Petition for Writ of Certiorari — Estate of Ravetti v. Commissioner

mE Newey re ae

v FILED

941362 FEB 8 1995

No. 94-

OFFICE OF THE CLERK

Im the Supreme court

| OF THE

UNITED STATES

OCTOBER TERM 1994

ESTATE OF SILVIO RAVETTI

Petitioner,

Vs.

COMMISSIONER OF INTERNAL REVENUE

Respondent

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

19045 Portola Dr, Suite Fl

Salinas, CA 93908

Telephone: (408) 455 1420

Attorney for Petitioner

RICHARD H. FOSTER

QUESTIONS PRESENTED FOR REVIEW

I. DOES THE OTHER SPOUSE HAVE A RIGHT TO

JUDICIAL REVIEW OVER THE GRANTING OF

INNOCENT SPOUSE STATUS UNDER $6013(E) OCF

THE INTERNAL REVENUE CODE?

II. IS THE OTHER SPOUSE AN INDISPENSABLE

PARTY IN TAX COURT LITIGATION CONCERNING

§6013(E) OF THE INTERNAL REVENUE CODE?

III. IN ADJUDICATING FRANK LYON SHAM LOSS

DEDUCTIONS COULD MOTIVATION BE DETERMINED

AT THE PARTNERSHIP LEVEL BEFORE TEFRA?

IV. MUST THE INTERNAL REVENUE SERVICE

COME FORWARD WITH EVIDENCE OR A FINDING

IN THE STATUTORY NOTICE TO FIND THAT THE

GENERAL PARTNER HAS FRANK LYON SHAM

MOTIVATION?

V. ARE AGREEMENTS BETWEEN TAXPAYERS AND

THE INTERNAL REVENUE SERVICE GOVERNED BY

THE GENERAL CONTRACT LAW OF MISTAKE AND

CAPACITY TO CONTRACT ?

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ii

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW i

TABLE OF CONTENTS ii

TABLE OF AUTHORITIES iii

OPINIONS BELOW 1

JURISDICTION 2

STATUTORY PROVISIONS INVOLVED 2

STATEMENT OF THE CASE 5

REASONS FOR GRANTING THE WRIT 12

1. THE TAX COURT SHOULD HOLD THE OTHER

SPOUSE AN INDISPENSABLE PARTY IN

LITIGATION CONCERNING §6013(e) 13

2. THE LOWER COURTS HAVE MISAPPLIED FRANK

LYON IN ADJUDICATING ALLEGED SHAM LOSS

15

DEDUCTIONS

a) IMPUTING THE INTENT OF THE GENERAL

PARTNER TO THE TAXPAYER BEFORE TEFRA

IS IMPROPER 16

b) THE BURDEN IS ON IRS TO COME

FORWARD WITH EVIDENCE OR AT LEAST A

STATUTORY NOTICE FINDING THAT THE

GENERAL PARTNER HAD FRANK LYON

MOTIVATION 18

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iii

3. AGREEMENTS BETWEEN TAXPAYERS AND THE

INTERNAL REVENUE SERVICE SHOULD BE

GOVERNED BY GENERAL CONTRACT LAW

PRINCIPLES 20

CONCLUSION 21

APPENDIX

iv

TABLE OF AUTHORITIES

STATUTES PAGE i

26 USC 6013(e) 2,6,8,13 |

26 USC 6231(a) (3) 16

26 USC 7442 2

28 USC 1254 2

DECISIONS

Barney v Baltimore City

73 U. S. 280 (1867) 14

Comm. v Gretzinger 107 SCt 980 (1987) 19

Comm. v Gooch 64 SCt 184 12

Flora v U. S. 362 U.S. 145, 80 SCT

630, 4 L.ed 2d 625 (1960) 15

Flynn v U.S. (3d Cir) 786 F2d 586 i3

Frank Lyon Co v U.S. 435 U. S. 561,

98 SCt 1291 (1978) 7

Hawley v Comm TC Memo 1988-77 16

Independent Electrical v Comm. (9 Cir)

781 F2d 721 16

Laing v U.S 423 US 161, 46 LEd2d 416,

96 SCt 473

Scar v Comm. (9 Cir) 814 F2d 1363 19

Shields v Barrow 58 U. S. 130 (1855) 13

U.S. v Crooks (9 Cir) 884 F2d 1441 7

Federal Practice and Procedure

Wright et al 14

No. 94-

Im the Supreme court

OF THE

UNITED STATES

OCTOBER TERM 1994

ESTATE OF SILVIO RAVETTI

Petitioner,

Vs.

