Court Opinion

ID: 4331664
Source: CourtListenerOpinion
Date Created: 2018-11-14 00:16:47.441502+00
Date Added: 2024-06-11T14:20:19.336748
License: Public Domain

110 T.C. No. 15

                      UNITED STATES TAX COURT

VULCAN OIL TECHNOLOGY PARTNERS, VANGUARD OIL TECHNOLOGY PARTNERS,
   DRAKE OIL TECHNOLOGY PARTNERS, DILLON OIL TECHNOLOGY PARTNERS,
 DERRINGER OIL TECHNOLOGY PARTNERS-1981, DERRINGER OIL TECHNOLOGY
     PARTNERS-1982, CROWNE OIL TECHNOLOGY PARTNERS, CARLTON OIL
  TECHNOLOGY PARTNERS, LTD., AMERICAN ENERGY RESOURCES, INC., TAX
              MATTERS PARTNER, ET AL.,1 Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket Nos.   21530-87, 16768-88,          Filed March 5, 1998.
                   24725-89.

1
     Cases of the following petitioners are consolidated
herewith: Vulcan Oil Technology Partners, Vanguard Oil
Technology Partners, Drake Oil Technology Partners, Dillon Oil
Technology Partners, Derringer Oil Technology Partners 1981,
Derringer Oil Technology Partners 1982, Crowne Oil Technology
Partners, Carlton Oil Technology Partners, Ltd., American Energy
Resources, Inc., Tax Matters Partner, docket No. 16768-88; and
Crowne Oil Technology Partners, American Energy Resources, Inc.,
Tax Matters Partner, docket No. 24725-89.
                               - 2 -

          Movants were investors in the so-called Elektra
     Hemisphere tax shelters. Among other things, movants'
     motions seek from the Court orders --

          (1) under the TEFRA partnership provisions and
          under Rule 245(b) that would grant movants
          leave to file untimely notices of election to
          participate in the instant consolidated TEFRA
          partnership proceedings with attached notices
          of election to participate;

          (2) under Rule 50 that would set aside
          settlement agreements that were entered into
          by most of the movants herein during 1994 and
          later years; and

          (3) under the TEFRA partnership provisions
          that would require respondent now to enter
          into settlement agreements with movants
          consistent with settlement terms that were
          available to investors in the Elektra
          Hemisphere tax shelters during 1986, 1987, and
          1988.

     Held:   Movants' motions are denied.

     Declan J. O'Donnell, for movants.

     Marilyn S. Ames and Dennis M. Kelly, for respondent.

                              OPINION

     SWIFT, Judge:   This matter is before the Court in these

consolidated cases on movants' motions, under the Tax Equity and

Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96
                               - 3 -

Stat. 324, partnership provisions and under Rule 245(b),2 for

leave to file untimely notices of election to participate with

attached notices of election to participate, and motions, under

Rule 50, to set aside settlement agreements and/or to require

respondent now to enter into consistent settlement agreements.    An

evidentiary hearing was held on May 21, 1997, in regard to these

motions.

     The particular years before us in these consolidated cases

are 1983, 1984, and 1985 -- years subject to the TEFRA partnership

provisions.   In Estate of Campion v. Commissioner, 110 T.C. __

(1998), with regard to years prior to the effective date of the

TEFRA partnership provisions, other investors in the Elektra

Hemisphere tax shelters have filed motions similar to the instant

motions.   Our opinion in Campion is also filed this date.

     The underlying tax shelter investments that are involved in

these consolidated cases constitute investments in seven Denver-

based limited partnerships and are related to the so-called

Elektra Hemisphere tax shelter investments that were the subject

of litigation in this Court in Krause v. Commissioner, 99 T.C. 132

(1992), affd. sub nom. Hildebrand v. Commissioner, 28 F.3d 1024

(10th Cir. 1994); Acierno v. Commissioner, T.C. Memo. 1997-441;

2
     Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code for the years in
issue.
                               - 4 -

Karlsson v. Commissioner, T.C. Memo. 1997-432; and Vanderschraaf

v. Commissioner, T.C. Memo. 1997-306.

