UNITED STATES TAX COURT

37

DRC

T.C. Memo. 2017-176

UNITED STATES TAX COURT

ERNESTO P. PATACSIL AND MARILYN E. PATACSIL, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 28715-15.

Filed September 11, 2017.

Ernesto P. Patacsil and Marilyn E. Patacsil, pro sese.

Bryant W. H. Smith, for respondent.

MEMORANDUM OPINION

CHIECHI, Judge: This case is before us on respondent's motion to dismiss

for lack of prosecution. We shall grant that motion.

SERVED Sep 11 2017

-2[*2]

Background

The record establishes¹ and/or the parties do not dispute the following.

Petitioners resided in California at the time they filed the petition.

On February 3, 2015, petitioner, Ernesto P. Pataesil (Mr. Pataesil), and

petitioner, Marilyn E. Patacsil (Ms. Patacsil), each submitted to the Internal

Revenue Service (IRS) Form 2848, Power of Attorney and Declaration of Representative. In Part I, Power of Attorney, of each of those respective forms, each

petitioner authorized Julie Doughty (petitioners' representative or Ms. Doughty), a

certified public accountant, to represent them before the IRS with respect to

Federal income tax (tax) matters for their taxable years 2010, 2011, 2012, and

2013.

Ms. Doughty did not represent petitioners during the IRS' examination of

petitioners' taxable years 2010 through 2012.2 However, she was familiar with the

¹The Court held an evidentiary hearing with respect to respondent's motion

to dismiss for lack of prosecution in order to allow the parties to introduce

evidence relevant to the resolution of that motion. After evaluating the evidence

that the Court allowed into the record at that hearing, the Court has found certain

facts that are set forth herein.

2Although petitioners authorized Ms. Doughty to represent them before the

IRS with respect to tax matters for their taxable year 2013 as well as their taxable

years 2010, 2011, and 2012, the only years before the Court are their taxable years

2010 through 2012 with respect to which (1) respondent mailed them a notice of

(continued...)

-3[*3] determinations that respondent's revenue agent had proposed after examining

those years.

On August 18, 2015, respondent issued the 2010-2012 notice to petitioners.

In that notice, respondent determined to make certain adjustments to income for

petitioners' taxable years 2010, 2011, and 2012 totaling $1,041,693, $899,573,

and $1,429,406, respectively. Most of those adjustments consisted of respondent's determinations (1) to increase gross receipts or sales reported by petitioners

and (2) to disallow certain expenses claimed by petitioners3 in certain Schedules

C, Profit or Loss From Business (Schedule C), that they had included with the

respective tax returns that they had filed for their taxable years 2010, 2011, and

2012 (2010-2012 returns). Another adjustment to income that respondent deter-

mined in the 2010-2012 notice for each of petitioners' taxable years 2010, 2011,

and 2012 was to increase their gambling winnings for each of those years that

petitioners had reported in their 2010-2012 returns. Respondent also determined

in the 2010-2012 notice that petitioners are liable for each of their taxable

2(...continued)

deficiency (2010-2012 notice) and (2) petitioners filed a petition, thereby

commencing this case.

3The expenses that respondent determined to disallow in the 2010-2012

notice included those for certain "Other Expenses" and certain mortgage interest

expenses.

-4[*4] years 2010, 2011, and 2012 for the accuracy-related penalty under section

6662(a).4

On November 16, 2015, petitioners filed the petition. The only determina-

tions in the 2010-2012 notice for their taxable years 2010 through 2012 that

petitioners contested in the petition were (1) respondent's disallowance of claimed

Schedule C mortgage interest expenses and claimed Schedule C "Other Expenses"

for "Groceries and Cleaning supplies" and (2) respondent's increase of petitioners'

gambling winnings.

The consideration by respondent's Appeals Office (Appeals Office) of

petitioners' taxable years 2010 through 2012 was initiated on November 16, 2015,

by a request from an attorney in respondent's Chief Counsel's Office (Chief

Counsel's Office) that the Appeals Office consider those years.5 (We shall

sometimes refer to this case involving petitioners' taxable years 2010 through

2012 during the period the Appeals Office was considering it as petitioners' case.)

4All section references are to the Internal Revenue Code in effect for the

years at issue. All Rule references are to the Tax Court Rules of Practice and

Procedure.

5As noted above, November 16, 2015, was the day on which petitioners

filed the petition.

-5[*5] Joe Session (Mr. Session), an Appeals officer, was assigned to petitioners'

case on January 28, 2016. On the same date, he sent petitioners a letter that, inter

alia, notified them that he was responsible for the Appeals Office review of

petitioners' case. On February 1, 2016, he sent a copy of that letter to Ms.

Doughty.

From early February through December 8, 2016, Mr. Session spent a total of

approximately 26 hours considering petitioners' case. During that period, he, inter

alia, received and reviewed various documents that Ms. Doughty provided to him6

in support of petitioners' positions with respect to the various issues in petitioners'

case, had several telephone discussions with Ms. Doughty regarding those issues,

concluded that he was willing to make certain concessions regarding certain of

those issues, and believed on the basis of his discussions with Ms. Doughty that

petitioners would probably be willing to make certain concessions and that

consequently petitioners' case would probably be settled.

Mr. Session maintained a so-called case activity record in which he made

notes of any important activity that occurred, the date of any such activity, and the

time he spent on any such activity during his consideration of petitioners' case.

6Petitioners, through Ms. Doughty, did not provide certain documents to Mr.

Session until November 2016.

-6[*6] Mr. Session made those notes in the case activity record contemporaneously

with the occurrence of the activity about which he was making the notes.

During Mr. Session's consideration of petitioners' case, Ms. Doughty kept

Ms. Patacsil7 informed of her discussions with Mr. Session. During that consideration, Ms. Doughty also communicated to Ms. Patacsil what she and the accounting firm for which she worked (accounting firm) believed was the possible

resolution of the various issues that she was discussing with Mr. Session.

On July 11, 2016, the Court served on petitioners and respondent a notice

setting this case for trial (notice of trial) at the Court's trial session in San Francisco, California, commencing on December 12, 2016 (December 12, 2016 San

Francisco trial session). Judge Carolyn P. Chiechi (Judge Chiechi) was assigned

to conduct the Court's December 12, 2016 San Francisco trial session. On the

same date on which the Court served the notice of trial on the parties in this case,

the Court also served the Court's standing pretrial order on them.

