                          T.C. Memo. 1997-149



                        UNITED STATES TAX COURT



         BENNESS M. RICHARDS AND JANE RICHARDS, Petitioners
           v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8922-87.                        Filed March 24, 1997.



     Robert Alan Jones, for petitioners.1

     Pamela S. Wilson and Richard G. Goldman, for respondent.



                          MEMORANDUM OPINION

     BEGHE, Judge:     This matter is before the Court on

petitioners' Motion for Leave to File Motion to Vacate Decision.

The issue to be decided concerns the validity of the notice of


     1
        Although Luis C. DeCastro, Esq., continues to be listed
as counsel of record in docket No. 8922-87, he did not
participate in the filing or prosecuting of the motion that is
the subject of this opinion.
                                - 2 -


deficiency and whether respondent "determined" a deficiency in

petitioners' Federal income tax liability within the meaning of

section 6212(a).2

Background

     On or about June 25, 1979, Benness M. Richards and Jane

Richards filed a joint Federal income tax return for 1978

reporting adjusted gross income of $86,574, taxable income of

$11,975, and tax due of $3,495.    In computing their taxable

income, petitioners claimed an interest deduction attributable to

their participation in certain programs managed by Henry

Kersting.    Because petitioners' 1978 tax return is not part of

the record in this case, we are unable to determine the specific

amount of the interest deduction that petitioners claimed on

their return.

     On January 22, 1981, following an undercover investigation,

the IRS searched Mr. Kersting's offices pursuant to a search

warrant issued by the U.S. District Court for the District of

Hawaii.   Among the items seized during the search were lists

identifying, by name and address, approximately 1,800 of Mr.

Kersting's clients, and schedules showing the amounts of interest

purportedly paid by each client to one or more of several

Kersting companies during the taxable years 1977, 1978, and 1979.

     2
        Section references are to the Internal Revenue Code, as
amended. Unless otherwise indicated, rule references are to the
Tax Court Rules of Practice and Procedure.
                                - 3 -


The circumstances of the search of Mr. Kersting's offices are

described in the Court's opinion in Dixon v. Commissioner, 90

T.C. 237 (1988) (Dixon I).

     On April 15, 1982, respondent issued a joint notice of

deficiency to petitioners determining a deficiency in their

Federal income tax for 1978 in the amount of $47,580.75 and an

addition to tax under section 6653(a) in the amount of $2,379.3

The notice of deficiency, in a form apparently used by respondent

in issuing notices of deficiency to a number of taxpayers with

Kersting-related adjustments, states in pertinent part:

                      EXPLANATION OF ADJUSTMENTS

     1. It is determined that the following amounts claimed
     on your 1978 income tax return as interest deductions
     are not allowable:

           Amount               Purported Payee

         $67,972.50             Any entity owned, associated
                                with, or controlled, either
                                directly or indirectly, by
                                Henry Kersting

     This disallowance is based on the determination that
     the transaction giving rise to the claimed interest
     deduction are shams. This disallowance is further
     based upon your failure to establish that the above
     amounts were paid or properly accrued, or that the
     transactions purportedly generating the claimed amounts
     resulted either in any bona fide indebtedness or in any
     enforceable and bona fide obligation to pay


     3
        The notice of deficiency was issued approximately 70 days
prior to the expiration of the normal 3-year period of
limitations applicable to the assessment of Federal income taxes.
Sec. 6501(a).
                              - 4 -


     compensation for use or forbearance of money on
     indebtedness within the meaning of I.R.C. Section 163.

          Furthermore, if it is established that any portion
     of the above disallowed "interest" is a properly
     allowable deduction, it is further determined that such
     interest constitutes interest in investment
     indebtedness and deduction of such amounts is limited
     under the provisions of I.R.C. 163(d).

          Further, and in support of a portion of the
     determined deficiency, if you establish that you are
     entitled to the above-mentioned interest deduction, it
     is determined that you improperly failed to report the
     income resulting from the same transaction.

     2. It is determined that part of the underpayment of
     tax for the taxable year 1978 is due to your negligent
     or intentional disregard of the rules and regulations.
     Consequently, the 5 percent addition to the tax is
     charged for 1978 as provided by Section 6653(a) of the
     Internal Revenue Code.

