T. C. Memo. 1995-209

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T. C. Memo. 1995-209

UNITED STATES TAX COURT

SHELDON AND ANITA DROBNY, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16985-83.

Filed May 17, 1995.

Harvey M. Silets and Jaye Quadrozzi, for petitioners.

Matthew J. Fritz and James W. Ruger, for respondent.

MEMORANDUM OPINION

COHEN, Judge:

Petitioners seek to vacate the decision

entered June 26, 1986, pursuant to the Opinion of the Court in

Drobny v. Commissioner, 86 T.C. 1326 (1986).

Petitioners contend

that the decision was procured by fraud on the Court engaged in

by respondent's counsel and agents.

SERVED

MAY 17 1995

- 2 Background

The factual background of this case is found in the Opinion

of the Court at 86 T.C. at 1328-1339.

Only facts material to the

pending motion are repeated here.

Petitioner Sheldon Drobny (petitioner) was an Internal

Revenue Service (IRS) agent from 1967 through 1971 and began

private practice as a certified public accountant in 1971.

During the 1970's, petitioner began to promote tax shelters.

Some of the shelters were promoted in association with Marvin

Kamensky (Kamensky), who was known in Chicago, Illinois, as an

attorney with experience in the formation of resea ch and

development tax shelters.

During 1979 and early 1 80, Marc Z.

Samotny (Samotny), an associate of Kamensky, prepa ed documents

involved in the transactions that were a part of the tax shelter

programs.

In November 1979, petitioner was informed by Kamensky of two

tax shelter programs based on a substance known as aloe vera.

Kamensky and Samotny persuaded petitioner to solicit investors

from among his clients and associates.

Petitioner and his firm

were identified in the offering materials as promo ers of the

program and as members of an accounting firm that

pecialized in

financial and tax consultation.

Petitioners purchased an interest in each of the two

research and development programs and deducted certain amounts on

their 1979 joint Federal income tax return as thei

losses resulting from the programs.

share of

On April 15, 1983,

respondent sent to petitioners a statutory notice disallowing the

deductions and asserting that petitioner was liable for the

addition to tax for fraud.

During the hearing on petitioners' presently pending motion,

other facts concerning the audit and investigation of the two

programs in issue and petitioner's involvement in them were

developed.

In 1981 or 1982, revenue agent Noreen Rosen (Rosen)

was assigned to conduct an audit of the programs.

Another

revenue agent, Irving Feinglass (Feinglass), was a member of the

same management group but was not assigned to audit petitioners'

return.

On December 16, 1982, Rosen and Feinglass met with

petitioner at petitioner's office.

At that meeting, Rosen showed

petitioner her report da·ted November 23, 1982, in which she

proposed disallowing the claimed losses of the'investors in the

programs.

Feinglass made an offer to petitioner to allow as a

deduction the amount of cash paid by each participant for his or

her interest in the program, with no penalties to be asserted

against anyone.

Petitioner did not immediately accept the offer,

indicating that he would contact the investors.

On January 12, 1983, Rosen forwarded to the Criminal

Investigation Division a criminal fraud referral report regarding

petitioner.

No criminal investigation field work was performed

on the criminal fraud report referral, however.

Petitioner was

also recommended as a target in a grand jury request that

identified several Chicago area individuals involved in abusive

tax shelters, but he was not approved as a target.

- 4 The development of the programs in issue here paralleled

similar programs throughout the United States durihg the same

period, resulting in a tremendous increase in the caseload of the

IRS and this Court.

From 1974 to 1984, the number of cases

docketed in the Court more than quadrupled.

Many of the new

cases originated in the Chicago, Illinois, area.

Sometime during 1983, Harmon Dow (Dow), who was then

assistant district counsel in Chicago, telephoned

Judge Charles R. Simpson, a judge of the Court with whom Dow was

acquainted.

Dow told Judge Simpson that the Chicago office had a

tremendous influx of cases that, in Dow's opinion, pould not be

handled by the ordinary processes of the Tax Court.1 Dow

suggested that the Tax Court should look into a different method

of dealing with these cases.

Judge Simpson asked Dow to send to

him a computerized list of the cases, which Dow did.

