Tax News

CCH (cch.taxgroup.com) reports:

In three consolidated cases arising out of the Kersting project tax shelter litigation, which involved fraud on the court by an IRS attorney and supervisor in the process of resolving the cases, taxpayers who entered into a settlement after the fraud was discovered, but on terms less favorable than the outcome in a later Ninth Circuit appeal, were entitled to have their settlements vacated and to resolve their cases on terms identical to those ordered by the appellate court. Although, under Tax Court Rule 162, a motion to vacate a stipulated decision must generally be filed within 30 days after the decision is entered, and Tax Court Rule 91(e) provides that a stipulation can only be qualified, changed or contradicted where justice requires, the prior stipulated settlements did not divest the court of its inherent power to impose sanctions to address the fraud, including vacating the prior settlement.
Background. As part of the resolution of deficiencies and additions to tax assessed against hundreds of tax shelter participants, the taxpayers and other participants agreed to be bound by the outcome of selected test cases. In order to encourage the participants in one particular test case not to withdraw, IRS attorneys entered into a secret settlement (known as the "T settlement") that ensured a refund sufficient to cover their attorney's fees. The Ninth Circuit eventually ruled that the IRS attorneys had committed fraud on the court by failing to disclose the "T" settlement offer to their superiors, the attorneys for other participants, and the court. As a consequence, it held that terms equivalent to the secret settlement agreement had to be extended to all test case petitioners and all others properly before the court ( J.A. Dixon, CA-9, 2003-1 USTC ¶50,194 (Dixon V)). This did not, however, alter the outcome for those, like the taxpayers in the current case, who entered into stipulated settlements after the fraud was discovered but prior to the Dixon V decision.
CCH Comment. In J.M. Lewis, , Dec. 56,128(M), the Tax Court previously denied a motion to vacate, by one of the taxpayers in the current case, a stipulated settlement entered into after the facts surrounding the fraud had been disclosed. Upon reconsideration of the language in Dixon V, the misconduct was found to violate the rights of all Kersting project taxpayers, including those who entered into settlements after the fraud was discovered but prior to the opinion in Dixon V.
Once the decision becomes final, an implementation order will be issued requiring that all remaining Kersting project taxpayers against whom stipulated decisions had been entered have their accounts adjusted administratively in accordance with the "T" settlement. No further motions to vacate will be accepted for filing unless the taxpayers' accounts are not adjusted within nine months after entry of the implementation order.
L.L. Hartman, TC Memo. 2008-124, Dec. 57,431(M)
Other References:
Tax Court Rule 91
CCH Reference - 2008FED ¶42,251.88
Tax Court Rule 162
CCH Reference - 2008FED ¶42,322.16
Tax Research Consultant
CCH Reference - TRC LITIG: 6,612.05
CCH Reference - TRC LITIG: 6,952.05

State Headlines

Alabama --Multiple Taxes: Governor Proposes Compromise Tax Relief Package
Alabama Governor Bob Riley has proposed a compromise tax relief package to the Alabama legislature that includes corporate and personal income, sales and use, and property tax provisions. The governor's proposal would:
-- cut the sales tax on groceries from 4% to 1%;
-- provide corporate and personal income tax breaks to small business owners and their employees to make health insurance more affordable;
-- raise the personal income tax filing threshold from $12,500 to $15,500 for a family of four, to be phased in over five years; and
-- allow taxpayers to vote in November to establish four-year property tax reappraisals (currently, property is reappraised annually).
Subscribers to CCH Tax Research NetWork can view the governor's proposal.