A simple arithmetical calculation reveals that respondent

computed petitioners' tax deficiency by applying a tax rate of 70

percent, which was the highest tax rate imposed for 1978.4

     On July 12, 1982, Lu N. Nevels, Jr., Esq., filed a joint

petition for redetermination (assigned docket No. 17445-82) on

behalf of a large group of taxpayers, including petitioners, who

had received notices of deficiency with Kersting-related




     4
        Inasmuch as there were no other adjustments in the notice
of deficiency, and assuming that the adjusted gross income that
petitioners reported is correct, respondent erred in computing
petitioners' tax liability for 1978 using a 70-percent tax rate,
which was only applicable with respect to taxable income
exceeding $203,200 for joint filers.
                               - 5 -


adjustments.5   Disputing the $67,972.50 figure used in the notice

of deficiency, the petition includes an allegation that the

interest deduction reported on petitioners' 1978 income tax

return attributable to their participation in Kersting programs

was only $38,523.6   In addition, the petition includes an

allegation that the notice of deficiency issued to petitioners is

arbitrary and capricious.

     On September 13, 1982, respondent filed an answer to the

petition.   Specifically, respondent denied for lack of sufficient

information the allegation respecting the specific amount of the

interest deduction reported on petitioners' 1978 tax return and

denied without qualification the allegation that the notice of

deficiency is arbitrary and capricious.

     On January 27, 1987, Luis C. DeCastro, Esq. (Mr. DeCastro),

filed an entry of appearance on behalf of petitioners in docket

No. 17445-82.   In the interim, on December 23, 1986, respondent's

counsel assigned to the Kersting project, Kenneth McWade, Esq.

(Mr. McWade), had mailed Mr. DeCastro a letter enclosing proposed

decision documents for petitioners and several of his other

clients with cases before the Court involving Kersting-related


     5
        Petitioners resided in Woodland Hills, California, at the
time the petition was filed.
     6
        The petition identifies the payees as Atlas Funding
Corp., Fargo Acceptance Corp., Federated Finance Co., Forbes
Acceptance Corp., and Mahalo Acceptance Corp.
                               - 6 -


adjustments.   On December 30, 1986, Mr. DeCastro executed a

stipulated decision on behalf of petitioners that states as

follows:

                             DECISION

          Pursuant to agreement of the parties in the above-
     entitled case, it is

          ORDERED AND DECIDED: That there is a deficiency
     in income tax due from the petitioners for the taxable
     year 1978 in the amount of $23,000.00;

          That there are no additions to the taxes due from
     the petitioners for the taxable year 1978, under the
     provisions of I.R.C. sec. 6653(a); and

          That there are no additions to the taxes due from
     the petitioners for the taxable year 1978, under the
     provisions of I.R.C. sec. 6621(d).

On the same date, Mr. DeCastro mailed a check to Mr. McWade,

signed by petitioners and made payable to the IRS in the amount

of $53,571, representing $23,000 in tax and $30,571 in interest.

Mr. McWade executed the stipulated decision on April 27, 1987,

and mailed the document to the Court.

     On March 30, 1987, Mr. McWade filed a Motion to Sever

petitioners' case from docket No. 17445-82.   Shortly thereafter,

the Court granted the motion, severed petitioners' case from

docket No. 17445-82, and assigned the case docket No. 8922-87.

On May 8, 1987, the Court entered the parties' stipulated

decision as described above in docket No. 8922-87.
                               - 7 -


     Petitioners did not file a notice of appeal or a timely

motion to vacate or revise the decision entered May 8, 1987.

Consequently, the decision became final on August 6,

1987, 90 days after the decision was entered.   Sec. 7481(a)(1).

     During the period that petitioners' case was docketed with

the Court, 14 dockets and 8 petitioners with Kersting-related

adjustments were selected as "test" cases for trial.7     Mr. McWade

served as respondent's lead counsel during the trial of the test

cases.   One of the taxpayers selected as a test case, John

Thompson, was represented at trial by Mr. DeCastro.