7Ms. Doughty communicated only with Ms. Patacsil. Mr. Pataesil had no

communications with her or Mr. Session. Nor did Mr. Patacsil open any mail that

petitioners received regarding petitioners' case. Ms. Pataesil handled all matters

relating to petitioners' case and kept Mr. Patacsil informed about the status of that

case.

-7[*7]

The notice of trial stated in pertinent part:

The parties are hereby notified that this case is set for trial at

the [San Francisco] Trial Session beginning at 10:00 AM on Monday,

December 12, 2016. The calendar for that Session will be called at

that date and time, and the parties are expected to be present and to be

prepared to try the case. Your failure to appear may result in dismissal of the case and entry of decision against you.

Starting around October 17, 2016, as the beginning of the Court's December

12, 2016 San Francisco trial session drew closer, Mr. Session kept Sharyn Ortega

(Ms. Ortega), the attorney with Chief Counsel's Office assigned to this case,

informed on a regular basis about his consideration of petitioners' case, including

the status of his discussions with Ms. Doughty.

On October 28, 2016, the Court served on petitioners and respondent a

notice reminding them that this case was calendared for trial at the December 12,

2016 San Francisco trial session. That notice stated in pertinent part:

This case will remain on the Court's trial calendar unless both

parties sign an agreed decision and submit it to the Court, or unless

the Court otherwise notifies the parties that it is taking this case off

the trial calendar. If the case remains on the Court's trial calendar

and you fail to appear at the Trial Session, the case may be dismissed.

On November 15, 2016, approximately a month before the beginning of the

Court's December 12, 2016 San Francisco trial session, Ms. Patacsil telephoned

Mr. Session (November 15, 2016 telephone call) and told him that she was ill and

-8[*8] would not be able to appear at that trial session. During that telephone call,

Mr. Session told Ms. Pataesil (1) that he had recently received certain additional

documents from Ms. Doughty, (2) that he would review those documents, and

(3) that he would contact Ms. Doughty to discuss how to proceed with petitioners'

case and whether it could be resolved without the need for a trial. Mr. Session

reminded Ms. Pataesil that he had been discussing petitioners' case with Ms.

Doughty, petitioners' representative, and that in the future Ms. Patacsil should

contact Ms. Doughty for any additional assistance. In the notes that Mr. Session

made in the case activity record about the November 15, 2016 telephone call that

he had with Ms. Pataesil, he indicated, inter alia: "Note: A concern exist[s]

because the TP [Ms. Patacsil] stated her illness involves some sort of voodoo that

will prevent her from appearing at the calendar [call at the Court's December 12,

2016 San Francisco trial session]."

On November 17, 2016, Mr. Session telephoned Ms. Doughty (November

17, 2016 telephone call) and told her about the November 15, 2016 telephone call

that Ms. Pataesil had made to him. During the November 17, 2016 telephone call,

Mr. Session also informed Ms. Doughty that he would start his review of the

additional documents that she had just provided to him, which he believed would

take approximately one week to complete.

-9[*9] On November 25, 2016, respondent filed respondent's pretrial memorandum

as required by the Court's standing pretrial order served on the parties on July 11,

2016. In respondent's pretrial memorandum, respondent stated in pertinent part:

"The case was sent by Appeals back to Exam for review."

Petitioners did not file a pretrial memorandum as required by the Court's

standing pretrial order.

On November 30, 2016, which was less than 30 days before the beginning

of the Court's December 12, 2016 San Francisco trial session," Ms. Patacsil filed a

motion for continuance (Ms. Patacsil's motion). In that motion, she stated in

pertment part:

We request a continuance of our tax court case. The appeal[s] officer

has not been able to complete his review of the documents which we

submitted. We have contacted him and he continues his thorough

examination, which we appreciate.

In addition, I have been quite ill and off work. Please see the attached Work Status report.

8Rule 133 provides in pertinent part:

Continuances will be granted only in exceptional circumstances.

* * * A motion for continuance, filed 30 days or less prior to the date

to which it is directed [here, December 12, 2016], may be set for

hearing on that date, but ordinarily will be deemed dilatory and will

be denied unless the ground therefor arose during that period or there

was good reason for not making the motion sooner.

- 10 -

[*10] *

*

*

*

*

*

*

Please grant this continuance so the review can be completed and I

will be in better health.

The so-called work status report that Ms. Pataesil attached to Ms. Patacsil's

motion (Ms. Patacsil's work status report) was a one-page document with the

name "KAISER PERMANENTE" at the top of the page and the name "Truong,

Thuhong Thi (M.D.)" immediately below the name "KAISER PERMANENTE".

That report showed "Patacsil, Marilyn E." as the "Patient Name" and "11/21/2016,

1:50 PM" as the "Encounter Date & Time". Ms. Patacsil's work status report

stated in pertinent part: "This patient is placed off work from 11/21/2016 through

12/5/2016. * * * The patient was evaluated and deemed able to return to work at

full capacity on 12/6/2016".

After reviewing Ms. Patacsil's motion and re-reviewing respondent's

pretrial memorandum, Judge Chiechi was uncertain about the status of the Appeals

Office's consideration of petitioners' case. That was because respondent's pretrial

memorandum filed on November 25, 2016, stated that "[t]he case was sent by

Appeals back to Exam for review" whereas Ms. Patacsil's motion filed on November 30, 2016, stated that "[t]he appeal[s] officer has not been able to complete his

review of the documents which we submitted."

- 11 [*11] In order to clarify the status of the Appeals Office's consideration of petitioners' case, on December 1, 2016, Judge Chiechi initiated a very brief telephone

conference with the parties (December 1, 2016 telephone conference). During that

telephone conference, Judge Chiechi asked Ms. Ortega why respondent's pretrial

memorandum filed on November 25, 2016, stated that "[t]he case was sent by

Appeals back to Exam for review" whereas Ms. Patacsil's motion filed on November 30, 2016, stated that "[t]he appeal[s] officer has not been able to complete his

review of the documents which we submitted." In response, Ms. Ortega informed

Judge Chiechi that the statement that she had just read from respondent's pretrial

memorandum was incorrect and that petitioners' statement in Ms. Pataesil's

motion regarding that status was correct. Ms. Ortega further advised Judge

Chiechi during the December 1, 2016 telephone conference that the Appeals

officer had told her shortly after she filed respondent's pretrial memorandum on

November 25, 2016, that he would complete his review around December 2, 2016,

of the additional documents that petitioners' representative had very recently

provided to him. At the conclusion of the December 1, 2016 telephone conference, Judge Chiechi scheduled another conference call with the parties for 4 p.m.

