The opinion
T.C. Memo. 2008-145
UNITED STATES TAX COURT
THOMAS J. AND BONNIE F. RATKE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent*
Docket No. 9641-01L. Filed May 28, 2008.
In connection with Ps’ motions under secs. 7430
and 6673(a)(2), I.R.C. 1986, Ps move to compel
stipulations under Rule 91(f), Tax Court Rules of
Practice and Procedure. R objects to the motion to
compel.
1. Held: R’s general objections to the motion to
compel are overruled.
2. Held, further, R’s objections to specific
proposed stipulations are sustained in large part and
overruled in part.
*
This opinion supplements Ratke v. Commissioner, T.C. Memo.
2004-86, and 129 T.C. 45 (2007).
- 2 -
Jack B. Schiffman, for petitioners.
Robert M. Fowler, for respondent.
SUPPLEMENTAL MEMORANDUM OPINION
CHABOT, Judge: This matter is before us on petitioners’
motion to compel stipulations pursuant to Rule 91(f),1 in
connection with their motion for award of reasonable litigation
and administrative costs under section 74302 as well as their
motion for sanctions under section 6673(a)(2) in the instant
collection proceeding.
The issues for decision are:
(1) Whether petitioners’ motion to compel stipulations was
filed timely;
(2) whether petitioners’ motion to compel stipulations
sufficiently comports with the requirements of Rule 91(f); and
(3) whether petitioners’ proposed stipulations should be
deemed admitted.
1
Unless indicated otherwise, all Rule references are to the
Tax Court Rules of Practice and Procedure.
2
Unless indicated otherwise, all section references are to
sections of the Internal Revenue Code of 1986 as in effect for
proceedings commenced on the day the petition in the instant case
was filed.
- 3 -
Background
When the petition was filed in the instant case, petitioners
resided in Arizona. The parties have filed fairly extensive
stipulations with respect to petitioners’ motions under sections
7430 and 6673(a)(2); these stipulations and the stipulated
exhibits are incorporated herein by this reference.
Petitioners’ deficiency case in this Court was settled and
decision was entered pursuant to the parties’ stipulated
agreement. A dispute arose regarding the meaning of that
stipulated agreement, leading to the instant collections case.
This dispute was resolved in petitioners’ favor by our opinion in
Ratke v. Commissioner, T.C. Memo. 2004-86. Thereafter,
petitioners moved for an award of costs under section 7430 and
later moved for sanctions under section 6673(a)(2). In
connection with these motions, petitioners moved to require
disclosure of two memoranda. Our opinion in Ratke v.
Commissioner, 129 T.C. 45 (2007), resolved that matter in
respondent’s favor. Petitioners’ motion to compel stipulations,
also in connection with petitioners’ motions under sections 7430
and 6673(a)(2), is the matter before us at this stage of the
proceedings in the instant case.
Discussion
A. Parties’ Contentions; Conclusions
Petitioners contend that the matters proposed for
stipulation are “relevant to critical factual issues” the Court
- 4 -
will need to consider when ruling on petitioners’ motions under
sections 7430 and 6673(a)(2). Respondent argues: (1)
Petitioners’ motion is untimely; (2) petitioners’ motion does not
comport with the requirements of Rule 91(f); and (3) petitioners’
proposed stipulations are not appropriate for stipulation.
Petitioners’ motion to compel stipulations is timely and, in
general, sufficiently comports with the requirements of Rule
91(f).
We shall grant petitioners’ motion as to: (1) The first
sentence of petitioners’ proposed stipulation 3, (2) petitioners’
proposed stipulation 4, and (3) the first sentence of
petitioners’ proposed stipulation 8. In all other respects, we
shall deny petitioners’ motion.
B. Analysis
1. In General
The stipulation process is “the bedrock of Tax Court
practice” and is designed “as an aid to the more expeditious
trial of cases as well as for settlement purposes.” Branerton
Corp. v. Commissioner, 61 T.C. 691, 692 (1974). The stipulation
process serves the same function with respect to disposition of
posttrial motions, such as the motions in the instant case, as
the process serves with respect to trials. See, e.g., Goettee v.
Commissioner, 124 T.C. 286, 290, 293, 294 (2005), affd. 192 Fed.
Appx. 212, 223 (4th Cir. 2006); Hong v. Commissioner, 100 T.C.
