                         108 T.C. No. 16



                     UNITED STATES TAX COURT



    DORCHESTER INDUSTRIES INCORPORATED, ET AL.,1 Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 20515-93, 20572-93,     Filed April 29, 1997.
                 27121-93, 23092-94.


          R has moved for entry of decisions based on an
     agreement with Ps to settle these cases. Two Ps argue
     that they never agreed to settle these cases and, even
     if they did, they have repudiated that agreement.
          Held: Ps entered into a settlement agreement with
     R. R's motions for entry of decision will be granted
     with respect to all dockets (except with regard to W).
     Cole v. Commissioner, 30 T.C. 665 (1958), affd. 272
     F.2d 13 (2d Cir. 1959), will not be followed to the
     extent that it indicates that a party to a settlement
     agreement that is not filed as a stipulation may
     repudiate that agreement up until (and including) the
     time the case is called for trial.



1
     Cases of the following petitioners are consolidated
herewith: Frank H. Wheaton, Jr., and Mary B. Wheaton, docket
Nos. 20572-93, 27121-93, and 23092-94.
                               - 2 -

     Paul R. Porreca, Darryl S. Caplan, and Ian M. Comisky, for

petitioner Dorchester Industries, Inc., docket No. 20515-93.

     Ian M. Comisky, Todd C. Simmens, and Darryl S. Caplan, for

petitioner Frank H. Wheaton, Jr., docket Nos. 20572-93,

27121-93, and 23092-94.

     Robert D. Comfort, Gregg W. Winter, and Marc Sonnenfeld, for

petitioner Mary B. Wheaton, docket Nos. 20572-93, 27121-93, and

23092-94.

     Patrick Whelan, William S. Garofalo, Leon St. Laurent, and

Daniel K. O'Brien, for respondent.



     HALPERN, Judge:   Respondent has determined deficiencies in

Federal income tax and additions to tax in the following cases:

Docket No.         Petitioner(s)                Tax Years

20515-93       Dorchester Industries     1981, 1982, 1985, 1986
               Inc.

20572-93       Frank Wheaton, Jr.,       1979-1988
               and Mary Wheaton

27121-93       Frank Wheaton, Jr.,       1989
               and Mary Wheaton

23092-94       Frank Wheaton, Jr.,       1990
               and Mary Wheaton

     Respondent has moved for entry of decision with respect to

each of those cases.   Subsequent to respondent’s moving for entry

of decisions in the cases at docket Nos. 20572-93, 27121-93, and

23092-94, respondent and petitioner Mary Wheaton (Mary Wheaton)

reached an agreement on and stipulated to the fact that Mary
                                 - 3 -

Wheaton is an innocent spouse within the meaning of section

6013(e).    On that basis, respondent has conceded all deficiencies

in income tax, additions to tax, and penalties determined with

respect to Mary Wheaton.     We accept respondent’s concession and

shall enter decisions accordingly.

     Respondent asks that we enter decisions with respect to

petitioners Dorchester Industries Inc. (Dorchester) and Frank

Wheaton, Jr. (Frank Wheaton), based on a settlement agreement

that respondent claims those petitioners entered into on November

6, 1995.    We must determine whether Dorchester and Frank Wheaton

did, in fact, enter into such an agreement and, if so, the

consequence thereof.   Respondent asks that we enter decisions

with respect to Dorchester and Frank Wheaton as follows:

Docket No. 20515-93 (Dorchester Industries)

                                         Additions to Tax
                                Sec.            Sec.          Sec.
     Year      Deficiency    6653(b)(1)      6653(b)(2)       6661
     1981       $92,643       $46,322           None          None
                                                  1
     1982        89,411        44,706                         None
                                                  1
     1985       230,360       115,180                       $57,590
     1
       The addition to tax under I.R.C. sec. 6653(b)(2) is
50 percent of the interest payable under I.R.C. sec. 6601 with
respect to the portion of the underpayment which is attributable
to fraud, which is the entire deficiency for each of the taxable
years 1982 and 1985.

