                        T.C. Memo. 1996-371



                      UNITED STATES TAX COURT



   W. ROBERT CURTIS AND CHERYL L. RIESS-CURTIS, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8786-95.                      Filed August 13, 1996.



     Cheryl L. Riess-Curtis, pro se.

     Drita Tonuzi, for respondent.



                        MEMORANDUM OPINION


     DAWSON, Judge:   This case was assigned to Special Trial

Judge Robert N. Armen, Jr., pursuant to the provisions of section

7443A(b)(4) of the Internal Revenue Code of 1986, and Rules 180,

181, and 183.1   The Court agrees with and adopts the Opinion of

     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
                               - 2 -

the Special Trial Judge, which is set forth below.

               OPINION OF THE SPECIAL TRIAL JUDGE

     ARMEN, Special Trial Judge:   This case is before the Court

on respondent's Motion for Leave to File a Motion to Vacate

Decision Out of Time (respondent's Motion for Leave).   The issue

for decision is whether grounds exist in this case for vacating

what is otherwise a final decision.

Background

     Petitioners W. Robert Curtis and Cheryl L. Riess-Curtis

resided in New York, New York, at the time that their petition

was filed with the Court.

     Petitioners were sole equal shareholders in Curtis & Riess-

Curtis, P.C. (the Curtis corporation) during 1989.

     Edwin C. Hamada was the sole shareholder in Edwin C. Hamada,

P.C. (the Hamada corporation) during 1989.

     During 1989, the Curtis corporation and the Hamada

corporation were sole partners in Curtis, Hamada & Curtis (the

Curtis-Hamada partnership), a partnership subject to the unified

partnership audit and litigation procedures set forth in sections

6221 through 6231.   Tax Equity and Fiscal Responsibility Act of

1982 (TEFRA), Pub. L. 97-248, sec. 402(a), 96 Stat. 324, 648.    On

or about October 3, 1990, the Curtis-Hamada partnership filed

Form 1065 (Partnership Return of Income) for 1989 and identified

Edwin C. Hamada, P.C. as the tax matters partner.    On this return

the partnership claimed an ordinary loss in the amount of
                               - 3 -

$47,953.   The Schedules K-1 filed with the partnership's Form

1065 for 1989 revealed that the Hamada corporation and the Curtis

corporation were equal partners and that each was allocated 50

percent, or $23,977, of the loss claimed by the Curtis-Hamada

partnership.

     In or about August 1991, the Curtis-Hamada partnership filed

an amended Form 1065 for 1989 (the amended Form 1065), along with

amended Schedules K-1 (the amended Schedules K-1) for 1989.     On

the amended Form 1065, petitioners increased the $47,953 ordinary

loss by $5,829 (i.e. to $53,782).   Additionally, the amended Form

1065 identified W. Robert Curtis as the tax matters partner.     The

amended Schedules K-1 identified Edwin C. Hamada, W. Robert

Curtis, and Cheryl L. Riess-Curtis as equal individual

shareholders in the Curtis-Hamada partnership and allocated each

partner 33-1/3 percent of the profits and losses of the Curtis-

Hamada partnership.2

     Petitioners filed their Federal individual income tax return

(Form 1040) for 1989 in or about August 1991.   On their Form

1040, petitioners reported a loss in the amount of $35,854 (i.e.,

2/3 of $53,782) reflecting petitioners' distributive share of the

loss claimed by the Curtis-Hamada partnership on its amended Form

     2
       Petitioners concede that the Hamada corporation and the
Curtis corporation were partners in the Curtis-Hamada partnership
and that such partnership is a TEFRA partnership. However,
petitioners contend that 66-2/3 percent and 33-1/3 percent of the
distributive share of the profits and losses should be allocated
to the Curtis corporation and the Hamada corporation,
respectively.
                               - 4 -

1065.   That amount reflects petitioners' distributive share of

the loss as allocated on the amended Schedules K-1.

     On or about June 16, 1993, respondent mailed to petitioners

a notice of the beginning of an administrative proceeding (NBAP)

with respect to the partnership's 1989 taxable year.   Concomitant

therewith, respondent began auditing petitioners' individual

income tax return for 1989.

