T.C. Memo. 2008-279



                     UNITED STATES TAX COURT



         DAVID C. AND WENDY CLARK, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 4092-05, 4296-05, Filed December 15, 2008.
                 4589-05, 4592-05,
                 5161-05, 5162-05,
                 5163-05.



     Paul E. Kent, for petitioners.

     Catherine G. Chang and Jon D. Feldhammer, for respondent.




     1
      Cases of the following petitioners are consolidated
herewith: American Synergy Asbestos Removal Services, Inc.,
a.k.a. Synergy Environmental, Inc., docket No. 4296-05; Clark C.
Trust a.k.a. Clark C. Family Trust, Reed Humpherys, Trustee,
docket No. 4589-05; American Synergy Corporation, docket No.
4592-05; American Synergy Financial Co. Trust, R. Jacobsen,
Trustee, docket No. 5161-05; Synergy Environmental Co. Trust
a.k.a. American Synergy Co. Trust, David C. Clark, Trustee,
docket No. 5162-05; and Synergy Environmental Co. Trust, Steve
Shallenberger, Trustee, docket No. 5163-05.
                                -2-

                        MEMORANDUM OPINION


     HAINES, Judge:   These cases are before the Court on

respondent’s motions for entry of decision and petitioners’

motions to reform stipulation of settled issues.

                            Background

     Because the parties anticipated a lengthy trial, these cases

were set for trial at a special session of the Court to commence

on March 24, 2008, in San Francisco, California.

     On March 11, 2008, respondent’s counsel met with petitioner

David Clark and petitioners’ counsel to discuss a possible

settlement.   On March 14, 2008, respondent wrote petitioners a

letter detailing a comprehensive settlement offer addressing all

issues raised in the notices of deficiency on which these cases

are based.

     One pertinent term of the settlement offer was that

petitioners David and Wendy Clark, docket No. 4092-05, would

concede all adjustments determined in their notice of deficiency

with the exception of a delinquency addition to tax for 1997.

Those adjustments included a rental income adjustment which was

associated with American Synergy Asbestos Removal Services, Inc.

(ASARSI), docket No. 4296-05.

     Another term of the proposed settlement was that any penalty

or addition to tax amounts asserted in the notice of deficiency

against ASARSI would be adjusted relative to the new deficiency
                               -3-

amount unless the penalty or addition to tax was specifically

conceded in respondent’s pretrial memorandum.    Respondent’s

letter informed petitioners that the offer would be held open

until March 17, 2008, at 12 p.m.

     On March 17, 2008, petitioners discussed with respondent the

delinquency additions to tax under section 6651(a)(1) which were

not conceded in respondent’s pretrial memorandum.    Petitioners

consistently maintained that ASARSI had timely filed its 1998

Federal income tax return after receiving an extension to file.

However, respondent had no record of the extension, nor did

petitioners produce any such evidence.    Nevertheless, in the

interest of settlement, respondent revised his settlement offer

by offering to reduce the addition to tax from 25 percent of the

related deficiency to 12.5 percent.    The revised offer was held

open until March 18, 2008, at 8 a.m.    On March 18, 2008,

petitioners accepted the revised offer.

     Later that day the parties informed the Court of the

settlement during a conference call.    The Court promptly canceled

the March 24, 2008, trial session.    The parties completed a

stipulation of settled issues incorporating the terms of the

settlement including the reduced delinquency addition to tax with

respect to ASARSI and the rental income adjustment.    The

stipulation of settled issues was filed with the Court on April

15, 2008.
                                  -4-

     Respondent then prepared and sent to petitioners deficiency,

penalty, and addition to tax computations as well as proposed

decision documents according to the terms of the stipulation of

settled issues.   During the week of May 5, 2008, petitioners

contacted respondent and stated that petitioners disagreed with

respondent’s computations.   On June 1, 2008, respondent received

several documents from petitioners including an Application for

Automatic Extension of Time to File Corporate Income Tax Return

for ASARSI’s 1998 taxable year.    However, petitioners failed to

explain the disagreement with respondent’s computations.   On July

1, 2008, the Court filed respondent’s motions for entry of

decision, which asked the Court to enter decisions in accordance

with the terms of the stipulation of settled issues.

     On September 2, 2008, the Court filed petitioners’ motions

to reform stipulation of settled issues.   Petitioners’ motions

ask the Court to modify the stipulation in two respects:   First,

petitioners ask the Court to modify the stipulation because the

rental income assigned to David and Wendy Clark was also assigned

to ASARSI; second, petitioners ask the Court to modify the

stipulation to eliminate the delinquency addition to tax asserted

against ASARSI for its 1998 tax year because ASARSI requested an

automatic extension of time to file.

     A hearing on the motions was held on November 4, 2008, in

San Francisco, California.
                                 -5-

                              Discussion

     A settlement is a contract and, consequently, general

principles of contract law determine whether a settlement has

been reached.     Dorchester Indus. Inc. v. Commissioner, 

, 330 (1997), affd. without published opinion 

(3d

Cir. 2000).   In settling a case each party agrees to concede some

rights which may have been asserted against the opposing party as

consideration for those secured in the settlement agreement.

Saigh v. Commissioner, 

, 177 (1956).

     A valid settlement, once reached, cannot be repudiated by

either party; and after parties have entered into a binding

settlement agreement, the actual merits of the settled

controversy are without consequence.       Dorchester Indus. Inc. v.