                                       Additions to Tax
                                      Sec.          Sec.
    Year        Deficiency       6653(b)(1)(A) 6653(b)(1)(B)
                                                     1
    1986          $1,376            $1,032
     1
       The addition to tax under I.R.C. sec. 6653(b)(1)(B) is
50 percent of the interest payable under I.R.C. sec. 6601 with
respect to the portion of the underpayment which is attributable
                                        - 4 -

to fraud, which is the entire deficiency for the taxable year
1986.

Docket No. 20572-93 (Frank H. Wheaton, Jr.)

                                                Additions to Tax
                                                      Sec.
    Year               Deficiency                   6653(b)
    1979                 $65,558                    $32,779
    1980               1,026,785                    513,393
    1981                 926,036                    463,018

                                               Additions to Tax
                                         Sec.          Sec.       Sec.
    Year               Deficiency     6653(b)(1)    6653(b)(2)    6661
                                                        1
    1982               $1,191,646     $595,823                  $297,912
                                                        1
    1983                  587,593      293,797                   146,898
                                                        1
    1984                  886,466      443,233                   221,617
                                                        1
    1985                1,145,974      572,987                   286,494
        1
       The addition to tax under I.R.C. sec. 6653(b)(2) is
50 percent of the interest payable under I.R.C. sec. 6601 with
respect to the portion of the underpayment which is attributable
to fraud, which is the entire deficiency for the taxable years
1982, 1983, 1984, and 1985.


                                           Additions to Tax
                                 Sec.          Sec.         Sec.   Sec.
 Year           Deficiency   6653(b)(1)(A) 6653(b)(1)(B)    6661    6662
                                                 1                   --
 1986           $1,141,552     $856,164                  $285,388
                                                 1
 1987              940,833      533,332                   177,777 $45,945
                                                                     --
 1988              559,806      419,855        None       139,952
            1
        The addition to tax under I.R.C. sec. 6653(b)(1)(B) is
50 percent of the interest payable under I.R.C. sec. 6601 with
respect to the portion of the underpayment which is attributable
to fraud, which is the entire deficiency for the taxable year
1986 and $711,109 of the deficiency for the taxable year 1987.

Docket No. 27121-93 (Frank H. Wheaton, Jr.)

                   Year        Deficiency          Sec. 6662
                   1989         $235,948           $47,189.60

Docket No. 23092-94 (Frank H. Wheaton, Jr.)

                   Year        Deficiency           Sec. 6662
                   1990         $230,981             $46,196
                                - 5 -

     Unless otherwise noted, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

                           FINDINGS OF FACT

Introduction

     Frank Wheaton is married to Mary Wheaton, and they resided

in Millville, New Jersey, at the time their petitions in these

cases were filed.   They made joint returns of income for the

taxable (calendar) years 1979 through 1990.

     Dorchester is a New Jersey corporation.    It is engaged in

shipbuilding and repair.    Dorchester’s mailing address was in

Dorchester, New Jersey, at the time its petition in this case was

filed.   Dorchester is a calendar-year taxpayer.

     At all times relevant to the issues in these cases, Frank

Wheaton was the sole shareholder of Dorchester.    Frank Wheaton

has been the president of Dorchester since at least 1991.

The Scheduled Trial

     By order of the Chief Judge dated January 19, 1995, the

cases at docket Nos. 20515-93, 20572-93, and 27121-93 (the 1993

docketed cases) were assigned to Judge James S. Halpern for

disposition.   By order dated February 14, 1995, the 1993 docketed

cases were consolidated and set on a special trial calendar to

commence in Philadelphia, Pennsylvania, on October 30, 1995.      By

order dated October 19, 1995, the 1993 docketed cases were set
                                - 6 -

for a pretrial conference on October 26, 1995, in Washington,

D.C.    At that conference, the Court was informed that the trial

in those cases would take approximately 3-1/2 weeks.    The

parties’ pretrial memoranda set forth more than 70 issues;

respondent, alone, listed 60 witnesses.    Thousands of hours had

gone into trial preparation.    The Court conducted a lengthy

discussion of the issues to be tried, and the Court determined

that both the Court and the parties would benefit if, before

commencing trial, the parties could discuss their differences

with an impartial third party, who might suggest a basis for

settlement of some or all of the items in issue.    Accordingly, by

order dated October 27, 1995, the Court continued the cases for

trial from October 30, 1995, to November 8, 1995.    The parties

were directed to meet with Chief Special Trial Judge Peter J.

