcotics_trafficking and notify the business of deficiencies or errors that may exist in the business’ compliance with sec_6050i of the internal_revenue_code the purpose of the notification letters is twofold to disrupt the black market peso exchange by deterring legitimate vendors from accepting laundered proceeds thereby eliminating the market and to build any future criminal cases against the recipients of the laundered proceeds by monitoring the recipients’ compliance with sec_6050i in this way the american businesses will be placed on notice of receipt of laundered proceeds in order to prove mens rea in any subsequent asset seizure or criminal action related to their obligation under sec_6050i to report any transactions in which a company receives more than dollar_figure in cash in the course of a trade_or_business to the internal_revenue_service including conspiracy charges upon delivery of the notification letter the district would maintain a centralized file of such notices ci could then use the file as a foundation for any future civil or criminal action against the american businesses for example ci would be able to submit to a court in such proceedings that branches of businesses in different cities or states have received a notification letter and that those businesses were placed on notice of the existence of the black market peso exchange and its operation and their obligation under sec_6050i law analysis inclusion of information relating to the target sec_6103 is not implicated with regard to the information relating to the target that ci proposes to include in the notification letter as that information does not meet the definition of return_information sec_6103 prohibits service employees from disclosing returns or return_information as those terms are defined in sec_6103 and b unless disclosure is authorized under a specific provision of title_26 sec_6103 defines return_information to include among other things any data which is received by recorded by prepared by furnished to or collected by the irs with respect to a return or with respect to the determination of the existence or possible existence of liability or the amount of liability of any person under title_26 here it is our understanding that the procedures in sec_6103 for nontax criminal matters are followed sec_6050i returns relating to cash received in trade_or_business etc provides that any person who receives more than dollar_figure in cash in one transaction or in two or more related transactions in the course of a trade_or_business must report that information to the internal_revenue_service notification letter would only be sent in instances where a target was arrested and indicted for pure title or violations see footnote any information collected in the course of a pure title or money laundering investigation of the target does not relate to the determination of the existence or possible existence of liability or the amount of liability of that target under title_26 as such the information relating to the target that ci proposes to include in the notification letter ie amount of laundered payments and the source of the proceeds target’s name and address on check or money order is not protected by sec_6103 thus sec_6103 presents no impediment to the inclusion of the target-related information in the notification letters sent to the american businesses however the target-related information that ci proposes to include in the notification letter is the target’s privacy_act protected information the privacy_act prohibits federal agencies from disclosing information about individuals contained in an agency’s systems of records without the consent of the individual involved unless the disclosure is made pursuant to one or more of the exceptions set forth in u s c sec_552a b - record is defined pincite u s c sec_552a a to mean any item collection or grouping of information maintained about an individual by an agency that includes the individual’s name or other identifying particular eg social_security_number voiceprint fingerprint photograph system of records is defined pincite u s c sec_552a a to be a group of records under the control of any agency from which information is retrieved by the name of the individual or by the identifying particular in the circumstances presented here ci will be disclosing information ie amount of laundered payments and the source of the proceeds target’s name and address on check or money order obtained from the criminal investigation management information system cimis and or treasury enforcement communications system tecs to american businesses that received laundered narcotics proceeds from targets who have been indicted and arrested cimis is a database contained within the irs system of record sec_46 it is a database that maintains records of all criminal investigations initiated by the service since date from which information is retrieved by the name or some other identifying particular assigned to the individual tecs is a database contained within the irs system of record sec_46 it is a database that maintains records of all open and closed criminal investigations and subjects of potential criminal investigations from which information is retrieved by the name or some other identifying particular assigned to the individual thus absent consent of the individual to whom the record pertains any disclosure by the service of information obtained from cimis and or tecs must fall within one or more of the statutory exceptions set forth in u s c sec_552a b - none of the twelve exceptions listed in u s c sec_552a b authorizes the service to disclose the identifying information to the american businesses however the service has taken the position that the revelation of information sourced in the public record is not a disclosure that triggers the privacy act’s restrictions thus the irs may disclose the otherwise privacy_act protected information without running afoul of the privacy_act if that information is contained in the public record a number of courts have endorsed the position that information that is made part of the public record may be disclosed without regard to the privacy_act see fdic v dye f 2d pincite lee v department no slip op pincite 4th cir date smith v continental assurance co no 91-c-0963 wl at n d ill date fried- lander v united_states postal serv no slip op pincite d d c date 471_fsupp_180 d d c some courts however have rejected the public record argument holding that absent the consent of the individual to whom the record pertains or an express statutory exception disclosure of privacy_act protected