     On or about November 4, 1994, petitioners consented to

extend the time to assess tax with respect to their individual

income tax return for 1989.

     On February 23, 1995, respondent mailed petitioners a notice

of deficiency for the taxable year 1989.   In the notice of

deficiency, respondent disallowed the $35,864 loss attributable

to petitioners' interest in the Curtis-Hamada partnership.

     Petitioners filed the petition in this case on May 26, 1995.

In the petition, petitioners alleged, inter alia, that the loss

attributable to petitioners' interest in the Curtis-Hamada

partnership was improperly disallowed.

     On July 5, 1995, respondent filed an answer to the petition.

In the answer, respondent denied that the loss attributable to

the Curtis-Hamada partnership was improperly disallowed.

     On June 16, 1995, respondent mailed a notice of final

partnership administrative adjustment (FPAA) for the taxable year
                                - 5 -

1989 to the Curtis-Hamada partnership.3   The FPAA determined that

the income and losses from the Curtis-Hamada partnership should

be allocated equally between the Hamada corporation and the

Curtis corporation as indicated on the Schedules K-1 as

originally filed.    On September 18, 1995, a petition was filed

with the Court in respect of the FPAA.    That petition is styled

"Curtis, Hamada & Curtis, Curtis & Riess-Curtis, P.C., Tax

Matters Partner", docket No. 18481-95 and is presently pending

before the Court.

     In August 1995, respondent disclosed to petitioners that the

notice of deficiency with respect to petitioners' individual

income tax return was untimely mailed because the time prescribed

by section 6501(a) for assessing any additional income tax in

respect of petitioners' 1989 taxable year had expired before

petitioners agreed to extend the time for assessment.   On this

basis respondent proposed a settlement to petitioners that would

eliminate the entire deficiency in income tax and additions to

tax for 1989.

     On August 31, 1995, the Court entered a decision in this

case pursuant to the agreement of the parties.   The decision

reflected the parties' agreement that petitioners were not liable

for any deficiency in income tax or additions to tax for the

taxable year 1989.


     3
       The FPAA identified the Curtis corporation as the tax
matters partner for the Curtis-Hamada partnership.
                               - 6 -

     The 90th day after the Court entered the decision in this

case was Wednesday, November 29, 1995.

     On Tuesday, December 26, 1995, the one hundred and

seventeenth day after the decision was entered, the Court

received and filed respondent's Motion for Leave.    On that same

date, the Court received and lodged two additional motions

submitted by respondent; namely, (1) A Motion to Vacate Decision

(respondent's Motion to Vacate), and (2) a Motion to Dismiss for

Lack of Jurisdiction and to Strike TEFRA Partnership Items

(respondent's Motion to Dismiss for Lack of Jurisdiction).

Discussion

     The question presented is whether grounds exist in this case

for vacating what is otherwise a final decision.    As explained in

greater detail below, we will grant respondent's Motion for Leave

to File Motion to Vacate Decision.

     The decision in this case was entered on August 31, 1995.

See sec. 7459(c).   A decision of this Court becomes final upon

expiration of the time to file a notice of appeal with respect to

such decision.   Sec. 7481(a)(1).   Generally, a notice of appeal

must be filed within 90 days after the decision is entered by

this Court.   Sec. 7483; Fed. R. App. P. 13(a).    The 90-day appeal

period may be extended by the timely filing of a motion to vacate

or revise the decision.   Fed. R. App. P. 13(a).   Absent special

leave of the Court, such a motion must be filed within 30 days

after the decision has been entered.   Rule 162.   The disposition
                                - 7 -

of a motion for leave to file a motion to vacate or revise a

decision lies within the sound discretion of the Court.       Heim v.

Commissioner, 872 F.2d 245, 246 (8th Cir. 1989), affg. T.C. Memo.

1987-1.

     In the instant case, respondent did not file a notice of

appeal or a timely motion to vacate or revise the decision

entered August 31, 1995.    Thus, the decision became final on

Wednesday, November 29, 1995, 90 days after the decision was

entered.    Sec. 7481(a)(1).

