                          T.C. Memo. 1998-450



                        UNITED STATES TAX COURT



       ESTATE OF JACQUELINE A. STOTZ, DECEASED, TRENT MCGEE
       AND LEO KAPLAN, CO-EXECUTORS AND JACKIE STOTZ TRUST,
     TRENT MCGEE AND LEO KAPLAN, CO-TRUSTEES, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 18732-96.            Filed December 23, 1998.



        Elliott H. Kajan and Cameron Williams, for petitioners.

     Louis B. Jack, for respondent.



                          MEMORANDUM OPINION

     GERBER, Judge:     This case had been calendared for trial at

the Los Angeles, California, trial session beginning March 23,

1998.     Shortly before that session, the Court was advised by the

parties' representatives of a settlement, and, as a result, the

Court continued this case from the trial session.    After several
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extensions of the time within which the parties were to provide

the Court with a decision document reflecting their settlement,

petitioners, on October 20, 1998, filed a motion to calendar for

trial, alleging that the settlement was disabled because of a

mutual mistake or an affirmative misrepresentation concerning

respondent’s position.    The questions we must consider are

whether the parties had a binding settlement, and, if they did,

whether petitioners remain bound to the terms of the parties’

agreement.    If either question is decided favorably for

petitioners, then petitioners will be relieved from the agreement

to settle.

Background

     On several occasions, the parties reported to the Court that

a basis for settlement had been reached in this case.        No

document setting forth the particulars of the settlement was

provided to the Court.    The settlement agreement, as described by

respondent, was that respondent would concede the increased

deficiency claimed in the amendment to answer and petitioners

would concede the deficiency determined in the notice of

deficiency.    The parties’ concessions concern corporate stock

that was part of the gross estate.      The issue of which

petitioners complain involves the amount of discount to the value

of corporate stock that would be attributable to possible capital

gains tax on the sale or liquidation of the corporation’s assets.
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In motions and pleadings, it was explained that the estate’s

appraiser valued the corporation’s assets at $18,552,231, and

using a 10-percent discount for marketability and a discount for

potential capital gains, arrived at a $14,910,000 reporting

value.   Agreeing with the $18,552,231 value and the 10-percent

marketability discount, but not with the discount for potential

capital gains, respondent’s notice determination resulted in a

$16,428,719 value.    In an amended pleading, respondent sought an

increased deficiency on the grounds that the estate was not

entitled to the 10-percent marketability discount for all assets

of the corporation.   In particular, respondent sought an

increased deficiency to the extent that a 10-percent

marketability discount had been claimed regarding the

corporation’s cash assets and allowed in the notice of

deficiency.

     Petitioners contend that respondent’s examining agent had

proposed to allow a discount on the “built-in capital gains” on

corporate assets actually sold after the decedent’s death.    As

noted above, no such discount was allowed in respondent’s notice

of deficiency.   Respondent’s counsel, in accord with the notice

of deficiency, maintained the litigating position that no

discount regarding capital gains tax was allowable in this case.

Petitioners contend that respondent’s counsel represented

respondent’s general litigating position as one that precluded,
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under any circumstances, the possibility of any form of built-in

capital gains tax discount.   After the parties had agreed to

settlement, petitioners discovered that respondent had, in

another case, Estate of Davis v. Commissioner, 110 T.C. 530

(1998), taken the following reply brief position:

     Respondent agrees that if a sale or liquidation of [the
     taxpayer’s] assets was in fact contemplated on the
     valuation date or if, in fact, avoidance of a corporate
     level capital gains tax was not available, some
     reduction in value would be appropriate.

Respondent contends that his trial memorandum comports with the

position stated in the above-cited case and that respondent’s

counsel did not agree that the circumstances for such a discount

or reduction exist here.   Respondent references the following

from his trial memorandum in this case:

          Because a purchaser of the decedent’s stock could
     have avoided or indefinitely deferred payment of
     capital gains tax, and because no liquidation or sale
     of assets was planned for this particular corporation
     as of the date of death, a discount for potential
     capital gains tax is too speculative for estate tax
     valuation purposes.

Discussion

     In this setting, petitioners argue that there was either a

mutual mistake or an affirmative misrepresentation regarding

respondent’s position on the major issue in this case.