Approximately 2,500 cases were ultimately identified and assigned

to Judge Simpson in this manner.

petitioners' case.

Among the cases on the list was

In 15 cases other than the within case

involving the aloe vera programs, taxpayers were represented by

Randall S. Goulding (Goulding) as counsel of record.

Lauren Gore

(Gore) was the attorney for respondent initially assigned to

handle the cases.

On December 21, 1983, Judge Simpson ordered that 15 cases,

inclùding the within case and 14 cases in which Goulding was

counsel of record, be among many groups set for hear ng in

Chicago, Illinois, on January 16, 1984.

Accompanying the notice

of hearing was a memorandum from Judge Simpson stating the

following:

TO THE PARTIES IN CASES ON THE CALENDAR FOR THE

. SPECIAL REPORT SESSION OF THE COURT ON

JANUARY 16, 1984, IN CHICAGO, ILLINOIS

I have been requested and directed by the Chief

Judge of the Tax Court to take charge and manage the

cases to be tried in the Chicago area, particularly

those involving alleged tax shelters. Let me explain

my objectives for this Special Report Session of the

Court:

Many cases that appear to be tax shelters have

been set for report at this session. Some of these

cases will have to be tried; others can be settled on

the basis of the decisions in the tried cases. At this

Special Report Session, I propose to select the cases

to be tried and to develop the plans and procedures for

bringing those cases to trial at the earliest possible

time.

I will set a Spring Session of the Court for the

trial of these cases to commence on April 30, 1984, in

Chicago.

At this Special Report Session, I will expect the

parties to assist me in identifying the cases that

involve similar facts and legal questions and to assist

in selecting the most appropriate cases to be tried.

The procedures described in Judge Simpson's memorandum became

known to respondent's counsel and to the Court as the "Chicago

experiment".

The group of aloe vera cases was called for hearing on

January 16, 1984.

Petitioners were represented by Steven B.

Nagler (Nagler), and respondent was represented by Dow and

William C. Sabin, Jr.

(Sabin).

Nagler stated that he was there

also for the other taxpayers in the group of cases at the request

of Goulding.

Judge Simpson began by asking for an explanation of

the related cases.

Counsel responded as follows:

MR. SABIN: This involves a research and ,

development promotion in to [sic] two differedt

products. All sixteen participants invested in both-. or I should say, participated in both schemes,' and

therefore--and the transactions involved are similar if

not identical and therefore, the government has put

them both together. One of the investors, Mr.--and one

of the participants, Mr. Drobny, appears to have been

the promoter and as a result the government has

assessed a fraud penalty against him. The government's

position is that any one of these individuals should be

tried and that the rest of the cases will follow the

issues determined in that trial.

THE COURT: Well, if Drobny involves fraud and the

other doesn't, do we try Drobny or-MR. NAGLER:

Well,--

THE COURT:

Pardon me?

MR. NAGLER: Your Honor, we would like to try

Drobny and one other.

THE COURT:

I see.

MR. SABIN:

The government has no objecticn to

THE COURT: All right. Drobny and one other

investor. Is that what you are saying?

MR. NAGLER:

That is correct.

MR. SABIN: At this time, since Mr. Gouldigg

represents all of the other investors that are not

present, it is probably impossible to settle which of

the other investors should be tried in.addition to

Drobny.

MR. NAGLER: Well, but sometime during this week,

he will be available, so we will just get toget6er with

Mr. Sabin and pick one out and inform-THE COURT:

And you will let me know then?

MR. NAGLER:

Right.

- 7 THE COURT:

All right.

MR. NAGLER: I don't know if there is a clean one

[single issue], "clean one" in the group, do you?

MR. SABIN:

Honor.

MR. NAGLER:

There are several clean ones, Your

Then one of those will be acceptable.

THE COURT: All right. So then we will try two ,

cases here--two individual cases involving this

shelter.

MR. NAGLER:

Now, Your Honor, with regard to the

April 30th date, Drobny is a new case. I believe the

time for even completing pleadings hasn't run yet, has

it?

THE COURT:

Oh, is that right?

MR. NAGLER:

Yesterday?

MR. DOW: No, we have--the pleadings are

completed. The reply has been received.

MR. SABIN: Drobny is the case that has the civil

fraud penalty on it, Your Honor.

