                        T.C. Memo. 2003-41



                      UNITED STATES TAX COURT



     ESTATE OF LUCILLE ABBOTT SEXTON, DECEASED, ANN SEXTON
                PETERSON, EXECUTOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 19418-98, 3076-99.      Filed February 24, 2003.



     Robert Patrick Sticht, for petitioner.

     Elaine T. Fuller, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GERBER, Judge:   These consolidated cases1 were closed by the

Court based on stipulated decisions executed by the parties on

January 23, 2001.   On April 23, 2001, the estate’s motions to

vacate decisions were filed, alleging a conflict of interest on


     1
       Both cases involve the same estate, one concerning estate
tax and the other gift tax.
                                - 2 -

the part of the attorney who represented the estate and executed

the decisions as the estate’s legal representative.   In

particular, the estate, which is represented by new counsel,

contends that its former counsel had a conflict of interest

because he was employed by respondent concerning a different case

at the same time he was representing the estate and executed the

agreed decision documents.   Respondent contends that the

circumstances we consider do not warrant the vacating of the

decisions.

                         FINDINGS OF FACT2

     Lucille Abbott Sexton (decedent) died on June 21, 1994.    A

Form 706, United States Estate (and Generation-Skipping Transfer)

Tax Return, was timely filed.   The estate did not report any

taxable gifts or any debt owed to decedent by decedent’s daughter

(Ann Peterson), son-in-law (Bruce Peterson), or their partnership

(Peterson Properties).   Further, it was contended by the estate

that decedent had a 20-percent interest in the partnership and

that she owed the partnership $200,000, as evidenced by an

unsecured note.   The $200,000 note was claimed as a debt of

decedent on the estate tax return.

     During February 1996, respondent notified the estate that it

was to be examined and the estate retained, as its



     2
       The parties’ stipulation of facts is incorporated by this
reference.
                               - 3 -

representative, the accountant who prepared its estate tax

return.   On September 16, 1996, respondent sent the estate’s

accountant a discussion draft of a proposed Form 1273, Report of

Estate Tax Examination Changes, reflecting a $472,143 increase in

estate tax.

     The estate hired Attorney Dennis G. Harkavy to represent it

and to address the discussion draft received from respondent.

Mr. Harkavy’s engagement to represent the estate was reduced to

writing in the form of a letter dated October 25, 1996.

Respondent issued a 30-day letter on October 1, 1997, proposing

to increase the estate tax from the $68,894 reported to $415,868.

On October 9, 1997, respondent received Mr. Harkavy’s letter

seeking to protest the findings of the 30-day letter and

requesting a conference with Appeals.   A decision was made by

Appeals not to extend a conference to the estate, and the matter

was referred for issuance of a notice of deficiency.   Notices of

deficiency were issued to the estate for estate tax and gift tax.

     The estate tax deficiency was based upon the determination

that transfers totaling $930,350 from decedent to her daughter

(Mrs. Peterson), son-in-law (Mr. Peterson), and Peterson

Properties (partnership) were taxable gifts.   Respondent also

disallowed a $200,000 claimed reduction from the gross estate for

the $200,000 unsecured note to the partnership.   Harkavy executed
                               - 4 -

petitions and caused them to be filed with this Court on behalf

of the estate.

     Mrs. Peterson had informed Mr. Harkavy that the $200,000

unsecured note payable to the partnership and reported in the

estate tax return represented the decedent’s obligation to make a

capital contribution to acquire a 20-percent interest in the

partnership.   Although Mr. Harkavy did not believe that the

$200,000 deduction would be sustained, he advanced that item on

the estate’s behalf with respondent.   In response to respondent’s

counsel during settlement discussions, Mr. Harkavy conceded the

$200,000 disallowance of the unsecured note and the resulting

adjustment.

     The gift tax deficiencies were based on respondent’s

determinations that checks in the amounts of $120,000 for 1994,

$281,100 for 1993, $303,400 for 1992, and $225,850 for 1991 were

all taxable gifts made to the partnership.   The estate petitioned

this Court with respect to the estate and gift tax notices of

deficiency, and both cases were answered by respondent and placed

in issue.

