In Uncategorized on 09/23/2011 at 13:13

I may be preaching to the choir here, as the people who need this advice are the self-represented, the taxpayers who go to Tax Court pro se, because they can’t afford, or don’t want to pay, a tax professional admitted to Tax Court. But maybe the pros who read this can forewarn their “go-it-alone” clients– “don’t ever concede anything you want to dispute at trial anywhere”.

Case in point: Bernard J. Williams and Martha Williams, 2011 T.C. Mem. 227, filed 9/22/11. The fight is over nearly $60K in Schedule C expenses. Bernie was a mortgage broker in the “low dishonest decade” just ended. He claimed he split commissions with other brokers, but had a problem of proof. SNOD and petition both followed.

The tax year was calendar 2006. In November, 2009, Tax Court ordered Bernie and IRS to file a status report by February, 2010, stating “in particular, the progress made towards resolution, by settlement or otherwise, of the issues raised in this matter.” 2011 T.C. Mem. 227, at p. 6.

To paraphrase the late great John Lennon, you say that you want resolution? Judge Morrison takes up the story: “Pursuant to that order, the Williamses and the IRS filed a joint status report on February 5, 2010. The report stated that the Williamses conceded that the IRS’s adjustment to the Schedule C business-expense deductions was correct, which meant that they agreed that the allowable Schedule C business expense deductions were only $6,790. The status report was signed by counsel for the IRS and by both of the Williamses. The IRS pretrial memorandum stated that the parties had settled the adjustments in the notice of deficiency that related to the Schedule C business-expense deductions, a statement which is consistent with what the parties said in the status report. The Williamses did not prepare a pretrial memorandum. When the case was tried on December 8, 2010, Bernard Williams asserted that the Williamses were entitled to Schedule C business-expense deductions for $59,719.92 of commission expenses, an amount in addition to the $6,790.” 2011 T.C. Mem. 227, at p. 6.  [Footnote omitted.]

Maybe Bernie didn’t think the status report was binding on him, or he didn’t understand what he signed, or he forgot about what he signed, and the decision doesn’t say, but he was stuck.

Judge Morrison again:  “The status report bars Bernard Williams from contending that the deductible Schedule C business expenses are greater than $6,790. Whether the statement in the status report is considered a settlement or a stipulation, Bernard Williams is precluded from repudiating it. There is no evidence that it was based on fraud or mutual mistake. Allowing Bernard Williams to contend that the deductible Schedule C business expenses are greater than $6,790 would likely prejudice the IRS, which reasonably thought the issue had been resolved before trial. See Rule 91(e), Tax Court Rules of Practice and Procedure (stipulations are binding, although the Court may permit a party to contradict a stipulation if justice so requires).” 2011 T.C. Mem. 227, at pp. 6-7 [Citations omitted.]

In other words, if you can’t prove fraud or mutual mistake (presumably of fact), you’re stuck. Since you can’t ambush the Indians (see my post “Don’t Ambush the Indians, 4/7/11) or the accountants (see my post “Don’t Ambush the Accountants, Either”, 8/17/11), you can’t ambush the IRS by raising an issue at trial that they thought was disposed of  ten months before.

Nevertheless, Judge Morrison goes the extra mile and lets Bernie try to prove his Schedule C expenses case, notwithstanding that, as a matter of law, he is precluded.

Bernie strikes out. “Even if Bernard Williams is not precluded from contending that the correct commission-expense deductions totaled $59,719.92, he has failed to show by a preponderance of the evidence that he incurred any commission expenses. Although he testified that he paid commissions of $59,719.92, we disbelieve this testimony given the lack of documentary evidence and the lack of corroborating testimony.” 2011 T.C. Mem. 227, at p. 7, manifesting once more the leeway the Courts afford the pro se.

One wonders what the outcome would have been, had Bernie produced documentary evidence and corroborating testimony. Would the ambush have worked? Perhaps the excessive largesse Judge Morrison afforded Bernie was bottomed on the knowledge that his “evidence” would lack any probative value, and not change the resolution of the case .

Bottom line: anything in writing that concedes anything is binding and conclusive, even colloquies in Court that are transcribed. See my post “Mitigation and Inventory”, 4/20/11. Even if you agree to the settlement, your adversary (IRS) is not your friend.

Pro se taxpayer, beware!

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