THE COURT:

Yes.

MR. NAGLER: So I don't see any reason why it can

not be tried, it is just that [there] has been no

discovery undertaken at this point in time.

MR. SABIN: However, informal discovery has

commenced and we have arranged meetings with.Mr. Nagler

as well as with Mr. Goulding next week, and we are

fully confident that informal discovery should yield

most of the information we need.

THE COURT: Here you are going to have the burden

of proof in Drobny-MR. SABIN:

In the fraud.

THE COURT:

--at least as to the fraud, aren't

MR. SABIN:

Yes, Your Honor.

you?

- 8 THE COURT: And are you telling me you t.3ink the

case can be tried by--prepared for trial by the April

date?

MR. SABIN:

Yes, indeed, Your Honor.

THE COURT:

And I gather, Mr. Nagler, you are not

vigorously disagreeing?

MR. NAGLER:

Not at all, Your Honor.

By Order dated January 24, 1984, the within case was set for

trial on April 30, 1984.

The case of Lifshitz v. Commissioner,

docket No. 17602-83, in which Goulding represented

he taxpayers,

was thereafter selected as the other test case.

On April 30, 1984, when the case was called, respondent

disclosed to Judge Simpson in open court the pendenhy of the

criminal investigation of petitioner.

A joint oral motion for

continuance was made by the parties, and the cases were. continued

to June 25, 1984.

In May 1984, district counsel and the district

director recommended and decided that the criminal investigation

of petitioner would be discontinued.

On May 21, 19 4, Dow wrote

a letter to Nagler, advising Nagler that the crimina11

investigation had been closed.

Samotny was identified prior to April 30, 1984, as a witness

to be called by petitioner and by respondent.

He was present in

court when the announcement concerning the criminal investigation

of petitioner was made .

At the request of Samotny's counsel, on

May 14, 1984, district counsel wrote a letter confirming a prior

oral conversation with Sabin that Samotny was not a

arget of any

investigation but was merely a witness to the transactions at

issue in this case.

Samotny ultimately testified at trial.

Petitioners also considered calling as witnesses Kamensky

and Benjamin Rosenberg (Rosenberg), one of the other investors.

In Petitioners' Trial Memorandum filed June 27, 1984, however,

neither Kamensky nor Rosenberg was listed as a witness.

trial commenced on June 27, 1984.

The

On June 28, 1984, Sabin had a

telephone conversation with Kamensky, who had been subpoenaed by

respondent.

As a result of the conversation, Kamensky consulted

counsel.. Counsel informed him that he should invoke the Fifth

Amendment privilege and not testify.

Kamensky was called as a

witness by respondent on June 29, 1984.

On the advice of

counsel, he declined to answer any questions concerning the aloe

vera research and development programs.

The Court inquired into

Kamensky's basis for asserting the claim under the circumstances,

and the following occurred:

THE WITNESS: Well, there--there are numerous

ones, but two of them are, I was informed yesterday

evening by Counsel for Respondent that information that

I had was in conflict of information that he had which

could, possibly, lead to a perjury indictment and,

secondly, because of the fact that we have a number of

matters before the Tax Court, and speaking to any

number of people, including my Counsel, I have been

informed that "Regional Counsel is out to get me."; and

Your Honor, the--the fact that they are placing me on

the stand for this basis, I think, is indicative of

that fact.

THE COURT: Do you have any comment, Mr. Sabin,

you would like to make with the result of that

statement?

MR. SABIN: For the record, I would like to state

that I never referred to any perjury claim or suspicion

- 10 in my conversation with Mr. Kamensky last night. It is

true that the Government's position is that he knows

something about the programs at issue in this trial.

We believe he has material information about these

programs. That much is clear from the record that has

already been established and, indeed, the facts that

have been stipulated by the Petitioners and the

Government.

Furthermore, the Government's position is that

this whole program was fraudulent, and I am forced to

concur with Mr. Kamensky's position that he may be in

some risk. Beyond that, I have no further comment.

MR. SABIN: No, there is one other comment.

to the best of our knowledge--well, I would say,

He--

categorically, that he is not under any criminal

investigation at this time or does one appear imminent,

and this is the result of a telephone conversation with

the Deputy Director, Harold Cook, as of yesterday

afternoon. He is a Deputy Regional Counsel for

criminal tax.