     In Acierno v. Commissioner, supra, we found that the Denver-

based partnerships that are involved in the instant cases were

similar to the Manhattan and Wichita partnerships that were

involved in the lead test cases in the Elektra Hemisphere tax

shelter project of Krause v. Commissioner, supra, and accordingly

that the limited partners of the Denver-based partnerships who had

not settled their cases with respondent were to be bound by the

opinion in Krause.   The settlements that most of the movants

herein entered into, during 1994 and later years, are consistent

with our decisions in Krause and the above-cited related cases

(namely, no deductions are to be allowed to the taxpayers relating

to their investments in the Elektra Hemisphere tax shelters, and

the taxpayers are not to be held liable for additions to tax or

penalties other than increased interest under section 6621(c) or

its predecessor section 6621(d)) (hereinafter referred to as the

no-cash settlements).

     On an untimely basis, the majority of the movants herein now

seek permission from the Court to file notices of election to

participate in the instant TEFRA partnership proceedings for the

purpose of seeking an order from the Court that would set aside

the no-cash settlement agreements that they entered into and that

would require respondent to enter into revised settlement
                              - 5 -

agreements with movants consistent with the more favorable

settlement terms that were available generally to investors in the

Elektra Hemisphere tax shelters during 1986, 1987, and 1988

(namely, tax deductions were allowed for the amount of cash that

investors had invested in the Elektra Hemisphere tax shelters and

no additions to tax or penalties were imposed other than increased

interest under section 6621(c) or its predecessor section 6621(d)

(hereinafter referred to as the cash settlements).

     The remaining movants herein have not yet entered into any

settlement agreements with respondent relating to tax benefits

movants claimed on their Federal income tax returns relating to

their Elektra Hemisphere tax shelter investments.    Such movants

seek from the Court an order that would require respondent to now

enter into settlement agreements with them consistent with the

cash settlements that were available generally to investors in the

Elektra Hemisphere tax shelters during 1986, 1987, and 1988.

     All of the movants herein seek permission from the Court to

file notices of election to participate in the instant TEFRA

partnership proceedings solely for purposes of obtaining from the

Court an order requiring respondent to enter into settlements with

them consistent with the terms of the cash settlements.

     Beginning in 1986, respondent’s settlement position with

regard to investments in the Elektra Hemisphere tax shelters

reflected the cash settlement terms to which many investors,
                               - 6 -

during 1986, 1987, and 1988, agreed, including many investors who

had invested in the seven Denver-based Elektra Hemisphere

partnerships.   Over the years, however, respondent’s settlement

position relating to the Elektra Hemisphere tax shelters has

changed, and terms of the settlement offers that respondent has

made available to investors have changed accordingly.   As time

progressed and as the Krause v. Commissioner, supra, lead test

cases approached trial, respondent’s settlement position generally

became less favorable to investors and more favorable to

respondent.   Each of respondent’s various settlement positions

contained time deadlines or termination dates beyond which a

particular settlement position would no longer be available to

investors.

     As indicated, after the opinion in Krause v. Commissioner,

supra, was rendered by this Court, many of the movants herein

agreed to settle on the basis of respondent’s then pending no-cash

settlement position.

     In the instant motions, movants allege that a structural

defect or a fraud on the Court occurred in obtaining from movants

the above-referenced no-cash settlements and that respondent had,

and has, under the TEFRA partnership provisions, a continuing duty

of consistency to treat all investors in the Elektra Hemisphere

tax shelters consistently and to affirmatively now make available
                                - 7 -

to all investors the most favorable settlement terms that ever

were offered to any of the investors.

     More specifically, movants allege --

     (1) that the no-cash settlements that were agreed to by
     movants herein during 1994 and later years were premised
     on the erroneous fact that no better settlements were
     available to investors;

     (2) that during 1994 and later years, when the no-cash
     settlements that movants now seek to set aside were
     entered into, movants and their counsel allegedly were
     not aware of the prior more favorable cash settlements
     that other taxpayers had entered into during 1986, 1987,
     and 1988; and

     (3) that under the TEFRA partnership provisions movants
     herein, during 1994 and later years, should have been
     and should now be allowed to settle their tax
     adjustments relating to their investments in the Elektra
     Hemisphere tax shelters consistently with the cash
     settlements offered in prior years.