     The estate did not express or argue the position that the

$930,350 in checks given by decedent to the partnership during

the last 3 years of her life, were contributions to capital.3



     3
       If the estate’s motion is granted, the estate intends to
argue that the $930,350 was a contribution to the partnership’s
capital.
                               - 5 -

The Appeals officer proposed a settlement in which the gross

estate would be reduced by 25 percent ($232,587) of the $930,350

adjustment.   After the Appeals office closed the estate’s cases

as being “unagreed”, respondent’s counsel, Jack Klinghoffer, and

Mr. Harkavy conferred regarding the cases.    Mr. Klinghoffer,

during December 1999, sent tax computations which reflected the

settlement offer made by the Appeals officer, with an additional

$16,000 allowance for administrative expenses.    Mr. Harkavy

conveyed the offer to the Petersons and during January 2000, Mr.

Harkavy wrote to Mr. Klinghoffer and rejected the December offer

to settle.

     Thereafter, the estate began preparation for trial and

during a July 2000 meeting with Mrs. Peterson, Mr. Harkavy

informed her that he was “doing some work with the IRS”.    Mr.

Harkavy did not disclose the specifics of his work with the

Internal Revenue Service (IRS).    Mrs. Peterson, based on the

above explanation, did not understand that Mr. Harkavy was

employed by respondent as a consultant or expert witness in

another case.   If Mrs. Peterson had known that Mr. Harkavy was

employed by respondent at the same time that he was representing

the estate, she would have terminated his representation of the

estate.

     These consolidated cases were scheduled for the October 16,

2000, Los Angeles trial session.    After the Court received the

parties’ trial memoranda, a conference call was initiated with
                                 - 6 -

the parties’ attorneys.    During the conference call, the trial

Judge expressed a generally unfavorable view of the estate’s

position in these cases.    After the call, Mr. Harkavy contacted

Mrs. Peterson concerning the conference call and explained that

the Judge had a negative view of the estate’s position.    Mr.

Harkavy recommended to Mrs. Peterson that they should attempt to

reinstate the December 1999 settlement offer.    Mrs. Peterson

agreed to that course of action based on her belief that “the

Judge had already made up his mind”.4

     Mr. Harkavy contacted Mr. Klinghoffer and inquired whether

settlement was still possible.    Mrs. Peterson was contacted by

Mr. Harkavy at approximately noon on October 3, 2000, and was

advised that negotiations were ongoing and that a final decision

would have to be made by 5:00 p.m. that same day.    Prior to that

time, Mrs. Peterson had learned that the estate’s accountant was

being called as a favorable witness for respondent.    Mrs.

Peterson contacted her accountant on October 3, 2000, to garner

his support for the estate’s position, but he refused.

     Ultimately, on October 3, 2000, Mrs. Peterson called Mr.

Harkavy’s office and agreed to the settlement, which ended up

being the same as the offer made by Appeals during December 1999.

The terms of the settlement agreement were embodied in a

Stipulation of Agreed Issues and signed by Mr. Harkavy on October


     4
       The pretrial Judge is a different Judge from the one who
is considering the estate’s motions.
                               - 7 -

5, 2000, and, ultimately, reflected in agreed or stipulated

decision documents signed by the parties’ attorneys and filed

with the Court on January 23, 2001.

     Mr. Harkavy was employed by respondent on September 29,

1998, to help determine the rights of a partnership in connection

with agreements executed with the Community Redevelopment

Agency’s construction of a 73-story office building in downtown

Los Angeles.   Lorene Sams is a contracting officer employed by

respondent, in part, to facilitate the contracting for and

procurement of expert witnesses.   Ms. Sams was requested by her

manager in the Appeals Office to hire an expert in a case

commonly known as the “McGuire Partners” case.    Ms. Sams prepared

a statement of work and contacted the Los Angeles County Bar

Association referral service to obtain a list of attorneys with

expertise in the legal question in the McGuire Partners case.

