                  T.C. Memo. 2009-33



                UNITED STATES TAX COURT



  DAVID LEE SMITH AND MARY JULIA HOOK, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 22223-07.             Filed February 11, 2009.



     When this deficiency case was called for trial,
the parties represented that they had just reached a
basis of settlement, consisting of adjustments to
income reflected on Forms 4549-A, Income Tax
Discrepancy Adjustments. Each of the forms included a
line 19(c) for “Interest”, on which the amount “0.00”
was typed for each year in suit; but no mention of
interest was made by the parties among themselves or
before the Court. After consultation, the parties
confirmed that the calculations reflected on the
Forms 4549-A were correct and that they were willing to
settle on that basis, and the Court ordered them to
file a stipulated decision document within 30 days.
The parties could not stipulate. Instead, R moved the
Court to enter decision in the amounts of tax,
additions to tax, and penalties shown on the
Forms 4549-A with no decision as to interest; P-W did
not object to R’s motion; and P-H cross-moved the Court
to enter decision in those same amounts of tax,
additions to tax, and penalties, plus zero amounts in
interest.
                                - 2 -

          Held: In a deficiency case under sec. 6213(a),
     I.R.C., the Tax Court has no jurisdiction to determine
     interest due on the deficiency.

          Held, further, where R and P-W reasonably believed
     that interest was not included in the parties’ proposed
     settlement, but P-H reasonably believed (from the zero
     entries for interest on line 19(c) of Forms 4549-A)
     that zero interest was a term in the parties’ proposed
     settlement, the parties failed to have a meeting of the
     minds on a material term and did not settle the case.



     David Lee Smith, pro se.

     Ted H. Merriam, for petitioner Mary Julia Hook.

     Joan E. Steele, for respondent.



                         MEMORANDUM OPINION


     GUSTAFSON, Judge:   This case is before the Court on the

parties’ cross-motions for entry of decision.    On October 7,

2008, respondent filed a motion for entry of decision requesting

that the Court enter a decision “pursuant to the agreement of the

parties”, determining deficiencies in tax, additions to tax, and

penalties for the years 2001 through 2005.    Petitioner Mary Julia

Hook filed a response on October 24, 2008, indicating that she

does not object to the requested entry of decision.    Petitioner

David Lee Smith filed a response and cross-motion on October 23,

2008, in which he objects to the entry of decision as requested

by respondent, and instead requests that decision be entered in

those same amounts but “including $0.00 for interest.”   We will

deny both respondent’s motion and Mr. Smith’s cross-motion for

the reasons stated below.
                                - 3 -

                             Background

Pretrial Proceedings

     On July 3, 2007, the Internal Revenue Service (IRS) issued

to petitioners David Lee Smith and Mary Julia Hook notices of

deficiency pursuant to section 6212(a),1 determining deficiencies

in tax for the tax years 2001 through 2005, along with additions

to tax under section 6651(a)(1) and penalties under section 6662,

totaling $626,756.    Attached to the notices were Forms 4549-A,

Income Tax Discrepancy Adjustments, that showed the IRS’s

proposed adjustments to their income, and that gave the

deficiency (on line 14) and the additions to tax and penalties

(on line 17(a) and (b)) that appeared on the notice of

deficiency.

     The Forms 4549-A attached to the notices of deficiency also

included a line 19(c) with the printed caption “Interest (IRC

§ 6601) - computed to”, which was completed with the typed date

“07/15/2007” (the date one month after the forms were dated), and

in the column for each of the five years, an amount of interest

was stated.   These interest amounts totaled $152,382, which was

about 24 percent of the total liabilities for tax, additions to

tax, and penalties.    However, as usual, the interest amounts did

not appear on the notices of deficiency.

     On September 28, 2007, Mr. Smith and Ms. Hook filed their

petition challenging the deficiencies the IRS had determined in

     1
      Except as otherwise noted, all section references are to
the Internal Revenue Code (26 U.S.C.), and all Rule references
are to the Tax Court Rules of Practice and Procedure.
                                 - 4 -

tax, additions to tax, and penalties.    (The petitions made no

mention of interest.)    At that time both petitioners resided in

Colorado.    The petition alleged that the petitioners are “married

individuals who are separated”.    Ms. Hook thereafter obtained

separate representation, and Mr. Smith represents himself.     Since

May 2008 the petitioners have each submitted their own non-joint

filings in this case.