     Movants further allege the existence of "a pervasive and

manufactured conspiracy" among respondent’s counsel to deprive

movants herein and other taxpayers of proper TEFRA partnership

settlement procedures.    Movants contend that the allegedly

defective settlement procedures respondent utilized in obtaining

settlements with movants herein affected thousands of investors in

the Elektra Hemisphere tax shelters.

     In response, respondent emphasizes that the no-cash

settlements that movants agreed to and that they now seek to

disavow are based on and are consistent with the results of the

above-cited test cases.    Respondent argues that movants herein
                              - 8 -

(having refused to settle on a cash basis in 1986, 1987, and 1988,

having "waited out" the litigation of the lead test cases until

our opinion in Krause v. Commissioner, supra, was rendered in

1992, and now not liking the results) are simply the victims of

their own procrastination or litigation strategy, not of any

structural defect or fraud on the Court.

     Respondent also emphasizes that, under the TEFRA provisions,

respondent had no affirmative obligation to notify movants that,

in earlier years, some of the Elektra Hemisphere investors settled

their disputes with respondent relating thereto on any particular

terms.

     Respondent responds further that --

     (1) movants did not make timely requests for consistent
     settlements during the time period when respondent’s
     cash settlement position was open to all Elektra
     Hemisphere investors;

     (2) that there is no requirement that respondent
     specifically notify each investor of each settlement
     agreement; and

     (3) with regard to the specific settlement agreements
     that movants entered into, movants have not shown any
     fraud, malfeasance, or misrepresentation as a basis for
     setting aside the settlement agreements.

We agree with each of respondent’s arguments.

     The evidence indicates that the cash settlements that, during

1986, 1987, and 1988, many investors entered into with respondent

reflected a date of September 30, 1986, by which date, under the
                                - 9 -

 terms of respondent's offer to settle, investors needed to notify

 respondent of their willingness to settle on that basis.   Those

 investors who so notified respondent were allowed in 1986, 1987,

 and 1988 to finalize the related computations under the cash

 settlements.

       The schedule below sets forth the specific dates on which

 respondent mailed notices of Final Partnership Administrative

 Adjustments (FPAA's) to the Denver-based partnerships with respect

 to 1983, 1984, and 1985 and also the latest dates on which cash

 settlement agreements were finalized with partners in each of the

 partnerships:3

                                    Date               Date of
Year        Partnership          FPAA Mailed      Latest Settlement

1983      Crowne                   4/15/87            12/29/87
          Derringer-1981           3/30/87            11/17/87
          Derringer-1982           3/30/87            12/08/87
          Dillon                   4/15/87            11/15/88
          Drake                    4/06/87            12/22/87
          Vanguard                 3/30/87             9/10/87
          Vulcan                   3/30/87             9/23/87

 3
      The schedule reflects information with regard to each of the
 Denver-based Elektra Hemisphere tax shelter partnerships except
 for those partnerships with respect to whose partners either no
 prior cash settlements were entered into or with respect to which
 no consistent settlements have been requested by any of the
 movants herein (namely, Carlton Oil Technology Partners, Ltd.,
 for 1984 and 1985, Crowne Oil Technology Partners for 1984 and
 1985, Derringer Oil Technology Partners-1981 for 1984 and 1985,
 Dillon Oil Technology Partners for 1985, Vanguard Oil Technology
 Partners for 1984 and 1985, and Vulcan Oil Technology Partners
 for 1984 and 1985).
                                - 10 -

1984      Derringer-1981           4/11/88            11/17/87
          Derringer-1982           3/28/88            12/08/87
          Dillon                   4/11/88            11/15/88

1985      Derringer-1981           4/11/88             9/17/87
          Derringer-1982           3/28/88            12/08/87

       As settlement agreements were finalized, personnel in

 respondent's Ogden Service Center, which was the key-case Service

 Center for the Denver-based Elektra Hemisphere tax shelter

 partnerships, generally mailed copies of the final agreements to

 the tax matters partner of each partnership.

       In late 1993 and early 1994, respondent mailed settlement

 offers to investors in the Denver-based partnerships who had not

 previously settled, reflecting respondent's then-current no-cash

 settlement position.   The mailing from respondent contained a

 standard transmittal letter, a schedule of partnership adjustments

 consistent with this Court's opinion in Krause v. Commissioner, 99

 T.C. 132 (1992), and a proposed settlement agreement form.