She received a list of 6 to 10 attorneys from the bar

association, which included Mr. Harkavy’s name.   The request for

bids issued by respondent included the following statement of

work:

     1. The Contractor shall travel to the Taxpayer
     Representative’s office in Los Angeles, CA. While
     there, the Contractor shall peruse documents relating
     to the series of transactions described and shall
     determine which documents the Contractor requires to
     review. The Contractor shall notify the IRS, in
     writing, outlining the specific documents which the
     Contractor’s [sic] requires copies of. The IRS will
     request copies of these documents and provide copies to
     the Contractor within 5 weeks after date of notification.
                                 - 8 -

     2. The Contractor shall review all documents relating
     to the series of transactions described above to
     determine:

          (1) exactly what rights were purchased;

          (2) whether these rights remain even after the
          life of the building has expired; and

          (3) the useful life of these rights

     3. The Contractor shall convey the results of its
     review, research and analysis in a written narrative
     appraisal report, with adequate supporting
     documentation to enable the reader to follow the
     thought process throughout the entire report, and
     arrive at the logical conclusion.

          OPTIONAL LINE ITEM:

     4. At the option of the Government, the Contractor may
     be required to provide up to (8) hours of consultation
     time and travel to the Los Angeles area to attend a
     closing conference with IRS personnel and taxpayer
     representatives to discuss the findings. At this
     conference, the Contractor shall interface with
     taxpayer experts in discussing this issue.

     5. At the option of the Government, the Contractor may
     be contacted to provide any appropriate pre-trial
     preparation and trial testimony in U.S. Tax Court.

     Mr. Harkavy made a Contract Proposal with respect to the

request for bids, which added the following services to those set

forth in the request for bids:

     4. Research underlying Code Sections, Regulations and
     Court Cases. Research should initially concentrate on
     the threshold questions of whether air rights, FARs,
     and TDRs are solely allocable to land, and therefore
     not depreciable, or alternatively, an allocation should
     be made between land and improvements. If an
     allocation is required, the criteria for this
     allocation must be established.
                               - 9 -

     In selecting Mr. Harkavy, Ms. Sams considered cost,

experience in the specialty, and potential to serve as an expert

witness.   Ms. Sams did not perform a conflicts analysis to

determine if a potential for conflict of interest existed.    She

was unaware that Mr. Harkavy had a power of attorney on file with

respect to his representation of the Sexton estate.    Under the

contract, Mr. Harkavy’s charge was to determine the rights of a

partnership in connection with certain agreements.    He was not

hired by respondent to represent respondent’s interests as

counsel in the McGuire Partners case.   Mr. Harkavy’s involvement

in the McGuire Partners case was concurrent with his

representation of the Sexton estate in these consolidated cases.

Mr. Harkavy did mention to respondent’s Appeals officer in these

consolidated cases that he had been hired as an expert witness by

respondent in an income tax case.

     In connection with his consulting position on the McGuire

Partners matter, Mr. Harkavy consulted and corresponded with the

Appeals officer assigned to that matter.   He also had

communications with the Chief of Appeals and a disclosure officer

in respondent’s office.   Mr. Harkavy entered into a nondisclosure

agreement with respect to the taxpayer information he was exposed

to regarding the McGuire Partners case.

     While Mr. Harkavy was representing the estate, respondent’s

attorney, Mr. Klinghoffer, became aware of Mr. Harkavy’s
                              - 10 -

consulting position with respondent and that Mr. Harkavy had

prepared an expert witness report for Appeals.   An attorney in

Mr. Klinghoffer’s office, who was handling the McGuire Partners

case, asked Mr. Klinghoffer about Mr. Harkavy.   Mr. Klinghoffer

explained that Mr. Harkavy was “doing a very good job for his

client.”   After becoming aware that Mr. Harkavy had been hired as

an expert witness for respondent, Mr. Klinghoffer inquired of Mr.