EST (1 p.m. PST) on December 8, 2016, in order to receive another status report

with respect to the Appeals Office's consideration of petitioners' case.

- 12 [*12] On December 6, 2016, Mr. Session had a telephone conference with Ms.

Doughty (December 6, 2016 telephone conference). During that telephone

conference, they agreed to a resolution of all but one of the issues in petitioners'

case. With respect to that one remaining unresolved issue, Ms. Doughty made a

proposal to settle that issue (Ms. Doughty's settlement proposal). During the

December 6, 2016 telephone conference, Mr. Session informed Ms. Doughty that

he would prepare a schedule of adjustments showing any changes that he agreed to

make to the various determinations in the 2010-2012 notice, that he would send

that schedule of adjustments to Ms. Ortega, and that Ms. Ortega would thereafter

prepare a stipulation of settled issues from that schedule and send it to petitioners

for their signature.

After his December 6, 2016 telephone conference with Ms. Doughty, Mr.

Session contacted Ms. Ortega and told her that most of the issues in petitioners'

case were resolved and that he would prepare and send her shortly a schedule of

adjustments reflecting that resolution. Thereafter, on December 6, 2016, Mr.

Session reviewed Ms. Doughty's settlement proposal on the one remaining

unresolved issue in petitioners' case, did some research on that issue, and concluded that he would accept that proposal. Consequently, he revised the schedule

of adjustments to reflect the resolution of that remaining issue (revised schedule of

- 13 [*13] adjustments), left a voice mail message for Ms. Doughty that he had accepted Ms. Doughty's settlement proposal, and sent to her and Ms. Ortega the

revised schedule of adjustments. (We shall sometimes refer to the proposed

settlement of petitioners' case to which Mr. Session and Ms. Doughty agreed but

which was subject to the approval of petitioners, as reflected in the revised

schedule of adjustments, as the proposed settlement.)

On December 7, 2016, Ms. Doughty telephoned Mr. Session and discussed

with him his decision to accept Ms. Doughty's settlement proposal. Mr. Session

asked Ms. Doughty whether petitioners would agree to the proposed settlement as

reflected in the revised schedule of adjustments. She responded that she and her

accounting firm had already instructed petitioners to accept the proposed settlement and that she intended to contact Ms. Ortega to indicate her agreement with

the revised schedule of adjustments and to request computations of the respective

deficiencies and the respective accuracy-related penalties under section 6662(a)

for petitioners' taxable years 2010, 2011, and 2012 for which petitioners would be

liable under the proposed settlement.

Early on December 8, 2016, Mr. Session and Ms. Ortega discussed the

proposed settlement and the documentation needed to implement it. Ms. Ortega

told Mr. Session during those discussions that she would prepare a stipulation of

- 14 [*14] settled issues (proposed stipulation of settled issues) to reflect the proposed

settlement. Ms. Ortega also informed Mr. Session that she would prepare for the

telephone conference between Judge Chiechi and the parties regarding the consideration of petitioners' case by the Appeals Office that Judge Chiechi had sched-

uled for 4 p.m. EST (1 p.m. PST) on December 8, 2016.

After Ms. Ortega had discussed the proposed settlement with Mr. Session

on December 8, 2016, she prepared and sent to Ms. Doughty a proposed stipulation of settled issues that Ms. Ortega had prepared on the basis of the revised

schedule of adjustments that Mr. Session had sent her. Ms. Ortega asked Ms.

Doughty to confirm that the proposed stipulation of settled issues was in accordance with the proposed settlement to which she and Mr. Session had agreed

subject to the approval of petitioners. Ms. Doughty contacted Ms. Ortega on

December 8, 2016, and confirmed that the proposed stipulation of settled issues

was in accordance with the proposed settlement. Ms. Doughty told Ms. Ortega on

December 8, 2016, that petitioners wanted to know how much the proposed

settlement would cost them. Consequently, on December 8, 2016, Ms. Ortega

contacted a tax computation specialist and requested that that specialist prepare

expeditiously computations of the respective deficiencies and the respective

accuracy-related penalties under section 6662(a) for petitioners' taxable years

- 15 [*15] 2010, 2011, and 2012 for which petitioners would be liable under the

proposed settlement (tax computations).

On December 8, 2016, before the telephone conference between the parties

and Judge Chiechi scheduled for 4 p.m. EST (1 p.m. PST) on that day, Ms.

Doughty had a telephone discussion of the proposed settlement with Ms. Patacsil.

During that discussion, Ms. Patacsil told Ms. Doughty that she was not happy with

the proposed settlement and that petitioners would not accept it. That was because

Ms. Pataesil believed that the proposed settlement was unfair. Ms. Patacsil also

told Ms. Doughty during their discussion of the proposed settlement that she

believed that petitioners should have raised other issues in the petition in addition

to the issues that they had raised, that the documentation that was provided to Mr.

Session supported their positions on the various issues to which that documentation pertained, and that she did not believe that petitioners are liable for the

respective deficiencies and the respective accuracy-related penalties under section

6662(a) for petitioners' taxable years 2010, 2011, and 2012 for which petitioners

would be liable under the proposed settlement. Ms. Doughty told Ms. Pataesil

during their discussion of the proposed settlement on December 8, 2016, that

petitioners were not required to accept the proposed settlement; that is to say, Ms.

Doughty made it clear to Ms. Pataesil that petitioners had a choice about whether

- 16 [*16] to accept it. However, Ms. Doughty reminded Ms. Pataesil that Ms.

Doughty and her accounting firm recommended that petitioners accept the proposed settlement.

On December 8, 2016, before the telephone conference between the parties

and Judge Chiechi scheduled for 4 p.m. EST (1 p.m. PST) on that day, Ms. Ortega

had a telephone discussion with Ms. Patacsil. During that call, Ms. Ortega asked

Ms. Pataesil whether she agreed with the proposed settlement that Mr. Session and

Ms. Doughty had reached. Ms. Patacsil responded that petitioners did not agree

with the proposed settlement.

On December 8, 2016, Judge Chiechi had a very brief telephone conference

with the parties (December 8, 2016 telephone conference). During that telephone

conference, Ms. Ortega told Judge Chiechi that the Appeals officer (i.e., Mr.