information that is a matter of public record is prohibited see quinn v stone 978_f2d_126 3rd cir holding that release of information that is merely readily accessible to public is a disclosure under 552a b 148_f3d_1182 10th cir adopt ing the third circuit's reasoning in quinn and hold ing that an agency may not defend a release of privacy_act information simply by stating that the information is a matter of public record 796_fsupp_7 d d c rejecting argument that information was already public and therefore could not violate privacy_act where agency had republished statement that was previously publicly disavowed as false by agency 489_us_749 a privacy interest can exist under the foia in publicly available--but practically obscure --information such as a criminal history record notwithstanding this split of authority consistent with the service’s public record position with regard to tax returns and return_information the service may disclose information related to the target in the notification letter if such information is contained in and directly attributed to the public record of the money laundering proceeding ie all of the information pertaining to the target in the notification letter the amount of laundered payments the source of the proceeds and the target’s name and address on the check or money order is contained in the police report or the arrest record of the target that is filed with the court the systems of record notice for treasury ir sec_46 and treasury ir sec_46 have no routine use that would authorize the disclosure of the information to american businesses that received laundered proceeds although a copy of such police report or arrest record may be contained in the special agent’s administrative file associated with the case a separate copy from the court should be obtained for purposes of including the information in the letter notification letter the notification letter itself however is the recipient’s sec_6103 protected information sec_6103 prohibits service employees from disclosing returns or return_information as those terms are defined in sec_6103 and b unless disclosure is authorized under a specific provision of title_26 sec_6103 defines return_information to include among other things any data which is received by recorded by prepared by furnished to or collected by the irs with respect to a return or with respect to the determination of the existence or possible existence of liability or the amount of liability of any person under title_26 here the notification letters are prepared by employees of the service and are predicated on the american businesses’ obligation under sec_6050i to report any transactions in which the business receives more than dollar_figure in cash in the course of a trade_or_business to the internal_revenue_service sec_6050i provides that structuring transactions to evade reporting requirements is prohibited further u s c a b ii provides that whoever knowing that property involved in a financial transaction represents the proceeds of some form of unlawful activity conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity to avoid a transaction reporting requirement under state or federal_law shall be sentenced the transaction reporting requirement here would be in the internal_revenue_code ie in sec_6050i which would make this violation clearly tax related as such the notification letters constitute the return_information of the recipients under sec_6103 under ci’s proposal ci will only be sending the notification letters to the taxpayers ie the american businesses to whom the tax_return information relates sec_6103 provides for the disclosure of a taxpayer’s own return_information to the taxpayer if such disclosure would not seriously impair federal tax_administration thus absent any impairment call disclosure of a taxpayer’s own return_information by the service is authorized under sec_6103 proposed database subsequent to the mailing of the notification letters the district proposes to keep a centralized file of a copy of those letters to serve as a foundation for any future criminal action against the american businesses the new database would be indexed by business name an entry would also be input into tecs which would state that the particular business had been identified as a past recipient of laundered narco-dollars and that a formal notification letter was issued in this way special agents will be able to query the database in subsequent investigations to determine whether a business was issued a notification letter it is our understanding that the purpose of sending the notification letters is to place the american businesses on notice of receipt of laundered proceeds in order to prove mens rea in any subsequent criminal action related to their obligation under sec_6050i to report any transactions in which a company receives more than dollar_figure in cash in the course of a trade_or_business to the internal_revenue_service as discussed above the information contained in the proposed notification letter database relates to the determination of the existence or possible existence of liability or the amount of liability of the american businesses under title_26 having concluded that the letters constitute their return_information sec_6103 applies which provides that returns and return_information may be disclosed to officers and employees of the department of the treasury whose official tax_administration duties so require as such the proposed database is protected by i r c and may only be queried by treasury employees who have a need to know for tax_administration_purposes pursuant to sec_6103 the next question we must address is whether the proposed database triggers certain record keeping obligations imposed by the privacy_act here ci proposes to to the extent the notification letter recipients are sole proprietors the database is privacy_act controlled as well the privacy_act has virtually identical disclosure authority for intra-agency disclosures as does sec_6103 access to the database may be made by treasury employees who have a need to know in the performance of their official duties in compliance with u s c sec_552a b the fact that the letters themselves are tax information and that any subsequent money laundering investigation would be per se tax related may present issues if the subsequent investigation is conducted jointly sec_301 h - a ii provides for the disclosure of tax information in a joint tax investigation if two requirements are met the non-tax matter involves or arises out of the particular facts and circumstances giving rise to the tax proceeding