After argument by Kamensky's counsel and Dow, the Court sustained

Kamensky's claim and excused him from further testimony.

Rosenberg was not listed as a witness by any party prior to

trial.

Rosenberg was an accountant as well as an investor in the

aloe vera programs.

his clients.

He had recommended the investment to some of

Goulding had filed a petition on behalf of

Rosenberg with respect to Rosenberg's investment in the aloe vera

programs.

Rosenberg's personal return was audited by Feinglass.

Prior to trial of the within case, Feinglass came to Rosenberg's

office to discuss the possibility of a settlement by which he

would be allowed his "out-of-pocket" payments as a d duction.

When petitioner called Rosenberg and requested that he testify

during trial of the within case, Rosenberg had already decided

- 11 not to testify.

Rosenberg told petitioner that he did not wish

to testify against the.IRS because he feared repercussions.

In the Opinion filed June 26, 1986, 86 T.C. 1326, the Court

sustained respondent's determination, including the additions to

tax for fraud against petitioners.

The Opinion, authored by

Judge Simpson, discussed petitioner's background, his claimed

reliance on Kamensky, and the specific objective facts that:

clearly and convincingly indicates that Mr. Drobny knew

that some or all of the research and experimental

expenditures arising from the programs were not

deductible and that he intentionally reported losses

resulting from such claimed deductions on his 1979

income tax return, resulting in a fraudulent

underpayment of tax.

Petitioner did not file a timely notice of appeal from the

decision.

Pursuant to sections 7481(a)(1) and 7483, I.R.C., the

decision became final on September 24, 1986.

In July 1993, Feinglass told petitioner that the criminal

investigation referral would not have been made if petitioner had

agreed to the deficiency in his own case and that Feinglass'

second objective for the referral was to determine petitioner's

involvement with Goulding.

Thereafter, petitioner decided to

bring the pending motion, which was filed February 18, 1994.

Discussion

The context of this case requires awareness of the

circumstances created by the large number of tax shelter cases

arising during the late 1970's and early 1980's as a result of

- 12 tax shelter programs such as those promoted by petìtioner.

The

large number of cases led to specialized response by the IRS, by

the Court, and by Congress.

The trends were summarized in

H. Rept. 98-861, at 985-986 (1984), 1984-3 C.B. (Vol. 2) 239-240,

as follows:

The conferees note that a number of the provisions

of recent legislation have been designed, in whole or

in part, to deal with the Tax Court backlog. Examples

of these provisions are the increased damages

assessable for instituting or maintaining Tax Court

proceedings primarily for delay or that are frivolous

or groundless (sec. 6673), the adjustment of interest

rates (sec. 6621), the valuation overstatement and

substantial understatement penalties (secs. 6659 and

6661), and the tax straddle rules (secs. 1092 and

1256). Additionally, the conference agreement did not

follow the provision of the House bill permitting

certified public accountants and enrolled agents to

represent a taxpayer in a small tax case because the

Tax Court stated that permitting this would jeopardize

the integrity of the small tax case process, which is

working well.

The conferees believe that, with this amendment,

the Congress has given the Tax Court sufficient tools

to manage its docket, and that the responsibility for

effectively managing that docket and reducing the

backlog now lies with the Tax Court. The positive

response that the Court has made to several recent GAO

recommendations is encouraging and the conferees expect

the Court to implement swiftly these and other

appropriate management initiatives. The conferees also

note favorably the steps the Court has begun to take in

consolidating similar tax shelter cases and dispensing

with lengthy opinions in routine tax protestor cases.

The Court should take further action in these tWo

areas, as well as to assert, without hesitancy in

appropriate instances, the penalties that the Congress

has provided.

The Internal Revenue Service also has significant

responsibilities in reducing the Tax Court backlpg.

The Service's settlement policy should be fair and

flexible, and only appropriate cases should be

litigated. Although in the recent past the Service has

offered to settle many tax shelter cases by permitting

- 13 taxpayers to deduct out of pocket expenses, the Service

no longer routinely offers this as a settlement. This

is a constructive change in policy, in that a taxpayer

should not expect to be able to deduct out of pocket

expenses regardless of the circumstances of his case.

