Opinion ID: 2995724
Heading Depth: 1
Heading Rank: 2

Heading: R.C. sec. 707(c). In the end, Spicer’s

Text: executives claimed the entire amount as a deductible guaranteed payment and advised the withdrawing partners that they should report their receipt of money as gross income for purposes of personal tax liability during the 1990 tax year. Spicer ceased doing business in November 1990 and changed its name to the S&O Liquidating Partnership (S&O). The Internal Revenue Service (IRS) then conducted a partnership-level audit of S&O’s records and ultimately disallowed the partnership’s deductions for the payments it made to the withdrawing partners. S&O protested this ruling and filed a formal challenge in the Tax Court. Eleven of the twenty-nine partners who had withdrawn money from the firm elected to participate in this proceeding. (This group of partners was led by Appellant David T. Beach and became known as the Beach group). In December 1999, after nine years of litigation, a Stipulation of Settlement or Settlement Agreement was reached among the Beach group, the Commissioner, and S&O. The agreement contained numerous provisions, including an explicit statement that the settlement was intended to resolve all of the issues in this case. Participants in the settlement were required to: (1) file amended individual tax returns for 1997; and (2) execute written closing agreements that definitively and conclusively itemized the amount of their tax liability and listed their outstanding obligations to the United States. The participants also agreed to withdraw their claim stating that the guaranteed payments were loans rather than income and, thus, agreed to pay income tax on the disbursements. However, the participating partners also were granted two significant tax breaks. First, the IRS allowed them to avoid seven years of interest and penalties by treating the payment as due in 1997 rather than 1990. Second, in what the parties refer to as the concession, S&O agreed to refrain from claiming a $467,000 tax deduction on behalf of the partnership. The settlement provided that the $467,000 would be allocated equally among every partner who joined in the settlement, resulting in each participant being excused from reporting his share of that concession as income. The most controversial aspect of the Settlement Agreement--which caused this appeal--was a provision that granted ten additional Spicer partners, who neither prosecuted nor supported the litigation, an option to intervene in the settlement at this late date and receive a portion of the $467,000 concession. Specifically, the agreement provided that each partner who joined in the settlement would receive a proportional share of the concession if he or she: (1) executed closing agreements and filed amended individual tax returns for 1997; and (2) filed these documents within two weeks from the date that the Tax Court approved the Settlement Agreement itself. Tax Ct. R. 248(b). The IRS insisted on this clause because it wished to reach a global settlement involving as many of the former Spicer partners as possible. On the other hand, the Beach group members agreed to this provision only reluctantly, for they realized that since the concession was equally divisible among each participant, every individual partner would receive a smaller share of the concession as a result of the total number of parties being increased. Ultimately, seven additional Spicer partners elected to join in the settlement, and the court thereafter issued an order on March 15, 2000 permitting their intervention upon the submission of closing agreements and amended tax returns within two weeks. While these new partners submitted their returns on March 30, 2000--one day after the deadline mandated by the