     Following a trial on the merits of the test cases, the Court

issued its Memorandum Opinion sustaining virtually all of

respondent's determinations in each of the test cases.     See Dixon

v. Commissioner, T.C. Memo. 1991-614 (Dixon II).   As a

preliminary matter, the Court rejected the test-case taxpayers'

argument, similar to that raised here, that the notices of

deficiency issued to them were null and void on the ground that

the Commissioner failed to make a determination as required by

Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987), revg. 81

     7
        More than 1,800 cases were filed with this Court by
participants in the Kersting plans seeking redeterminations of
the deficiencies determined by respondent (the Kersting group).
The bulk of the more than 1,300 remaining docketed cases in the
Kersting group are covered by "piggyback agreements" in which the
taxpayer(s) and respondent stipulated to be bound by the Court's
opinion in the test cases. Hundreds of non-test cases in the
Kersting group have been disposed of, like the case at hand, by
entry of a stipulated decision.
                                - 8 -


T.C. 855 (1983).   The Court distinguished the notices of

deficiency issued to the test-case taxpayers from the notice of

deficiency at issue in Scar on the ground that adjustments in the

notices of deficiency could be connected with items reported in

the test-case taxpayers' tax returns.

     The Court's decision in Dixon II was vacated and remanded on

appeal to the U.S. Court of Appeals for the Ninth Circuit in

Dufresne v. Commissioner, 26 F.3d 105 (9th Cir. 1994).

Specifically, in response to respondent's post-trial admission

that Mr. McWade had entered into secret settlement agreements

with two of the test case taxpayers, John Thompson and John

Cravens, prior to the trial of the test cases, the Court of

Appeals remanded the test cases to this Court with instructions

to conduct an evidentiary hearing "to determine the full extent

of the admitted wrong done by the government trial lawyers."     Id.

at 107.   The Court of Appeals, citing Arizona v. Fulminante, 499

U.S. 279, 309 (1991), directed the Court to consider "whether the

extent of the misconduct rises to the level of a structural

defect voiding the judgment as fundamentally unfair, or whether,

despite the Government's misconduct, the judgment can be upheld

as harmless error."   Id.   In carrying out this mandate, this
                               - 9 -


Court also was directed to consider on the merits all motions of

intervention filed by parties affected by Dixon II.   Id.8

     Upon remand, the Court gave effect to the direction of the

Court of Appeals regarding intervention by allowing a number of

non-test-case taxpayers who had previously signed stipulations to

be bound by the decision in Dixon II to participate in the

evidentiary hearing.   Robert Alan Jones, Esq. (Mr. Jones),

entered his appearance on behalf of a group of non-test-case

taxpayers allowed to participate in this fashion.

     During the evidentiary hearing, which was held at a special

trial session of the Court in Los Angeles in May-June 1996,9 Mr.

Jones expressed concern that, in addition to the settlement with

John Thompson, Mr. McWade may have entered into settlements with

other clients of Mr. DeCastro on terms more favorable than the

standard Kersting project settlement offer.   In this regard, Mr.

Jones requested respondent's counsel, Mary Elizabeth Wynne, Esq.

(Ms. Wynne), to disclose the details of settlements entered into

with Mr. DeCastro's clients, including petitioners.   In a letter

     8
        The appellate panel in Dufresne v. Commissioner, 26 F.3d
105 (9th Cir. 1994), vacating and remanding T.C. Memo. 1991-614,
issued an order stating that the panel would retain jurisdiction
over any subsequent appeal.
     9
        Although the evidentiary hearing has been held, the
filing of various post-hearing motions, and as yet unresolved
disagreements among the participants over post-hearing
stipulations of fact, have delayed the setting of a schedule for
the filing of briefs on the various issues raised by the mandate
of the Court of Appeals in Dixon II.
                             - 10 -


dated September 3, 1996, Ms. Wynne attempted to explain that

petitioners did not receive special treatment from Mr. McWade in

the settlement of their case as follows:

          As we discussed on the telephone, I have received
     authorization from Mr. and Mrs. Richards to disclose
     the attached copy of the computer transcript of the
     Richards' account for 1978. As you are aware, neither
     the government nor the Richards has a copy of the
     Richards' 1978 return. But the information on the
     enclosed transcript reflects the following information
     concerning the 1978 return filed by the Richards.