Commissioner, supra at 330.    This Court has declined to set aside

a settlement duly executed by the parties and filed with the

Court in the absence of fraud, mutual mistake, or other similar

ground.   Stamm Intl. Corp. v. Commissioner, 

(1988);

Spector v. Commissioner, 

(1964).      Where the parties’

settlement leads to the vacating of an imminent trial date, the

Court applies stringent standards to modify or set aside the

settlement.     Dorchester Indus. Inc. v. Commissioner, supra at

335; Stamm Intl. Corp. v. Commissioner, supra at 321.       In such

cases the moving party must satisfy standards akin to those

applicable in vacating a judgment entered into by consent.
                                -6-

Dorchester Indus. Inc. v. Commissioner, supra at 335; Stamm Intl.

Corp. v. Commissioner, supra at 322; see Swift & Co. v. United

States, 

, 324 (1928).     The Court has discretion to

set aside a settlement agreement filed with it, but its

discretion will not be exercised unless good cause is shown.

Saigh v. Commissioner, supra at 176.

     Petitioners seek to set aside the stipulation as it relates

to a delinquency addition to tax asserted against ASARSI.     During

the settlement negotiations petitioners contended that ASARSI

received an extension of time to file.     However, they were unable

to find a copy of the application for extension.     Petitioners

argue that they were told if they could provide the application

for extension the entire addition to tax would be conceded by

respondent.   Respondent agrees he would have conceded the entire

addition to tax but only if the application for extension was

provided before the execution of the stipulation.     Petitioners

were not able to provide a copy of the application for extension

until June 2008, more than 2 months after the settlement was

reached.   Nothing in the stipulation of settled issues indicates

that the parties intended to leave the issue open after the

stipulation was filed with the Court, nor have petitioners shown

that the parties intended to do so.     Accordingly, the stipulation

regarding ASARSI’s delinquency addition to tax is binding on the

parties.
                                  -7-

     Petitioners next ask the Court to modify the stipulation as

it relates to certain rental income arguably attributed to

multiple parties.    Petitioners claim that after careful

examination of the notices of deficiency and their tax returns

they discovered an erroneous duplication of income in the

stipulation of settled issues.2    Even assuming that petitioners

are correct that income was duplicated, the Court declines to

modify the stipulation.    The settlement stipulation was a

compromise, and the mere fact that petitioners now feel more

confident or knowledgeable on this issue than they did while

stipulating the deficiencies is not sufficient grounds for

voiding the settlement agreement.       See Saigh v. Commissioner,

supra at 177.

     If petitioners made a mistake in agreeing to the settlement,

respondent contends, and the Court agrees, it was not mutual but

unilateral.     This Court has previously held that a party may be

bound by its agreement although it has made a unilateral mistake

in the calculation of a deficiency.       Stamm Intl. Corp. v.

Commissioner, supra.3    Petitioners have not shown that respondent


     2
      It is not clear on the face of the stipulation of settled
issues whether there was a duplication of income.
     3
      In Pack v. United States, 

(9th Cir. 1993), the
U.S. Court of Appeals for the Ninth Circuit, to which an appeal
in this case would ordinarily lie, set aside a closing agreement
between taxpayers and the Commissioner. In Pack the court held
that the terms of the closing agreement could not be relied on by
the taxpayers to support their contention that waivers suspended
                                                   (continued...)
                                 -8-

committed fraud or otherwise improperly induced petitioners to

agree to the offer.    The parties spent considerable time

developing these cases and engaging in settlement discussions.

They were aware or should have been aware of the issues they

compromised.   Petitioners, represented by competent counsel, had

the opportunity to review the stipulation before signing it, and

presumably they did.    Furthermore, the stipulation of settled

issues is in accord with respondent’s settlement offer accepted

by petitioners.   Accordingly, the Court will not modify the

stipulation on the basis of a unilateral mistake.

     Petitioners further argue that David Clark was the only one

who could accurately review the figures in the stipulation, but

he was out of the country when it was signed and thus unable to

review the figures.    The stipulation was executed by petitioners’

counsel, and petitioners do not argue that he lacked the

authority to do so.    Furthermore, David Clark was present at the

parties’ settlement discussions and thus was aware of the terms




     3
      (...continued)
the assessment of interest because the waiver was contrary to the
Internal Revenue Code (Code) and the closing agreement
specifically stated that its terms were subject to the Code and
the closing agreement did not expressly create the waiver.

The reasoning of the court in Pack is not applicable
in this case. The settlement agreement entered into by
respondent and petitioners does not state that its terms are
subject to the Code. In fact, respondent made several
concessions which are in contravention of the Code. Petitioners
do not seek to set those aside.
                                 -9-

of the settlement.   Accordingly, the Court will not set aside the

stipulation on this basis.

     In his settlement offer respondent made significant

concessions which ultimately led to petitioners’ acceptance.    By

accepting the offer, petitioners chose to concede some of the

rights they might have asserted in consideration for respondent’s

concessions.   Petitioners may not now avoid their own concessions

while receiving the benefits of respondent’s.

     To reflect the foregoing,

                                       Orders denying petitioners’

                                 motions will be issued, and orders

                                 and decisions granting

                                 respondent’s motions will be

                                 entered.