COMMISSIONER OF INTERNAL REVENUE

Respondent

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

OPINIONS BELOW

The opinion of the Court of Appeals

in #93-70852 was not published. It is

attached as Appendix A. In this docket

number the order of the Tax Court with

respect to the innocent spouse issue was

published as TCM 1989-45, it is attached

as Appendix B. The opinion on the merits

was published as TCM 1993-343, it is

2

attached as Appendix C.

The opinion of the Court of Appeals

in #93-70851 was not published, it is

attached as Appendix D. The order of the

Tax Court refusing to grant relief from

collection under Tax Court Rule 55 is

attached as Appendix E. The opinion of

the Tax Court on the merits was published

as TCM. 1993-418, It is attached as

Appendix F.

JURISDICTION

The decisions of the Court of

Appeals were entered on October 11, 1995.

Justice O'Connor as Circuit Justice

extended the time for filing this

petition until February 8, 1995. This

Courts jurisdiction in invoked under 28

uSC 1254.

Jurisdiction was conferred below by

26 USC 7442.

STATUTORY PROVISIONS INVOLVED

Section 6013(e) - INNOCENT SPOUSE STATUTE

(e) Spouse Relieved of Liability in

Certain Cases.-~~

(1) In general .~--Under regulations

prescribed by the Secretary if---

(A) a joint return has been made

under this section for a taxable year,

(B) on such return there is 4

substantial understatement of tax

attributable to grossly erroneous items

of one spouse,

(Cc) the other spouse establishes

that in signing the return he or she did

er te

aehidtadnidas eT .

3

not know, and had no reason to know, that

there was such substantial

understatement, and

(D) taking into account all the

facts and circumstances, it is

inequitable to hold the other spouse

liable for the deficiency in tax ‘for such

taxable year attributable to such

substantial understatement. .....

TRANSITIONAL RULE

Section 6013(e), INNOCENT SPOUSE STATUTE

26 Section 6013

1984 Act. Section 424(c) of Pub. L.

98-369, Div. A as amended by Pub. L. 100-

647, Section 6004, Nov. 10, 1988, 102

Stat. 3685, provided that :

(1) In general.---Except as provided

in paragraph (2), the amendments made by

subsections (a) and (b) [amending subsec.

(e) of this section and enacting section

66(b), (c), redesignating as section

66(d) former (66(b), and amending

headings of section 66 and 66(a) of this

title] shall apply to all taxable years

to which the Internal Revenue Code of

1954 applies. Corresponding provisions

shall be deemed to be included in the

Internal Revenue Code of 1939 and shall

apply to all taxable years to which such

Code applies.

"(2) Authority to disregard

community property laws.--- Subsection

(b) of section 66 of the Internal Revenue

Code of 1954, as added by subsection (b)

[section 66(b) of this title], shall

apply to the taxable years beginning

after December 31, 1984."

"(3) Transitional rule.---If---

4

"(A) a joint return under

section 6013 of the Internal Revenue Code

of 1954 [this section] was filed before

January 1, 1985,

"(B) on such return there is an

understatement (as defined in section

6661(b)(2)(A) of such Code {section

6661(b)(2)(A) of this title] which is

attributable to disallowed deductions

attributable to activities of one spouse,

“(C) the amount of such

disallowed deductions exceeds the taxable

income shown on such return,

"(D) without regard to any

determination before October 21, 1988,

the other spouse establishes that in

signing the return he or she did not

know, and had no reason to know, that

there was such an understatement, and

"(E) the marriage between such

spouses terminated and immediately after

such termination the net worth of the

other spouse was less than $10,000,

notwithstanding any law or rule of law

(including res judicata), the other

spouse shall be relieved of liability for

tax (including interest, penalties, and

other amounts) for such taxable year to

the extent such liability is attributable

to such understatement, and, to the

extent the liability so attributable has

been collected from such other spouse, it

shall be refunded or credited to such

other spouse. No credit or refund shall

be made under the preceding sentence

unless claim therefore has been submitted

to the Secretary of the Treasury or his

delegate before the date 1 year after the

date of the enactment of this paragraph

[No. 10, 1988], and no interest on such

5

credit or refund shall be allowed for any

period before such date of enactment."