          The 1978 tax return was filed June 25, 1979, and
     showed an income tax liability of $3,495. Advance or
     estimated payments of $8,931 were credited to the
     account on April 15, 1979. On June 25, 1979, a refund
     of $5,489.09 was generated to the Richards (along with
     interest of $53.09). On December 31, 1986, the
     Richards's account was credited with a tax payment of
     $23,000 and interest of $30,571. The tax of $23,000
     and interest of $30,571 were assessed on October 5,
     1987 (which date was within 60 days of the date the Tax
     Court decision became final).

          In addition to showing the above information, the
     enclosed transcript also shows that the Richards's
     reported adjusted gross income of $86,574 on their 1978
     return, and taxable income of $11,975. The maximum tax
     rate in 1978 was 70 percent, but that rate did not
     apply until taxable income reached $203,200 for joint
     filers. Accordingly, even without allowance of the
     Kersting related deductions, the Richards's taxable
     income in 1978 was not high enough to trigger the
     maximum tax rate of 70 percent that was used in the
     notice of deficiency. Thus, any comparison of the
     amount asserted in the notice with the amount on
     decision must be made after adjusting for the proper
     tax rate.

          As the Court noted during the hearing, the
     petition filed on behalf of the Richards alleged that
     Kersting related deductions were only $38,523.
     Assuming the petition is correct, the tax on taxable
     income of $50,498 ($11,975 per the return and $38,523
     disallowed Kersting deductions) is $15,709, which
                             - 11 -


     produces a deficiency of $12,214 ($15,709 less the
     $3,495 reported on the return). A seven percent
     reduction of this deficiency results in a deficiency of
     $11,359, far less than the deficiency in the decision
     of $23,000.

          The explanation for this discrepancy lies in the
     fact that several Kersting participants received
     notices of deficiency based on a reconstruction of
     records obtained from Mr. Kersting's office in 1981.
     For the year 1978, the statute of limitations would
     have expired in 1982. Thus, the notice may have been
     issued without access to the original return. Whatever
     the reason for the discrepancy, it is clear that the
     Richards did not receive any kind [of] special
     treatment from Mr. McWade.

     On November 8, 1996, Mr. Jones filed an entry of appearance

on behalf of petitioners and the Motion for Leave to File Motion

to Vacate Decision that is before the Court in this proceeding.10

Petitioners contend that Ms. Wynne's letter dated September 3,

1996, demonstrates that respondent did not examine their 1978 tax

return prior to issuing the notice of deficiency and that the

notice of deficiency was "wrongfully and fraudulently issued".

Relying on Scar v. Commissioner, supra, petitioners maintain that

the Court should conclude that the notice of deficiency is

invalid on the ground that respondent did not make a

determination as required under section 6212.

     Respondent filed an objection to petitioners' motion.

Relying on Kantor v. Commissioner, 998 F.2d 1514, 1521-1522 (9th

     10
        We observe that Mr. Jones' original theory that
petitioners received a more favorable settlement than the
standard Kersting project settlement has no particular relevance
to whether the notice of deficiency is valid.
                               - 12 -


Cir. 1993), and Clapp v. Commissioner, 875 F.2d 1396, 1402 (9th

Cir. 1989), respondent contends that validity of the notice of

deficiency turns on whether the notice reveals on its face that

respondent failed to make a determination.    Respondent asserts

that the notice of deficiency is valid under this standard.

Discussion

     In order to put in proper context petitioners' Motion for

Leave to File Motion to Vacate Decision, we begin with a brief

summary of the general principles governing the finality of Tax

Court decisions.

     Section 7481(a)(1) provides the general rule that a decision

of the Tax Court becomes final upon expiration of the time to

file a notice of appeal.    Section 7483 provides that a notice of

appeal generally must be filed within 90 days after a decision is

entered.    However, the 90-day appeal period may be extended if

the taxpayer files a timely motion to vacate or revise the

decision.    Fed. R. App. P. 13(a).   Pursuant to Rule 162, a motion

to vacate or revise a decision must be filed within 30 days after

the decision is entered, unless the Court allows otherwise.