Harkavy whether he had informed the estate of his employment.

Mr. Harkavy told Mr. Klinghoffer that he had informed the client.

Respondent’s attorney on the McGuire Partners case decided not to

use Mr. Harkavy as an expert witness, and a different attorney

was hired as an expert.   Respondent’s attorney’s reason for not

using Mr. Harkavy had nothing to do with the fact that Mr.

Harkavy represented the estate or with whether he may have had a

conflict of interest.

     Mr. Harkavy did not believe that he had a conflict of

interest in representing the estate at the same time he performed

consulting work with respondent.   He completed the first part of

his consulting contract on or before February 1999, and his

active consulting work ended approximately July 1999, almost 6

months before the December 1999 settlement was rejected and more

than a year before Mr. Harkavy executed the stipulation decision

in this case.   Mr. Harkavy submitted his final invoice to

respondent for the consulting on August 16, 1999.   Mr. Harkavy’s
                                - 11 -

fees under his consulting contract totaled $18,250--$2,000 of

which was for his attendance at the optional closing conference

between respondent’s personnel and the taxpayer’s representative

in the McGuire Partners case.    Mr. Harkavy was not requested to

testify as an expert witness in connection with his opinion on

the McGuire Partners case.

                                OPINION

     In this case, the estate sought leave to move to vacate

decisions entered by the Court based on an agreement of the

parties.   In that regard, the estate’s motions were filed after

the 30-day period permitted for moving to vacate a decision

without leave of the Court under Rule 162.5   The Court permitted

the estate’s motions to vacate to be filed on the 90th day from

the entry of decision.   Accordingly, regardless of whether the

parties stipulated the decisions or whether the agreed decision

had been approved and entered by the Court, it had not become

final within the meaning of section 7481.

     The estate contends that the decisions are flawed and should

be vacated because the estate’s representative had a conflict of

interest and because the estate, if permitted to litigate, would

be successful in substantially reducing the estate tax deficiency


     5
       Unless specified otherwise, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code in effect for the
period under consideration.
                              - 12 -

to which it had agreed.   Respondent contends that the parties

entered into a valid agreement and the circumstances of this case

do not warrant the setting aside of that agreement.

     The estate was represented by an attorney, who was serving

as a consultant for respondent on another case.   The estate

contends that Mr. Harkavy was representing the IRS at the same

time he was representing the estate.   We have found that the two

cases were unrelated and that Mr. Harkavy did not “represent”

respondent in the unrelated case.   In particular, Mr. Harkavy

provided an opinion as to the rights of a partnership under

agreements executed with the Community Redevelopment Agency

regarding the construction of a 73-story office building.

     The estate contends that Mr. Harkavy’s relationship with

respondent was in violation of model rule 1.7 of the Model Rules

of Professional Conduct (ABA 2003).    Model rule 1.7(a) generally

provides that “a lawyer shall not represent a client if the

representation involves a concurrent conflict of interest.”     In

particular, the estate relies on subpart (1) of model rule

1.7(a), which provides that a conflict exists if “the

representation of one client will be directly adverse to another

client”.   Under that provision, a conflict occurs only where the

representation of clients is directly adverse.

     While Mr. Harkavy had an attorney/client relationship with

the executor and estate, he did not have an attorney/client
                                - 13 -

relationship with respondent.    The American Bar Association

Standing Committee on Ethics and Professional Responsibility, in

Formal Opinion 97-407, at 1101:134 (1997), provided the following

guidance:

     A lawyer who is employed to testify about requirements
     of law or standards of legal practice, for example,
     acts like any non-lawyer expert witness. The
     testifying expert provides evidence that lies within
     his special knowledge by reason of training and
     experience and has a duty to provide the court, on
     behalf of the other law firm and its client, truthful
     and accurate information. To be sure, the testifying
     expert may review selected discovery materials, suggest
     factual support for his expected testimony and exchange
     with the law firm legal authority applicable to his
     testimony. The testifying expert also may help the law
     firm to define potential areas for further inquiry, and
     he is expected to present his testimony in the most
     favorable way to support the law firm’s side of the
     case. He nevertheless is presented as objective and
     must provide opinions adverse to the party for whom he
     expects to testify if frankness so dictates.

