Court Opinion

ID: 38558
Source: CourtListenerOpinion
Date Created: 2010-04-25 20:10:23+00
Date Added: 2024-06-11T17:16:02.001326
License: Public Domain

United States Court of Appeals
                                                                          Fifth Circuit
                                                                       F I L E D
                       UNITED STATES COURT OF APPEALS
                            FOR THE FIFTH CIRCUIT                       June 14, 2005

                           _______________________                 Charles R. Fulbruge III
                                                                           Clerk
                                 No. 04-60839
                           _______________________

                MICHAEL E. GRAHAM; ROSALIND LOUISE GRAHAM,
                                               Petitioners-Appellants,

                                    versus

                      COMMISSIONER OF INTERNAL REVENUE,
                                                   Respondent-Appellee.

                          Appeal from the Tax Court
                                 No. 7298-95

Before JOLLY, HIGGINBOTHAM, and JONES, Circuit Judges.

PER CURIAM:*

            Michael     and   Rosalind   Graham    (“Michael,”     “Rosalind,”

collectively “Grahams”) appeal the Tax Court judgment against them

for violating, inter alia, 26 U.S.C. (I.R.C.) §§ 6661(a)1 and

§ 6653(b).2     In each of the relevant tax years, the Grahams failed

to   file   a   tax   return.    After    investigation     by   the    criminal

investigation division of the Internal Revenue Service (“IRS”), in

      *
            Pursuant to 5TH CIR. R. 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5TH CIR. R. 47.5.4.
      1
            26 U.S.C. (I.R.C.) § 6661(a), now repealed (see Pub.L. 101-239, Title
VII, § 7721(c)(2), Dec. 19, 1989, 103 Stat. 2399), added to the tax liability for
unexcused, nonpayment of taxes.
      2
            26 U.S.C. 6653(b) in pertinent part reads:
      (b) Fraud. If any part of any underpayment (as defined in subsection
      (c)) of tax required to be shown on a return is due to fraud, there
      shall be added to the tax an amount equal to 50 percent of the
      underpayment.
1989 the Grahams filed a tax return for tax year 1984 reporting

total gross income of $18,000.       This return failed to report

$41,000 of income from the sale of stock, which the Grahams

contested.   Additionally, the Grahams filed a return reporting

gross income of $122,000 for tax year 1985, and a return reporting

gross income of $182,000 for tax year 1986.     The 1985 and 1986

returns omitted significant items of income.

          The United States Attorney, Southern District of Texas,

indicted Michael Graham for one count of criminal tax evasion for

tax year 1986.   On December 23, 1986, Michael pled guilty.    The

plea agreement included provisions stating that the agreement

“binds only the United States Attorney’s Office for the Southern

District of Texas and the defendant,” as well as a promise from

Michael “to cooperate with the Internal Revenue Service to resolve

his tax matters.”    R. Doc. 1, Ex. B, ¶¶ 12 & 17.        The plea

agreement did permit Michael to contest the amount of tax liability

and penalties as to the 1986 tax year.

          In February 1995, the Commissioner issued a notice of

deficiency as to tax years 1984 and 1986, additions to tax for

substantial understatements (under I.R.C. § 6661(a)) for 1984,

1985, and 1986, and additions to tax for fraud (under I.R.C. §

6653(b)) for 1984, 1985, and 1986 against Michael Graham.     After

the Commissioner issued the notices and engaged in some preliminary

discussions with the Grahams, a series of delays ensued.       The

Grahams, collectively and individually, changed counsel multiple

                                 2
times, Rosalind declared bankruptcy, Rosalind had medical problems,

and   both     Grahams    avoided   phone    calls   and   meetings    with   the

Commissioner.

               On June 3, 1998, the IRS and the Grahams entered into a

Stipulation of Settled Issues which were submitted to the Tax

Court.       In the Stipulations, the Grahams largely conceded the

amounts posited by the Commissioner.             However, shortly after the

Stipulations were filed, Rosalind Graham asserted an innocent

spouse defense for each of the tax years at issue and obtained

another continuance to prepare this defense.

