Opinion ID: 740522
Heading Depth: 2
Heading Rank: 2

Heading: Fraud Upon the Court as Grounds for Vacating a Tax Court Decision

Text: 19 A decision of the Tax Court becomes final upon the expiration of the time allowed for the filing of a notice of appeal. 26 U.S.C. § 7481(a)(1); see also Lentin, 243 F.2d 907. Generally, a notice of appeal from a Tax Court decision must be filed within 90 days after the entry of the Tax Court's decision, but the timely filing of a motion to vacate or revise the decision extends the 90-day period. 26 U.S.C. § 7483; Fed.R.App.P. 13(a). Under Tax Court Rule 162, a motion to vacate or revise must be filed within thirty days after the Court's entry of the decision. Rule 162, 26 U.S.C. foll. § 7453. Thus, as previously noted, the decision in the Drobnys' case became final on September 24, 1986, as the petitioners filed neither a timely motion to vacate nor a timely notice of appeal. 20 The Tax Court is a court of limited jurisdiction, and, unlike an Article III federal court, lacks general equitable powers. C.I.R. v. McCoy, 484 U.S. 3, 6, 108 S.Ct. 217, 219, 98 L.Ed.2d 2 (1987). The authority of a court of limited jurisdiction to vacate final judgments has been narrowly construed. Specifically, once a decision of the Tax Court has become final, it may be vacated only in certain narrowly circumscribed situations. Curtis v. C.I.R., 72 T.C.M. (CCH) 369, 371, 1996 WL 453870 (1996); Kenner v. C.I.R., 387 F.2d 689, 690 (7th Cir.), cert. denied, 393 U.S. 841, 89 S.Ct. 121, 21 L.Ed.2d 112 (1968) (the finality of a tax court judgment precludes any subsequent reconsideration by the tax court, at least on such grounds as mistake, newly discovered evidence, and the like.). Indeed, this circuit has continued to recognize only a single, narrow exception to the general rule of finality prescribed by Congress in 26 U.S.C. § 7481. In Kenner, this court held that the Tax Court could set aside an otherwise final decision only if the party seeking to vacate the decision could convincingly establish that the decision resulted from a fraud upon the court. 387 F.2d 689. In establishing this limited exception to the rule of finality, the court reasoned as follows: 21 If any room has been left for a relaxation of the statutory finality in order to permit the tax court to consider whether its decision is the product of a fraud upon it, that is all that has been left.... We think, however, that it can be reasoned that a decision produced by fraud on the court is not in essence a decision at all, and never becomes final. It is most difficult to assume that Congress intended that a decision procured by fraud on the tax court could not be reached by any procedure in any tribunal, once the possibilities of direct review were exhausted. If a convincing case of palpable fraud on the court were presented, it is hard to justify a holding that it could not be considered. We conclude that the tax court has power to inquire into the integrity of its own decision even when such decision has become final and immutable in all other respects as a result of exhaustion of direct review or expiration of the time allowed for seeking review. 22 Id. at 691 (emphasis added). The Kenner court also emphasized that the burden of proof rests squarely with the party seeking to set aside the prior decision, and stated that this burden could not be met simply by making a broad assertion that the tax court decision [was] tainted with fraud. Id. Rather, there is a heavy burden ... upon the one who seeks to impeach an order or decree of a court, who must come forward with specific facts which will pretty plainly impugn the official record. Id. 23 Defining the term fraud upon the court, this court in its Kenner decision stated that the alleged improper conduct must rise to the level of an unconscionable plan or scheme ... designed to improperly influence the court in its decision before it may be deemed a fraud upon the court. Id. (quotations omitted) (emphasis added). The court stressed that not all deceptive or improper conduct rises to the level of a fraud upon the court. Rather,  '[f]raud upon the court' ... embrace[s] only that species of fraud which does, or attempts to, defile the court itself, or is a fraud perpetrated by officers of the court so that the judicial machinery can not perform in the usual manner its impartial task of adjudging cases that are presented for adjudication. Id. (quoting 7 Moore's Federal Practice, 2d ed., p. 512, § 60.23). Thus, the import [of Kenner] ... is to suggest that [the Tax Court] can re-examine an