Session) had completed his consideration of petitioners' case and that petitioners'

representative (i.e., Ms. Doughty) and he had reached a proposed settlement of

that case, which was subject to acceptance by petitioners, and that that representative had recommended to petitioners that they accept that proposed settlement.

Ms. Pataesil then advised Judge Chiechi that petitioners would not accept the

proposed settlement. Judge Chiechi told petitioners that, because Ms. Patacsil had

indicated that petitioners would not accept the proposed settlement, they would be

- 17 [*17] required to appear for trial at 10 a.m. on December 12, 2016, at the December 12, 2016 San Francisco trial session. Ms. Pataesil then stated that Judge

Chiechi was biased. Before the conclusion of the December 8, 2016 telephone

conference, Judge Chiechi also informed the parties that she intended to deny Ms.

Pataesil's motion.

On the morning of December 9, 2016, the tax computation specialist sent

the requested tax computations to Ms. Ortega, who then prepared proposed

decision documents reflecting those computations. Around 10:45 a.m. PST on

December 9, 2016, Ms. Ortega sent by facsimile (fax) to Ms. Doughty and, at the

request of Ms. Doughty, to petitioners9 the tax computations and the document

showing the proposed decision reflecting the proposed settlement (proposed

decision). Ms. Ortega transmitted the tax computations and the proposed decision

with a memorandum (Ms. Ortega's December 9, 2016 transmittal memorandum)

which she addressed to petitioners and on which she copied Ms. Doughty. Ms.

Ortega's December 9, 2016 transmittal memorandum stated in pertinent part:

°Although it was at about 10:45 a.m. PST on December 9, 2016, that Ms.

Ortega sent by fax the tax computations and the proposed decision to petitioners,

there was a transmission failure. Those documents were not received by fax by

petitioners until shortly after 12 p.m. PST on that date.

- 18 [*18] I've attached the revised deficiencies and penalties amounts based

upon the discussions the Appeals Officer [Mr. Session] had with your

representatives [Ms. Doughty].

I have also included a copy of the Decision that you will need to sign

to settle your case without trial. If you do not wish to appear on

Monday, [December 12, 2016], I will need a copy with original

signatures (a faxed copy is not sufficient), signed by both of you, by

the end of business today [December 9, 2016].

In addition to sending to petitioners by fax on December 9, 2016, the tax

computations and the proposed decision, Ms. Ortega telephoned Ms. Patacsil on

that day (December 9, 2016 telephone call). During that telephone call, Ms.

Ortega informed her that petitioners had the following options with respect to their

case that was calendared for trial at the December 12, 2016 San Francisco trial

session. One option that Ms. Ortega discussed with Ms. Patacsil during the

December 9, 2016 telephone call was that if petitioners had changed their minds

about not agreeing with the proposed settlement and had concluded that they

agreed with the proposed decision reflecting that proposed settlement that Ms.

Ortega had sent by fax to them, they could sign it. If petitioners agreed with and

signed the proposed decision, there would be no need for a trial in their case and

therefore they would not be required to appear at 10 a.m. on December 12, 2016,

at the December 12, 2016 San Francisco trial session. Another option that Ms.

Ortega discussed with Ms. Patacsil during the December 9, 2016 telephone call

- 19 [*19] was that if petitioners did not agree with the proposed decision, they did not

have to sign it. Ms. Ortega told Ms. Pataesil that if petitioners did not agree with

and did not sign the proposed decision, a trial would be needed in their case and

therefore they would be required to appear at 10 a.m. on December 12, 2016, at

the December 12, 2016 San Francisco trial session. Ms. Ortega cautioned Ms.

Patacsil during the December 9, 2016 telephone call that if petitioners did not

agree with and did not sign the proposed decision and did not appear at 10 a.m. on

December 12, 2016, at the December 12, 2016 San Francisco trial session, Ms.

Ortega would move to dismiss this case for lack of prosecution.

On December 9, 2016, while at their home, each petitioner signed the proposed decision, but each of them qualified her/his signature by writing the words

"under the duress" immediately thereunder. Petitioners wrote those words

immediately under their respective signatures because, even though they were

informed about the terms of the proposed settlement on December 8, 2016, and

refused to accept it, they did not believe that they had enough time to review the

proposed decision reflecting that proposed stipulation and felt pressured to sign it

on December 9, 2016, and deliver it to Ms. Ortega's office before that office

closed at 5 p.m. PST on that day. Because petitioners believed that they did not

have enough time to review the proposed decision and felt pressured to sign it on

- 20 [*20] December 9, 2016, and deliver it to Ms. Ortega's office before that office

closed at 5 p.m. PST on that day, they were unwilling to agree with the proposed

decision by signing it without qualification. Consequently, petitioners qualified

their respective signatures on the proposed decision, which indicated that they did

not agree with that proposed decision. (We shall refer to the proposed decision

that petitioners signed with the qualifying words "under the duress" appearing

under their respective signatures as the unagreed proposed decision.) Thereafter

on December 9, 2016, at some time before 5 p.m. PST, Ms. Pataesil, accompanied

by Maryann Pataesil, petitioners' daughter, drove to the office of the IRS in

Sacramento, California (Sacramento), in order to give Ms. Ortega the unagreed

proposed decision.

Ms. Patacsil telephoned Ms. Ortega when she arrived at Ms. Ortega's office,

and, as a courtesy to Ms. Patacsil, Ms. Ortega told Ms. Pataesil that she would

meet her in the lobby of the office building (building lobby or lobby). After Ms.

Pataesil and petitioners' daughter entered the lobby, Ms. Patacsil asked petitioners' daughter to make a video/audio recording on petitioners' daughter's mobile

telephone of the meeting that she was to have with Ms. Ortega.

Ms. Patacsil seemed very angry to Ms. Ortega during the several conversations that she had had with her about this case. Consequently, Ms. Ortega asked

- 21 [*21] another attorney who also worked in Chief Counsel's Office in Sacramento,

Paul Isherwood (Mr. Isherwood), to accompany her to the building lobby where

she was to meet Ms. Pataesil. Ms. Ortega and Mr. Isherwood took the elevator to

the lobby. After Ms. Ortega and Mr. Isherwood arrived in the lobby, Mr.

Isherwood remained near the elevator, and Ms. Ortega approached Ms. Patacsil

and spoke with her.

