Respondent determined a deficiency in the joint tax of Timothy Riffe, deceased, and Kathleen Pert, for tax year 1987. Timothy Riffe, deceased, and Kathleen Pert petitioned the Tax Court (Docket No. 15214-91), challenging respondent's determination for that year. The parties settled that case. This Court entered a stipulated decision on June 4, 1993, in which Kathleen Pert, acting in her own behalf, and as personal representative of the Estate of Timothy Riffe, agreed to a deficiency in tax and additions to tax for 1987. Under the settlement, the Estate of Timothy Riffe and Kathleen Pert agreed to the same deficiency. Additions to tax for negligence and substantial understatement of tax were 105 T.C. 370">*374 imposed on Timothy Riffe, deceased, but not on Kathleen Pert.

4. Notices of Transferee Liability

On May 27, 1994, respondent mailed two notices of transferee liability to petitioner in which respondent determined: (a) Petitioner is liable as a successor transferee (i.e., a transferee of a transferee) of the assets of Timothy Riffe, deceased, in the amount of $ 140,075 plus interest; and (b) petitioner1995 U.S. Tax Ct. LEXIS 60">*67 is liable as a transferee of the assets of Kathleen Pert in the amount of $ 67,672, plus interest as provided by law.

Discussion

1. Position of the Parties

Petitioner admits that Kathleen Pert, as a personal representative of the Estate of Timothy Riffe, agreed to the deficiencies and additions to tax for 1986, 1988, and 1989 with respect to the income tax of Timothy Riffe. Petitioner also admits that the copies of the Forms 866 attached to respondent's answer were the means by which the tax liabilities of Timothy Riffe, deceased, and Kathleen Pert were compromised and later assessed by the Commissioner.

Petitioner argues that he is not precluded by the closing agreements from litigating the underlying deficiencies and additions to tax of Timothy Riffe, deceased, and Kathleen Pert, in connection with respondent's determination that he is a transferee of Kathleen Pert and a successor transferee of Timothy Riffe, deceased.

Petitioner points out that Kathleen Pert was not a party in her individual capacity to the closing agreement for Timothy Riffe, deceased, and contends that the closing agreement is not binding on petitioner.

2. Closing Agreements Under Section 1995 U.S. Tax Ct. LEXIS 60">*68 7121

Section 7121 provides as follows:

Sec. 7121. Closing Agreements.

(a) Authorization.--The Secretary is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal revenue tax for any taxable period.

105 T.C. 370">*375 (b) Finality.--If such agreement is approved by the Secretary (within such time as may be stated in such agreement, or later agreed to) such agreement shall be final and conclusive, and, except upon a showing of fraud or malfeasance, or misrepresentation of material fact--

Statutory authority for closing agreements has existed since 1921. Revenue Act of 1921, ch. 136, tit. XIII, sec. 1312, 42 Stat. 227, 313. At least since 1934, the U.S. Treasury Department has had two 1995 U.S. Tax Ct. LEXIS 60">*69 forms on which closing agreements may be executed. XIII-1 C.B. 162, 162-163 (1934). Form 866 provides for a final and conclusive agreement between the Commissioner and the taxpayer to the total tax liability of the taxpayer. Form 906 provides for a final and conclusive agreement between the Commissioner and the taxpayer to matters or issues specified in the agreement. Sec. 301.7121-1(d)(1), Proced. & Admin. Regs. Both closing agreements in this case were executed on Forms 866, Agreement as to Final Determination of Tax liability.

The closing agreements establish the tax liability of Timothy Riffe, deceased, and Kathleen Pert for income tax deficiencies and additions to tax for 1986, 1988, and 1989. Sec. 7121(b); Estate of Magarian v. Commissioner, 97 T.C. 1">97 T.C. 1, 97 T.C. 1">4-5 (1991); Zaentz v. Commissioner, 90 T.C. 753">90 T.C. 753. Timothy Riffe, deceased, Kathleen Pert and respondent are bound by the closing agreements, absent a showing of fraud, malfeasance, or a misrepresentation of material fact. Sec. 7121(b).² Petitioner does not allege that the closing agreements in this case were obtained by fraud, malfeasance, or a misrepresentation1995 U.S. Tax Ct. LEXIS 60">*70 of a material fact.