- 5 -
88, 89-90, 92 (1993). Rule 91 governs the Court’s approach to
stipulations, as well as the mechanical process by which
stipulations are made. See Rule 230(a). We have set forth in
the margin portions of Rule 91 that are helpful to our analysis
of the motion now before us, and also portions that the parties
must consider in their continued dealings in the instant case.3
3
Rule 91 provides, in pertinent part, as follows:
Rule 91. STIPULATIONS FOR TRIAL
(a) Stipulations Required: (1) General: The
parties are required to stipulate, to the fullest
extent to which complete or qualified agreement can or
fairly should be reached, all matters not privileged
which are relevant to the pending case, regardless of
whether such matters involve fact or opinion or the
application of law to fact. Included in matters
required to be stipulated are all facts, all documents
and papers or contents or aspects thereof, and all
evidence which fairly should not be in dispute. Where
the truth or authenticity of facts or evidence claimed
to be relevant by one party is not disputed, an
objection on the ground of materiality or relevance may
be noted by any other party but is not to be regarded
as just cause for refusal to stipulate. The
requirement of stipulation applies under this Rule
without regard to where the burden of proof may lie
with respect to the matters involved. Documents or
papers or other exhibits annexed to or filed with the
stipulation shall be considered to be part of the
stipulation.
* * * * * * *
(e) Binding Effect: A stipulation shall be
treated, to the extent of its terms, as a conclusive
admission by the parties to the stipulation, unless
otherwise permitted by the Court or agreed upon by
those parties. The Court will not permit a party to a
stipulation to qualify, change, or contradict a
(continued...)
- 6 -
We consider first the question of the timeliness of
petitioners’ motion to compel stipulations, then the effect of
the specific requirements of Rule 91(f), then the application of
Rule 91 to each of the stipulations petitioners seek to compel.
3
(...continued)
stipulation in whole or in part, except that it may do
so where justice requires. A stipulation and the
admissions therein shall be binding and have effect
only in the pending case and not for any other purpose,
and cannot be used against any of the parties thereto
in any other case or proceeding.
(f) Noncompliance by a Party: (1) Motion To
Compel Stipulation: If, after the date of issuance of
trial notice in a case, a party has refused or failed
to confer with an adversary with respect to entering
into a stipulation in accordance with this Rule, or a
party has refused or failed to make such a stipulation
of any matter within the terms of this Rule, the party
proposing to stipulate may, at a time not later than 45
days prior to the date set for call of the case from a
trial calendar, file a motion with the Court for an
order directing the delinquent party to show cause why
the matters covered in the motion should not be deemed
admitted for the purposes of the case. The motion
shall (A) show with particularity and by separately
numbered paragraphs each matter which is claimed for
stipulation; (B) set forth in express language the
specific stipulation which the moving party proposes
with respect to each such matter and annex thereto or
make available to the Court and the other parties each
document or other paper as to which the moving party
desires a stipulation; (C) set forth the sources,
reasons, and basis for claiming, with respect to each
such matter, that it should be stipulated; (D) show
that opposing counsel or the other parties have had
reasonable access to those sources or basis for
stipulation and have been informed of the reasons for
stipulation; and (E) show proof of service of a copy of
the motion on opposing counsel or the other parties.
- 7 -
2. Timeliness
Respondent argues that petitioners’ motion to compel
stipulations is not timely. Respondent points out that
petitioners’ motion to compel stipulations was filed shortly
before the parties were scheduled to file their legal memoranda
on petitioners’ motions under sections 7430 and 6673(a)(2).
Respondent further claims that the Court’s scheduling orders
“clearly anticipated that the stipulation process would have been
completed at the late date petitioners filed their Rule 91(f)
motion.”
Petitioners contend that the cause of their motion to
compel, and the resulting delay in further proceedings in their
motions under sections 7430 and 6673(a)(2), was respondent’s
refusal to agree to their proposed stipulations.
Both sides agree that the “45-day rule” of Rule 91(f)(1)
does not strictly apply to petitioners’ motion to compel
stipulations.
We have examined the materials submitted by both sides on
this matter. These materials show that the stipulation process,
which had hitherto produced much material that was submitted to
the Court, was breaking down. Petitioners’ motion to compel has
contributed to the delay, but the basic cause was each side’s
increasing unwillingness to resolve stipulation disputes in a
- 8 -
reasonable manner. Petitioners’ motion essentially served to
bring this breakdown to the attention of the Court.
We have concluded that the purposes of Rule 91 would not be
served by sustaining respondent’s timeliness objection to the
granting of petitioners’ motion to compel stipulations.
We hold for petitioners on this matter.