When Ms. Ortega first met with Ms. Patacsil in the lobby, Ms. Pataesil gave

her the unagreed proposed decision. Ms. Ortega signed the unagreed proposed

decision in Ms. Patacsil's presence while they were meeting in the building lobby.

(We shall refer to the unagreed proposed decision that Ms. Ortega signed as the

unagreed proposed decision signed by Ms. Ortega.) Ms. Ortega then went to her

office to make copies of the unagreed proposed decision signed by Ms. Ortega and

returned to the building lobby to give Ms. Patacsil a copy of that document.

When Ms. Ortega returned to the lobby and met a second time with Ms.

Pataesil in order to give her a copy of the unagreed proposed decision signed by

Ms. Ortega, Ms. Ortega informed Ms. Pataesil that Judge Chiechi would probably

not accept that document because petitioners had qualified their respective

signatures that appeared thereon. Ms. Pataesil did not appear to Ms. Ortega to be

concerned that Judge Chiechi would probably not accept the unagreed proposed

- 22 [*22] decision signed by Ms. Ortega. Ms. Ortega then asked Ms. Pataesil whether

she would appear on December 12, 2016, at the December 12, 2016 San Francisco

trial session. Ms. Patacsil responded that she would not and gave no reason to Ms.

Ortega as to why she would not appear other than to tell her that petitioners had

signed the unagreed proposed decision, even though she knew that they had qualified their respective signatures because they did not agree with the proposed decision by writing the words "under the duress" immediately thereunder.

While Ms. Ortega was meeting initially with Ms. Patacsil in the building

lobby, petitioners' daughter made a video/audio recording of that initial meeting

on her mobile telephone (first video/audio recording). Ms. Ortega was unaware

that petitioners' daughter was making the first video/audio recording. When Ms.

Ortega returned to the lobby and met a second time with Ms. Patacsil in order to

give her a copy of the unagreed proposed decision signed by Ms. Ortega,

petitioners' daughter made another video/audio recording of that second meeting

on her mobile telephone (second video/audio recording). Ms. Ortega was unaware

that petitioners' daughter was making the second video/audio recording.

The first video/audio recording showed and recorded the conversation at the

initial meeting between Ms. Pataesil and Ms. Ortega in the lobby when Ms.

- 23 [*23] Patacsil gave Ms. Ortega the unagreed proposed decision. In that recording,

the following exchange took place:

MS. ORTEGA: Hello

MS. PATACSIL: Anyway, this -- this is the only one that you need

right?

MS. ORTEGA: We just need one copy, yeah. Um. Would you like

me to make you a photocopy of it?

MS. PATACSIL: Um. I think, I did, uh, I took a copy.

MS. ORTEGA: Okay, aft-, on all, once I sign it, I will also um -MS. PATACSIL: So do you want to sign it and [unintelligible]

MS. ORTEGA: Yeah, so I'm going to sign it and then do you want

me to do a photocopy of my signed copy or do you want me to just

fax it to you.

MS. PATACSIL: You know, I can, I can actually take it to him --

MS. ORTEGA: Okay.

MS. PATACSIL: -- if you want, yeah, yes.

MS. ORTEGA: Okay. Let me run up and make a photocopy for you

and I'll bring you something right down.

MS. PATACSIL: Okay.

The second video/audio recording showed and recorded the conversation

between Ms. Ortega and Ms. Patacsil after Ms. Ortega returned to the lobby with a

- 24 [*24] copy of the unagreed proposed decision signed by Ms. Ortega. In that

recording, the following exchange took place:

MS. ORTEGA: Here's your copy.

MS. PATACSIL: Okay.

MS. ORTEGA: Um, because you guys wrote extra language --

MS. PATACSIL: Uh huh.

MS. ORTEGA: on there though, the judge probably isn't going to

accept it.

MS. PATACSIL: Well, he can, uh, he, he, he can, she can do

whatever she wants

MS. ORTEGA: Okay, so, um, are you, you're not going to be there.

Are you going to be there on Monday?

MS. PATACSIL: Oh, uh, no I'm not. I'm not.

MS. ORTEGA: Okay, okay.

MS. PATACSIL: No, you know what though, because I signed this, you

know what though, that's sufficient and what --

MS. ORTEGA: Got you.

MS. PATACSIL: You know and I, like I said, you know what

though, we are under duress, you know what though, there is no time

for review -MS. ORTEGA: Okay.

MS. PATACSIL: -- or anything.

- 25 [*25] MS. ORTEGA: Well she will see it then.

MS. PATACSIL: And when, and actually Sharyn, you know what

though, when you think about it, you know what though, the two

million dollar, you know what though, income, the payment alone on

that one year of2012, you might as well look at it, because I'm

sending all th[ese] boxes to the Congress and the Senate.

MS. ORTEGA: Okay.

MS. PATACSIL: Because we are asking them to review it

themselves. So then, you know what though, I just want to make sure

that, you know what though, even though we signed this we are

pursumg it.

MS. ORTEGA: Okay.

MS. PATACSIL: (To petitioners' daughter) Alright, thank you.

Let's go.

MS. PATACSIL: (To petitioners' daughter) Yeah, cause you know

what though, it doesn't make sense.

This case was called from the calendar (calendar call) at the December 12,

2016 San Francisco trial session. There was no appearance by or on behalf of

petitioners. Counsel for respondent appeared and informed Judge Chiechi that

petitioners had signed the proposed decision that she had sent them but had

qualified their respective signatures by writing the words "under the duress"

immediately thereunder. Judge Chiechi refused to accept the unagreed proposed

- 26 [*26] decision signed by Ms. Ortega. Respondent's counsel then made an oral

motion to dismiss this case for lack of prosecution.

On December 12, 2016, Judge Chiechi issued an order in which she ordered

that on or before December 21, 2016, respondent was to file a written motion to

dismiss for lack of prosecution or the parties were to submit decision documents

signed by the parties. Judge Chiechi indicated at the calendar call on December

12, 2016, that any decision documents that the parties signed and intended to

submit to her on or before December 21, 2016, should not contain any language

that in any way qualified those documents.

On December 15, 2016, Ms. Pataesil sent Ms. Ortega a letter (December 15,

2016 letter). In that letter, Ms. Patacsil, inter alia, expressed her frustrations

concerning this case and made disparaging comments about various people and

institutions, including former President Barack Obama, the IRS, IRS employees,

other Federal Government agencies, other Federal Government employees, the

State of California, State of California employees, and Judge Chiechi.