     On April 8, 2008, the Court issued its notice that the case

would be tried at the calendar commencing September 8, 2008, in

Denver, Colorado.    After the issuance of that notice, Mr. Smith

filed four motions2 that, if granted, would have had the

practical result of delaying the September 2008 trial.     The Court

denied all of his motions.    The case was called during the

September 8 calendar, and the Court ordered that the case would

be tried on September 9, 2008.

Settlement Attempt

     On September 9, 2008, the parties appeared, and counsel for

respondent informed the Court that the parties had reached “a

basis of settlement.”    She presented “a computation form” which

“shows all the adjustments to income for all of the issues for

the years before the Court.”    Respondent’s counsel requested “to

lodge [the form] with the Court as the basis of settlement and



     2
      On   June 10, 2008, Mr. Smith moved to stay proceedings; on
July 16,   2008, he moved to stay proceedings; on July 22, 2008, he
moved to   have himself dismissed from the case; on August 7, 2008,
he moved   to continue the trial; and on September 3, 2008, he
moved to   disqualify the undersigned Judge.
                               - 5 -

request[ed] 30 days for the filing of the decision document.”

The document was lodged with the Court.

     The “computation form” consisted of two Forms 4549-A.    Like

the equivalent forms previously attached to the notices of

deficiency, these forms gave, for each of the five years, amounts

of deficiency (on line 14) and additions to tax and penalties (on

line 17(a) and (b)), though in this instance those amounts

totaled only $314,154--just slightly more than 50 percent of the

total amounts on the notice of deficiency.

     Like the equivalent forms attached to the notice of

deficiency, these Forms 4549-A also included a line 19(c) with

the printed caption “Interest (IRC § 6601) - computed to”, and in

this instance it was completed with the typed date “10/08/2008”

(the date one month after the form was dated), and in the column

for each of the five years the figure “0.00” was typed.    At the

September 9 hearing, no mention was made of these entries.

     At the September 9 hearing, counsel for Ms. Hook explained

that the parties had reached “conceptually a simple settlement on

the basis of the settled issues * * *.    And the computations flow

from there”.   He indicated that this meant that the parties had

not actually reached agreement on the amounts of deficiencies to

be determined, but had so far agreed only on the outcomes of the

issues in the case.   The Court instructed the parties to “do

whatever you need to do to satisfy yourself that these

computations are correct.   And then when we know that we have an

agreement, we’ll accept this and proceed.”   The Court then
                                 - 6 -

recessed for 20 minutes, after which Ms. Hook’s counsel and

Mr. Smith affirmed that they had confirmed “the correctness of

the calculations reflected on the Form 4549A”.       Mr. Smith stated

that he was “willing to rely on what counsel for my co-Petitioner

has stated with respect to the accuracy of it.       * * * I am

willing to settle on that basis.”3       The Court ordered the parties

to cooperate in filing a stipulated decision document within

30 days.

     At the September 9 hearing, the parties made no mention of

the subject of interest and no mention of the zero figures on

line 19(c).   Neither party alleges any statement made among the

parties outside the hearing that informs the terms of an

agreement between the parties.    Ms. Hook’s counsel did inform her

(apparently out of the hearing of the other parties) that

statutory interest would be added to the amount of any

settlement.

Failure to Stipulate

     Thereafter, respondent prepared a draft decision document.

The draft was consistent with the conventions normally used to



     3
      Mr. Smith explicitly deferred to the judgment of Ms. Hook’s
counsel as to the terms of the agreement. See Hrg. Tr. 5, Sept.
9, 2008 (“Your Honor, I don’t know anything about the factual
basis for this settlement. So I’m just taking counsel’s word
that that is true, and that’s fine if that is the case”); id.
at 6 (“If my co-Petitioner and her attorney agree to those
numbers, I do also”); id. at 9 (“there is no way I can figure the
accuracy of those figures. * * * But I am willing to rely on what
counsel for my co-Petitioner has stated with respect to the
accuracy of it. Presumably, he has checked that out, and I am
willing to settle on that basis”).
                               - 7 -

settle Tax Court cases.4   It consisted of two parts--first, a

“Decision” determining deficiencies, additions to tax, and

penalties for the suit years (in the amounts on the Forms 4549-A

lodged on September 9, 2008), followed by a blank to be signed by

the Judge; and second, below the Judge’s signature blank, three

additional paragraphs followed by signature blocks for the

parties.   The three paragraphs read as follows:

          It is hereby stipulated that the Court may enter
     the foregoing decision in this case.