STATEMENT OF THE CASE

This Petition relates to separate

appeals from the Tax Court on petitions

for redetermination covering different

taxable years for the same taxpayer. The

Court of Appeals ordered them calendared

together with the case of the same

taxpayer verses the United States. They

were assigned to the same panel of the

Court which declined to hear oral

argument and decided all cases the same

day, October 11, 1994. CA # 93-70852

concerns the tax years 1976,1977, and

1978. CA #93-70852 concerns the tax year

1982. The years 1979, 1980, and 1981 are

now before the Ninth Circuit on appeal

from two separate Tax Court decisions.

All of the tax years except 1982

involve the innocent spouse judicial

review issue which is before this Court

by separate petition in Estate of Ravetti

v United States.

The cases which are the subject of

this petition both concern the

substantive tax issues involved in this

litigation. They both have some of the

same questions presented for review.

Since they were at least partially

consolidated by the Court of Appeals, we

thought it appropriate to join them in

this petition.

As was indicated in the companion

petition before this Court, the Taxpayer

6

and his wife filed joint income tax

returns for the years 1976 - 1981. After

audits the Internal Revenue Service

issued joint deficiency notices for all

years. They were divorced in 1982, and

Mrs Ravetti received over a half million

dollars in the property settlement. They

filed separate petitions in the Tax

Court. No notice of the wife's petition

was given or required by the Tax Court

rules to be given to the Taxpayer by her

attorney.

Without notice to Petitioner,

although notice was requested, and

without an opportunity to be heard the

Internal Revenue Service stipulated for

the tax years 1976-1981, in three

separate dockets, that Mrs. Ravetti was

an innocent spouse under the provisions

of 6013(e) if the Code. The Tax Court

then issued a decision relieving her from

any liability for the tax deficiencies in

question. As we indicated in the District

Court petition, as a matter of law she

was not entitled to this status. Among

other things, her net worth exceeded

$10,000 and this disqualified her under

the Transitional Rules to the amended

innocent spouse statute.

We have raised the basic question of

procedural due process involved in these

proceedings in the companion case Estate

of Ravetti v United States, and we will

not cover the same ground here. In this

case we discuss the fundamental question

of whether in circumstances such as this

the other spouse is an indispensable

party to litigation relieving federal tax

liability under §6013(e) in the Tax

7

Court.

neither involved oral testimony, they had

different procedural histories. .

CA #70851 was decided on summary

judgment, and CA#70852 on Stipulated

facts submitted under Tax Court Rule 122.

Each docket involved the disallowance of

different partnership losses, but the

Congress in 1982. Both cases also involve

a disregard of basic contract law

principles in agreements between the

Internal Revenue Service and the tax

Payers by both the Tax Court and the

Court of Appeals.

The Taxpayer had "presenile

dementia" and was confined in a mental

before the Court. He was declared

incompetent by the California Courts in

1985 and died Of Alzheimer's disease in

1986.

CA #70852 concerned the tax years

1976-78. Two investments were disallowed

Co. v United States 435 U. S. 561; 98

S.Ct 1291 (1978). One involved coal

limited partnerships and individual coal

8

lease investments, and the other was an

investment in a movie.

The promoter and general partner in

the coal cases was a thief. He was

indited for security fraud in connection

with these transaction. In the Ninth

Circuit decision in U. S v Crooks (9th

Cir) 884 F2d 1441 he was described as a

check kiter who did not have coal leases

at all. In the movie investment which had

an all star cast including John

Carradine, Kurt Jurgens, and Peter Graves

the general partner was not identified.

The cast were paid on a contingent basis,

Unfortunately, there was a loss.