     As indicated, petitioners did not file a notice of appeal or

a timely motion to vacate or revise the decision that had been

entered in this case on May 8, 1987.    Accordingly, the decision

became final on August 6, 1987.    See secs. 7459(c), 7481(a)(1).
                              - 13 -


     The Tax Court generally lacks jurisdiction to vacate a final

decision.   Abatti v. Commissioner, 859 F.2d 115, 117 (9th Cir.

1988), affg. 86 T.C. 1319 (1986); Lasky v. Commissioner, 235 F.2d

97, 100 (9th Cir. 1956), affd. per curiam 352 U.S. 1027 (1957).

The Court will vacate a final decision only in certain narrowly

circumscribed situations.   For instance, this Court and some

Courts of Appeals have ruled that this Court may vacate a final

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

nullity, for lack of jurisdiction over either the subject matter

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

1084-1085 (9th Cir. 1989); Abeles v. Commissioner, 90 T.C. 103,

105-106 (1988); Brannon's of Shawnee, Inc. v. Commissioner, 69

T.C. 999, 1002 (1978), or if the decision was obtained through

fraud upon the Court, see Abatti v. Commissioner, supra; Senate

Realty Corp. v. Commissioner, 511 F.2d 929, 931 n.1 (2d Cir.

1975); Stickler v. Commissioner, 464 F.2d 368, 370 (3d Cir.

1972); Casey v. Commissioner, T.C. Memo. 1992-672.   In addition,

the Court of Appeals for the Fifth Circuit has indicated that the

Tax Court has the power in its discretion, in extraordinary

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).

But cf. Harbold v. Commissioner, 51 F.3d 618, 621-622 (6th Cir.

1995).
                               - 14 -


     Petitioners' motion is based on the theory that the notice

of deficiency issued to them was invalid, and, therefore, the

Court was never vested with jurisdiction to enter a decision in

the case.12

     The Court's jurisdiction to redetermine a deficiency is

dependent upon issuance of a valid notice of deficiency and a

timely filed petition.   Rule 13(a), (c); Levitt v. Commissioner,

97 T.C. 437, 441 (1991); Monge v. Commissioner, 93 T.C. 22, 27

(1989); Normac, Inc. v. Commissioner, 90 T.C. 142, 147 (1988).

Section 6212(a) expressly authorizes the Commissioner, after

determining a deficiency, to send a notice of deficiency to the

taxpayer by certified or registered mail.

     It is well settled that no particular form is required for a

statutory notice of deficiency.   Jarvis v. Commissioner, 78 T.C.

646, 655 (1982).13   At a minimum, however, the notice must

     12
        There is no evidence in the record that the stipulated
decision entered in petitioners' case represents a fraud upon the
Court. See Abatti v. Commissioner, 859 F.2d 115, 118-119 (9th
Cir. 1988) (defining fraud upon the court as "an unconscionable
plan or scheme which is designed to improperly influence the
court in its decision" or a fraudulent act that "prevents the
opposing party from fully and fairly presenting his case"), affg.
86 T.C. 1319 (1986).
     13
        Sec. 7522(a), applicable to notices mailed on or after
January 1, 1990, provides in pertinent part that a notice of
deficiency

     shall describe the basis for, and identify the amounts
     (if any) of, the tax due, interest, additional amount,
     additions to the tax, and assessable penalties included
     in such notice. An inadequate description under the
                              - 15 -


indicate that the Commissioner has determined a deficiency in tax

in a definite amount for a particular taxable year and that the

Commissioner intends to assess the tax in due course.        Olsen v.

Helvering, 88 F.2d 650, 651 (2d Cir. 1937); Perlmutter v.

Commissioner, 44 T.C. 382, 400 (1965), affd. 373 F.2d 45 (10th

Cir. 1967).   Absent exceptional circumstances, we will not look

behind a notice of deficiency to examine the evidence used by the

Commissioner in the determination of a deficiency.     Scar v.

Commissioner, 814 F.2d at 1368; Greenberg's Express v.

Commissioner, 62 T.C. 324, 327-328 (1974).