The Service should assert, without hesitancy in

appropriate circumstances, the penalties that the

Congress has provided. In particular, the negligence

and fraud penalties are not currently being applied in

a large number of cases where their application is

fully justified. The conferees note with approval the

steps the Service has recently taken to eliminate the

backlog in the Appeals Division.

•

The Tax Court Reports, including specifically the volume in which

the Court's 1986 Opinion in this case appears, reflect the large

number of Tax Court cases tried and submitted to the Court during

that era.

Reported cases also reflect Goulding's continuing troubles

with the U.S. Government and his attempts to blame many of his

problems on Feinglass.

See Goulding v. United States, 957 F.2d

1420 (7th Cir. 1992); Goulding v. Feinglass, 811 F..2d 1099 (7th

Cir. 1987); Goulding v. Commissioner, T.C. Memo. 1988-212, affd.

without published opinion 928 F.2d 1135 (7th Cir. 1991).

Petitioner also has had continuing controversy with the IRS.

See

Adler & Drobny, Ltd. v. United States, 9 F.3d 627 (7th Cir.

1993).

The crux of petitioners' present complaint is stated in

their brief as follows:

Throughout the course of their preparation for the

trial of Drobny v. Commissioner, Respondent's attorneys

and agents engaged in a knowing and deliberate plan to

prevent Petitioners from fully and fairly defending

themselves at trial. In furtherance of their plan,

Respondent's attorneys and agents (1) manipulated

facts, circumstances and people--to the end of

intimidating the Petitioners' critical witness into not

- 14 testifying; (2) intimidated yet another potential

witness on behalf of Petitioners into not testifying;

and (3) violated audit and investigation procedures in

an effort to force Petitioners to settle, and when that

failed, manipulated facts and circumstances to cause an

unfounded--and ultimately entirely dormant--criminal

investigation of Mr. Drobny to be commenced.

Petitioners contend that the conduct complained of constituted a

fraud on the Court and that the decision, otherwise final, should

be vacated in accordance with Toscano v. Commissioner, 441 F.2d

930 (9th Cir. 1971), revd. and remanded 52 T.C. 295 (1969); and

Kenner v. Commissioner, 387 F.2d 689 (7th Cir. 1968), in which a

taxpayer sought to vacate 318 F.2d 632 (7th Cir. 1963), affg.

T.C. Memo. 1961-37.

Because of the passage of time, each of the witnesses at the

hearing in November 1994, other than petitioner, indicated some

lack of recollection of the sequence of events and specific

conversations that petitioner alleged to have occurred.

Feinglass denied statements that had been attributed to him by

IRS personnel investigating complaints brought against him by

Goulding.

Petitioners caused a writ of habeas corpus to be

issued by the Court to secure the appearance of Goulding, who was

imprisoned as a result of his criminal conviction; after he

appeared, petitioners decided not to call Goulding as a witness.

Rosenberg did not recall specific statements attributed to him by

petitioner.

Neither Nagler nor respondent's attorneys involved

in the case recalled specific sequences of events,

notwithstanding the written record available to all of them.

- 15 -

Some of the events that petitioner now suggests were unfair

to him, such as expedited trial of his case, were specifically

suggested or agreed to by Nagler, as appears from the transcript

quoted above.

Although petitioner suggests that the initial

contact between Dow and Judge Simpson was somehow designed to

prejudice his rights, there is no indication that Judge Simpson

had any information about this specific case prior to the hearing

in January 1984, when the parties explained the circumstances to

him.

Petitioners have neither shown nor cited any specific

examples of false statements, willful concealment, or other

misrepresentations by respondent's counsel or other agents.

Although they refer to a plan or conspiracy, they have not cited

any violations of law or ethical restrictions by respondent's

counsel.

They have not even alluded to the pertinent Model Rules

of Professional Conduct (1994).