otherwise final decision when such decision was produced by [a] 'fraud upon the court' of the most egregious nature, and when such fraud goes to the very heart of the adjudicative process. Deutsch v. C.I.R., 34 T.C.M. (CCH) 387, 388, 1975 WL 2715 (1975) (emphasis added). The narrow and limited definition of fraud upon the court set forth in Kenner reflects the policy of putting an end to litigation, id., and serves the important legal and social interest in preserving the finality of judgments. Toscano v. C.I.R., 441 F.2d 930, 934 (9th Cir.1971). Like this court in Kenner, all of the circuits that permit the vacating of an earlier Tax Court decision on the basis of fraud have articulated a very narrow definition of fraud upon the court and have underscored the heavy burden faced by a party who seeks to set aside a prior Tax Court decision. See Harbold, 51 F.3d at 622; Aoude v. Mobil Oil Corp., 892 F.2d 1115, 1118 (1st Cir.1989); Abatti, 859 F.2d at 118; Senate Realty Corp. v. C.I.R., 511 F.2d 929, 931 (2d Cir.1975); Stickler v. C.I.R., 464 F.2d 368, 370 (3d Cir.1972); see also Annotation, Power of Tax Court to Grant Leave to File Motion to Vacate Its Final Decision on Ground of Fraud Upon the Court, 24 A.L.R. Fed. 697 (1975) (1995 Supp.). 24 One particular aspect of the definition of fraud upon the court must also be clarified. The petitioners argue that fraud upon the court, as interpreted in this circuit, does not require a showing that the alleged fraud upon the court was material, i.e., that it affected the outcome of the case which the petitioners seek to vacate. According to the Drobnys, it makes no difference whether or to what extent the prior decision was affected by the fraud. We are of the opinion that the petitioners were required to demonstrate, not only that the respondent engaged in conduct that was intended to mislead the court, but--of paramount importance--that the actual conduct affected the outcome of their case. We reject the petitioners' interpretation of what constitutes fraud upon the court and affirm the Tax Court's denial of the Drobnys' motion to vacate Drobny I. 14 Again we rely upon Kenner, which held that the appellant could not prevail on his motion to vacate because he had left this court in the dark as to how the [IRS] agents fraudulently induced the court to decide against Dr. Kenner. 387 F.2d at 692 (emphasis added). The dictionary defines induce as to lead or move by influence or persuasion, to bring about the occurrence of; cause. American Heritage Dictionary 657 (2d College Edition 1982). Thus, it is clear from the language employed by this court in Kenner that in addition to establishing improper conduct, a taxpayer who attempts to set aside a prior judgment of the Tax Court must also explain how the alleged conduct induced, caused, or had a material effect upon the decision. Our holding (or rather, our clarification of Kenner) also finds support in various decisions of the United States Tax Court. For example, in Murdock v. C.I.R., 72 T.C.M. 1324, 1996 WL 677505 (1996), the Tax Court stated that in order to prove fraud upon the court, a petitioner seeking to vacate a decision must establish that an intentional plan of deception designed to improperly influence the Court in its decision has had such an effect on the court. See also Chao v. C.I.R., 92 T.C. 1141, 1144, 1989 WL 53824 (1989) (motion to vacate denied because same result would have been reached even in the absence of the alleged fraud upon the court); Abatti, 86 T.C. 1319, 1325, 1986 WL 22149 (1986) (petitioner must show that deception designed to improperly influence the court in its decision has had such an effect on the court.). 15 We see no reason to alter our previous, narrow definition of fraud upon the court, which reinforces the salutary general rule that final judgments are, in fact, final. We do not agree with the petitioners' argument that a final judgment of the Tax Court should be subject to attack (possibly, as in this case, many years later) when the allegedly improper conduct had no effect on the outcome of the decision. The rule of finality lends stability to our legal system, and it is especially important in this litigious era when adversely affected parties seize upon almost any opportunity to prolong litigation. Accordingly, we re-emphasize that under our case law the fraud upon the court exception to the rule of finality is a narrow one, and the party seeking to vacate a prior decision must establish that the allegedly fraudulent conduct had its intended effect of misleading the court. 25