3. Requirements of Rule 91(f)--Conditions Necessary
for Filing Motion; Format of Motion
Respondent argues that the conditions necessary for filing a
motion under Rule 91(f) have not been met because respondent has
neither refused nor failed to either confer with petitioners
regarding the stipulations or stipulate any matter within the
terms of Rule 91. Respondent also contends that petitioners’
motion to compel stipulations does not comply with four of the
five form requirements specified in the text of Rule 91(f)(1).4
Petitioners reply that respondent’s efforts were not enough
to complete the stipulation process. Also, petitioners attach
additional communications, including two communications after
petitioners’ motion to compel stipulations was filed, proposing
numerous other stipulations.
By and large, respondent’s analysis of the formal defects in
petitioners’ motion is correct. However, we have concluded that
4
Respondent concedes only that petitioners’ motion complies
with Rule 91(f)(1)(E) in that it includes the required
certificate of service on respondent’s counsel.
- 9 -
it is better to take those defects into account in analyzing
petitioners’ specific proposed stipulations rather than to deny
petitioners’ motion in toto.
We hold for petitioners on this matter, but not completely.
4. Petitioners’ Proposed Stipulations
Petitioners, in their motion to compel stipulations,
interspersed numbered paragraphs headed “Matters Claimed For
Stipulation” with numbered paragraphs headed “Proposed
Stipulations”. In the response to petitioners’ motion,
respondent followed petitioners’ numbering system. To facilitate
our analysis and the parties’ understanding, we will also use
petitioners’ numbers for the proposed stipulations--2, 3, 4, 5, 6
and 6(a), 7, 8, and 13 and 13(a)--in this report. We have
reproduced the proposed stipulations literally as they appear in
petitioners’ motion. Any stipulations resulting from our action
on petitioners’ motion to compel stipulations shall be
appropriately renumbered to take into account the stipulations
already filed in the instant case; also, minor errors shall be
corrected.
(a) Proposed Stipulation 2
2. When a case is settled and the stipulated
decision document is prepared by an appeals officer, it
is Respondent’s policy to require its litigation
Counsel to review the computational documents (audit
statement) to determine whether the amounts set forth
in the computational documents (audit statement) are
consistent with the amounts that are required to be set
forth in the stipulated decision. If the amounts set
- 10 -
forth in the computational documents (audit statement)
are not consistent with the amounts that are required
to be set forth in the stipulated decision,
Respondent’s litigating Counsel is responsible for
assuring that any agreements between the parties of
additional amounts that are set forth in the
computational documents (audit statement) as being owed
are stipulated to as a “below the line” stipulation in
the stipulated decision filed with the Tax Court.
Rule 91(a)(1) provides:
Included in matters required to be stipulated are all
facts, all documents and papers or contents or aspects
thereof, and all evidence which fairly should not be in
dispute. * * * [Emphasis added.]
Respondent states:
Respondent does not believe that he has any policy
resembling what petitioners have described, especially
one referring to the particular “responsibility” of its
attorneys. Respondent offered to stipulate to a
provision of its manual discussing the situation
similar to the situation petitioners have described in
paragraph 2.
Petitioners failed, in both their motion papers and their
reply to respondent’s response, to present any source, reason, or
basis (see Rule 91(f)(1)(C)) for our concluding that respondent
has the policy described in petitioners’ proposed stipulation 2.
In the light of respondent’s denial, and taking into account
respondent’s offer to stipulate a provision in respondent’s
manual, we conclude that we shall not compel stipulation of
petitioners’ proposed stipulation 2.
We hold for respondent on this matter.
- 11 -
(b) Proposed Stipulation 3
3. Respondent’s attorney Ann Welhaf[5] was
Respondent’s litigation Counsel in Docket No. 5931-
96.[6] She was responsible for reviewing the
computational documents (audit statement) and the
stipulated decision document prepared by Appeals
Officer Cary Reese in the prior Tax Court case (Docket
No. 5931-96).
Respondent’s response does not deny the truth of the first
sentence of petitioners’ proposed stipulation 3. As to the
second sentence, respondent states:
There are no policies that spell out the duties of
respondent’s attorneys in the detail that petitioners
are seeking to attribute. * * * Respondent notes that
the parties have stipulated that Ms. Welhaf reviewed
the proposed decision document. See ¶ 39. of the
Second Supplemental Stipulation of Facts.
Petitioners failed, in both their motion papers and their
reply to respondent’s response, to present any source, reason, or
basis (see Rule 91(f)(1)(C)) for our concluding that respondent
has the policy described in the second sentence of petitioners’
proposed stipulation 3. In the light of respondent’s failure to
deny the truth of the matter stated in the first sentence,
respondent’s denial of the truth of the matter stated in the
second sentence, and respondent’s noting that the parties had
already stipulated Welhaf’s actions, we conclude that we shall
5
Ann Welhaf is referred to as Welhaf in our opinion in
Ratke v. Commissioner, 129 T.C. 45, 47 (2007).