Panuthos to discuss their differences and determine whether any

or all of the items in issue might be disposed of by settlement.

       A meeting with Chief Special Trial Judge Panuthos commenced

on November 2, 1995, in Washington, D.C.    Respondent was

represented by attorney William Garofalo (Garofalo).    Dorchester

and the Wheatons were represented by attorneys William Gilson

(Gilson) and Gary Wodlinger (Wodlinger).    Neither Frank nor Mary

Wheaton attended the meeting, although Frank Wheaton was present

in Washington, D.C.    On the evening of November 2, 1995, after

their initial meeting with Chief Special Trial Judge Panuthos,

Gilson and Wodlinger met with Frank Wheaton at his hotel in
                                - 7 -

Washington, D.C., and expressed doubt as to the persuasiveness of

certain of their key arguments.   Frank Wheaton told Gilson and

Wodlinger that he would not appear or testify at trial.     Gilson

informed Frank Wheaton that he was the principal witness in about

90 percent of the issues in the cases and that, without him,

Gilson and Wodlinger had no chance.     Gilson informed Frank

Wheaton that, if he did not testify, there would be a default and

a judgment for $41 million--“$40 million against you

[personally]”.   Frank Wheaton again said that he would not show

up for trial.    He said that he did not have $40 million, he was

not spending any more money, and he was getting back to business.

Frank Wheaton instructed Gilson and Wodlinger to get a settlement

number from the Internal Revenue Service (IRS).     He did not

instruct Gilson and Wodlinger to set any conditions on the

settlement.

     On the morning of November 3, 1995, Gilson and Wodlinger met

with Garofalo and Chief Special Trial Judge Panuthos.     Gilson

advised Garofalo that Frank Wheaton wished to settle the cases.

Garofalo told Gilson that (1) he would prepare a settlement offer

based on the amount of tax and penalties for which respondent

believed petitioners were liable, (2) respondent would only

settle the instant cases if Gilson submitted to respondent

written settlement documents prior to 11:00 a.m., on Monday,

November 6, 1995, and (3) he had no authority to settle any

dispute with Frank and Mary Wheaton for 1991, a year not then
                                - 8 -

before the Court.    Subsequently, Frank Wheaton, Gilson,

Wodlinger, and Garofalo left Washington, D.C.

     Later on November 3, 1995, Garofalo transmitted a letter via

facsimile to Gilson (the November 3 letter).    The November 3

letter contains attachments setting forth respondent’s proposed

settlement figures with respect to the 1993 docketed cases.      In

addition, the attachments contain figures to settle the case at

docket No. 23092-94, which involves the tax liability of Frank

and Mary Wheaton for 1990 (the 1993 docketed cases and the case

at docket No. 23092-94 hereafter referred to together as the

docketed cases).    The November 3 letter required a response by

11:00 a.m., on Monday, November 6, 1995.    The settlement figures

proposed by respondent in attachments to the November 3 letter

are substantially the same as the figures contained in

respondent’s motions for entry of decision, except that the

attachments contain calculations of interest that are not part of

respondent’s motions for entry of decision.    Including interest,

the attachments show amounts due in excess of $40 million.