This formal opinion makes a distinction between an attorney’s

representation or advocacy of a client’s interests and an

attorney’s role as a consultant or expert witness.

     The estate has argued that doing legal research and

providing legal opinions is the type of work that attorneys

usually perform for clients.    The distinction made by respondent,

however, is that Mr. Harkavy did not represent the interests of

the IRS.    Under that interpretation, Mr. Harkavy’s contractual
                              - 14 -

relationship with the IRS would not rise to the level of an

attorney/client relationship and model rule 1.7(a)(1) might not

apply.6

     The estate also argued that model rule 1.7(a)(2) applied.

That rule provides that a conflict of interest exists if

     there is a significant risk that the representation of
     one or more clients will be materially limited by the
     lawyer’s responsibilities to another client, a former
     client or a third person or by a personal interest of
     the lawyer.

This rule is, in some respects, more inclusive than model rule

1.7(a)(1).7   However, we need not and do not decide whether Mr.

Harkavy committed a violation of paragraph (a)(1) or (a)(2) in

model rule 1.7.   Even assuming arguendo that a conflict of

interest did arise under these rules, we must consider the

effect, if any, it had on Mr. Harkavy’s representation of the

estate.



     6
       Mrs. Peterson testified that, as executor of the estate,
if she had become aware that Mr. Harkavy had been working for
respondent at the same time he was representing the estate, she
would have terminated the relationship. While we appreciate Mrs.
Peterson’s sentiment, by itself, it is not a reason for vacating
an agreed decision.
     7
       With respect to its conflict argument, the estate also
argued that Mr. Harkavy should have made full disclosure of his
relationship with respondent and obtained the estate’s consent to
same as required in model rule 1.7(b). In that regard, Mr.
Harkavy testified that he had informed Mrs. Peterson of his
involvement with the Internal Revenue Service (IRS). There is
disagreement about whether Mrs. Peterson understood that Mr.
Harkavy was employed by the IRS.
                              - 15 -

     In that regard, the estate relied on Wilson v. Commissioner,

500 F.2d 645 (2d Cir. 1974), where the Court of Appeals for the

Second Circuit reversed and remanded this Court’s denial of a

motion to vacate.   The Court of Appeals found that the taxpayer

in that case was not properly represented and held there was a

direct adverse relationship between the taxpayer and her attorney

resulting in a conflict of interest.   Id. at 648.   Accordingly,

for Wilson v. Commissioner, supra to apply we would have to find

that there was a conflict and that the estate was not properly

represented.   Even if it were shown that Mr. Harkavy had a

conflict of interest, that showing, by itself, would not require

the vacating or disregarding of the agreed decision document.

     The Supreme Court in United States v. Armour & Co., 402 U.S.

673, 681-682 (1971) made the following observation concerning

consent decrees:

          Consent decrees are entered into by parties to a
     case after careful negotiation has produced agreement
     on their precise terms. The parties waive their right
     to litigate the issues involved in the case and thus
     save themselves the time, expense, and inevitable risk
     of litigation. Naturally, the agreement reached
     normally embodies a compromise; in exchange for the
     saving of cost and elimination of risk, the parties
     each give up something they might have won had they
     proceeded with the litigation. Thus the decree itself
     cannot be said to have a purpose; rather the parties
     have purposes, generally opposed to each other, and the
     resultant decree embodies as much of those opposing
     purposes as the respective parties have the bargaining
     power and skill to achieve. For these reasons, the
     scope of a consent decree must be discerned within its
     four corners, and not by reference to what might
                              - 16 -

     satisfy the purposes of one of the parties to it.   * *
     * [Fn. ref. omitted.]