          It is further stipulated that interest will be
     assessed as provided by law on the deficiencies,
     penalties, and additions to tax due from petitioners.

          It is further stipulated that, effective upon the
     entry of this decision by the Court, petitioners waive
     the restrictions contained in I.R.C. § 6213(a)
     prohibiting assessment and collection of the
     deficiencies, penalties, and additions to tax (plus
     statutory interest) until the decision of the Tax Court
     becomes final.

     In correspondence with the IRS, Mr. Smith objected to the

second and third of these paragraphs.   As to the provision about

interest, Mr. Smith wrote:   “This stipulation would change the

calculation agreed to by the parties and their attorneys and

approved by the Tax Judge on September 8 [sic], 2008.   As you

will recall, the Tax Court Judge said that he would not permit

any changes to be made to the September 8 [sic], 2008


     4
      See Internal Revenue Manual (IRM) Exhibit 35.11.1-128 (Aug.
11, 2004); see also IRM pt. 35.8.2.5(1) (Aug. 11, 2004) (“the
separate stipulation document or the stipulation part of the
combined stipulation and decision document should contain the
following paragraph: ‘It is stipulated that interest will be
assessed as provided by law on the deficiency(ies) in tax,
addition(s) to tax, and penalty(ies) due from petitioner(s)’”).
                                 - 8 -

calculation.”   As to the provision about waiver of the

restriction of section 6213(a), Mr. Smith stated simply:    “I do

not see the need for this stipulation.”

Motions for Entry of Decision

     On October 7, 2008, respondent filed a motion for entry of

decision, asking the Court to enter a decision in the amounts of

deficiencies of tax, additions to tax, and penalties that appear

on the Forms 4549-A that were lodged with the Court on

September 9, 2008.   Respondent does not request any decision or

ruling either on waiver of the restriction of section 6213(a) or

on the issue of interest.

     Ms. Hook’s response to respondent’s motion explains her

objection to the second and third paragraphs in the draft

decision document.   It states that she “should not be forced to

stipulate to something to which she did not agree”; asserts that

“the Court does not have the power to force Ms. Hook to waive the

§ 6213(a) restriction”; states that “Respondent has the power to

assess interest even if it is not contained in the Decision”; and

states that she “does not object to entry of decision of the

deficiencies and penalties set forth on page 1 of Respondent’s

Motion for Entry of Decision.”

     Mr. Smith’s response and cross-motion argues that

respondent’s position is “bizarre” and “frivolous” in arguing

that “the Tax Court lacks jurisdiction over issues concerning

interest computed under I.R.C. § 6601”.   Mr. Smith moves the

Court to “enter a decision in accordance with the September 9,
                                - 9 -

2008 calculation and settlement, including $0.00 for interest.”

Mr. Smith does not allege that the parties ever discussed the

issue of interest.

     Thus, each of the parties asserts--

       •   that the parties reached a settlement on September 9,
           2008;

       •   that pursuant to that settlement, the Court should
           enter a decision;

       •   that the amounts of tax, additions to tax, and
           penalties that should be included in that decision are
           those that appear on the Forms 4549-A lodged with the
           Court on September 9, 2008; and

       •   that the Court’s decision should not address the
           restriction of section 6213(a).

The only dispute is as to interest.     Respondent and Ms. Hook both

maintain that the Court’s decision should not address interest,

and that the IRS will thereafter be able to assess interest.

Mr. Smith maintains that the Court’s decision should address

interest, and that the amount of interest in the decision should

be zero.

                             Discussion

I.   In a deficiency case, the Court has no jurisdiction to enter
     a decision as to interest on the taxpayer’s tax
     deficiencies.