     Richard F. Riley (Riley) and K. Martin Worthy (Worthy) are

experienced tax attorneys associated with the law firm of Hopkins

& Sutter as partner and senior counsel, respectively.    They had

been retained by Frank Wheaton to consult with his trial counsel,

Gilson and Wodlinger, regarding the docketed cases.    At Frank

Wheaton’s request, Gilson and Wodlinger conferred by telephone

with Riley and Worthy during the weekend of November 4 and 5,
                               - 9 -

1995, concerning the proposed settlement.    During that weekend,

Frank Wheaton also spoke with Riley and Worthy and, separately,

with Wodlinger.   As a result of those conversations, a consensus

was formed among the various attorneys and Frank Wheaton to make

a counteroffer to the Government’s proposal contained in the

November 3 letter; the counteroffer was to be 75 percent of the

amounts proposed by the Government.    Frank Wheaton and his

attorneys realized, however, that the Government might not accept

that counteroffer.   On the morning of Monday, November 6, 1995,

before speaking by telephone with Garofalo, Gilson telephoned

Frank Wheaton and asked for instructions if the Government were

to refuse the 75-percent counteroffer.    Frank Wheaton instructed

Gilson that, in that circumstance, he was to proceed and take the

Government’s number.   Frank Wheaton answered “yes” when Gilson

asked him if he realized that there would be a $40 million

judgment.   Although there had been a discussion among the

attorneys and a discussion between the attorneys and Frank

Wheaton regarding Frank Wheaton’s inability to pay $40 million

and the possibility of negotiating some final payment obligation

for both the docketed cases and other years under examination

(but not yet petitioned to the Tax Court), Frank Wheaton did not

attach any condition to his instruction to Gilson that, if the

Government would not compromise, he was to take the Government’s

number.
                              - 10 -

     On the morning of November 6, 1995, after speaking with

Frank Wheaton, Gilson spoke by telephone with Garofalo, who

rejected the 75-percent counteroffer.   Garofalo then told Gilson

of certain minor changes to the Government’s proposed settlement

figures.   Gilson made a note of those numbers.   Gilson informed

Garofalo that the Government’s proposals were acceptable.     At

some point during the morning of November 6, 1995, Garofalo or

his secretary transmitted by facsimile, and Gilson received, a

letter (the November 6 letter), which made the changes to the

Government’s proposed settlement figures that had previously been

communicated by Garofalo to Gilson by telephone and that reduced

the settlement amount slightly.   The November 6 letter was signed

by Patrick E. Whelan, Assistant District Counsel for the IRS.

The November 6 letter required a response by 1:00 p.m.   Also at

some point during the morning of November 6, 1995, Garofalo, by

telephone, informed Gilson that (1) in light of Gilson’s

statement that the Government’s proposals were acceptable, he

need not worry about the 1:00 p.m., deadline and (2) he should

get his written response to Garofalo as soon as possible.

     Later, on November 6, 1995, Gilson faxed to Frank Wheaton a

letter (the November 6 letter to Wheaton) that begins:   “This

letter will confirm the authority given to us to resolve the

pending United States Tax Court matters involving calendar years

1979 through 1990."   The November 6 letter to Wheaton then

summarizes the events and discussions of the few days prior to
                              - 11 -

the letter.   It states that, earlier that day, a report by

telephone had been made by Gilson to Frank Wheaton of the

morning’s telephone conversation between Gilson and Garofalo and

that Frank Wheaton had instructed Gilson to continue to settle

the matter.   It also states that, consistent with the telephone

report and resulting instruction, correspondence accepting the

Government’s settlement proposal had been faxed simultaneously to

Garofalo and to Frank Wheaton.   In addition, the November 6

letter to Wheaton states that Riley’s office will take the lead

in “an offer in compromise” and that it would be necessary for

Frank Wheaton to provide a list of assets to the IRS at some time

in the future.

     At 3:30 p.m., on November 6, 1995, Gilson faxed a letter to

Garofalo (the November 6 response) accepting the revised

settlement proposal “as set forth in your revised offer of this

morning, November 6, 1995.”   The November 6 response requests

that Garofalo advise the Court of the settlement in order to

avoid the necessity of appearing for trial on Wednesday,

November 8, 1995, in Philadelphia, Pennsylvania.

     Garofalo informed the Court of the settlement.   By order

dated November 6, 1995, upon information that the parties had

reached a basis for settlement, the Court struck the 1993

docketed cases from the November 8, 1995, Philadelphia,

Pennsylvania, special trial session and ordered the parties to
                                - 12 -

submit settlement documents to the Court on or before December 4,

1995.