Both the Tax Court and the Ninth

Circuit held that the intent of the

general partner controlled for the

purpose of determining whether the

transaction was motivated by economic

substance outside of tax considerations,

and in neither investment had the

Taxpayer proved that the general partner

was not solely motivated by tax

considerations. However, the Tax Court in

CA# 93-70852 refused to penalize the

Taxpayer for a tax motivated transaction

on the grounds that the Service had

failed to prove it.

The statute of limitations would bar

liability in CA93-70852 unless a valid

waiver was executed by the Taxpayer.

Since the stipulated statement of the

treating physician established that he

was suffering from dementia, under well

established contract principles no valid

waiver could have been executed, since

the Taxpayer was incompetent to execute

one.

CA# 9370851 involves the bizarre

situation of collection before trial ina

docketed Tax Court case in violation of

$6213(a). The issue involves a

stipulation between I. R. S. District

Counsel and the Attorney for the

Taxpayer. In that connection Counsel

wrote the attorney for the service

agreeing to stipulate to the merits of

the oil investment, but reserving the

right to defend on the basis of the

special defenses unique to the Taxpayer

as follows:

These defenses which in the

main involve the late Mr. Ravetti's

mental incompetency include the

statute of limitations, profit

motivation, imputed intent before

TEFRA, theft loss ceductions and the

innocent spouse issue which is

presently before the Ninth Circuit."

The stipulation between attorneys

allowed special defenses, did not mention

a dollar amount, and did not contain any

reference to a waiver of restrictions on

collection. However, in a purportedly

parallel document to be Signed by the

petitioner a waiver was included in the

other stipulations executed by the

lawyers. After collection effort

commenced, Mr. Kinghofer the district

counsel involved was contacted and

advised that the waiver had been included

by mistake.

However, higher authority in the

Service refused to modify the agreement.

10

Petitioner then rescinded the stipulation

on which the judgment of the Tax Court is

based. After a motion under Tax Court

Rule 55 to restrain collection, the Tax

Court and the Ninth Circuit held that

this agreement was written in stone, and

refused to allow the recision.

In its motion for summary judgment

the Service introduced no facts except

the stipulation. It did not identify the

general partner. No finding was made with

respect to the partnership and the

general partner was not even identified

in the statutory notice. The Ninth

Circuit held the burden was on the

Petitioner to prove that the investment

was not solely tax motivated at the

general partner level, and the Taxpayer's

motivation was immaterial.

We realize this is a petition for

certiorari and the Court is not in the

main concerned with the justice of the

petitioners treatment below, but we

cannot help but comment on the sorry

treatment this taxpayer received below,

both judicially and administratively.

The first petition to the Tax Court

in this matter was filed in 1982. The Tax

years date back to 1976, almost twenty

years ago. The Taxpayer is dead, as is

his ex wife, as are most of the potential

witnesses. No continuance was ever

granted the Petitioner, and motions to

consolidate the cases by Petitioner were

denied three times. Facts stipulated in

one case are ignored in the other. For

example, the principle ground for

rejecting the stipulated fact that

tes ar le ae a

11

Ravetti was demented in the first Tax

Court case was the absence of the raw

medical records. These records are

included in the second case. In regard to

a theft deduction for the coal investment

promoters the IRS refused to name a year

of discovery, despite the fact that

audits, indictments, and convictions all

took place within the period from 1976 to

1982 all of whose tax years were before

the Tax Court in one docket or another.

In one of the Tax Court dockets still

before the Ninth Circuit there is a

Stipulation which establishes that the

Service was informed of Ravetti's

alzheimer's disease before waivers of the

Statute of limitation were executed. This

information was disregarded by the

service.

Counsel for the Service at one time

totaled seven, and stretched

geographically from Idaho to Los Angeles,

and a number of points in between. This

Court will note at least four different

Judges in the Tax Court on in the

opinions supplied in the Petitions. There

were at least four more.

All this took place because what the

Tax Court and the Service calls "special

projects" were involved. This caused,

because they overlapped years, multiple

government counsel in the same case. It

probably led, because of the form

documents involved, to the mistake which

caused premature collection. In denying

the normal right to try related cases

together, the Court allowed the Service

to ignore in one docket facts stipulated

in the other.