     When a taxpayer has an underpayment of tax, interest will

generally be due on that underpayment, pursuant to

section 6601(a).    As a result, when the Tax Court determines a

deficiency in tax, one result of that decision will typically be

that the taxpayer will owe both the tax deficiency determined and

interest thereon.    However, in its deficiency proceedings this
                                - 10 -

Court is “a court of limited jurisdiction and is not empowered to

decide general questions relating to interest.”     Anthony v.

United States, 987 F.2d 670, 672 (10th Cir. 1993).     In a

deficiency case brought under section 6213(a), the Tax Court has

jurisdiction over tax, additions to tax, and penalties, but it

does not have jurisdiction over interest issues.     Rather,

section 6214 confers on this Court jurisdiction to redetermine a

“deficiency”; and section 6211 defines a “deficiency” as an

amount of “tax”.     While section 6601(e)(1) does generally provide

that references to “tax * * * shall be deemed also to refer to

interest imposed by this section on such tax”, the section notes

an explicit exception:     “except subchapter B of chapter 63 [i.e.,

sections 6211-6216], relating to deficiency procedures”.       See

White v. Commissioner, 95 T.C. 209, 213 (1990).     Thus, interest

on a tax deficiency is not properly before the Tax Court in a

deficiency case.

     In the ordinary course, after a Tax Court decision

redetermines a tax deficiency, interest is later assessed on that

deficiency.5     If the IRS assesses more interest than the taxpayer

believes is actually due, then the Tax Court may acquire

jurisdiction to resolve the matter if the taxpayer files a timely

motion under (and satisfies the prerequisites of)

section 7481(c).     See Rule 261.6

     5
         See Commissioner v. McCoy, 484 U.S. 3, 7 (1987).
     6
      The other instances in which the Tax Court may adjudicate
interest issues are few: Where the IRS has failed to abate
                                                   (continued...)
                               - 11 -

     However, in this deficiency case, the Tax Court has never

had jurisdiction over any interest that Mr. Smith and Ms. Hook

may owe on their income tax liabilities for 2001 through 2005.

Their petition did not request any relief as to interest; and if

it had made such a request, then to that extent it would have

been subject to being stricken for lack of jurisdiction.    If this

case proceeds to trial, no evidence or argument can be offered as

to interest issues; and if such evidence were offered, it would

be ruled irrelevant.    If this case proceeds to decision without a

settlement, then the Court’s decision will include no

adjudication as to interest for any party.

     We acknowledge that the exclusion of interest from

deficiency jurisdiction may not be intuitive to taxpayers, many

of whom must be unacquainted with the details of deficiency

jurisdiction, and some of whom might wrongly assume that a

deficiency suit in the Tax Court might resolve issues of

statutory interest.    That fact should condition both the IRS’s




     6
      (...continued)
interest, section 6404(h) gives the Tax Court jurisdiction to
determine whether that failure was an abuse of discretion; and in
a so-called “collection due process” suit under section 6330(d),
the Tax Court reviewing proposed collection activity by the IRS
may have jurisdiction to decide whether interest that the IRS
proposes to collect has been correctly computed. See Urbano v.
Commissioner, 122 T.C. 384 (2004). Neither of those
circumstances is pertinent in this deficiency case.
                              - 12 -

negotiation of settlements7 and the Tax Court’s entry of

decisions based on settlements.

II.   If the parties to a deficiency case in the Tax Court settle
      issues that are not within the Court’s jurisdiction, their
      settlement does not expand the Court’s jurisdiction.

      Tax litigants, like other litigants, may settle their cases

by agreement.   “In a tax case, it ‘is not necessary that the

parties execute a closing agreement under section 7121 in order

to settle a case pending before this Court, but, rather, a

settlement agreement may be reached through offer and acceptance

made by letter, or even in the absence of a writing.’”

Dorchester Indus., Inc. v. Commissioner, 108 T.C. 320, 330 (1997)

(quoting Lamborn v. Commissioner, T.C. Memo. 1994-515, affd.

without published opinion 208 F.3d 205 (3d Cir. 2000)).