     In Scar v. Commissioner, supra, the taxpayers, after

receiving a deficiency notice that disallowed a deduction from a

partnership with which the taxpayers had no connection, contended

that the Commissioner had not "determined" a deficiency against

them as contemplated under section 6212(a).    The notice of

deficiency included as an attachment an explanation of the

adjustments that stated in pertinent part:    "In order to protect

the government's interest and since your original income tax

return is unavailable at this time, the income tax is being

assessed at the maximum tax rate of 70%."     Id. at 1365.

     After filing a petition with the Court, the taxpayers filed

a motion to dismiss for lack of jurisdiction.    We held the




     preceding sentence shall not invalidate such notice.
                              - 16 -


deficiency notice to be valid and denied the taxpayers' motion to

dismiss.   Id. at 1366.

     In analyzing the issue on appeal, the majority of the panel

of the Court of Appeals for the Ninth Circuit concluded that the

Commissioner must consider information relating to a particular

taxpayer before it can be said that the Commissioner has

determined a deficiency with respect to that taxpayer.       Id. at

1368.   More specifically, the Court indicated in a footnote that,

in order to determine a deficiency against a taxpayer based upon

a tax shelter adjustment, the Commissioner cannot rely solely

upon an examination of the tax return of the tax shelter entity

but must also examine the taxpayer's return to see whether the

taxpayer in fact claimed a deduction with respect to the

particular tax shelter.   Id. at 1367 n.6.   With this standard in

mind, the Court concluded that the deficiency notice was invalid

under section 6212(a) because the notice on its face revealed

that the Commissioner had not reviewed the taxpayers' return or

otherwise made a determination respecting the taxpayers'

liability for the particular taxable year.    Id. at 1370.

     The Scar issue subsequently resurfaced in this Court in

Campbell v. Commissioner, 90 T.C. 110 (1988).   In Campbell, the

Commissioner mailed a notice of deficiency to the taxpayers

including:   (1) The traditional cover letter containing

boilerplate language identifying the package as a notice of
                              - 17 -


deficiency and listing the taxable year as well as the amounts of

the deficiency and additions to tax, (2) a Form 5564 "Notice of

Deficiency-Waiver", and (3) several pages purportedly explaining

the adjustments.   Although the cover letter and the waiver form

clearly related to the taxpayers, the Commissioner had

inadvertently attached to the notice a seven-page explanation of

adjustments for an unrelated taxpayer.    In response, the

taxpayers filed a petition (and later a motion to dismiss)

attacking the validity of the notice of deficiency under Scar.

Id. at 111.

     Upon review of the matter, we distinguished Scar and denied

the taxpayers' motion to dismiss.   Specifically, we noted that

the first two pages of the deficiency notice clearly referred to

the taxpayers as the subjects of the notice.    While the

explanation of adjustments certainly caused confusion, there was

no indication in the notice that the Commissioner had failed to

consider information relating to the taxpayers in making the

deficiency determination.   Id. at 113.   Viewing the record as a

whole, we concluded that the Commissioner had determined a

deficiency against the taxpayers and inadvertently attached the

wrong computational sheets to the notice of deficiency.      Id.

     Subsequent to Campbell, the Court of Appeals for the Ninth

Circuit revisited Scar in Clapp v. Commissioner, 875 F.2d 1396

(9th Cir. 1989).   In Clapp, separate notices of deficiency were
                              - 18 -


sent to both individual taxpayers and to related trusts, with

many of the same items of income being attributed to both the

individuals and the trusts.   Prior to executing settlement

agreements on the basis of which decisions were entered by this

Court, the individual taxpayers filed a motion to dismiss,

arguing that the notices mailed to them were invalid because the

Commissioner had failed to consider information necessary to

determine the amounts of the deficiencies.   Id. at 1398.     We

denied the taxpayers' motion on the ground that the Commissioner

made specific determinations with respect to items reported on

the taxpayers' returns.

     In rejecting the taxpayers' argument on appeal, the Court of

Appeals concluded:

          Unlike Scar, the notices of deficiency make clear
     that the Commissioner did examine each return, did
     consider the deductions, and did attribute trust income
     to the taxpayers from sham trusts related to the
     particular taxpayer, not from unrelated entities. Also
     unlike Scar, the notices did not state that the
     deficiency was calculated upon the arbitrary selection
     of the maximum tax rate. The notices of deficiency are
     valid under Scar.