12

Below we raised the question whether

refusing to consolidate these cases was

such a depravation of substantive right

as to require reversal. We would not

presume to ask for Supreme Court review

on such a ground. However, if review is

granted on grounds of more national

importance, perhaps, the rights of this

taxpayers estate could be taken into

account in the future disposition of the

case.

REASONS FOR GRANTING THE WRIT

The principal ground for granting

the writ is the denial of meaningful

judicial review by granting innocent

spouse status without allowing the person

most directly concerned to object. Estate

of Ravetti v U. S. represents the attempt

to obtain review in the District Court,

this case deals with an attempt in the

Tax Court. Having both cases before the

Court gives a unique opportunity to

examine the problem from both planes of

reference.

Each Court has problems in dealing

with this question. The Tax Court with

Comm. v Gooch 64 S. CT 184 and the

District Court with the Anti Injunction

Act. We submit, however, that there must

be federal judicial review in one of them

on this question of federal tax law to

satisfy the Constitution. The national

importance of this question is self

evident, and for this Court as with the

Court below the case is one of first

impression.

13

The merits of these cases should be

considered also. These cases arose before

TEFRA, and the effective date of the

regulation implementing the assigning of

profit motivation to the partnership

level. Furthermore, imputing a motivation

which forfeits even "at risk" deductions

to a taxpayer when the check kiting

promoter general partner obtained their

money by fraudulent misrepresentation

defies common sense.

The refusal of the Tax Court and the

Court of Appeals to apply the basic

contract principles of mistake and

capacity to contract in agreements

between taxpayers and the Internal

Revenue Service should be reviewed. In

this connection these cases are in direct

conflict with the case of Flynn v U.

S.(3Cir) 786 F2d 586(1986). In both

administrative law and when the federal

courts are directly involve, attorneys

should be able to trust government

agencies not to take advantage of

mistakes which while they benefit the

government were not in the contemplation

of the parties. Nor should they be

allowed greater latitude in dealing with

incompetents than private individuals.

While this Court has upheld and stated

these principles many times, the

importance of the sanctity of agreements

between citizens and their government

requires constant admonition from this

Court. Of the many duties of the Supreme

Court, this one may be the most

important.

1. THE TAX COURT SHOULD HOLD THE OTHER

SPOUSE AN INDISPENSABLE PARTY IN

14

LITIGATION CONCERNING §6013(e)

In the 1855 case of Shields v Barrow

58 U.S. 130, long before the rule was

codified in Rule 19 of the Federal Rules

of Civil Procedure, this Court defined

indispensable parties for the purposes of

federal litigation.

"Persons who not only have an

interest in the controversy, but an

interest of such a nature that a

final decree cannot be made without

either affecting that interest or

leaving the controversy in such a

condition that its final

determination may be wholly

inconsistent with equity and good

conscience."

This principle was not limited to

what was then the equity side of the

courts. Barney v Baltimore City 73 U. S.

280 (1867); See Federal Practice and

Procedure, Wright et al §1601. It may

well be that in Tax Court litigation the

requirement in cases of this nature is so

fundamental as to be a requirement of due

process, regardless of equity powers.

A joint return is unique, not to

speak of the association of man and wife.

Partnership returns are simply conduits.

In the other situations cited below the

taxpayer affected has a right of federal

judicial review of his own case. Here, as

a practical matter Mrs. Ravetti's status

has been finally adjudicated. Questioning

that status in state court without

congressional action conferring state

court jurisdiction would be useless.

ee ee Oe ee ye Oe ee en ee

15

The Government could have joined the

cases under Tax Court Rule 60, but chose

not to do so. In "good conscience" the

Tax Court could have required them to do

so. It could have done so by adjudicating

the right in Petitioner's case. ;

Furthermore, disregarding our inquiry was

not fair or proper of government counsel.

We recognize that some might argue

that this would be the exercise of the

equity power. However, splitting

jurisdiction with the District Court has

other serious problems, including the

inhibitions on tax jurisdiction discussed

by Judge Jensen in the District Court. In

Flora v U. S 362 U.S. 145, 80 SCt 630, 4

L.ed 2d 625 (1960) this Court emphasized

that in income tax matters it was the

intent of Congress to give as broad a

jurisdiction as possible in preference to

the exercise of jurisdiction in the

District Court. In Laing v U.S 423 US

161, 46 LEd2d 416 96 SCt 473 the Court

also said that it is not to be presumed

that Congress did not in tax matters

intend the Tax Court not to have

jurisdiction. Only the Supreme Court has

the power of court supervision to find

the proper answer, and it should do so.