     Once a decision of this Court becomes final, we may vacate

the decision only in certain narrowly circumscribed situations.

Helvering v. Northern Coal Co., 293 U.S. 191 (1934).    For

instance, some courts have ruled that this Court may vacate a

final decision if that decision is shown to be void, a legal

nullity, for lack of jurisdiction over either the subject matter

or the party, see Billingsley v. Commissioner, 868 F.2d 1081 (9th

Cir. 1989); Abeles v. Commissioner, 90 T.C. 103, 105-106 (1988);

Brannon's of Shawnee, Inc. v. Commissioner, 71 T.C. 108, 111-112

(1978), or if the decision was obtained through fraud upon the

Court, see Abatti v. Commissioner, 859 F.2d 115 (9th Cir. 1988),

affg. 86 T.C. 1319 (1986); Senate Realty Corp. v. Commissioner,

511 F.2d 929, 931 (2d Cir. 1975); Stickler v. Commissioner, 464

F.2d 368, 370 (3d Cir. 1972); Casey v. Commissioner, T.C. Memo.

1992-672.    In addition, some courts have indicated that the Tax

Court has the power in its discretion, in extraordinary
                               - 8 -

circumstances, to vacate and correct a final decision where it is

based upon a mutual mistake of fact, see La Floridienne J.

Buttgenbach & Co. v. Commissioner, 63 F.2d 630 (5th Cir. 1933).4

     In the present case, there is no allegation that the

decision arose from either a fraud upon the Court or mutual

mistake.   Respondent's Motion for Leave is based solely on the

allegation that the Court lacked jurisdiction to enter the

decision of August 31, 1995.   Specifically, respondent contends

that the loss attributable to petitioners' interest in the

Curtis-Hamada partnership, in the amount of $35,854, is a

partnership item that must be determined at the partnership

level.   Therefore, in respondent's view, the Court lacked

jurisdiction to enter a decision insofar as the decision

purported to resolve the tax treatment of such partnership item.

     It is undisputed that the tax treatment of any partnership

item generally is determined at the partnership level pursuant to

the unified audit and litigation procedures set forth in sections

6221 through 6231.   TEFRA sec. 402(a), 96 Stat. 648.   The TEFRA

procedures apply with respect to a partnership's taxable years

beginning after September 3, 1982.     Sparks v. Commissioner, 87

     4
       Although the U.S. Court of Appeals for the Sixth Circuit
cited mutual mistake of fact as a grounds for vacating a final
decision of this Court in Reo Motors, Inc. v. Commissioner, 219
F.2d 610 (6th Cir. 1955), the Sixth Circuit recently concluded
that Reo Motors, Inc. was effectively overruled by virtue of the
Supreme Court's affirmance of Lasky v. Commissioner, 235 F.2d 97
(9th Cir. 1956), affg. 22 T.C. 13 (1954), affd. per curiam 352
U.S. 1027 (1957). See Harbold v. Commissioner, 51 F.3d 618, 621-
622 (6th Cir. 1995).
                                  - 9 -

T.C. 1279, 1284 (1986); Maxwell v. Commissioner, 87 T.C. 783, 789

(1986).   Partnership items include each partner's proportionate

share of the partnership's aggregate items of income, gain, loss,

deduction, or credit.    Sec. 6231(a)(3); sec. 301.6231(a)(3)-

1(a)(1)(i), Proced. & Admin. Regs.

     A nonpartnership item is defined as an "item which is (or is

treated as) not a partnership item."          Sec. 6231(a)(4).   These

items are subject to the general procedures applicable to audits,

deficiencies and refunds, and not the partnership rules.