Respondent counters that there was a settlement agreement, which

was not founded on a mutual mistake, and that respondent’s

counsel did not misrepresent respondent’s position.
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     We have held that the existence or validity of parties’

settlements may be interpreted under general contract principles.

Robbins Tire & Rubber Co. v. Commissioner, 52 T.C. 420, 435-436

(1969), supplemented by 53 T.C. 275 (1969).   In that regard, as

expressed in Bankamerica Corp. v. Commissioner, 109 T.C. 1, 11

(1997):

          It is clear that we may reopen an otherwise valid
     settlement agreement based on the existence of mutual
     mistake. Callen v. Pennsylvania R. Co., 332 U.S. 625,
     630 (1948); Dorchester Indus. Inc. v. Commissioner, 108
     T.C. 320, 334 (1997). We may also relieve a party of a
     stipulation where justice requires. Cf. Rule 91(e);
     Adams v. Commissioner, 85 T.C. 359, 375 (1985); Shaw v.
     Commissioner, T.C. Memo. 1991-372 n.3. On the other
     hand, unilateral mistake is generally not a ground for
     reforming a settlement or stipulation. Stamm Intl.
     Corp. v. Commissioner, 90 T.C. 315, 320 (1988); see
     Markin v. Commissioner, T.C. Memo. 1989-665. * * *

     Petitioners do not contend that a basis for settlement was

not reached or that a settlement was not agreed to.   Accordingly,

the parties entered into a contract to settle, but petitioners

contend that there was a mutual mistake as to respondent’s

position in this case.   Respondent counters that his position was

set forth in his trial memorandum, and that position was in

accord with respondent’s litigation position expressed in his

reply brief in Estate of Davis v. Commissioner, supra.   We agree

with respondent.

     Although petitioners allege that respondent’s counsel orally

precluded the possibility that capital gains tax could be taken

into account in this case, the written documents in this case do
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not bear out petitioners’ allegation.    Based on the notice of

deficiency and respondent’s trial memorandum, it is clear that

respondent’s trial position was essentially the same as the one

expressed in Estate of Davis v. Commissioner, supra.    Even though

respondent’s litigation position in Estate of Davis did not come

to petitioners’ attention until after a basis for settlement had

been reached, petitioners were aware of respondent’s trial

memorandum at the time of settlement.    Accordingly, to the extent

that there was a mistake of fact or misunderstanding about

respondent’s trial position in this case, it would have been

petitioners’ unilateral mistake or misunderstanding.   It is also

noted that there was no mistake about the terms of the settlement

between the parties or the underlying facts.    The alleged mistake

is about the Government’s litigating position.

     Petitioners, relying on Stamm Intl. Corp. v. Commissioner,

90 T.C. 315, 320-321 (1988), contend that respondent’s counsel

made an affirmative misrepresentation as to respondent’s

litigating position.   Petitioners contend that they relied on the

misrepresentation and that grounds exist for relief from the

settlement stipulation.   See also Saigh v. Commissioner, 26 T.C.

171, 180 (1956), where the Court recognized that “Excusable

damaging reliance upon a false or untrue representation of the

other party, even one innocently made, is a recognized ground for

relief from a settlement stipulation.”
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     Even if respondent’s counsel had orally stated the

Government’s litigating position as one where no discount of any

kind for “built-in capital gains” is permitted, with respondent’s

trial memorandum containing a contrary statement, it is hard to

understand how petitioners were misled or why the oral statement

was accepted over the written position.       The very essence of the

parties’ controversy is sourced in their interpretations of law,

litigating positions, facts, cases, etc.       If petitioners accepted

an oral representation of respondent’s best offer or litigating

position, we must assume that the offer was accepted after

considering petitioners’ chances for success in litigation.

     We also recognize that this case had been calendared for

trial and that the Court had invested time in resolving certain

of the parties’ pretrial procedural disagreements.       The parties

were released from their obligations to complete trial

preparation and\or to present their evidence only after they

advised the Court that the case had been settled.       We shall treat

the settlement as binding in these circumstances.        Dorchester

Indus. Inc. v. Commissioner, 108 T.C. 320 (1997).

     To reflect the foregoing,


                                         An appropriate order will be

                                 issued denying petitioners' motion

                                 to calendar.