2. THE LOWER COURTS HAVE MISAPPLIED FRANK

LYON IN ADJUDICATING ALLEGED SHAM LOSS

DEDUCTIONS

The investment losses in the Tax

Court cases were all disallowed as shams

under the rule of Frank Lyon supra.

This rule involves a two part test. That

is, a transaction is a sham if (1) it is

not motivated by any economic substance

16

outside of tax considerations and (2) is

without economic substance because no

real potential for profit exists.

The consequence of disallowance on

this ground is that a taxpayer loses his

deduction not only for those amounts

which were not at risk, unassumed

mortgage depreciation and the like, but

all amounts which were "at risk"

including his out of pocket cash

payments. In a practical way this amounts

to a penalty or forfeiture without the

burden of proof required in fraud cases.

We question in this petition the

lower Courts' interpretation of the

burden of coming forward with evidence, )

and the burden of proof in Frank Lyon

sham cases. We also question whether the |

motivation of the general partner instead

of the taxpayer should be considered by

the courts in such cases. Particularly,

before the effective date of TEFRA.

a)IMPUTING THE INTENT OF THE GENERAL

PARTNER TO THE TAXPAYER BEFORE TEFRA

IS IMPROPER

The Ninth Circuit in imputing the

general partners intent to the taxpayer

relied on the Tax Court's case of Hawley

v Comm. TC Memo 1988-77 and its own cases

Independent Electrical v Comm. (9 cir)

781 F.2d 728. These are part of a series

of cases commencing in the early eighties

that first the Tax Court and the then the

Courts of Appeals began disregarding the

motivation of the taxpayer and deciding

that the motivation of the promoter,

general partner should control in

17

declaring an investment a sham. (Although

most cases at least made an attempt to

set forth evidence that the taxpayer had

Similar tax avoidance ideas.)

In this case the matter was taken to

extremes since the promoter general

partner was a thief and the taxpayer was

incompetent. These rulings had the

commendable aim of controlling abusive

tax shelters, however there was no

statutory warrant for doing so until the

enactment of TEFRA in 1982.

The actual statute applicable to our

case is §6231 (a) (3) which reads as

follows:

Partnership item--The term

“partnership item" means, with

respect to a partnership, any

item required to be taken into

account for the partnership's

taxable year under any

provision of subtitle A to the

extent regulations prescribed

by the Secretary provide that,

for purposes of this subtitle,

such item is more appro riatel

determined at the artnershi

level than at the artners

level. Emphasis added

The regulation necessary to implement the

statute is $301.6231(b) which reads as

follows:

(b) Factors that affect the

determination of partnership

items. The term “partnership

item" includes the accounting

practices and the legal and

factual determinations that

18

underlie the determination of

the amount, timing and

characterization of items of

income, credit , gain, loss,

deduction, etc Examples of

these determinations

are:.......whether partnership

activities have been engaged in

with the intent to make a

profit......Emphasis added

The statute was enacted in 1982 and the

regulation in 1986. Regulation

§301.6231(d) of the regulation provides

that "This section shall apply with

respect to partnership taxable years

beginning after September 3, 1982." Our

years are 1976,1977,1978 and 1982.

Taxation is a creature of statute

and adjudicating profit motivation at the |

partnership level was not authorized for |

our years. The report of the conference :

committee makes clear that the Congress

thought it was changing the law when it

adopted this statute in TEFRA. The wide

spread use of this doctrine without

congressional sanction should be

reviewed. Particularly, where the general

partner was a thief, his intent should

not be attributed to the demented

incompetent taxpayer. Congress has |

provided in §465 and other sections :

adequate control of abusive tax shelters,

some which apply to these years.

b) THE BURDEN IS ON IRS TO COME

FORWARD WITH EVIDENCE OR AT LEAST A

STATUTORY NOTICE FINDING THAT THE

GENERAL PARTNER HAD FRANK LYON

MOTIVATION

19

In none of the three partnerships

whose losses were disallowed was there a

finding as to the motivation of the

general partner in the statutory notice.