     A partnership item can become a nonpartnership item in

certain circumstances.    Thus, section 6231(b)(1) provides in

relevant part as follows:

          (1) IN GENERAL.--For purposes of this subchapter,
     the partnership items of a partner for a partnership
     taxable year shall become nonpartnership items as of
     the date--

                (A) the Secretary mails to such partner a
           notice that such items shall be treated as
           nonpartnership items,

                     *    *   *    *      *     *   *

                (C) the Secretary enters into a settlement
           agreement with the partner with respect to such
           items, or

     In this case there is no dispute that the loss attributable

to the Curtis-Hamada partnership was a partnership item at the

time that respondent mailed to petitioners the notice of

deficiency and at the time that petitioners filed their petition

in respect of such notice.    Petitioners contend, however, that

such partnership item was converted into a nonpartnership item by
                              - 10 -

section 6231(b)(1)(A), or alternatively, by section

6231(b)(1)(C), and that the Court therefore had jurisdiction to

enter the decision with respect to such item.   We address

petitioners' contentions in turn.

     Section 6231(b)(1)(A)

     Petitioners contend that respondent's answer, filed July 5,

1995, constitutes notice from the Secretary that the loss would

be treated as a nonpartnership item pursuant to section

6231(b)(1)(A).   Respondent contends that an answer is merely a

responsive pleading and is not the type of "notice" envisioned by

section 6231(b)(1)(A).

     The Court is not aware of any case or regulation

interpreting or defining the term "notice" as it is used in

section 6231(b)(1)(A).   However, we need not define such term in

this proceeding because at the time respondent filed her answer,

she was not authorized to mail petitioners "notice" under section

6231(b)(1)(A).   This is because section 6231(b)(3) requires that

notice under section 6231(b)(1)(A) be "mailed before the day on

which the Secretary mails to the tax matters partner a notice of

the beginning of an administrative proceeding at the partnership

level with respect to such items".

     In the present case, respondent issued the NBAP on or about

June 16, 1993, and she filed her answer on July 5, 1995.     Under

section 6231(b)(3), respondent was authorized to mail a notice of

conversion pursuant to section 6231(b)(1)(A) only up until June
                                - 11 -

16, 1993, and not thereafter.    Because respondent had no

authority to issue a notice of conversion under section

6231(b)(1)(A) on July 5, 1995, respondent's answer does not

constitute notice under section 6231(b)(1)(A).5

     Section 6231(b)(1)(C)

     Petitioners also contend that the stipulated decision agreed

to by the parties constituted a settlement agreement that

converted the partnership loss into a nonpartnership item under

section 6231(b)(1)(C).    Respondent contends that the stipulated

decision did not convert the partnership loss into a

nonpartnership item because the decision was not "with respect

to" a partnership item.   For the following reasons we agree with

respondent.

     As mentioned previously, a partnership item may become a

nonpartnership item as of the date that "the Secretary enters

into a settlement agreement with the partner with respect to such

items".   Sec. 6231(b)(1)(C) (emphasis added).    In this case the

parties agree that the basis for the stipulated decision was the

statute of limitations on assessment under section 6501(a) and

that the merits of the adjustments made by respondent in the

notice of deficiency were not even considered, much less

resolved.   Thus, the decision does not reflect any agreement


     5
       Sec. 6231(b)(2) limits the permissible circumstances in
which the Secretary can issue notice of conversion under sec.
6231(b)(1)(A). We note that petitioners presented no evidence
with respect to the circumstances described in sec. 6231(b)(2).
                             - 12 -

between the parties with respect to a partnership item, or any

adjustment set forth in the notice of deficiency for that matter.

See sec. 7459(c).

     Because there was no agreement with respect to the loss

attributable to the Curtis-Hamada partnership, the partnership

item in this case, section 6231(b)(1)(C) did not operate to

convert such partnership item into a nonpartnership item.

     We have considered petitioners' remaining arguments and do

not find them persuasive.

     Because section 6231(b)(1)(A) and section 6231(b)(1)(C) did

not, at the time the decision was entered, convert the loss

attributable to the Curtis-Hamada partnership into a

nonpartnership item, such partnership loss was a partnership item

over which this Court had no jurisdiction in this case.

Accordingly, we will grant respondent's Motion For Leave to File

a Motion to Vacate Decision Out of Time.

     To reflect the foregoing,



                                           An appropriate order will

                                   be issued.