       Respondent's transmittal letters contained a statement that

 "we have completed settlement negotiations for the partnership

 shown above," and indicated a 30-day deadline for acceptance of

 the terms of the settlement.

       All of the movants in these cases with respect to the instant

 motions (except Frank Acierno, Jack and Katherine Schoellerman,

 Mary F. Hill, and David and Barbara Jonson) executed settlement

 agreements reflecting the no-cash settlement terms consistent with
                             - 11 -

the Krause opinion and such settlements were finalized.    The

earliest settlement agreement executed by a movant herein was

signed on January 3, 1994, and the latest one was signed on

December 1, 1994.

     Between February 16 and March 27, 1995, written requests to

respondent were made by the movants herein (with exception of

William and Arlene Ginn and Lomand and Janice Beals)4 for the

opportunity to set aside their prior no-cash settlement agreements

with respondent and to enter into new settlement agreements with

respondent consistent with the cash settlement terms that had been

entered into by other investors during 1986, 1987, and 1988.

Respondent denied each such request on the grounds that each

request was untimely, that each investor making such request had

previously entered into a settlement agreement with respondent,

and that each such settlement agreement had converted the

investors' partnership items to nonpartnership items.

     The TEFRA provisions expressly provide that where a

settlement agreement is entered into between respondent and a

partner in a partnership before issuance of the relevant FPAA to

the tax matters partner (TMP), other partners who wish to enter

into consistent settlement agreements must make requests therefor

within 150 days after the FPAA is mailed to the TMP.    Section

4
     The Ginns and the Beals appear not to have made a written
request to respondent for a consistent settlement.
                             - 12 -

6224(c)(2) reads in pertinent part and with exceptions not

applicable herein, as follows:

          SEC. 6224(c)(2). Other partners have right to enter
     into consistent agreements.--If the Secretary enters into a
     settlement agreement with any partner with respect to
     partnership items for any partnership taxable year, the
     Secretary shall offer to any other partner who so requests
     settlement terms for the partnership taxable year which are
     consistent with those contained in such settlement agreement.
     * * * this paragraph shall apply with respect to a settlement
     agreement entered into with a partner before notice of a
     final partnership administrative adjustment is mailed to the
     tax matters partner only if such other partner makes the
     request before the expiration of 150 days after the day on
     which such notice is mailed to the tax matters partner.

     Where, after issuance of the related FPAA to the TMP, a

settlement agreement is entered into with a partner, section

301.6224(c)-3T(c)(3), Temporary Proced. & Admin. Regs., 52 Fed.

Reg. 6787 (Mar. 5, 1987), provides that other partners who wish to

enter into consistent settlement agreements must submit a request

therefor to respondent within either 150 days after the FPAA was

issued or 60 days after the day on which the prior settlement was

entered into, whichever is later.   Section 301.6224(c)-3T,

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6787 (Mar. 5,

1987), reads in part as follows:

          (a) In general. If the Service enters into a settlement
     agreement with any partner with respect to partnership items,
     the Service shall offer to any other partner who so requests
     in accordance with paragraph (c) of this section settlement
     terms which are consistent with those contained in the
     settlement agreement entered into.
                              - 13 -

              *     *     *       *      *     *     *

          (c) Time and manner of requesting consistent
     settlements--(1) In general. A partner desiring settlement
     terms consistent with the terms of any settlement agreement
     entered into between any other partner and the Service shall
     submit a written statement to the Internal Revenue Service
     office that entered into the settlement.

              *     *     *       *      *     *     *

          (3) Time for filing request. The statement shall be
     filed not later than the later of --

          (i) The 150th day after the day on which the notice of
     final partnership administrative adjustment is mailed to the
     tax matters partner, or

          (ii) The 60th day after the day on which the settlement
     was entered into.

