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January 8, 2007

U.S. Tax Court Stipulations are Binding

Tax Litigation

Houston Tax Attorney

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Details matter when it comes to tax litigation.  This is especially true for cases before the U.S. Tax Court given its unique stipulation or agreement process.  The Mathia v. Commissioner, No. 10-9004 (10th Cir. 2012) case provides a prime example of this.

The Facts & Procedural History

Mathia was a 8% limited partner in Greenwich Associates. Kevin Smith was the tax matters partner for Greenwich Associates.

Pursuant to IRS rules (and general contract law), Mr. Smith was entitled to bind the other partners in tax matters.  This included binding Mathia.  After litigation in the tax court, Mr. Smith exercised this power by entering into a settlement agreement with the IRS with regard to Greenwich Associates’ 1982 through 1984 tax years.

Mathia paid the tax owed at that time. He did not pay the interest on the tax debt.  Instead, he submitted a request to abate the IRS imposed interest. The IRS denied the request in late 2005.

Mathia brought suit against the IRS arguing that the IRS “period of limitations on assessment had expired before [the IRS] had assessed [Mathia’s] 1982-84 tax liabilities” and that the IRS “improperly denied their interest abatement claims.”

Stipulation of Facts

The taxpayer and the IRS attorney submitted a stipulation of facts (basically a stipulation is an admission as to certain facts). This stipulation of facts is generally required by the tax court, as a means for streamlining tax court litigation.

In this case the IRS attorney stipulated that Mathia was not a “notice partner.”  It appears that Mathia may have in fact been a “notice partner.”  Whoops.

If Mathia was not a notice partner, then he would be bound by the settlement agreement entered into by Mr. Smith and the IRS. If Mathia was a notice partner, then he was entitled to receive notices for the prior tax litigation (which the IRS may or may not have timely sent) and was not bound by the settlement agreement entered into by the IRS and Mr. Smith. If Mathia was not bound by the settlement agreement and the IRS did not timely send the required notices, then the period for assessing interest (an addition to tax) had expired and the collection period may have expired.

Stipulations are Generally Binding

In an effort to salvage the case, the IRS requested that the tax court amend the stipulations. The tax court refused, citing cases where the IRS prevailed by arguing that the stipulation process must be upheld at all costs.

It looks like Mathia will now be claiming a refund for the taxes (maybe by arguing that there was a mutual mistake) that were paid pursuant to the settlement agreement for which he was not bound. Perhaps we will get to read that tax court case in a few months.

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