      A settlement of a lawsuit must, by definition, resolve the

subject matter of the lawsuit; and in many instances it will

resolve only that subject matter.   Certainly, there should be no

presumption that when parties settle a lawsuit they somehow



      7
      We approve of the IRS’s practice (attempted here, see supra
p. 6-7 & n.4) of proposing settlement stipulations that
explicitly recite the truism that the agreed-upon deficiency will
bear statutory interest. See IRM pt. 35.8.1.6(6) (Aug. 11, 2004)
(“Care should be taken to include prescribed stipulations
acknowledging that interest will be assessed on the deficiency as
required by law in all settlement decision documents”); see also
IRM pt. 35.8.2.5(1) (Aug. 11, 2004) (“In every case in which a
deficiency or an additional liability is stipulated, it must be
made clear to petitioners, and documented, that the Service will
not settle the case without petitioners acknowledging that
interest will be computed and assessed as provided by a law”).
This salutary practice should be continued, since it will
generally prevent misunderstandings or will at least, as here,
flush them out early.
                              - 13 -

settle other outstanding matters between them.   In the absence of

a general release or other express term, a party settling a

lawsuit should not be deemed to have settled matters outside the

lawsuit.8   In a tax deficiency suit, deficiency interest is not

at issue, and a settlement of the suit that makes no mention of

interest should not be construed to somehow settle the issue of

interest sub silentio.   Cf. Spendthrift Farm, Inc. v. United

States, 931 F.2d 405, 407 (6th Cir. 1991) (in a bankruptcy suit,

a closing agreement resolving amounts of income “did not preclude

the IRS from assessing restricted interest against Spendthrift

because restricted interest was not a matter expressly agreed

upon in the agreement”).9



     8
      See 15A C.J.S., Compromise & Settlement sec. 40 (2002) (“A
valid compromise agreement is conclusive on the matters agreed
on, but only as to those matters which the parties fairly
intended to include within its terms and their necessary
consequences”) (citing, inter alia, Metro. Paving Co. v. Intl.
Union of Operating Engrs., 439 F.2d 300, 305 (10th Cir. 1971),
cert. denied, 404 U.S. 829 (1971)); see also Sanpete Water
Conservancy Dist. v. Carbon Water Conservancy Dist., 226 F.3d
1170, 1178-1179 (10th Cir. 2000); Riley Mfg. Co. v. Anchor Glass
Container Corp., 157 F.3d 775, 782-784 (10th Cir. 1998); cf.
Manko v. Commissioner, 126 T.C. 195, 202 (2006) (a Form 906
“closing agreement [which does not address additions to tax] does
not bar the Commissioner from subsequently determining that a
taxpayer is liable for additions to tax”); Zaentz v.
Commissioner, 90 T.C. 753, 761 (1988) (“section 7121 does not
bind the parties [to a Form 906 closing agreement] as to the
premises underlying their agreement; they are bound only as to
the matters agreed upon”).
     9
      But see Hurt v. United States, 70 F.3d 1261 (table),
76 AFTR2d 95-7815(4th Cir. 1995) (unpublished opinion), nonacq.
1991-1 C.B. 1 (1997). This case is distinguishable from Hurt in
that here respondent’s proposed decision document explicitly
stated that interest would be due, and the parties’ disagreement
became apparent before they signed the final decision document.
                               - 14 -

     However, it is possible for the Commissioner and a

deficiency suit petitioner to enter into a settlement that

resolves both issues that are in the Tax Court’s deficiency

jurisdiction (such as the suit-year deficiencies) and issues that

are not.   For example, it is not unusual for the Commissioner and

a Tax Court litigant to enter into a settlement that resolves

non-suit-year deficiencies that arise from the same or similar

issues that give rise to the suit-year deficiencies.   It is even

theoretically possible, though it would be unusual, for the IRS

to enter into a settlement in which it waives interest10 (which,

again, is outside the Court’s deficiency jurisdiction).   However,

that possibility does not expand the proper scope of a decision

to be entered by the Court.

     Just as a Tax Court decision entered after the trial of a

deficiency case will not address interest, so a decision in such

a case entered pursuant to settlement will not address

interest.11   The parties to a Tax Court suit cannot, by their

settlement agreement, confer on the Court jurisdiction that it

otherwise lacks.   Dorn v. Commissioner, 119 T.C. 356, 357 (2002).

