Mathia et al. v. Commissioner, T.C. Memo. 2007-4 The Importance Of The Stipulation Of Facts.

When I worked at the Office of Chief Counsel, Counsel’s advantage was it knowledge of the stipulation of fact process and Counsels’ appreciation of how the Tax Court viewed the importance of the Stipulation of facts. Succinctly stated, even before the trial started an artfully drafted stipulation of facts may position a party to victory. Mathia et al. v. Commissioner, T.C. Memo. 2007-4 reminds all litigants of the importance of the stipulation of facts process.

The facts in Mathia are rather straightforward. Taxpayers were partners in a TEFRA partnership. In 1990, the TEFRA partnership received a FPAA notice as to taxable years 192 - 1984. The TMP timely responded and by 2002 the TMP and the IRS had filed a decision document and a stipulation of settlement with the Tax Court. The Tax Court entered the decision and issued an order resolving the TEFRA litigation.

On January 2003, the IRS assessed the deficiencies against the taxpayers. The taxpayers paid the deficiencies but did not pay the interest relating to the deficiencies rather taxpayers sought an abatement of interest. The IRS proceeded with collection enforcement and taxpayers filed a timely petition. In their petition, taxpayer’s contended that the period of limitations on assessment had expired before the IRS had assessed taxpayer’s 1982 – 1984 liabilities and the IRS had improperly denied their interest abatement.

The IRS and the taxpayers negotiated over the stipulation of facts and submitted the case fully stipulated under T.C. Rule 122 to the United States Tax Court. In the stipulation of facts, the IRS stipulated that the taxpayer husband was not a notice partner or a member of a notice group. See sections 6231 (a)(8) and 6223(b)(2). Moreover, the stipulation provided that the TMP had the authority to bind all of the partners of the TEFRA partnership. See also Tax Court Rule 248, Settlement Agreements and the time requirements contained therein. One week before briefs were due, the IRS filed a motion for relief as to the two stipulated paragraphs as it “contained erroneous legal conclusions” but did not seek a motion to vacate the Court’s order as to the Rule 122 motion.

The Tax Court denied the IRS’s motion. The Court held and observed the following: 

  • The stipulation process is “the bedrock of Tax Court practice” citing to Branerton Corp. v. Commissioner, 61 T.C. 691, 692 (1974).
  • The stipulation of facts may be a matter of contract law wherein the stipulation of facts process allows the parties to concede both factual and legal issues that they might have otherwise litigated. “In fact narrowing disputes to the essential disputes issues is the primary function of stipulations”.
  •  A unilateral error, even if one of law, is not an exceptional circumstance and insufficient to set aside a stipulation.

The Court finally observed that if the IRS’s motion were granted then the Court would be compelled to have a trial, which not even the IRS wanted. To compel a trial would be an unnecessary burden on the parties and on the Court.

Observation: It appears that the taxpayers may be requesting a claim for refund as they are  contending that the assessments were untimely. The Tax Court in Hoffman v. Commissioner, 119 T.C. 140 (2002) left undecided whether it had jurisdiction over a refund claim in the setting of a due process hearing. It appears that the Tax Court may be revisiting this question in light of the Tax Court recently receiving from Congress sole jurisdiction over due process hearings under sections 6320 and 6330.