and the tax portion of the investigation must have been duly authorized by or on behalf of the assistant attorney_general for the tax_division of the department of justice pursuant to the request of the secretary money laundering cases do not meet the second requirement as those charges are referred directly to the united_states attorney’s office bypassing tax_division ci may make a discrete disclosure of the sec_6103 protected information eg the names of the recipients of the notification letters to other agencies pursuant to sec_6103 to the extent that such disclosure is necessary in obtaining information not otherwise reasonably available maintain a system of records from which information is retrieved by the name of the american businesses in the case of a business that is a partnership corporation or an llc the privacy_act is not implicated as that information is not maintained about an individual if however the business is a sole_proprietorship the collection of information is privacy_act protected as that record is under the control of the service from which information is retrieved by the name or identifying particular of an individual thus upon establishment of such a database the service is subject_to u s c sec_552a e which requires publication of a notice in the federal_register of the existence and character of any new or significantly altered system of records the office of privacy operations in the office of the national director governmental liaison and disclosure should be contacted to ensure ci’s compliance with this obligation alternatively ci may wish to consider simply adding a field to tecs that would capture the fact and date of mailing of a notification letter being issued to a particular american business in our view such a minor change would probably not obligate the service to publish a notice of the altered tecs system of records please call if you have any further questions cc office of privacy operations


department of the treasury internal_revenue_service washington d c xxxxx xxxxx xxxxx contact person contact number identification_number your letter asks a number of questions with regard to the membership date date number info release date index number dollar_figure t eo ra t4 xxxxxx xxxxxx dear xxxxxxxx we have received your letter dated date in which you state that you are a group of veterans who served in the vietnam era and are contemplating forming an organization described under sec_501 of the internal_revenue_code requirements of sec_501 you have not requested a ruling and have not paid the applicable user_fee the information provided in this letter does not constitute a ruling that can be relied on it is provided for your general information only under sec_501 of the code there are numerous people who are not veterans of the united_states military but served in the vietnamese military or were hired by the u s military as para-military and are now u s citizens who would like to be affiliated with you both groups those who served in the vietnam military and para- military served in similar vietnamese military units or worked directly for the u s military and later left the country of vietnam and migrated to the united_states and became u s citizens however they did not serve in the u s military organizations and their related auxiliaries the membership requirements for a sec_501 organization states that at least of the members must be past or present members of the armed_forces_of_the_united_states veterans substantially_all of the other members must be a cadets or b spouses widows or widowers of veterans or cadets have to be veterans have to be cadets or spouses etc only of the substantially_all mean sec_90 therefore of the of the members that do not you are a group of veterans contemplating forming an organization as described sec_501 of the internal_revenue_code applies only to veterans’ members who are on active_duty or are honorably separated from the national xxxxx organization’s total membership may consist of individuals who are not veterans cadets or spouses widows or widowers of these individuals veterans are defined as present or former members of the united_states armed_forces the term military_or_naval_forces_of_the_united_states and the term armed_forces_of_the_united_states each includes all regular and reserve components of the uniformed_services which are subject_to the jurisdiction of the secretary of the defense the secretary of the army the secretary of the navy or the secretary of the air force each term also includes the coast guard guard and the reserve forces are also considered veterans the post may include sons daughters and other related individuals who are not veterans as part of its membership so long as they along with any other non-veteran class of membership make up no more than of the post’s total membership depend on the facts of the individual case including the rights accorded to these individuals and their status under the organization’s organizing document gerald v sack manager exempt_organizations technical group the question of whether so-called social members are included as members would thank you for your interest in this matter s gerald v sack sincerely


internal_revenue_service number release date index number ---------------------------- -------------------------------------- --------------------------------- ----------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------------ telephone number ---------------------- refer reply to cc corp b02 plr-131992-16 date date legend parent subsidiary_corporation x date year --------------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------------- -------------------------- ------------------------------------------------------ company official ------------------------------------------------------------------ tax professional --------------------------------------------------------------------------------- dear ------------------- this letter responds to a letter from your authorized representative dated date requesting an extension of time under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations to file an election the extension is being requested for parent and its affiliated subsidiaries the parent group to make an election to file a consolidated federal_income_tax return with parent as the common parent under sec_1_1502-75 of the income_tax regulations the election for year additional information was submitted in correspondence dated date the material information submitted is summarized below parent is a holding_company that was formed to acquire all of the outstanding shares of