               After further delays and continuances, on October 21,

2002,    the    Grahams    and   the   IRS   entered   into    a    Supplemental

Stipulation of Settled Issues.           The figures relating to the tax

deficiencies were altered, and the parties stipulated that Rosalind

Graham was entitled to innocent spouse relief for tax year 1984,

but not for 1985.         Supp. Stipulation of Settled Issues at 2 ¶11.

For tax year 1986, the parties agreed Rosalind was entitled to

innocent spouse relief with respect to $35,000 only (not with

respect   to     an   additional    $220,000).       Id.      The   stipulations

concluded by stating, “[a]ll issues in this case have been resolved

in the Stipulation of Settled Issues previously filed and this

Supplemental Stipulation of Settled Issues.”               Id. at 4 ¶16.

               Once the parties filed the Supplemental Stipulation of

Settled Issues, the Tax Court denied the Grahams’ renewed motion

                                        3
for a continuance.          A computational dispute between the parties

persisted, and the case was set for trial on June 7, 2004 (the

sixth scheduled trial date).           Two weeks before trial, the Grahams

filed motions to withdraw the Stipulation of Settled Issues and for

leave to amend their petition.3          The Grahams contended that parts

of   the    Stipulations     were   unfair    because   they   did   not    permit

Rosalind to claim innocent spouse status and allowed the IRS to

take a different position than the U.S. Attorney on the amount of

deficiency (and thus to deprive Michael of the full benefit of his

plea bargain).         After a telephone conference, the Tax Court denied

these motions.         The Commissioner then moved for entry of decision

based      on    the   Stipulations,    and    presented   evidence        on   the

computational dispute. After hearing from all parties, on June 17,

2004, the Tax Court granted the Commissioner’s motion for entry of

decision.

                On July 19, 2004, the Grahams filed a joint motion to

vacate the decision of the Tax Court, which the Tax Court summarily

denied.     The Grahams filed a timely appeal in this court.

                                    DISCUSSION

                This court reviews the Tax Court’s denial of a motion to

withdraw stipulations for abuse of discretion.                 Henry v. Comm’r,

362 F.2d 640, 643 (5th Cir. 1966).            Similarly, we review the denial

      3
            As will be relevant to the discussion infra, on December 10, 2003,
the IRS informed Rosalind by mail that the agency had determined she was eligible
for innocent spouse status for tax year 1985.

                                         4
of a motion to amend a petition for abuse of discretion.   Estate of

Smith v. Comm’r of Internal Revenue, 198 F.3d 515, 517 (5th Cir.

1999).   The Tax Court’s decision following a contested motion for

entry of decision is reviewed for clear error.   Cook v. Comm’r of

I.R.S., 349 F.3d 850, 853 (5th Cir. 2003).        The clear error

standard precludes reversal of a trial court’s findings unless this

court is “left with the definite and firm conviction that a mistake

has been committed.”   Rodriguez v. Bexar County, Tex., 385 F.3d

853, 860 (5th Cir. 2004) (quoting Anderson v. City of Bessemer, 470

U.S. 564, 573, 105 S. Ct. 1504, 1511 (1985)).              Michael

Graham raises several challenges to the sufficiency of the evidence

underlying the Tax Court’s determinations.   These arguments are of

no moment because Michael failed to contest any of the evidence in

the Tax Court and instead chose to enter into stipulations with the

IRS concerning the facts at issue.   Stipulations are treated as a

contract between the two parties.    “One who attacks a settlement

must bear the burden of showing that the contract he has made is

tainted with invalidity, either by fraud practiced upon him or by

a mutual mistake under which both parties acted.”     Mid-South v.

Har-Win, Inc., 733 F.2d 386, 391-92 (5th Cir. 1984).       Thus, the

appropriate starting point for this court’s analysis is whether any

reason exists to reverse the Tax Court on its refusal to vacate the

Stipulations.   The sufficiency of the evidence arguments would be

relevant only to the Tax Court if, and only if, this court first

                                 5
found an abuse of discretion in that court’s decision not to vacate

the Stipulations.