          Furthermore, as the Tax Court has since pointed
     out, Scar did not even require any affirmative showing
     by the Commissioner that a determination set forth in
     an alleged notice of deficiency was made on the basis
     of the taxpayers' return. Only where the notice of
     deficiency reveals on its face that the Commissioner
     failed to make a determination is the Commissioner
     required to prove that he did in fact make a
     determination. Campbell v. Commissioner, 90 T.C. 110
     (1988). Here, nothing on the face of the notice
     reveals that the Commissioner failed to make a
     determination. [Id. at 1402; emphasis added.]
                              - 19 -


The Court of Appeals in Clapp went on to observe that the

availability of remedies for an arbitrary or inaccurate

deficiency determination, such as shifting the burden of proof to

the Commissioner and/or awarding litigation costs, would make

greater substantive review "of the Commissioner's threshold

'determination', undertaken solely for purposes of exercising

subject matter jurisdiction * * * duplicative and burdensome on

the courts and the Commissioner."     Id. at 1403.

     Applying these principles to the present case, it is clear

that the notice of deficiency concerns petitioners' tax liability

for 1978 and that the deficiency is attributable to respondent's

determination to disallow an interest deduction in the amount of

$67,972.50 with respect to petitioners' participation in Kersting

programs.   Petitioners do not dispute that they reported a

Kersting-related interest deduction on their 1978 income tax

return.   Consequently, we find that respondent considered

information relating to petitioners' 1978 tax liability in

preparing the notice of deficiency.    Scar v. Commissioner, 814

F.2d at 1370.   In addition, unlike Scar, and cases such as Kong

v. Commissioner, T.C. Memo. 1990-480, and Watson v. Commissioner,

T.C. Memo. 1993-42, the notice does not contain a statement that

respondent issued the notice without examining petitioners' tax

return in order to protect the Government's interest.   Under the

circumstances, the notice of deficiency does not reveal on its
                               - 20 -


face that respondent failed to make a determination with respect

to petitioners' tax liability, and we so hold.

     Petitioners' contention that the notice of deficiency is

invalid because respondent "did not rely on actual taxpayer

information to make an independent determination of a deficiency"

is misplaced.    As stated in Clapp v. Commissioner, supra at 1402,

unless the notice of deficiency reveals on its face that the

Commissioner failed to make a determination, the Commissioner is

not required to make an affirmative showing that a determination

was made on the basis of the taxpayers' return.    In short, the

analysis outlined in Clapp begins and ends in this case with our

holding that the notice of deficiency is facially valid.

     Moreover, the present case, like Clapp, is better suited to

an argument that respondent's determination was arbitrary or

simply incorrect.   In fact, the petition filed on behalf of

petitioners contained an allegation that the notice of deficiency

was arbitrary.    Of course, it is well settled that an arbitrary

determination does not render a notice of deficiency invalid.

The taxpayer's remedies with respect to an arbitrary or incorrect

notice of deficiency are to move to shift to the Commissioner the

burden of going forward with the evidence, or, in appropriate

circumstances, to move for litigation costs.     Id. at 1403.

Although the record does not disclose whether Mr. DeCastro

pursued any of these points with Mr. McWade in settlement
                              - 21 -


negotiations, or whether he attempted to resolve with Mr. McWade

the discrepancy between the $67,972.50 of Kersting interest

deductions disallowed by the notice of deficiency and the lower

amount of $38,523 alleged by the petition as having been claimed

on the return, petitioners did agree to a deficiency

substantially less than that determined by respondent.

     In sum, the stipulated decision that Mr. DeCastro executed

on petitioners' behalf is now final, and petitioners have failed

to persuade us that the notice of deficiency issued to them is

invalid.   It follows that we lack jurisdiction to vacate the

decision in this case.

     To reflect the foregoing,

                                      An order will be issued

                                 denying petitioners' Motion for

                                 Leave to File Motion to Vacate

                                 Decision.