105 T.C. 370">*376 3. Whether a Transferee Is Bound by a Closing Agreement Made by the Transferor

We are not aware of any case that decides whether a transferee or successor transferee is bound by a closing agreement made under section 7121 by the transferor.

Section 7121(b)(2) provides that "in any suit, action or proceeding" the closing agreement shall not 1995 U.S. Tax Ct. LEXIS 60">*71 be "annulled, modified, set aside or disregarded." If petitioner can contest the deficiencies and fraud additions established by Timothy Riffe's and Kathleen Pert's closing agreements, we are then "disregarding" the agreements to that extent. To allow petitioner to contest Timothy Riffe's and Kathleen Pert's tax liability for tax years 1986, 1988, and 1989 would conflict with section 7121, and undermine its purpose.

Cases holding that res judicata applies between a transferor and transferee are analogous. Under the doctrine of res judicata, parties and their privies to a prior action that concluded with a final decision on the merits, are bound as to all issues that were or might have been decided in the prior action. Commissioner v. Sunnen, 333 U.S. 591">333 U.S. 591, 333 U.S. 591">597, 92 L. Ed. 898">92 L. Ed. 898, 68 S. Ct. 715">68 S. Ct. 715 (1948). Res judicata applies in tax cases. United States v. International Building Co., 345 U.S. 502">345 U.S. 502, 345 U.S. 502">506, 97 L. Ed. 1182">97 L. Ed. 1182, 73 S. Ct. 807">73 S. Ct. 807 (1953).

If res judicata applies to a taxpayer who was a party to a prior case, it also applies to persons in privity with the taxpayer. It is well settled that a transferee is in privity with the transferor for purposes of the Internal Revenue Code. Baptiste v. Commissioner, 29 F.3d 1533">29 F.3d 1533, 29 F.3d 1533">1539 (11th Cir. 1994);1995 U.S. Tax Ct. LEXIS 60">*72 affg. 100 T.C. 252">100 T.C. 252 (1993), affd. and revd. on other grounds 29 F.3d 433">29 F.3d 433 (8th Cir. 1994); First Natl. Bank v. Commissioner, 112 F.2d 260">112 F.2d 260 (7th Cir. 1940); Krueger v. Commissioner, 48 T.C. 824">48 T.C. 824, 48 T.C. 824">830 (1967); Jahncke Serv., Inc. v. Commissioner20 B.T.A. 837">20 B.T.A. 837 (1930). In Krueger, we noted that "it would be a strange rule to confer upon the transferee broader rights than the transferor by allowing the transferee to relitigate an issue when a transferor is denied that privilege." 48 T.C. 824">Krueger v. Commissioner, supra at 830. ³

In 112 F.2d 260">First Natl. Bank v. Commissioner, supra,1995 U.S. Tax Ct. LEXIS 60">*73 the Court of Appeals for the Seventh Circuit said:

105 T.C. 370">*377 It is intended by the statute that the commissioner shall pursue the liability against the property of the taxpayer whether retained by the latter or transferred gratuitously by him to others. There is in this situation privity of title to the assets transferred and now sought to be reached by virtue of the statute. * * *

[the transferees] took the property * * * subject to the statutory liability and, that being fixed, in the absence of fraud, collusion or lack of jurisdiction, they are bound by the determination. * * *

Petitioner points out that in Phillips v. Commissioner, 178 F.2d 270">178 F.2d 270, 178 F.2d 270">271 (3d Cir. 1949), affg. 8 T.C. 1286">8 T.C. 1286 (1947) supplemented by 11 T.C. 653">11 T.C. 653 (1948), the Court of Appeals for the Third Circuit held that a final closing agreement (Form 866) under section 3720 of the Internal Revenue Code of 1939 (the predecessor to section 7121) between a corporation and the Commissioner was not binding on the stockholders of the corporation. The Court 1995 U.S. Tax Ct. LEXIS 60">*74 of Appeals for the Third Circuit explained that a closing agreement does not bind "strangers to the agreement". 178 F.2d 270">Id. at 271. The Court of Appeals for the Third Circuit said that the shareholders are strangers to the agreement, and are neither bound by nor can they take advantage of the agreement. We disagree that Phillips controls here because in Phillips the shareholders were not transferees of the corporation. The relationship between transferors and transferees is not the same as between shareholders and the corporation.