6
Docket No. 5931-96 is described in our opinion in Ratke v.
Commissioner, 129 T.C. at 46, and is there referred to as the
1996 case.
- 12 -
compel stipulation of the first sentence of petitioners’ proposed
stipulation 3 and we shall not compel stipulation of the second
sentence.
We hold in part for petitioners and in part for respondent
on this issue.
(c) Proposed Stipulation 4
4. Ann Welhaf approved the stipulated decision
prepared by Appeals Officer Cary Reese by initialing
the “initialed copy” of the stipulated decision and
forwarded the original stipulated decision to Doreen
Susi, Respondent’s supervisory attorney, for her
signature. Doreen Susi signed the stipulated decision
document and forwarded it to the Tax Court for entry as
the decision of the Tax Court. The stipulated decision
approved by Ann Welhaf did not have a “below the line”
stipulation that referenced the $12,655 assessment made
by Respondent that was set forth in the computational
documents (audit statement) in Docket No. 5931-96.
Respondent’s response is:
4. The matters contained in paragraph 4. have
already been stipulated to in paragraphs 40. and 55. of
the Second Supplemental Stipulation of Facts.
Respondent does not deny the truth of the matters in
petitioners’ proposed stipulation 4, and so we conclude that we
shall compel this stipulation.
We hold for petitioners on this issue.
(d) Proposed Stipulation 5
5. The attached time sheets for Attorney Ann
Welhaf do not indicate any time was charged by Ann
Welhaf for reviewing the computational documents (audit
statement) that accompanied the stipulated decision
document prepared by Appeals Officer Cary Reese in
Docket No. 5931-96.
- 13 -
The timesheets (apparently, six pages attached to
petitioners’ motion as exhibit 1) do not indicate what specific
work Welhaf did on the 1996 case. Thus, petitioners’ proposed
stipulation’s focus on a particular item that is not on the
timesheets does not advance our understanding of what did or did
not happen during the course of the 1996 case.
Letters attached to respondent’s response and petitioners’
reply show that the parties made efforts to deal with what Welhaf
did or did not do with respect to the computational documents
accompanying the stipulated decision document in the 1996 case.
Those attached letters foster a hope that the parties may be able
to stipulate as to Welhaf’s actions. In the meanwhile,
petitioners’ proposed stipulation 5 is not helpful, and it
appears to have a potential for misleading the Court.
Accordingly, we conclude that we shall not compel stipulation of
petitioners’ proposed stipulation 5.
We hold for respondent on this matter. However, we expect
the parties to stipulate the relevant underlying information.
(e) Proposed Stipulations 6 and 6(a)
6. Ann Welhaf did not review the computational
documents (audit statement) accompanying the stipulated
decision prepared by Appeals Officer Cary Reese in
Docket No. 5931-96.
6(a). ALTERNATIVE TO NO. 6 ABOVE: Ann Welhaf did
review the computational documents (audit statement)
accompanying the stipulated decision prepared by
Appeals Officer Cary Reese in Docket No. 5931-96.
- 14 -
If the words in petitioners’ proposed stipulation 6 have the
same meaning as the same words in petitioners’ proposed
stipulation 6(a),7 then at least one of the proposed stipulations
cannot be true. If petitioners offer alternatives that cannot
both be true, then they have failed to comply with their
obligation to demonstrate that either alternative “fairly should
not be in dispute”, within the meaning of Rule 91(a)(1).8
We will not enter into a discussion as to whether these
alternatives properly are contradictories or contraries. The
truth may be far more nuanced.
We hold for respondent on this matter but expect the parties
to work out proper stipulations. See our comments with respect
to proposed stipulation 5.
(f) Proposed Stipulation 7
7. Other than the reference to the $12,655
assessment in the computation documents (audit
statement) provided to the Ratkes’ Counsel with the
stipulated decision, there is no documentation in the
administrative file in Docket No. 5931-96 or in Ratkes’
Counsel, David Bosse’s file that Appeals Officer Cary
7
See, e.g., Zuanich v. Commissioner, 77 T.C. 428, 443 n.26
(1981) (quoting Dickerson, The Interpretation and Application of
Statutes 224 (1975)).
8
Rule 91(f)(3) provides that a failure to respond to a
matter, or an evasive or not fairly directed response to a
matter, will result in that matter’s being deemed stipulated.
The structure established by Rule 91(f) does not accommodate the
simultaneous offering of alternative stipulations that cannot
both be true.
- 15 -
Reese informed the Ratkes’ Counsel of the $12,655
assessment made by Respondent after the Tax Court
petition was filed in Docket No. 5931-96.
