Opinion ID: 174551
Heading Depth: 3
Heading Rank: 2

Heading: Elimination of Taxpayers' Deficiencies

Text: The Hongsermeiers first argue that the taxpayers' refunds should be accepted as filed to allow a 100 percent reduction in their tax deficiencies based on this Court's finding in Dixon of fraud on the court, continued fraud on the court on the part of the Commissioner following Dixon, and a lack of complete information concerning the Thompson settlement. This Court has the power to vacate or amend a judgment of the Tax Court and to fashion an appropriate remedy upon a finding of fraud on the court. See In re Levander, 180 F.3d 1114, 1119 (9th Cir.1999). In Dixon, we did indeed find that the taxpayers . . . clearly and convincingly demonstrated fraud on the court and are entitled to relief. 316 F.3d at 1047. We specifically chose, however, to not enter judgment eradicating all tax liability of these taxpayers. Id. The option of a 100 percent reduction in taxpayers' deficiencies was already rejected by this Court, which noted that [s]uch an extreme sanction, while within the court's power, is not warranted under these facts. Id. We instead remanded the case to the trial court, leaving to the Tax Court's discretion the fashioning of a settlement for the affected taxpayers equivalent to that offered to Thompson. The Tax Court followed our mandate by not eliminating all tax liability for the taxpayers, and properly so. A trial court is prohibited from giving relief beyond the scope of an appellate mandate. See Caldwell v. Puget Sound Elec. Apprenticeship & Training Trust, 824 F.2d 765, 767 (9th Cir.1987). The Hongsermeiers' argument that further fraud on the court following Dixon, or, in the alternative, unconscionable bad faith, should prompt this Court to vacate the Tax Court's judgment and eliminate 100 percent of taxpayers' deficiencies is also flawed. The Hongsermeiers contend that the Commissioner's representation on remand that Thompson received only a 20 percent reduction in his tax deficiencies was not only false, but also contradicted two previous statements: the first, by Sims in a 2003 state bar disciplinary proceeding stating that the Thompson settlement was a 50 percent reduction in tax deficiencies, and the second, by the former Chief of the Appellate Section of the Department of Justice's Tax Division, reporting in 1992 that Thompson received a 65 percent reduction in deficiencies. While, as previously noted, we may vacate the Tax Court's judgment upon a finding of fraud on the court, there is no evidence in the record that, following Dixon, the Commissioner acted in a manner at all amounting to an unconscionable plan or scheme which is designed to improperly influence the court in its decision. England v. Doyle, 281 F.2d 304, 309 (9th Cir. 1960) (defining fraud on the court). The Commissioner simply argued on remand that the Thompson settlement amounted to a 20 percent reduction in what Thompson had to pay because the Commissioner explicitly disregarded reductions Thompson used to pay his attorney's fees as not representing a net savings to Thompson. Attorney's fees of other taxpayers were paid for by Kersting, the promoter of the tax shelter. While the Tax Court rejected that argument, the Commissioner's position did not constitute fraud on the court or bad faith, nor was it related to the fraud initially perpetrated by Sims and McWade.