For example, Rule 3.4 provides:

A lawyer shall not:

(a) unlawfully obstruct another party's access to

evidence or unlawfully alter, destroy or conceal a

document or other material having potential evidentiary

value. A lawyer shall not counsel or assist another

person to do any such act;

(b) falsify evidence, counsel or assist a witness

to testify falsely, or offer an inducement to a witness

that is prohibited by law;

rules of a tribunal except for an open refusal based on

an assertion that no valid obligation exists;

(d) in pretrial procedure, make a frivolous

discovery request or fail to make reasonably diligent

- 16 effort to comply with a legally proper discovery

request by an opposing party;

(e) in trial, allude to any matter that the lawyer

does not reasonably believe is relevant or that will

not be supported by admissible evidence, assert

personal knowledge of facts in issue except when

testifying as a witness, or state a personal opinion as

to the justness of a cause, the credibility of a

witness, the culpability of a civil litigant or the

guilt or innocence of an accused; or

(f) request a person other than a client to

refrain from voluntarily giving relevant information to

another party unless:

(1) the person is a relative or an employee

or other agent of a client; and

(2) the lawyer reasonably believes that the

person's interests will not be adversely affected

by refraining from giving such information.

Rule 4.2. provides:

In representing a client, a lawyer shall not

communicate about the subject of the representation

with a party the lawyer knows to be represented by

another lawyer in the matter, unless the lawyer has the

consent of the other lawyer or is authorized by;law to

do so.

We have considered the evidence with regard to those rules, which

are applicable to counsel appearing in cases before us.

See Rule

201(a), Tax Court Rules of Practice and Procedure.

Petitioners specifically complain that they werd "prevented

from offering the testimony of two critical witnesses"--Kamensky

and Rosenberg.

Neither had been identified as a witdess in

Petitioners' Trial Memorandum.

Both witnesses were dell known to

petitioners and their counsel prior to trial.

At the hearing on

- 17 -

the pending motion, Rosenberg testified that, before he was

contacted by petitioner about testifying in this case, he decided

that he did not wish to testify against the IRS.

He did not

recall telling petitioner that he declined to testify because of

implied threats by Feinglass.

Petitioners contend that Feinglass

offered a settlement to Rosenberg if he would testify that the

investments were a sham.

Rosenberg testified at the hearing on

the pending motion that he refused to do that on two separate

occasions., If Rosenberg had testified at the trial in 1984 that

the investments were a sham, petitioners would have a stronger

claim now, but he did not testify at that trial at all.

Rosenberg's current testimony does not'support petitioners'

contentions.

Petitioners allege a pattern in which respondent's counsel

offered to settle with Goulding's clients in various tax shelter

cases only if those clients would fire Goulding.

They contend

that Sabin and Gore directed Feinglass to make such an offer to

Rosenberg.

regard.

Feinglass has made inconsistent statements in that

To support their allegations, petitioners offered

evidence that a similar tactic was employed by Gore in relation

•

to an unrelated group of cases involving Goulding.

Respondent

contends, and the Court agrees, that evidence of the other and

later context is not admissible under Rule 404 of the Federal

Rules of Evidence.

Assuming, however, that respondent's counsel

attempted to deal with Goulding's clients in violation of

Rule 4.2, Model Rules of Professional Conduct, such conduct was

- 18 not directed at petitioner's right to a fair trial.

Even if the

proffered evidence were considered, therefore, it would not

persuade us that such conduct constituted a fraud on the Court in

this case.

Petitioners contend that "The circumstances surrounding the

criminal fraud referral of Mr. Drobny were inexcusable."

They

imply a violation of the Internal Revenue Manual.

Again, they

have not shown any false statements or concealment

elating to

the fraud referral.

At most, respondent's agents were taking

inconsistent actions, none of which was patently unreasonable in

view of the circumstances of the case.

We cannot infer a

fraudulent plan or conspiracy from these facts.

Many of the matters that petitioners complain of occurred in

open court.

They complain, for example, that pendency of the

criminal investigation of petitioner was announced in open court

in front of Samotny, prior to Samotny's testimony.

Petitioners

have not indicated how, if at all, Samotny ' s testimdny was

affected by truthful statements made in open court

presence.

n his

They contend that Kamensky should have be n given the

"same assurances" that had been given to Samotny.

ither the

failure to give assurances to Kamensky nor his asser ion of his

privilege against self-incrimination is extraordinary or

unreasonable in these circumstances.