Even if the parties in a deficiency case unanimously requested

it, the Court would not purport to enter a decision awarding or


     10
      See Anthony v. United States, 987 F.2d 670, 674 (10th Cir.
1993). But see IRM pt. 35.8.2.5(1) (“The Service does not settle
Tax Court cases by waiving statutory interest assessments”).
     11
      See Anthony v. United States, supra at 672-673 (“the Tax
Court’s decision in this case was merely a pro forma acceptance
of the parties’ stipulated agreement. * * * The Tax Court did
not make an independent determination of interest due”).
                                - 15 -

denying deficiency interest to the Commissioner.    Thus, if the

Commissioner and the taxpayer in a deficiency case were to enter

into a settlement that explicitly involved a waiver of interest

(i.e., a matter outside the Court’s deficiency jurisdiction),

then no decision entered by the Court in the deficiency case

would reflect that interest-waiver term.    Rather, the Court would

enter decision on the matters that are within its jurisdiction,
and the parties’ agreement as to interest would be reflected and

effectuated elsewhere.

     If the IRS thereafter violated that agreement by, for

example, assessing more interest than had been agreed to, the

taxpayer could eventually seek to enforce the terms of the

agreement.12    But in its deficiency case, the Tax Court could not

anticipate and resolve such a dispute that is outside its

jurisdiction.

     Thus, even if Mr. Smith were correct that the parties here

had agreed to a zero-interest term as part of a settlement of

this case, the Court could not enter a decision as to interest.

For that reason at least, his cross-motion must be denied.



     12
      We do not here decide whether such a dispute could be
brought under section 7481(c) by motion before the Tax Court, cf.
Stauffacher v. Commissioner, 97 T.C. 453, 456 (1991) (“Our
jurisdiction under section 7481(c) is ‘solely to determine’
whether the taxpayer has made an overpayment of interest ‘imposed
by this title,’ i.e., tit. 26, U.S. Code”); Thomas v.
Commissioner, T.C. Memo. 1994-291, 67 T.C.M. (CCH) 3130 (1994),
or whether instead such a dispute must be brought in the Court of
Federal Claims under 28 U.S.C. section 1491(a)(1) or in Federal
District Court under 28 U.S.C. section 1346(a)(1) or (2), either
as a suit to enforce a contract or as a refund suit.
                              - 16 -

III. The parties have not settled this case, because they failed
     to reach agreement as to a material term.

     For a further reason, both motions for entry of decision

must be denied:   The parties failed to effect a valid settlement

agreement.   A settlement is a contract, and, consequently,

general principles of contract law determine whether the parties

reached a settlement.   Dorchester Indus., Inc. v. Commissioner,

supra at 330.   A prerequisite to the formation of an agreement is

mutual assent--a “meeting of the minds”--to all its essential

terms; and the determination whether there was a meeting of minds

sufficient to constitute a contract is one of fact.13

     We find that the parties here did not reach a settlement

because there was no meeting of the minds as to a material term

that one of the parties had reason to think was under

consideration–-interest.   A material term is one “that is

significant or essential to the issue or matter at hand”, Dutton

v. Commissioner, 122 T.C. 133, 139 (2004) (quoting Black’s Law

Dictionary 611 (7th ed. 1999)), and interest is indeed

significant here.   As of July 2007, statutory interest as

computed by respondent equaled almost a fourth of the tax,

additions to tax, and penalties that respondent had determined.


     13
      See Estate of Halder v. Commissioner, T.C. Memo. 2003-84,
85 TCM (CCH) 1051, 1052 (2003) (denying a motion for entry of
decision, where failure to agree on the value of an asset in the
estate prevented a “meeting of the minds” so as to settle an
estate tax case) (citing U.S. Titan, Inc. v. Guangzhou Zhen Hua
Shipping Co., 241 F.3d 135, 146 (2d Cir. 2001), Am. Merch. Marine
Ins. Co. v. Letton, 9 F.2d 799, 801 (2d Cir. 1926), cert. denied,
271 U.S. 688 (1926), Kronish v. Commissioner, 90 T.C. 684, 693
(1988), and Manko v. Commissioner, T.C. Memo. 1995-10).
                                 - 17 -

By September 2008, after the accrual of interest over an

additional 14 months, the potential interest liability was an

even greater proportion of the overall liability--and yet

line 19(c) of the Form 4549-A stated, for whatever reason, an

amount of zero.   Each party had a different understanding about

this significant matter.