On December 21, 2016, respondent filed respondent's motion to dismiss for

lack of prosecution (respondent's motion).

On December 26, 2016, Ms. Patacsil sent by fax a letter to the Appeals

officer. That letter stated in pertinent part:

- 27 [*27] I'm totally outrage [sic] and don't know how to express my disbelief

on 12/8/16 at 12:10PM reading [the] "Stipulation of Settled Issues"

faxed to my residence by IRS Atty. Ortega. On top of not being given

a [sic] time to review the documents and I was demanded to deliver

the signed documents before the end of [the] business day. The IRS

must think I'm stupid and ignorant to expect I will be so scared for

[sic] their demand. I was put "UNDER DURESS". I spoke to you

once and you promised to give me a courtesy call after you review

[sic] the documents. Unfortunately, I never heard from you. Did you

review the 3 boxes of receipts and cancelled checks? I personally and

honestly think you "NEVER DID." Because if you did, the

calculations will be different. You can refer this case to whoever, but

I'm confident that [the] IRS treated my case differently and I was

singled out for standing up to the Federal Gov't. I'm sending you a

copy of 2 examples of legitimate business expenses that [the] IRS

severely reduced. If you treat all of the businesses this way I can

assure you most of us will close. It appeared that I'm responsible for

most of [the] expenses. ARE YOU REALLY KIDDING ME?

I received your letter dated 12/8/16, post marked 12/9/16 on

12/22/16. Unfortunately, the mailbox is broken and [I] had to picked

up [sic] [the] mail from the Post Office.

As I told Atty. Ortega, receipts and cancelled [checks] are being

prepared to be sent to [the] US CONGRESS on 1/20/17 and all copies

of evidence will be sent to PRESIDENT ELECT DONALD J.

TRUMP.

Atty. Ortega took advantage of JUDGE CHIECHE [sic] being biased

and prejudice[d] against us.

By order dated March 30, 2017, Judge Chiechi calendared respondent's

motion for an evidentiary hearing on May 9, 2017. In that order, Judge Chiechi

ordered, inter alia,"that respondent will ensure that the ethical[] issues raised by

- 28 [*28] * * * [Ms.] Ortega's testifying at * * * [the evidentiary] hearing will be

resolved by respondent's designating a different attorney to conduct the May 9,

2017 hearing on respondent's behalf." Respondent complied with that order and

designated another attorney, Bryant W. H. Smith, to conduct the evidentiary

hearing on respondent's behalf.

On May 9, 2017, this case was called for an evidentiary hearing with respect

to respondent's motion (May 9, 2017 evidentiary hearing). Petitioners and

respondent's counsel appeared at that hearing.

Discussion

Before considering whether to grant respondent's motion, we summarize

our evaluation of the following witnesses who were called to testify at the May 9,

2017 evidentiary hearing: Mr. Session, Ms. Doughty, Ms. Ortega, Mr. Isherwood,

Ms. Pataesil, Mr. Patacsil, and Maryann Pataesil. Except for the respective

testimonies of Mr. Isherwood and Ms. Patacsil, we found the respective

testimonies of the witnesses who testified at that hearing to be credible.

With respect to Mr. Isherwood, we found his inability to answer many

questions posed to him because of his claimed lack of memory to be, to say the

least, surprising. In fact, Mr. Isherwood's claimed lack of memory was such that it

raised a question in our mind about his candor. Nonetheless, we have no reason to

- 29 [*29] question the responses, which are not material to our deciding whether to

grant respondent's motion, that he was able to give from memory to certain other

questions.

With respect to Ms. Pataesil, before turning to specific aspects of her

testimony at the May 9, 2017 evidentiary hearing, we will set forth our overall

impression of her on the basis of that testimony, the testimony of Ms. Doughty, the

testimony of Ms. Ortega, certain documentary evidence that was made part of the

record at that hearing, and her demeanor at that hearing. Our overall impression of

Ms. Pataesil is that she is inflexible in her belief that the determinations that

respondent made in the 2010-2012 notice are wrong and should not be sustained.¹°

We think that that inflexible belief has caused Ms. Patacsil to conclude that

petitioners have been treated unfairly by various persons and various institutions

who have disagreed with her, which frustrated her and which led her, inter alia, to

send Ms. Ortega her December 15, 2016 letter. In that letter, Ms. Pataesil

expressed her frustrations concerning this case and made disparaging comments

about various people and institutions, including President Barack Obama, the IRS,

IRS employees, other Federal Government agencies, other Federal Government

¹°We do not opine herein on whether or not the determinations that

respondent made in the 2010-2012 notice should be sustained. We decide only

whether to grant respondent's motion.

- 30 [*30] employees, the State of California, State of California employees, and Judge

Chiechi.

With respect to specific aspects of Ms. Pataesil's testimony at the May 9,

2017 evidentiary hearing, we found her testimony to be internally inconsistent in

certain material respects and inconsistent in certain other material respects with

certain testimony of Ms. Doughty and certain testimony of Ms. Ortega. For

example, Ms. Pataesil testified that she was not aware that Mr. Session and Ms.

Doughty had reached a proposed settlement in petitioners' case. However, Ms.

Doughty and Ms. Ortega each testified that each had discussed the proposed

settlement with Ms. Pataesil on December 8, 2016, before the telephone

conference between the parties and Judge Chiechi scheduled for 4 p.m. EST (1

p.m. PST) on that date. In addition, Ms. Patacsil told Judge Chiechi during that

telephone conference that petitioners would not accept the proposed settlement.

As noted above, we found the respective testimonies of, inter alia, Ms. Doughty

and Ms. Ortega to be credible. We need not, and do not decide, whether Ms.

Patacsil's testimony was internally inconsistent in certain material respects and

inconsistent in certain other material respects with the respective testimonies of

Ms. Doughty and Ms. Ortega because she had a faulty memory and/or because she

was not telling the truth and/or for some other reason. We conclude only that

- 31 [*31] we are unwilling to rely on Ms. Patacsil's testimony in certain material

respects.