We conclude that a closing agreement under section 7121 binds a transferee of the party to the closing agreement, in a manner analagous to the way res judicata binds a transferee to a prior judicial decision in which the transferor was a party. Our holding applies to petitioner to the extent he is either a transferee or a successor transferee. Petitioner correctly states that respondent has cited no case in which the Court concluded that a transferee of a transferee is in privity with the original transferor. Petitioner contends that petitioner is not in privity with the Estate of Timothy Riffe and thus the closing agreement does not apply to petitioner. 1995 U.S. Tax Ct. LEXIS 60">*75 We disagree because, if it is established that petitioner is a transferee or successor transferee, he is in privity with the transferor as a matter of law. We see no basis for distinguishing between a transferee and a successor transferee for purposes of this issue. See Bos Lines, Inc. v. Commissioner, 354 F.2d 830">354 F.2d 830, 354 F.2d 830">833-834 (8th Cir. 1965), affg. T.C. Memo. 1965-71; see 105 T.C. 370">*378 Robinette v. Commissioner, 139 F.2d 285">139 F.2d 285, 139 F.2d 285">286 (6th Cir. 1943), affg. 46 B.T.A. 1138">46 B.T.A. 1138 (1942); Estate of Goldsborough v. Commissioner, 70 T.C. 1077">70 T.C. 1077, 70 T.C. 1077">1086 (1978), affd. without published opinion 673 F.2d 1310">673 F.2d 1310 (4th Cir. 1982); Fibel v. Commissioner, 44 T.C. 647">44 T.C. 647, 44 T.C. 647">659 (1965).

4. Statute of Limitations for Assessment of Transferee Liability for 1986

In the closing agreements relating to Timothy Riffe's and Kathleen Pert's 1986 joint return, it was agreed that Timothy Riffe (but not Kathleen Pert) was liable for the addition to tax for fraud. If there were no fraud on Timothy Riffe's and Kathleen Pert's 1986 tax return, 1995 U.S. Tax Ct. LEXIS 60">*76 then the time to assess tax against petitioner as transferee would apparently have expired before May 27, 1994, when respondent sent the notices of transferee liability to petitioner.

Petitioner contends that respondent is not entitled to summary judgment on the issue of the statute of limitations for 1986 because the evidence, viewed most favorably for petitioner, does not require a finding that the statute of limitations is still open. However, petitioner cites no fact that is material to deciding respondent's motion and that remains in dispute. Petitioner argues that if respondent fails to establish civil fraud, then the statute of limitations bars the assessment of any transferee liability for the year 1986. Petitioner points out that the closing agreement provided that Kathleen Pert was not liable for the civil fraud additions to tax assessed against the Estate of Timothy Riffe, and contends that respondent may not now assess transferee liabilities against Kathleen Pert or against petitioner based upon those civil fraud additions. We disagree.

The income tax due from Kathleen Pert for 1986, may be assessed at any time because it was agreed in the closing agreement for the Estate1995 U.S. Tax Ct. LEXIS 60">*77 of Timothy Riffe that the joint income tax return filed for that year was false or fraudulent. Sec. 6501(c)(1). Where a joint fraudulent return is filed, the Commissioner may assess a tax at any time against either spouse, even if only one of the spouses committed fraud in filing the return. Sec. 6501(c)(1); Benjamin v. Commissioner, 66 T.C. 1084">66 T.C. 1084, 66 T.C. 1084">1100-1101 (1976), affd. 592 F.2d 1259">592 F.2d 1259 (5th Cir. 1979); Vannaman v. Commissioner, 54 T.C. 1011">54 T.C. 1011, 54 T.C. 1011">1018105 T.C. 370">*379 (1970); Estate of Sawcza, v. Commissioner, T.C. Memo. 1993-210, affd. without published opinion 46 F.3d 70">46 F.3d 70 (11th Cir. 1995).