     At the time the cash settlements involved in these cases were

entered into, there was no statutory or regulatory provision that

placed on respondent the duty to notify each partner in a TEFRA

partnership that a settlement was entered into.     Rather, section

6223(g) and section 301.6223(g)-1T(b)(1)(iv), Temporary Proced. &

Admin. Regs., 52 Fed. Reg. 6786 (Mar. 5, 1987), placed the duty on

the TMP to keep each partner informed about settlement offers that

had been entered into by partners.     It was the TMP, not

respondent, who had the duty of notification to other investor-

partners of the fact and date that settlements were entered into.

     Movants erroneously rely on Rule 248 as a ground for

establishing that, during 1986 through 1988, notice to them of the

cash settlements was defective.   Rule 248(c)(1), which requires
                              - 14 -

notification to the Court, only applies to settlements with

participating partners, and the evidence does not establish that

any of the participating partners in the instant cases ever

entered into prior cash settlements with respondent.   Also, Rule

248(c)(2), which requires respondent to give notice to the TMP's

when a partner enters into a settlement, was not effective until

September 1, 1988, see Note to Rule 248(c)(2), 90 T.C. 1376

(1988), and there is no credible evidence that respondent failed

to comply with Rule 248(c)(2) after that date.

     For the period January 19, 1984, through September 1, 1989, a

provision of respondent’s manual provided that upon receipt of a

settlement in a TEFRA partnership audit or proceeding,

respondent’s Service Center was to notify the appropriate TMP’s of

the settlement, and the responsibility then fell on the TMP’s to

notify other partners of the settlement.   Movants argue that

respondent did not follow this manual procedure with regard to the

Elektra Hemisphere tax shelter partnerships, and therefore that

all movants herein (those who already entered into no-cash

settlements and those who have not yet entered into any

settlements) should now be entitled to enter into cash

settlements.   With regard to this argument, we note that movants

have failed to present any credible testimony from the TMP's of

the partnerships, from other partners, from their representatives,

or others to support their claim that respondent failed to give
                              - 15 -

proper notice of settlements to the TMP's under this manual

provision and that the TMP's and other partners did not timely

know of cash settlements that were available during 1986, 1987,

and 1988.

     Also, failure of respondent to comply with the above manual

provision would provide little support for granting movants’

motions herein.   See United States v. Caceres, 440 U.S. 741

(1979); Keado v. United States, 853 F.2d 1209 (5th Cir. 1988);

Lojeski v. Boandl, 788 F.2d 196 (3d Cir. 1986); and United States

v. Horne, 714 F.2d 206 (1st Cir. 1983), which provide that

irregularities in following manual provisions not involving

constitutional rights generally will not give rise to legal

remedies.

     Further, section 6230(f) expressly provides that the failure

of the TMP to provide notice or to perform any act on behalf of

any partner, as required by either the statute or the regulations,

would not affect the applicability of any partnership proceeding

or adjustment to such partner.   Thus, despite the TMP's alleged

failure to provide notice to movants of cash settlements that were

entered into in 1986 through 1988, movants herein have no right

now to require respondent to enter into cash settlements.

     Under no statutory or regulatory provision, Court rule, or

other basis, was respondent required to give movants herein notice

of cash settlements that, during 1986 through 1988, were entered
                               - 16 -

into between respondent and investors in the Elektra Hemisphere

tax shelters.   Responsibility for providing notice to movants was

with the TMP's of the various Elektra Hemisphere tax shelter

partnerships.

     The latest cash settlement agreements that were entered into

between respondent and investors with respect to each of the 1983

Elektra Hemisphere partnership tax years in question and with

respect to the 1984 tax year of the Dillon partnership were

entered into in late 1987 and late 1988 after the respective

FPAA's were mailed to the respective TMP's in early 1987 and early

1988.   Any requests by movants herein for consistent settlements

with regard to those specific partnerships and those specific

years should have been made within 60 days after the latest cash

settlement was entered into.   Since movants' requests for

consistent settlements pertaining to 1983 and 1984 were made by

movants in 1995, they are untimely by approximately 6 years.

     With respect to the 1984 and 1985 tax years of Derringer-1981

and 1982, the latest cash settlement agreements were entered into

in November and December of 1987, before respondent's FPAA's were

mailed to the TMP's in March and April of 1988.   Since the

settlements were entered into before the FPAA's were mailed, the

timeliness of movants' requests for consistent settlements is

controlled by section 6224(c)(2), and the requests are untimely
                              - 17 -

because they were not made within the 150-day deadline.   Rather,

they were made more than 6 years thereafter.