We turn now to respondent's motion. The notice of trial informing the

parties that this case was calendared for trial at the December 12, 2016 San

Francisco trial session, which the Court served on the parties on July 11, 2016,

stated in pertinent part:

The parties are hereby notified that this case is set for trial at

the [San Francisco] Trial Session beginning at 10:00 AM on Monday,

December 12, 2016. The calendar for that Session will be called at

that date and time, and the parties are expected to be present and to be

prepared to try the case. Your failure to appear may result in

dismissal of the case and entry of decision against you. [Last

emphasis added.]

The notice reminding the parties that this case was calendared for trial at the

December 12, 2016 San Francisco trial session, which the Court served on the

parties on October 28, 2016, stated in pertinent part:

This case will remain on the Court's trial calendar unless both

parties sign an agreed decision and submit it to the Court, or unless

the Court otherwise notifies the parties that it is taking this case off

the trial calendar. If the case remains on the Court's trial calendar

and you fail to appear at the Trial Session, the case may be dismissed.

[Emphasis added.]

During the December 8, 2016 telephone conference between the parties and

Judge Chiechi, Ms. Patacsil informed her that petitioners would not accept the

- 32 [*32] proposed settlement to which petitioners' representative (i.e., Ms. Doughty)

and the Appeals officer (i.e., Mr. Session) had agreed. Judge Chiechi told

petitioners that, because Ms. Patacsil had indicated that petitioners would not

accept the proposed settlement, they would be required to appear for trial at 10

a.m. on December 12, 2016, at the December 12, 2016 San Francisco trial session.

Ms. Patacsil then stated that Judge Chiechi was biased. Before the conclusion of

the December 8, 2016 telephone conference, Judge Chiechi also informed the

parties that she intended to deny Ms. Patacsil's motion.

During the December 9, 2016 telephone call that Ms. Ortega had with Ms.

Patacsil, Ms. Ortega informed her that petitioners had the following options with

respect to their case that was calendared for trial at the December 12, 2016 San

Francisco trial session. One option that Ms. Ortega discussed with Ms. Patacsil

during the December 9, 2016 telephone call was that if petitioners had changed

their minds about not agreeing with the proposed settlement and had concluded

that they agreed with the proposed decision reflecting that proposed settlement

that Ms. Ortega had sent by fax to them, they could sign it. If petitioners agreed

with and signed the proposed decision, there would be no need for a trial in their

case and therefore they would not be required to appear at 10 a.m. on December

12, 2016, at the December 12, 2016 San Francisco trial session. Another option

- 33 [*33] that Ms. Ortega discussed with Ms. Patacsil during the December 9, 2016

telephone call was that if petitioners did not agree with the proposed decision, they

did not have to sign it. Ms. Ortega told Ms. Patacsil that if petitioners did not

agree with and did not sign the proposed decision, a trial would be needed in their

case and therefore they would be required to appear at 10 a.m. on December 12,

2016, at the December 12, 2016 San Francisco trial session. Ms. Ortega cautioned

Ms. Pataesil during the December 9, 2016 telephone call that if petitioners did not

agree with and did not sign the proposed decision and did not appear at 10 a.m. on

December 12, 2016, at the December 12, 2016 San Francisco trial session, Ms.

Ortega would move to dismiss this case for lack of prosecution.

We have found that when Ms. Ortega and Ms. Pataesil were meeting a

second time late in the afternoon on December 9, 2016, in the lobby of Ms.

Ortega's office building Ms. Ortega cautioned her that Judge Chiechi would

probably not accept the unagreed proposed decision signed by Ms. Ortega. Ms.

Ortega then asked Ms. Pataesil whether she would appear on December 12, 2016,

at the December 12, 2016 San Francisco trial session. Ms. Patacsil responded that

she would not and gave no reason to Ms. Ortega as to why she would not appear

other than to tell her that petitioners had signed the unagreed proposed decision,

even though she knew that they had qualified their respective signatures because

- 34 [*34] they did not agree with the proposed decision by writing the words "under

the duress" immediately thereunder."

"The following exchange, inter alia, took place at the second meeting on

December 9, 2016, between Ms. Ortega and Ms. Pataesil:

MS. ORTEGA: Um, because you guys wrote extra language --

MS. PATACSIL: Uh huh.

MS. ORTEGA: -- on there though, the judge probably isn't going to

accept it.

MS. PATACSIL: Well, he can, uh, he, he, he can, she can do

whatever she wants

MS. ORTEGA: Okay, so, um, are you, you're not going to be there.

Are you going to be there on Monday?

MS. PATACSIL: Oh, uh, no I'm not. I'm not.

MS. ORTEGA: Okay, okay.

MS. PATACSIL: No, you know what though, because I signed this, you

know what though, that's sufficient and what --

MS. ORTEGA: Got you.

MS. PATACSIL: You know and I, like I said, you know what

though, we are under duress, you know what though, there is no time

for review --

MS. ORTEGA: Okay.

- 35 [*35] We have found that Ms. Patacsil did not appear to Ms. Ortega to be

concerned that Judge Chiechi would probably not accept the unagreed proposed

decision signed by Ms. Ortega. Moreover, as she indicated in her response to a

question that Judge Chiechi asked her at the May 9, 2017 evidentiary hearing, Ms.

Pataesil was willing to "take her chances" with the consequences of not appearing

on December 12, 2016, at the December 12, 2016 San Francisco trial session if, as

Ms. Ortega informed her, Judge Chiechi would probably not accept the unagreed

proposed decision signed by Ms. Ortega. The transcript of the exchange between

Judge Chiechi and Ms. Patacsil at the May 9, 2017 evidentiary hearing during

which Judge Chiechi asked that question states:

JUDGE CHIECHI: What's the duress? I still don't understand the -MS. PATACSIL: The duress means -JUDGE CHIECHI: The duress was you'd have to go to Court?

MS. PATACSIL: No.

JUDGE CHIECHI: What was the duress then?

MS. PATACSIL: Because, you know what, we were put under

pressure -JUDGE CHIECHI: You had two choices, you either sign it with no

phrase ["under the duress"], and you don't go to Court, which is what

I told you on December 8, or you don't -- or you don't sign it, and

- 36 [*36] then as I told you, you don't agree, which is fine, your right, and then

you're required to go to Court.

MS. PATACSIL: I was under pressure, Your Honor.

JUDGE CHIECHI: So you had a choice.

MS. PATACSIL: I was under pressure, Your Honor. Because there

-- they faxed the documents on a Friday afternoon, and I -- they need

it by 5:00. I mean, where you do put -- you know what, this is big

thing. You know, it's a million dollar -- you know, taxes, and it's

all -JUDGE CHIECHI: Well, you could have come to the Court on

Monday to explain all that.