If the transferor's tax may be assessed at any time because of fraud, the period of limitations against a transferee of the transferor remains indefinitely open. Bartmer Automatic Self Serv. Laundry, Inc. v. Commissioner, 35 T.C. 317">35 T.C. 317, 35 T.C. 317">322 (1960); Forehand v. Commissioner, T.C. Memo. 1993-618. Thus, we hold that the limitations period for assessing transferee liability against petitioner for the tax year 1986 has1995 U.S. Tax Ct. LEXIS 60">*78 not expired.

5. Stipulated Settlement Decision for 1987

Petitioner concedes that Kathleen Pert, in her capacity as personal representative of the Estate of Timothy Riffe, agreed to a stipulated decision that Timothy Riffe, deceased, was liable for deficiencies and additions to tax for negligence and substantial understatement of tax for 1987. Petitioner also concedes that Kathleen Pert agreed to a stipulated decision that established her tax liabilities for 1987. Petitioner also concedes that liabilities were assessed by respondent pursuant to such agreement.

Petitioner argues that he may relitigate the liability of Timothy Riffe, deceased, and Kathleen Pert for 1987. We disagree. As we stated in par. 3 above, res judicata bars a transferee from relitigating the income tax liabilities of a transferor once a final decision has been entered by the Tax Court in the transferor's case, if the decision was stipulated. Krueger v. Commissioner, 48 T.C. 824">48 T.C. 829-830; Baptiste v. Commissioner, 29 F.3d 1533">29 F.3d 1533 (11th Cir. 1994); Forehand v. Commissioner, supra; see Huddleston v. Commissioner, 100 T.C. 17">100 T.C. 17 (1993).1995 U.S. Tax Ct. LEXIS 60">*79

Petitioner acknowledges that 29 F.3d 1533">Baptiste v. Commissioner, supra, and 48 T.C. 824">Krueger v. Commissioner, supra, hold that petitioners are bound by the stipulated decision signed by the Estate of Timothy Riffe. Petitioner acknowledges that, unless we reconsider our previous decisions on this issue, res judicata bars him from contesting the deficiencies and additions to tax for 1987 as stipulated by Kathleen Pert for herself and Timothy Riffe. Petitioner urges us to reconsider those cases.

105 T.C. 370">*380 One of the requirements for res judicata to apply is that the earlier proceeding must have resulted in a final judgment on the merits. Commissioner v. Sunnen, 333 U.S. 591">333 U.S. 591, 92 L. Ed. 898">92 L. Ed. 898, 68 S. Ct. 715">68 S. Ct. 715 (1948); Peck v. Commissioner, 90 T.C. 162">90 T.C. 162, 90 T.C. 162">166 (1988), affd. 904 F.2d 525">904 F.2d 525 (9th Cir. 1990); Gammill v. Commissioner, 62 T.C. 607">62 T.C. 607, 62 T.C. 607">613 (1974). Petitioner asserts that it is at best a legal fiction to treat a stipulated decision as a judgment on the merits. Petitioner asserts that Kathleen Pert agreed to the stipulated decision because she lacked funds, and1995 U.S. Tax Ct. LEXIS 60">*80 that she filed bankruptcy 8 months after the stipulated decision was entered. In spite of petitioner's argument, we decline to reconsider the well-established principle that a Tax Court decision entered pursuant to the stipulation of the parties is considered to be judgment on the merits for purposes of res judicata. See 29 F.3d 1533">Baptiste v. Commissioner, supra at 1539-1541; see also United States v. Intl. Building Co., 345 U.S. 502">345 U.S. at 506.

To reflect the foregoing,

Orders will be issued granting respondent's motions for partial summary judgment.