     It would not now be within our jurisdiction to resolve, in
this deficiency suit, disputes between these parties about the

amount of not-yet-assessed interest due under a contract between

them that settled this case.14    However, it is within our

jurisdiction to determine whether this case has actually been

settled, Estate of Halder v. Commissioner, T.C. Memo. 2003-84, 85

T.C.M. (CCH) at 1053, and determining the existence (or not) of a

settlement agreement is critical to our ability to enter a

decision.   We have not tried this case on its merits so as to be

able to enter a decision on the basis of our own findings;

rather, we are asked to enter decision solely on the basis of an

alleged agreement of the parties--but the parties cannot agree on

the decision to be entered.   On the facts of this case we cannot

enter decision on the basis proposed by either party.15


     14
      Compare section 7481(c) (discussed supra pp. 10, 15 n.12),
involving post-assessment disputes of interest computations,
raised by motion within a year after the date of decision in a
deficiency case.
     15
      Even though respondent and Ms. Hook agree on the terms to
be entered, we cannot enter decision as against Ms. Hook alone,
since the liability is a joint liability and neither Ms. Hook nor
respondent has assented to the entry of decision against her
                                                   (continued...)
                              - 18 -

     Mr. Smith is not a tax litigator.   He expressly disclaimed

any ability to perform the computations required by Form 4549-A.

The Court called on him explicitly to affirm that “the numbers

that are reflected on this Form 4549A are numbers that you are

prepared to commit to,” and he made that affirmation.   He

probably believed he was thereby agreeing to all the numbers
stated there--including interest in the amount of “0.00” on

line 19(c).   Mr. Smith is not simply an uninformed taxpayer who

made the unilateral mistake of assuming that interest is at issue

in a deficiency suit; rather, he relied on a document prepared by

the IRS that, so far as he could tell, expressly stated an

interest amount of zero.

     However, respondent’s counsel and Ms. Hook’s counsel--both

experienced Tax Court litigators--had a different understanding

(i.e., that the settlement they had negotiated would bear

interest), and for good reason:   They understood the Tax Court’s

limited jurisdiction, understood the generality that deficiencies

upheld by the Court bear deficiency interest, and were familiar

with the IRS’s practice, see IRM pt. 35.8.2.5(1), supra note 4,

under which it does not waive interest in settlements of

deficiency suits.   Respondent’s counsel initially lodged the

Form 4549-A only as a presentation of the parties’ “basis of



     15
      (...continued)
alone. The denial of respondent’s motion will be without
prejudice to any later joint motion by respondent and Ms. Hook to
sever the cases of the two petitioners under Rule 61(b) and to
enter decision against Ms. Hook only.
                              - 19 -

settlement” and not as a settlement agreement or stipulation.     A

close reading of the transcript of the hearing held September 9,

2008, shows that respondent’s counsel never said anything

inconsistent with the notion that what was being agreed to was

“adjustments to income” as a “basis of settlement”, yielding

deficiencies in tax, additions to tax, and penalties.   From her

point of view, the Forms 4549-A were simply a means for

describing the basis of their settlement; the line for interest

on that form was extraneous; and the ostensible interest amounts

of “0.00” appearing thereon were place-holders, evidently the

equivalent of “To Be Determined”.

     The issue here is not whether one of the parties should be

permitted to repudiate, modify, or set aside a settlement

agreement, cf. Clark v. Commissioner, T.C. Memo. 2008-279, but

instead whether in fact a settlement was ever actually achieved

in this case.   On the facts set out above, the parties here did

not settle this case.   Because of their different perspectives,

they had different understandings of whether interest was a

subject of their settlement negotiations.    Because their apparent

agreement was reached on the courthouse steps, they did not have

the opportunity beforehand that other deficiency litigants will

have to confront explicitly the issue of statutory interest when

the settlement decision document is prepared, and to resolve any

misunderstanding.   Their failure to agree became apparent when

they were unable to execute a stipulation.   In the absence of a

settlement, the case must now proceed.
                        - 20 -

In view of the foregoing,


                                  An appropriate order

                             will be issued.