In the movie and the oil partnership the

general partner was not even identified.

The Court below simply held that the

burden was on the taxpayer to identify

and prove the general partners intent was

not to avoid taxes. In other words, the

taxpayer must prove a negative, and mere

accusation by issuing a statutory notice

with a dollar amount, casts the burden on

the taxpayer to come forward with

evidence which shows the Tax Court and

the Service were " Clearly in error".

This would not seem to be in accord

with this Court's ruling on a similar

issue in Comm. v Groetzinger 107 S.Ct 980

(1987) where the Court held that

questions of the legitimacy of a business

when reviewed by appellate courts are

questions of law not of fact. See p987,

988 Sct.

In the Court below we questioned the

statutory notice since no findings with

respect to the partnership or the general

partner were made in CA #70851. We relied

on the 9th Circuit case of Scar v Comm

(9th Cir) 814 F2d 1363. There the Court

held that in order for a statutory notice

to have the force of a presumption there

must be an official finding, not a mere

accusation. In both cases below, in the

case of the movie and oil investments,

the statutory did not even identify the

general partner. In neither case did the

Service introduce any evidence, other

than to state the losses, to prove the

es

20

general partners motivation or to

establish that the investments were

illegitimate or a sham.

Under the principles of Frank Lyon

and Groetzinger this case should be

reviewed and the Service and lower courts

advised that more than an accusation must

be made to cast more of a burden on a

taxpayer than to prove that he invested

in what to him reasonably appeared to be

a legitimate business.

3. AGREEMENTS BETWEEN TAXPAYERS AND THE

INTERNAL REVENUE SERVICE SHOULD BE

GOVERNED BY GENERAL CONTRACT LAW

PRINCIPLES

Both cases in this petition involve

stipulations, in neither did the Tax

Court evaluate the testimony of

witnesses. The Service did not question

that Ravetti had presenile dementia or

that he was confined in a mental

institution approximately four months

before the waiver. There has never been a

question of malingering, and the taxpayer

should have laid any question to rest by

dying of the disease. The Service could

have called the Doctor if they had doubt

but they did not. They could have

introduced the medical records in CA

#70852 if they wanted to but they chose

not to do so. In CA#70851 they could have

challenged our statement that the

attorney for the government who drafted

the stipulation conceded that collection

was allowed in the taxpayers document by

mistake. They chose not to do so. They

could have challenged our statement in

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the Rule 55 motion that the Services

stated motivation for collection was to

deny administrative expense funds

including attorney's fees for this case.

They chose not to do so. We submit that

their failure was because the fact we

allege are true.

This Court has recognized the

principle of mistake in contract law

Since the 1879 case of First National

Bank v Hall. Flynn Vv U. s. Supra

recognizes that parol evidence is

admissible to prove that a waiver of

restrictions on assessments is invalid,

and is in direct conflict with this case.

The Court there applied general contract

law, this Court should accept review, and

reestablish the principle that Internal

Revenue has no greater rights than

private litigants do in agreements with

taxpayers during either the

administrative process or in cases in the

courts. It is also possible that the

Court might want to Suggest that the

Internal Revenue Service as

representative of the Sovereign might be

held to an even higher standard in

agreements with the nation's citizens.

CONCLUSION

The Ninth Circuit's depravation of

judicial review should not be allowed to

stand. Nor should the attribution of

profit motivation to the general partner

which is being made by the lower courts

before Congressional authorization. still

less should the Court allow seizure of

taxpayer assets in cases in the Tax Court

to give the Internal Revenue an edge in

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the conflict.

This case as it stands represents in

its published version an abandonment to

the Internal Revenue Service the field of

domestic relations. In its unpublished

version, in a practical sense, it

abandons the field of sham losses to the

agency. The loss deduction for trade or

businesses authorized by Congress will be

at the mercy of the Service. This case is

an extreme one, and the administration of

the tax law will be aided by the Court

restating that the basic right to fair

treatment and constitutional procedure

applies even in tax cases.

Dated: February 7, 1995

Respectfully Submitted,

Richard H. Foster