           However,    Michael    has       not   demonstrated      any   abuse    of

discretion by the Tax Court on this issue.                 Under Tax Court rules,

Stipulations will be enforced as binding and the court “will not

permit a party to a stipulation to qualify, change, or contradict

a stipulation in whole or in part, except that it may do so where

justice requires.”     T.C.R. 91(e).         The Grahams delayed resolution

of the issues for nearly a decade and had multiple opportunities to

note their disagreement, confusion, or mistake about the Stipu-

lations.   Instead, the Grahams sought to vacate the Stipulations a

mere two weeks before the trial.              Michael’s claim that the IRS

should be judicially estopped from proposing a different income

allocation than the U.S. Attorney relied upon belies the fact that

Michael himself allowed the Commissioner to do so through the

Stipulations    entered   after    his       plea       bargain   and   conviction.

Furthermore, the Grahams have not attempted to argue that the

Stipulations are a product of fraud or mutual mistake.                  In light of

the procedural history of the case, the absence in the record of

any evidence of fraud or mutual mistake, and the deferential

standard of review, we conclude that the Tax Court did not abuse

its discretion in denying the Grahams’ motion to withdraw the

Stipulations.

           Michael    further    contends         the    Commissioner     should   be

judicially estopped from using a different income allocation for

                                        6
tax year 1985 than the U.S. Attorney relied upon in its plea

agreement with Michael. Judicial estoppel prevents parties in

subsequent judicial proceedings from taking litigation positions

contrary to those asserted by the same party in a previous lawsuit.

See United States ex rel. Am. Bank v. C.I.T. Constr. Inc., 944 F.2d

253, 258-59 (5th Cir. 1991).          Judicial estoppel must be pled and

argued in the trial court absent “an especially egregious case

wherein a party has successfully asserted a directly contrary

position.”      Id.

           Michael did not plead judicial estoppel in the Tax Court,

and this case does not represent an “egregious” attempt by the

Commissioner to argue contradictory legal theories. Moreover, this

argument   is    borderline      frivolous       because     the   plea     agreement

explicitly bound only the particular U.S. Attorney’s office, not

any other governmental agency.            Michael stipulated to this figure

with the Commissioner; short of a bona fide reason for vacating the

Stipulations,     which     he   lacks,   Michael      cannot      assert   judicial

estoppel against the Commissioner for the first time here.

           Finally, Rosalind claims she should have been granted

innocent spouse status for tax year 1985.               Both parties agree the

Tax Court should be reversed on this issue.                Apparently the IRS was

making an administrative determination on this issue while the Tax

Court was considering the instant suit.                    Before the Tax Court

entered its      decision    (in   June       2004),   the   IRS    determined    (in

December 2003) Rosalind deserved innocent spouse status for Tax

                                          7
Year 1985, but the Tax Court did not learn of this decision before

it issued its opinion holding to the contrary.             The IRS thus

concedes in its brief that the Tax Court should be reversed on this

issue.   The IRS does not concede anything additional, however, and

asserts that Rosalind should be afforded innocent spouse status

only as to 1985 and, based on this status, should be cleared solely

of $35,000 of the unreported income for tax year 1986; Rosalind

would thus remain bound to the remaining $220,000 of unreported

income for tax year 1986 absent any additional claim of error.

Rosalind does   not   contest   this   point   any   further;   her   brief

requests only that she be granted innocent spouse status for tax

year 1985. By failing to raise additional arguments on this point,

Rosalind waives all other claims of error.      See, e.g., Fed. R. App.

P. 28(a)(9)(A) & (B); Foster v. Townsley, 243 F.3d 210, 212 n.1

(5th Cir. 2001) (issues inadequately briefed are deemed waived).

Thus, we reverse and render only on this point; the judgment of the

Tax Court is otherwise affirmed.

           AFFIRMED IN PART; REVERSED AND RENDERED IN PART.

                                   8