     Moreover, “a compromise is a contract and thus is a proper

subject of judicial interpretation as to its meaning, in the

light of the language used and the circumstances surrounding its

execution.”   Robbins Tire & Rubber Co. v. Commissioner, 52 T.C.

420, 435-436 (1969) (and cases cited therein).

     The estate argues that if permitted to proceed to trial it

could show that the $929,350 in payments (25 percent of which was

conceded by respondent in the settlement) were really “disguised

capital contributions to the partnership” and not subject to the

estate or gift tax.   The estate further alleges that if Mr.

Harkavy was an “independent counsel” he would have advised the

estate of several legal positions that might have resulted in the

estate’s complete success on the $929,350 issue.

     At the time the executor agreed to the settlement with

respondent, she was confronted with the following factors:     (1)

Her attorney (Mr. Harkavy) advised that the trial Judge had

expressed a negative view of the estate’s position; (2) the

estate’s accountant was being called as a favorable witness for

respondent; (3) Mrs. Peterson contacted her own accountant but he

would not provide support for the estate’s position; and (4) Mr.

Harkavy’s doubts about the estate’s position and chances of

success.
                              - 17 -

     After the settlement, the estate, under the guidance of a

new attorney, wishes to advance a theory that the $929,350 was a

nontaxable capital contribution--a theory that was not advanced,

prior to the settlement, on the estate tax return, by the

estate’s accountant or by the estate’s attorney.   The estate, on

brief, has also provided several legal theories that it believes

show it would be successful if the agreed decision were vacated

and it were allowed to proceed to trial.

     In terms of a judgment entered by consent of the parties,

“the parties are held to their agreement without regard to

whether the judgment is correct on the merits.”    Stamm Intl.

Corp. v. Commissioner, 90 T.C. 315, 322 (and cases cited

therein).   We note that in Stamm this Court enforced a settlement

of the issues in which the amount of tax had not yet been

calculated or reduced to a decision document.   In that case, the

Government sought to be relieved from the settlement agreement

because of its unilateral error about the amount of tax resulting

from the settlement agreement.   In holding that the Government

would not be relieved from its agreement, we explained that the

standards for vacating a settlement agreement are “akin to those

involved in vacating a judgment entered by consent.”    Id. at 322;

see also Quinones v. Commissioner, T.C. Memo. 1988-269.     (The

Government was not relieved from its stipulated

decision even though it was believed by the Government that it
                                - 18 -

had charged the wrong person with certain illegal income.)

     Accordingly, the merits of the estate’s position (whether or

not it was advanced prior to the settlement) are not a

dispositive consideration in attempting to decide whether we

should grant the estate’s motions to vacate the decisions that

have been entered in accord with the parties’ agreement.

     Generally, this Court has not set aside a decision entered

by the parties’ consent “Absent a showing of lack of formal

consent, fraud, mistake, or some similar ground”.    Dorchester

Indus. Inc. v. Commissioner, 108 T.C. 320, 335 (1977).

     Assuming arguendo that there was a conflict of interest

connected with Mr. Harkavy’s representation of the estate, in

order to vacate the parties’ agreed decisions we would also have

to find that the estate was not properly represented.    We have

carefully considered the testimony of Mr. Harkavy, Mr.

Klinghoffer, Mrs. Peterson, and the other individuals involved,

and there is no credible evidence that Mr. Harkavy failed to

properly represent the estate.    In addition, there is no evidence

that Mr. Harkavy’s employment by IRS was related to or had any

effect upon his representation of the estate or that it deterred

him from making any of the arguments that the estate wishes to

raise for the first time now.    This case is distinguishable from

Wilson v. Commissioner, supra, where the Court of Appeals for the

Second Circuit found it probable that independent counsel would
                             - 19 -

have done something differently.    Accordingly, there is no

compelling reason to vacate the agreed decisions that have

already been accepted and entered by this Court.

     To reflect the foregoing,



                                      An order will be issued

                                 denying the estate’s motions

                                 to vacate.
