Opinion
4304-20
06-01-2022
ALMAZ KEBEDE A.K.A. ALMAZ GEBEYEHU AND WORKINEH LIBEN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
Joseph H. Gale, Judge
This matter is before the Court on respondent's Motion for Entry of Decision, filed June 28, 2021. By Order served June 29, 2021, petitioners were directed to file a response to the foregoing Motion. To date, petitioners have filed no such response. For the reasons that follow, we will grant respondent's Motion and enter a decision in accordance with the proposed decision document attached thereto.
Background
The Petition in this case was filed in response to a Notice of Deficiency issued to petitioners on November 12, 2019, determining a deficiency of $6,293 and a section 6662 accuracy-related penalty of $1,259 in petitioners' federal income tax for the 2017 taxable year. Therein, respondent determined that petitioners had received, but had failed to report, the following items of income: (1) wages of $11,371; and (2) taxable Social Security benefits of $12,577. Respondent also therein disallowed the following items: (1) an education credit of $1,500; (2) an American opportunity credit of $1,000; and (3) a retirement savings credit of $200.
All statutory references are to the Internal Revenue Code in effect at all relevant times.
Discussion
A controversy before this Court may be settled by agreement of the parties. See Dorchester Indus. Inc. v. Commissioner, 108 T.C. 320, 329 (1997), aff'd without published opinion, 208 F.3d 205 (3d Cir. 2000); Medkiff v. Commissioner, T.C. Memo. 2007-334. A settlement is a contract, and general principles of contract law apply in interpreting the settlement. See Dorchester Indus. Inc. v. Commissioner, 108 T.C. at 330; Medkiff v. Commissioner, 2007 WL 3286827, at *2. A settlement may be reflected in a formal written agreement or more informally, such as in an offer and acceptance made by an exchange of letters. Ibid. Written settlement agreements are enforced as binding agreements. Ibid.
Ordinarily, once a settlement has been reached, it cannot be repudiated by either party. Ibid. However, we may relieve a party of an otherwise binding settlement agreement if the party can show a lack of formal consent, fraud, mutual mistake, or other similar ground. See Dorchester Indus. Inc. v. Commissioner, 108 T.C. at 335; Medkiff v. Commissioner, 2007 WL 3286827, at *2.
When this case was called from the calendar on November 3, 2020, the parties appeared and advised the Court that they had reached a basis for settlement resolving all issues in the case. Counsel for respondent read the settlement agreement into the record, and petitioners thereafter stated that the terms of the agreement, as read by respondent's counsel, comported with petitioners' understanding thereof. Based on the parties' representations, the Court canceled the trial, directed the parties to file a stipulation of settled issues memorializing the settlement agreement (as soon as possible), and set a deadline for the submission of a proposed stipulated decision.
On December 28, 2020, respondent filed a Motion for Extension of Time for Filing Decision Documents, attaching thereto as Exhibit A, a copy of a Stipulation of Settled Issues executed by both parties. The Court granted the foregoing Motion for Extension, and subsequent motions for extension, thereby providing an opportunity for the parties to submit a proposed stipulated decision. However, on June 28, 2021, respondent filed a Motion for Entry of Decision, stating therein that petitioners have informed respondent that they do not believe the proposed decision document reflects their correct tax liability for the 2017 taxable year, and that they refuse to execute it.
As noted supra p. 1, petitioners have failed to file a response to respondent's Motion. On that ground alone, we could conclude that petitioners have failed to demonstrate any proper basis to relieve them of the consequences of the Stipulation of Settled Issues, which, upon its execution, created an enforceable, binding settlement agreement between the parties.
However, we have also taken into account the Letter by petitioners filed on June 14, 2021, wherein they state that the proposed decision document does not include all of the agreements reached by the parties. Upon review of (1) the Stipulation of Settled Issues, (2) the proposed decision document, (3) the Form 5278, Statement - Income Tax Changes, and Form 886-A, Explanation of Items, and (4) the transcript of the November 3, 2020 trial proceedings, we find no support for petitioners' claim. Rather, we conclude to the contrary that the proposed decision document is consistent with the settlement agreement reached between the parties as represented to the Court at trial on November 3, 2020, and as memorialized in the Stipulation of Settled Issues.
See Exhibit A, respondent's Motion for Entry of Decision (Jun. 28, 2021).
See Exhibit B, respondent's Motion for Entry of Decision (Jun. 28, 2021).
Moreover, we note that, to the extent the proposed decision document departs from the Stipulation of Settled Issues, it is in petitioners' favor, by allowing an education credit to which the parties had not previously agreed petitioners were entitled. We further note that the proposed decision document accounts for petitioners' $12,000 repayment to Liberty Life Assurance Company of Boston during the 2017 taxable year, by allowing for a credit.
In view of the foregoing, we conclude that petitioners have not established any basis for disavowal of the Stipulation of Settled Issues. Petitioners have not shown that there was any lack of formal consent, fraud, mutual mistake, or other similar ground for disregarding the Stipulation. That Stipulation covers all issues before the Court in the instant case, and petitioners are bound by it. As noted, we also conclude that the proposed decision document attached to respondent's Motion is consistent with the settlement agreement reached between the parties as reflected in that Stipulation. Moreover, as also noted, to the extent the proposed decision document departs from the Stipulation, it is in petitioners' favor. Accordingly, we will grant respondent's Motion and enter a decision in accordance with the proposed decision document.
Upon due consideration and for cause, it is
ORDERED that respondent's Motion for Entry of Decision, filed June 28, 2021, is granted. It is further
ORDERED and DECIDED that there is a deficiency in income tax due from petitioners for the taxable year 2017 in the amount of $3,693.00; and
That there is no penalty due from petitioners for the taxable year 2017 under the provisions of I.R.C. section 6662.