Respondent “does not agree that the statement is accurate.”
We cannot tell from petitioners’ motion to compel
stipulations, respondent’s response, and petitioners’ reply,
whether petitioners’ proposed stipulation 7 “fairly should not be
in dispute”, within the meaning of Rule 91(a)(1). Accordingly,
we shall not compel petitioners’ proposed stipulation 7.
We hold for respondent on this issue. However, the parties
should be able to stipulate relevant matters. If respondent
contends there are documents in the administrative file or in
petitioners’ former counsel’s file that show that petitioners’
former counsel was informed of the assessment, then the parties
should stipulate those documents and perhaps the parties’
conflicting interpretations of those documents.
(g) Proposed Stipulation 8
8. Respondent did not put a freeze code on the
Ratkes’ 1993 account after the Notice of Deficiency was
mailed. Had Respondent put a freeze code on the
Ratkes’ account, the $12,655 reported by the Ratkes as
additional tax on their Second Amended Return for 1993
would not have been assessed by Respondent after the
Ratkes’ petition was filed with the Tax Court in Docket
No. 5931-96.
Respondent does not object to the first sentence of this
proposed stipulation but contends the second sentence is “purely
speculative.”
- 16 -
Petitioners have not explained why they believe the $12,655
would not have been assessed had a freeze code been placed on
their account. They have neither cited nor included in their
motion to compel stipulations or their reply any part of a manual
or other authority on this matter. Even if they had cited or
included such material, the most we could conclude would be in
terms of “oughtness” and likelihood. Oughtness and likelihood
may turn out to be significant in resolving petitioners’ motions
under sections 7430 and 6673(a)(2), but they are not the same as
the absolute statement in the second sentence of proposed
stipulation 8.
We conclude that we shall compel the stipulation of the
first sentence, but not the second sentence, of petitioners’
proposed stipulation 8.
We hold in part for petitioners and in part for respondent
on this issue.
(h) Proposed Stipulations 13 and 13(a)
13. Respondent changed its litigation strategy
set forth in the Notice of Determination and in the
Chief Counsel’s Memorandum of January 16, 2002 because
Respondent determined this strategy would not be
successful in having the Tax Court vacate the
stipulated decision in Docket No. 5931-96 and reenter a
new decision in that case that set forth the $12,655
assessment as a deficiency. Instead, Respondent
relitigated the Ratkes’ liability for the $12,655
assessment in the Collection Due Process Review
Proceeding before Judge Foley. At trial, Respondent’s
- 17 -
Counsel pursued a litigation strategy, which would have
had the Tax Court recognize the $12,655 disputed
assessment as an agreed deficiency that was subject to
collection.
13.(a) ALTERNATIVE TO NO 13 ABOVE: Respondent
changed its litigation strategy set forth in the Notice
of Determination and in the Chief Counsel’s Memorandum
of January 16, 2006[9] because it determined [to be
competed by Respondent............................].
Instead, Respondent litigated the Ratkes’ liability for
the $12,655 assessment in the Collection Due Process
Review Proceeding before Judge Foley. At trial,
Respondent’s Counsel pursued a litigation strategy,
which would have had the Tax Court recognize the
$12,655 disputed assessment as an agreed deficiency
that was subject to collection.
See our comments in (e) Proposed Stipulations 6 and 6(e),
supra p. 14. We shall not compel petitioners’ proposed
stipulations 13 and 13(a).
We hold for respondent on this matter.
The stipulation process should enable each side to put its
best foot forward and not have to waste everyone’s time and
energy on matters which fairly should not be in dispute. When
the Court has the impression that the parties are engaging in
obstructive wrangling, rather than constructive cooperation in
stipulating, it is just a short step to a conclusion that the
obstructors do not have good feet to put forward. In the instant
9
We assume petitioners intend to refer to the memorandum
dated Jan. 16, 2002, which was one of the memoranda dealt with in
our opinion in Ratke v. Commissioner, 129 T.C. 45 (2007), and
therein sometimes referred to as the Hyman memorandum. See id.
at 47.
- 18 -
proceeding, the parties already have filed extensive
stipulations. They should be able to agree to stipulations that
clarify the disputed matters dealt with in petitioners’ motion to
compel stipulations. Then we can deal properly with petitioners’
motions under sections 7430 and 6673(a)(2). For now, we choose
to regard both sides’ efforts in connection with petitioners’
motion to compel stipulations as an unwelcome but brief detour in
an otherwise productive stipulation process.
An appropriate order will
be issued granting in part and
denying in part petitioners’
motion to compel stipulations.