corporation x prior to the acquisition corporation x was the common parent of a consolidated_group comprised of corporation x and its own subsidiaries the old plr-131992-16 group on date a transitory subsidiary of subsidiary a wholly-owned subsidiary of parent merged with and into corporation x with corporation x surviving the merger the merger terminating the old group following the merger corporation x became a wholly-owned subsidiary of subsidiary prior to year the parent group did not file a consolidated federal_income_tax return an election for the parent group to file a consolidated_income_tax_return with parent as the common parent for year was due on the last day prescribed by law including extensions of time for the filing of parent’s return but for various reasons a valid election ie the filing of the consolidated_return was not filed by the due_date of parent’s return after the due_date for the election it was discovered that the election had not been filed subsequently parent submitted under sec_301_9100-3 this request for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for year or any subsequent taxable_year parent has represented that it does not seek to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 sec_1_1502-75 of the income_tax regulations provides in part that an affiliated_group_of_corporations which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents in accordance with sec_1_1502-75 of the regulations to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for the filing of the common parent’s return under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1 a therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for parent to file the election provided parent shows it plr-131992-16 acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government information affidavits and representations submitted by parent company official and tax professional explain the circumstances that resulted in the failure to timely file the election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or to advise parent to make the election and that the request for relief was filed before the failure to make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly provided that the parent group qualifies substantively to file a consolidated_return for the applicable_taxable_year we grant an extension of time under sec_301_9100-3 for sixty days from the date on this letter for parent to file the election parent group having filed a return as though a valid election was made must amend its previously filed return to attach a copy of this ruling letter to such return alternatively if parent group files its return electronically this requirement may be satisfied by attaching a statement to the return that provides the date on and the control number of this ruling letter date plr-131992-16 the above extension of time is conditioned on the parent group’s tax_liability if any being not lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the parent group’s tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved we express no opinion with respect to whether in fact the parent group qualifies substantively to file a consolidated_return in addition we express no opinion as to the tax effects or consequences of filing the return or the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by parent company official and tax professional accompanied by a penalty of perjury statement executed by an appropriate party however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply plr-131992-16 this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely ___________________ ken cohen chief branch office of associate chief_counsel corporate cc


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc psi 1-plr-108759-02 date date legend x y d1 d2 dear this responds to your letter dated date submitted on behalf of x requesting relief under sec_1362 of the internal_revenue_code and an extension of time under sec_301_9100-1 of the procedure and administration regulations to elect to treat y as a qualified_subchapter_s_subsidiary qsub for federal tax purposes facts according to the information submitted x was incorporated on d1 the sole shareholder of x intended that x be treated as an s_corporation effective on d1 but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective d1 on d2 x acquired all shares of y x intended to treat y as a qsub effective d2 however x inadvertently failed to timely file the proper election law and analysis sec_1361 defines a qsub as a domestic_corporation that is not an ineligible_corporation if percent of the stock of the corporation is owned by an s_corporation and the s_corporation elects to treat the corporation as a qsub a taxpayer makes a qsub election with respect to a subsidiary by filing a form_8869 qualified_subchapter_s_subsidiary election with the appropriate service_center plr-108759-02 sec_1_1361-3 of the income_tax regulations provides that the election will be effective on the date specified on the election form or on the date the election is filed if no date is specified the effective date specified on the election form cannot be more than two months and days prior to the date of filing and cannot be more than months after the date of filing sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first two and one-half months of a corporation’s taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under sec_1362 however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-3 to make a regulatory election sec_301_9100-1 defines a regulatory election as an election with a due_date prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 x did not timely file an election to be treated as an s_corporation under sec_1362 x has however established reasonable_cause for not making a timely s election and is entitled to relief under sec_1362 conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the relevant service_center plr-108759-02 we further conclude that x has satisfied the requirements of sec_301_9100-1 and sec_301_9100-3 accordingly x is granted an extension of time of sixty days from the date of this letter to elect to treat y as a qsub effective d2 the election should be made by filing form_8869 with the appropriate service_center a copy of this letter should be attached to the election except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed concerning whether x is a valid s_corporation or whether y is a valid qsub this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the requested tax representative sincerely paul f kugler associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc