Court Opinion

ID: 2811381
Source: CourtListenerOpinion
Date Created: 2015-06-24 20:01:14.679196+00
Date Added: 2024-06-11T11:30:20.636665
License: Public Domain

In the

        United States Court of Appeals
                  For the Seventh Circuit
                      ____________________
No. 14-2903
SYED IJAZ HUSSAIN SHAH and ASMAT HUSSAIN,
                                   Petitioners-Appellants,

                                  v.

COMMISSIONER OF INTERNAL REVENUE,
                                                Respondent-Appellee.
                      ____________________

               Appeal from the United States Tax Court
                No. 8440-13 — Joseph W. Nega, Judge.
                      ____________________

        SUBMITTED MAY 11, 2015 * — DECIDED JUNE 24, 2015
                   ____________________

    Before FLAUM, KANNE, and WILLIAMS, Circuit Judges.
   PER CURIAM. Syed Ijaz Hussain Shah and his wife, Asmat
Hussain, petitioned the Tax Court for a redetermination of
$18,030 in deficiencies and penalties for tax years 2009 through

    * After examining the briefs and the record, we have concluded that
oral argument is unnecessary. Thus the appeal is submitted on the briefs
and the record. See FED. R. APP. P. 34(a)(2)(C).
2                                                                 No. 14-2903

2011. On the trial date, the Commissioner submitted to the
Tax Court a “Stipulation of Settled Issues” signed by the par-
ties. The document states that it “reflects” the parties’ “agree-
ment as to the disposition of adjustments,” yet there is no men-
tion of agreement concerning the fact or amount of a deficiency
for any of the relevant tax years. At the Commissioner’s re-
quest, the Tax Court granted the parties 30 days to file “deci-
sion documents” in lieu of trial. The Commissioner calculated
a total deficiency of $12,252 and a penalty of $0. When the cou-
ple refused to agree to this amount, the Commissioner asked
the Tax Court to enter a decision adopting the Commissioner’s
figures. The petitioners sought more time to produce an
agreement, but the Tax Court granted the Commissioner’s mo-
tion on the ground that “the parties’ computations for decision
and proposed decisions consistent with their settlement
agreement” were overdue. We conclude that, in light of the
parties’ disagreement over the petitioners’ liability, the
Tax Court erred by entering a judgment without holding a tri-
al. We therefore vacate the judgment of the tax court and re-
mand for further proceedings. 1

    1 We note that Asmat Hussain became a party to this appeal by opera-

tion of the federal rules when her husband signed the notice of appeal.
See FED. R. APP. P. 3(c)(2), 13(a)(3), 14; TAX CT. R. 190(a). But she did not file
her own brief, and the briefs submitted by her husband did not bear her
signature. See FED. R. CIV. P. 11(a). As a pro se litigant, Shah may not repre-
sent his spouse. See Cole v. C.I.R., 637 F.3d 767, 773 (7th Cir. 2011); Swanson
v. Citibank, N.A., 614 F.3d 400, 402 (7th Cir. 2010). We therefore asked Asmat
Hussain to clarify whether she wished to participate in this appeal. She re-
sponded by filing a motion to adopt her husband’s briefs—a motion which
we now grant. Thus, the judgment with respect to both the husband and the
wife is properly before us on appeal. See Cole, 637 F.3d at 773.
No. 14-2903                                                               3

                            I. Background
    The Commissioner filed the motion for entry of decision a
month after the parties had submitted their Stipulation of
Settled Issues. The Commissioner represented that—based on
the parties’ stipulations—the agency had calculated a deficien-
cy for each tax year and mailed to the couple an “explanatory
letter” along with “decision documents” and “tax computa-
tions.” The Commissioner acknowledged, though, that the
couple had not signed the decision documents or returned
phone calls, and so the Commissioner requested “that the
Court enter a decision in this case pursuant to the agreement of
the parties and in accordance with the … decision document,”
which was attached to the motion. Also attached to the motion
was the “explanatory letter,” which says explicitly that “to fi-
nalize the settlement” the parties still had to “file with the
Tax Court a decision document reflecting that settlement
agreement that shows the amount of tax and additions to
tax/penalties that you owe based on our settlement.” The letter
further “advised” the couple that they “should not consider
any agreement to settle this case final and binding until we

    On a related note, the notice of appeal signed by Shah—which is a form
made available by the Tax Court—includes a footnote stating, “If husband
and wife are parties, then both must sign if both want to appeal.” See T.C.
Form 17, UNITED STATES TAX COURT, https://www.ustaxcourt.gov/forms/
Notice_of_Appeal_Form_17.pdf (last visited June 3, 2015). The footnote on
the Tax Court’s form is improper, as it directly contradicts Federal Rule of
Appellate Procedure 3(c)(2). Rule 3(c)(2) applies to appeals from the
Tax Court, see FED. R. APP. P. 13(a)(3), 14; TAX CT. R. 190(a), and provides
that a “pro se appeal is considered filed on behalf of the signer and the
signer’s spouse and minor children (if they are parties), unless the notice
clearly indicates otherwise,” FED. R. APP. P. 3(c)(2).
4                                                  No. 14-2903

have executed the decision documents and the Tax Court has
entered judgment.”
    The couple filed an objection to the Commissioner’s motion,
contending that no decision should be entered until the parties
“come to a common ground.” They maintained that the parties
should have arrived at the deficiency amounts jointly and also
stated that Shah had become ill and was confused by the
Commissioner’s calculations. The couple further asserted that
Shah’s “several calls” to the Commissioner’s lawyer had not
been answered or returned until after the motion for entry of
decision had been filed. According to Shah, when he finally
reached the Commissioner’s lawyer, she told him he could file
an objection if he disagreed with the Commissioner’s deficien-
cy calculations.
     The Tax Court deferred ruling on the Commissioner’s mo-
tion and ordered the parties to “confer to determine whether
they can agree on the decision to be entered or, if not, to nar-
row their disagreement as much as possible.” The court gave
the parties a month to either submit a stipulated decision or a
joint status report. The parties filed a joint status report a
month later stating that they had discussed the couple’s con-
cerns about the deficiency calculations, that the Commissioner
had “requested revised tax computations to address” those
concerns, and that the parties planned to file agreed-upon de-
cision documents as soon as possible. (Computations regard-
ing settlements or concessions are prepared not by the attorney
litigating on behalf of the Commissioner but by the Appeals
Division of the Internal Revenue Service. See INTERNAL
REVENUE MANUAL § 35.5.2.15(1).) The Tax Court gave the par-
ties another month to either submit a stipulated decision or to
file another joint status report.
No. 14-2903                                                     5

    A month later the Commissioner filed a status report stat-
ing that the agency’s attorney had “prepared a request for re-
vised tax computations” but had “been unable to reach peti-
tioners to discuss whether they would sign the decision docu-
ments.” The couple submitted their own status report stating
that they had tried to resolve the matter by negotiating with
the IRS tax examiners and the Commissioner’s lawyer. During
this process, the couple said, Shah had become “sick and men-
tally distressed” and could no longer “understand mathemati-
cal calculations.” The couple submitted a doctor’s evaluation
diagnosing Shah with dizziness, anxiety, and cephalalgia (pain
in the head or neck) and restricting Shah (who works as a bus
driver) from driving or operating heavy machinery for at least
three weeks. The couple also explained that Shah’s wife did
“not understand the case because she was never involved in
tax return preparation.” Finally, they maintained that they
simply wanted to “come up with a solution” that would be bet-
ter for both sides.
     The Tax Court did not give the parties more time to reach a
settlement, nor did the court set a new trial date so that the pe-
titioners’ liability could be determined. Instead, the Tax Court
ordered the couple to show cause “why the Court should not
enter a decision based on” the Commissioner’s deficiency
computations. The couple responded that the Commissioner
had made “several calculation mistakes and manipulations,”
had not attempted to reach “a common ground,” and had tried
to confuse them in order to gain leverage in settlement negotia-
tions. The couple repeated that Shah was sick and that his wife
could not assist in the negotiations because of her inexperience
preparing tax returns. They again sought more time to produce
a settlement agreement.
6                                                    No. 14-2903

    The Tax Court entered a decision granting the
Commissioner’s motion for entry of decision. The court
acknowledged Shah’s medical problems and the couple’s re-
quest for “more time to produce a solution for settlement” but
stated that the couple had not been cooperative with the
Commissioner’s “diligent efforts” to revise the disputed com-
putations and settle the case. Thus, the Tax Court reasoned, the
Commissioner’s motion was warranted because “the parties’
computations for decision and proposed decisions consistent
with their settlement agreement are long overdue.”

                         II. Discussion
    The couple’s argument on appeal, as we understand it, is
that the Tax Court was wrong to grant the Commissioner’s mo-
tion for entry of decision because there was no settlement
agreement for the court to enforce. To the contrary, the couple
says, the Commissioner’s attorney had promised to correct the
deficiency calculations and submit a jointly signed decision to
the Tax Court. The Commissioner counters that the Stipulation
of Settled Issues “reflected the parties’ resolution of all of the
issues in the case” and thus “was enforceable as a settlement
agreement.”
   We reject the Commissioner’s argument and agree with the
couple that the Tax Court should not have entered a judgment
adopting the disputed deficiency calculations. Simply put, the
Tax Court erred when it purported to enforce a settlement
agreement because there was no settlement agreement for the
court to enforce.
   We recognize that even informal settlement agreements
may be enforced by the Tax Court. See FPL Grp., Inc. v. C.I.R.,
95 T.C.M. (CCH) 1562, at *8 (2008). Although 26 U.S.C.
No. 14-2903                                                      7

§ 7121 contemplates a written “closing agreement,” a settle-
ment nonetheless “may be reached through offer and ac-
ceptance made by letter, or even in the absence of a writing.”
Lamborn v. C.I.R., 68 T.C.M. (CCH) 950, at *5 (1994); see FPL
Grp., 95 T.C.M. (CCH) 1562, at *8; Smith v. C.I.R., 92 T.C.M.
(CCH) 219, at *5 (2006). But when a party asserts that an issue
is disputed, the Tax Court cannot rely on a purported settle-
ment agreement to resolve that issue if, in fact, there was no
meeting of the minds. See Smith, 92 T.C.M. (CCH) 219, at *5;
Nestle Holdings, Inc. v. C.I.R., 80 T.C.M. (CCH) 829, at *5 (2000).
In other words, the court may “not force a settlement agree-
ment on parties where no settlement was intended.” Manko v.
C.I.R., 69 T.C.M. (CCH) 1636, at *4 (1995); see FPL Grp.,
95 T.C.M. (CCH) 1562, at *8; Smith, 92 T.C.M. (CCH) 219, at *4;
Nestle Holdings, 80 T.C.M. (CCH) 829, at *4; Dorchester Indus.,
Inc. v. C.I.R., 108 T.C. 320, 330 (1997).
    The couple plainly disagreed with the deficiency amounts
submitted by the Commissioner, who until now acknowledged
at every turn that a settlement had not been finalized. In this
court the Commissioner takes the stance that the parties’ joint
stipulation resolved all issues in the case, but we conclude that
position is untenable. The agency had said just the opposite in
its “explanatory letter” to the taxpayers, and afterward the
Commissioner’s lawyer asked the Appeals Division to revise
the deficiency computations. The Stipulation of Settled Issues,
which had been executed before the “explanatory letter” even
was drafted, says nothing about the key issue in the case: the
deficiency amounts for the tax years in question. Indeed, the
Stipulation of Settled Issues does not even specify a method for
determining the deficiency amounts, if any. See FPL Grp.,
95 T.C.M. (CCH) 1562, at *8–11 (thoroughly examining evi-
dence of parties’ negotiations before concluding that parties
8                                                     No. 14-2903

had not entered “binding agreement” to use specific method-
ology for classifying disputed expenditures); Manko, 69 T.C.M.
(CCH) 1636, at *2 (enforcing settlement agreement that, alt-
hough not specifying final liabilities of taxpayers, specified
“settlement methodology”). And if there was any doubt about
the absence of a settlement, the Commissioner conceded the
point by stating in the joint status report that the parties were
still trying to agree on decision documents.
    The Commissioner relies on Farrell v. C.I.R., 136 F.3d 889
(2d Cir. 1998), for the proposition that a Tax Court may treat a
stipulation like a settlement agreement and enter a decision
based on the stipulation. That proposition is correct but does
not help the Commissioner here. In Farrell, the parties submit-
ted a comprehensive stipulation of settled issues that—unlike
the document the couple signed—included an agreement con-
cerning the deficiency and specified that only two issues (later
resolved in a second stipulation) remained. See id. at 891–93.
The Commissioner essentially attempted to evade the terms of
that stipulation by filing an amended answer asserting new
penalties. See id. at 892. The Tax Court then conducted a trial
and determined that the taxpayers were liable for these penal-
ties. See id. at 893. The court of appeals vacated the judgment,
concluding that, by allowing the Commissioner to assert penal-
ties not included in the parties’ comprehensive stipulations
under Tax Court Rule 91, the Tax Court acted improperly.
See id. at 897. Thus, Farrell simply illustrates the principle, con-
sistent with the other cases we have cited, that the Tax Court
will enforce an agreement when there is evidence that there
was a meeting of the minds between the parties. Here, that
meeting of the minds never occurred on the issue of the cou-
ple’s liability.
No. 14-2903                                                        9

    As best we can tell, when the Stipulation of Settled Issues
was submitted to the Tax Court, the parties were still negotiat-
ing with the expectation of soon arriving at a settlement. That
is why the Commissioner asked for an additional 30 days. The
stipulations submitted by the parties resolved many of the dis-
putes between the parties, but did not resolve the taxpayers’
liability. In short, the Stipulation of Settled Issues contained
pretrial stipulations of the kind that must be submitted to the
Tax Court “at or before commencement of the trial.”
TAX CT. R. 91(c). These stipulations must be as comprehensive
as possible and are treated as conclusive admissions.
See TAX CT. R. 91(a), (e). But they may—as in this case—fall far
short of constituting a settlement agreement. See Lovenguth v.
C.I.R., 93 T.C.M. (CCH) 1040, at *3–4 (2007) (distinguishing
Rule 91 stipulations from “settlement stipulations”).
    Clearly, settlement negotiations stalled when Shah and his
wife disputed the Commissioner’s deficiency calculations. But
at that point the proper course of action was not for the
Tax Court to force the couple to accept the Commissioner’s
proposed figures, but for the Commissioner to either move for
summary judgment, see TAX CT. R. 121(a), or else notify the
Tax Court that the parties could not reach an agreement and
proceed to trial, see Farrell, 136 F.3d at 892 (stating that parties’
comprehensive Stipulation of Settled Issues included stipula-
tion that the two remaining issues “will either be resolved by
the parties or will be submitted to the Court for resolution”).
The Commissioner opted for neither course but instead evaded
the settlement process by moving for an entry of decision
based on deficiency calculations disputed by the couple. Thus,
the Tax Court erred when it granted the Commissioner’s mo-
tion and entered a judgment based on the disputed deficiency
figures.
10                                           No. 14-2903

                    III. Conclusion
   The Tax Court’s judgment as to both Syed Ijaz Hussain
Shah and Asmat Hussain is VACATED, and the case is
REMANDED for further proceedings.