MS. PATACSIL: Well, you know what though, like I said, Your

Honor -JUDGE CHIECHI: But you told -- according to Ms. Ortega, you told

her you weren't going to go when she asked you. You said you

weren't going to go to Court.

MS. PATACSIL: I was not going -- because, you know what though,

I already signed the document, so of course, that's why -JUDGE CHIECHI: But you signed it with the phrase and she told

[you] that the Court -- the Judge might not accept it. Right?

MS. PATACSIL: Yeah.

JUDGE CHIECHI: So you were going to take your chances?

MS. PATACSIL: Yes, I do.

- 37 [*37] In response to a direct question by Judge Chiechi to Ms. Pataesil at the May

9, 2017 evidentiary hearing, Ms. Patacsil gave a different reason as to why

petitioners did not appear on December 12, 2016, at the December 12, 2016 San

Francisco trial session from the reason than she gave to Judge Chiechi at that same

evidentiary hearing (quoted above) and that she gave to Ms. Ortega when they met

in the building lobby a second time on December 9, 2016 (quoted in second

video/audio recording that petitioners' daughter made of that second meeting). At

the May 9, 2017 evidentiary hearing, Judge Chiechi asked Ms. Patacsil why she

did not appear on December 12, 2016, at the December 12, 2016 San Francisco

trial session. Ms. Pataesil responded:

MS. PATACSIL: Because Ms. Ortega told me that it's hard to deal

with you, that's the reason -- one of the reason why that I did -- I was

so emotional that day, that -- this is the -- just that it's hard to deal

with. So it's just like a threat to me, that I don't have no choice. A

powerful -- IRS and a powerful Judge, Your Honor. So what do you

put -- you know, the taxpayers?

This case was called from the calendar on December 12, 2016, at the

December 12, 2016 San Francisco trial session. There was no appearance by or on

behalf of petitioners. Counsel for respondent appeared and informed Judge

Chiechi that petitioners had signed the proposed decision that she had sent them

but had qualified their respective signatures by writing the words "under the

- 38 [*38] duress" immediately thereunder. Judge Chiechi refused to accept the

unagreed proposed decision signed by Ms. Ortega. Respondent's counsel then

made an oral motion to dismiss this case for lack of prosecution.

On the record before us, we find that Ms. Patacsil was totally dismissive of

and had total disregard for the Court's two notices served on the parties on July 11

and October 28, 2016, informing petitioners that if their case had not settled before

the commencement of the December 12, 2016 San Francisco trial session, they

were required to appear at that session at 10 a.m. on December 12, 2016. On that

record, we further find that Ms. Patacsil was totally dismissive of and had total

disregard for Judge Chiechi's informing petitioners during the December 8, 2016

telephone conference with the parties that, because Ms. Pataesil had indicated that

petitioners would not accept the proposed settlement, they would be required to

appear for trial at 10 a.m. on December 12, 2016, at the December 12, 2016 San

Francisco trial session. On the record before us, we also find that Ms. Pataesil was

totally dismissive of and had total disregard for Ms. Ortega's telling her during the

December 9, 2016 telephone call with her that if petitioners did not agree with and

did not sign the proposed decision, a trial would be needed in their case and

therefore they would be required to appear at 10 a.m. on December 12, 2016, at

the December 12, 2016 San Francisco trial session. On that record, we further find

- 39 [*39] that Ms. Patacsil was totally dismissive of and had total disregard for Ms.

Ortega's cautioning her during the December 9, 2016 telephone call that if

petitioners did not agree with and did not sign the proposed decision and did not

appear at 10 a.m. on December 12, 2016, at the December 12, 2016 San Francisco

trial session, Ms. Ortega would move to dismiss this case for lack of prosecution at

that December 12, 2016 San Francisco trial session. On the record before us, we

also find that Ms. Patacsil was totally dismissive of and had total disregard for Ms.

Ortega's cautioning her when they met a second time on December 9, 2016, that

Judge Chiechi would probably not accept the unagreed proposed decision signed

by Ms. Ortega, as evidenced by Ms. Pataesil's informing Ms. Ortega that she

nonetheless would not appear on December 12, 2016, at the December 12, 2016

San Francisco trial session.

Based upon our examination of the entire record before us, we find that

petitioners had no sufficient or justifiable reason for failing to appear for trial at 10

a.m. on December 12, 2016, at the December 12, 2016 San Francisco trial session.

On that record, we shall grant respondent's motion.¹²

¹²Respondent's motion seeks a decision in this case that reflects the

proposed settlement to which Ms. Doughty and Mr. Session had agreed during the

Appeals Office's consideration of petitioners' case. We note that respondent

determined in the 2010-2012 notice issued to petitioners for their taxable years

(continued...)

- 40 [*40] To reflect the foregoing,

An order granting respondent's

motion and an appropriate decision

will be entered.

¹²(...continued)

2010 through 2012 that, inter alia, they have unreported gross receipts/sales,

Schedule E rents, gambling winnings, and cancellation of indebtedness income.

Although respondent bears the initial burden of laying some evidentiary foundation connecting a taxpayer with income-producing activity, see Weimerskirch v.

Commissioner, 596 F.2d 358, 361-362 (9th Cir. 1979), rev'g 67 T.C. 672 (1977),

except for the unreported gambling winnings, petitioners alleged no error in the

petition with respect to any of the other unreported income determinations that

respondent made in the 2010-2012 notice. Consequently, they are deemed to have

conceded those other unreported income issues. See Rule 34(b)(4). With respect

to the alleged unreported gambling winnings, the proposed settlement that

petitioners did not accept included a concession by the Appeals officer with

respect to those alleged winnings, and that concession is reflected in the decision

that respondent seeks if we were to grant, as we have held we will, respondent's

motion. Respondent also determined in the 2010-2012 notice, inter alia, that

petitioners are liable for each of petitioners' taxable years 2010, 2011, and 2012

for the accuracy-related penalty under sec. 6662(a). Petitioners alleged no error in

the petition with respect to those determinations. Consequently, respondent has

no obligation under sec. 7491(c) to produce evidence with respect to the sec.

6662(a) determinations in the 2010-2012 notice. See Funk v. Commissioner, 123

T.C. 213, 21 8 (2004).