     With regard to Carlton, no cash settlements were entered into

during the 1986 through 1988 years or thereafter, and therefore

there exists no cash settlement in respect to which any of the

movants herein can even seek a consistent settlement.

     In spite of the fact that no prior cash settlements exist for

some of the Elektra Hemisphere tax shelter partnerships for the

years involved herein, some of the movants herein -- who were

partners in such partnerships -- argue that they nevertheless

should now be entitled to cash settlements for such years.     Such

requests for "consistent" settlements are based on cash

settlements that were entered into with partners in partnerships

other than partnerships in which movants invested and/or with

respect to years other than years in which movants invested.     For

example, there were no cash settlements entered into by any

partners in Crowne for 1984, but five of the movants herein are

partners in Crowne and are now requesting cash settlements for

that year.

     Under a plain reading of section 6224(c)(2), "any other

partner" is to be interpreted only as a partner in the same

partnership, and "partnership items" relate only to the same

partnership tax year.   Partners in different partnerships and

partners in the same partnerships for different years do not have
                              - 18 -

the same partnership items.   Absent a specific agreement or

stipulation to the contrary, the consistent settlement rules of

section 6224(c)(2) do not apply to an entire tax shelter project,

nor to partnerships within a group of related partnerships (such

as the Denver-based Elektra Hemisphere tax shelter partnerships).

     What we said in Boyd v. Commissioner, T.C. Memo. 1992-626, in

this regard is pertinent --

          Even if TEFRA were to apply, the settlement
     agreement for * * * [partnership A] would not be imposed
     on petitioner or any other partner in * * *
     [partnership B] because * * * [partnership B] is a
     separate partnership from * * * [partnership A].
     Petitioner was not a partner in * * * [partnership A] or
     any of the six other partnerships for which settlement
     agreements were reached. There is no provision in the
     Code requiring * * * [respondent] to settle the * * * [B
     partnership] under the same settlement terms that were
     negotiated for the * * * [A partnership], a separate and
     distinct partnership. [Citation omitted.]

     Lastly, we address briefly movants' allegations that fraud,

malfeasance, and misrepresentations of fact occurred that provide

a basis for setting aside the no-cash settlements that the

majority of the movants herein entered into with respondent with

respect to their investments in the Elektra Hemisphere tax

shelters.

     Movants cite DuFresne v. Commissioner, 26 F.3d 105 (9th Cir.

1994), vacating and remanding T.C. Memo. 1991-614, in which the

U.S. Court of Appeals for the Ninth Circuit vacated a decision in

a test case and remanded the case for further proceedings based on
                             - 19 -

information that a corruption of the processes of this Court and

of the rights of the taxpayers may have occurred, allegedly as a

result of secret, out-of-the-ordinary settlement agreements

entered into between respondent and certain trial witnesses.

Nothing comparable is presented to us in the instant consolidated

cases.

     The credible evidence herein indicates that the settlement

agreements available to investors in the Elektra Hemisphere tax

shelters during 1986 and 1987 were available to all investors.    No

credible evidence corroborates movants’ contentions that in 1986

and 1987 they, or their counsel, were not aware of respondent’s

willingness to settle their tax disputes relating to investments

in the Elektra Hemisphere tax shelters on the same cash basis on

which other taxpayers during those years settled with respondent.

     Movants' reliance on some ambiguities in certain forms and

letters mailed by respondent to movants regarding terms of

settlements that were available is futile.   There is no credible

evidence that such ambiguities were intentional, that they gave

rise to material misrepresentations, or that they in any way

constituted fraud or malfeasance.

     There is no evidence herein that would support a finding of

fraud, malfeasance, or misrepresentations of fact on respondent's

behalf with regard to any aspect of the cash settlements that were

entered into during 1986 through 1988 between respondent and other
                             - 20 -

Elektra Hemisphere investors and with regard to any aspect of the

no-cash settlements that were entered into in later years between

respondent and movants herein.

     For the reasons stated, each of movants’ motions will be

denied.

                                      Appropriate orders will

                                 be issued.