In Uncategorized on 06/22/2018 at 02:11

IRS mishandled the additions to tax for James R. Brown and Opal Freeman, 2018 T. C. Memo. 91, filed 6/21/18, but tries to amend its answer one month before trial.

Jim & Opal didn’t file for two years, got audited and filed during audit. Their returns got accepted, but they didn’t pay. So the only issues are the additions: failure to pay, failure to timely file, and failure to make estimated tax payments.

After negotiation between Jim’s & Opal’s lawyer and IRS counsel, Appeals issued Form 5278 Statement – Income Tax Changes, supposedly summing up the deal to which Jim’s & Opal’s attorney and IRS’ counsel supposedly agreed.

Except they didn’t, and it didn’t, so Jim’s & Opal’s lawyer moved for entry of decision; IRS moved for leave to amend and unscramble the additions.

Judge Ashford: “An agreement to settle a case before this Court is a contract; accordingly, we apply general principles of contract law when called on to resolve whether the litigants have reached a settlement. In a case pending before this Court, a settlement agreement may be reached by correspondence, in the absence of a formal document such as a closing agreement under section 7121. A prerequisite to the formation of an agreement is that there be a ‘meeting of the minds’, i.e., an objective manifestation of mutual assent to its essential terms. This principle applies even where an essential term is one over which the Court lacks jurisdiction. The determination of whether there was a meeting of the minds sufficient to constitute a contract is one of fact.

“On the basis of the evidence before us, we find that the parties did not reach a settlement because there was never a meeting of the minds as to several of its essential terms–the additions to tax attributable to petitioners’ reported underpayments of tax…under sections 6651(a)(1) and (2) and 6654. Indeed, petitioners acknowledge this disagreement in their motion, asking us on the one hand to enter a decision adjudicating exclusively those matters on which the parties agree (i.e., the…deficiencies and the additions to tax under sections 6651(a)(1) and 6654 attributable to those deficiencies) and asserting on the other hand that the matters on which they disagree are outside the scope of our jurisdiction. The parties, however, must agree on both the issues to be settled and the resolution of those issues; we will not enter a decision on some issues for which resolutions are agreed if the parties do not agree that those are all of the issues that they seek to resolve. Accordingly, we find that the parties did not reach a settlement agreement, and we will deny petitioners’ motion.” 2018 T. C. Memo. 91, at pp. 11-12 (Citations and footnote omitted).

Well, how about treating their parties’ arguments and papers as a motion for partial summary J upon what they do agree? Unless, of course, Judge Ashford wants to keep the pressure on the parties to reach a universal settlement.

Anyway, Tax Court has jurisdiction over additions to tax independent of a determined deficiency. The 1986 amendment to Section 6214(a) vests jurisdiction in Tax Court. So Jim & Opal are out on jurisdiction.

So Tax Court can rule on Section 6651(a)(2) failure to pay where there is jurisdiction to redetermine a deficiency even when Tax Court doesn’t redetermine anything.

As for surprise and prejudice, “There is nothing in the record that would support a finding that petitioners will suffer unfair surprise, disadvantage, or prejudice as a result of our granting respondent’s motion. Indeed, petitioners have been aware of the section 6651(a)(2) additions to tax asserted against them… since well before respondent’s filing of his motion.” 2018 T. C. Memo. 91, at p. 20.

And the back-and-forth between Jim’s & Opal’s counsel and the AO showed Jim & Opal knew this would be an issue. IRS was only “…seeking to amend his answer ‘as a formality and in order to clarify the record’. 2018 T. C. Memo. 91, at p. 21.

And the case hasn’t yet been tried, so Jim’s & Opal’s attorney can marshal whatever evidence they need to prove reasonable cause to dodge the reformulated additions.

I’ve often said lawyers can’t add, so watch those additions.

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