Petitioner asserts as a fact that, in April 1984, Nagler

served a subpoena on Kamensky and that petitioners ' primary

defense to the civil fraud claim was reliance upon Kamensky.

They claim now that Kamensky was a crucial witness.

Yet they did

not list Kamensky in their trial memorandum because they intended

to call Kamensky only in rebuttal to respondent's evidence on the

civil fraud penalty.

During the hearing in June 1984, Kamensky's

counsel complained that respondent had wrongfully caused Kamensky

to come to Court and assert his Fifth Amendment privilege.

Kamensky gave his view of his conversation with Sabin, and Sabin

gave his view.

Neither the communications nor the basis for the

assertion of the privilege were concealed from nor misrepresented'

to petitioners or to the Court.

In Kenner v. Commissioner, 387 F.2d at 691

(7th Cir. 1968),

the Court of Appeals for the Seventh Circuit stated: .

there is a heavy burden both of particularized pleading

and of proof upon the one who seeks to impeach an order

or decree of a court.

"There must be an offer to prove

specific facts which will pretty plainly impugn the

official record".

[United States ex rel. Accardi v.

Shaughnessy, 206 F.2d 897, 904 (2d Cir. 1953).] It "is

necessary to show an unconscionable plan or scheme

which is designed to improperly influence the court in

its decision".

[England v. Doyle, 281 F.2d 304, 309

(9th Cir. 1953).]

"'Fraud upon the court' should, we believe,

embrace only that species of fraud which does, or

attempts to, defile the court itself, or is a fraud

perpetrated by officers of the court so that the

judicial machinery cannot perform in the usual manner

its impartial task of adjudging cases that are

presented for adjudication".

[7 Moore's Federal

Practice, 2d ed. p. 512, par. 60.23.]

[Fn. refs.

omitted.]

Discussing the specific allegations in that case, the court

commented that "Even assuming, however, that the agents were

- 20 -

hostile or had an attitude of unfairness toward Dr. Kenner, the

petition [of Dr. Kenner] leaves us completely in the dark as to

how the agent fraudulently induced the court to decide against

Dr. Kenner."

Kenner v. Commissioner, 387 F.2d at 692.

Similarly

in this case, petitioners have not persuaded us that any of the

matters they complain of were intended to or did affect the

decision of the Court in this case.

In his Opinion in this case, Judge Simpson considered and

rejected petitioners' claim of reliance on others, specifically

Kamensky.

Petitioners' supposition that "Perhaps Kamensky would

have persuaded Judge Simpson that Petitioners' deduction was

legitimate or that a fraud penalty was not warranted, or both"

ignores the analysis in·the Court's Opinion.

Kamensky no doubt

would have attempted to justify his involvement in the tax

shelter promotions, but this testimony would have been cumulative

and subject to the same reasons for rejecting it that

Judge Simpson gave for rejecting petitioner's testimony.

Adding

the subjective opinions of other interested persons in the

litigation would have not changed the objective facts on which

the Opinion is based.

To the extent that petitioners believe that they were

unfairly denied "a cash out-of-pocket" settlement because of a

vendetta by Feinglass against Goulding, they would be seeking

something that this Court has consistently denied taxpayers.

See

Chao v. Commissioner, 92 T.C. 1141, 1144 (1989), and, cases cited

therein.

Petitioners have cited no case in which comparable

- 21 -

facts have resulted in a different decision.

Thus the decision

here was not obtained by the conduct complained of, whether or

not it was wrongful.

Petitioners argue that "In order to have a decision

overturned, it is not necessary that the court find that the

prior decision was obtained as a direct result of fraud on the

court nor that the court would have reached a different result

had the fraud not occurred."

Petitioners' argument cannot be

reconciled with the language of Kenner or similar cases.

The

seminal case of Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322

U.S. 238 (1944), involved specific fabrication by an attorney for

one of the parties, which was relied on in the decision of the

court.

See Wilkin v. Sunbeam Corp., 466 F.2d 714, 717 (10th Cir.

1972).

Other courts have referred to "an unconscionable plan or

scheme which is designed to improperly influence the court in its

decision."

England v. Doyle, 281 F.2d 304, 309 (9th Cir. 1960)

(quoting Kenner v. Commissioner, supra at 691).

implies direct causation.

This language