Subsequent Events

        Sometime after November 8, 1995, Frank Wheaton changed his

mind.     On November 21, 1995, Garofalo mailed decision documents

to Gilson, which reflected the basis for the settlement that had

been reached.     Frank Wheaton refused to execute those decision

documents.     As a result, respondent moved for entry of decision

in each of the docketed cases.

Representation

        Gilson and Wodlinger entered their appearances as counsel

for Dorchester on April 11, 1994.     They entered their appearances

as counsel for Frank and Mary Wheaton in the remaining docketed

cases by subscribing the petitions in those cases.

        Prior to entering their appearances in those remaining

docketed cases, Gilson and Wodlinger met with Frank and Mary

Wheaton to discuss representation with respect to Frank and Mary

Wheaton’s 1979 through 1989 taxable years.     Gilson and Wodlinger

raised the question of separate counsel for Frank and Mary

Wheaton and for Dorchester.     Frank Wheaton advised Gilson and

Wodlinger that he did not want to retain additional attorneys and

that he wanted Gilson and Wodlinger to represent all three

parties.     Mary Wheaton stated that she did not want separate

counsel and directed Gilson and Wodlinger to take their

instructions from Frank Wheaton.     Gilson and Wodlinger raised the
                              - 13 -

question of an innocent spouse defense for Mary Wheaton.     Mary

Wheaton said that she did not want to raise that defense.     Frank

Wheaton said that he was not going to have that defense raised.

      Gilson and Wodlinger have withdrawn as counsel in all of the

docketed cases.

                              OPINION

I.   Introduction

      Respondent has moved for entry of decision in each of these

consolidated cases in accordance with a settlement agreement of

the parties.   Because respondent and petitioner Mary Wheaton

(Mary Wheaton) have since reached an agreement on and have

stipulated to the fact that Mary Wheaton is an innocent spouse

within the meaning of section 6013(e), there are no issues with

respect to Mary Wheaton that we must address.   With respect to

petitioners Dorchester Industries Inc. (Dorchester) and Frank

Wheaton, Jr. (Frank Wheaton), we must determine whether those

parties and respondent, in fact, entered into a settlement

agreement and, if so, the consequences thereof.

      At the conclusion of an evidentiary hearing that commenced

on July 26, 1996 (the hearing), the parties (other than Mary

Wheaton) were directed to file briefs setting forth proposed

findings of fact and argument.   The Court set page limitations on

the argument portions of the opening and answering briefs of

25 and 15 pages, respectively.   The Court stated that, if

additional pages for argument were desired, a party would have to
                               - 14 -

request leave of Court to exceed the page limitations.     The

argument portion of Frank Wheaton’s opening brief consists of

25 pages; however, at its beginning, it carries a footnote

stating that, due to the page limitations imposed by the Court,

Frank Wheaton incorporates by reference arguments contained in

certain previously filed papers.    Frank Wheaton did not ask for

leave to exceed the page limitations imposed by the Court.

Accordingly, the Court will not incorporate into his brief the

referenced arguments and deems him to have failed to raise any

arguments not set forth plainly in either his opening or

answering brief.

      Dorchester has failed to file an opening brief.   By its

counsel, Paul Porreca, Dorchester has given notice of its

adoption of Frank Wheaton’s reply brief.    We assume that

Dorchester wishes to adopt the arguments made by Frank Wheaton in

his opening brief.

II.   Settlement Agreement

      A.   Introduction

      A controversy before this Court may be settled by agreement

of the parties.    Recently, we have stated some general

propositions regarding settlement agreements:

           For almost a century, it has been settled that
      voluntary settlement of civil controversies is in high
      judicial favor. Williams v. First Natl. Bank, 216 U.S.
      582, 595 (1910); St. Louis Mining & Milling Co. v.
      Montana Mining Co., 171 U.S. 650, 656 (1898). A valid
      settlement, once reached, cannot be repudiated by
      either party, and after the parties have entered into a
                               - 15 -

     binding settlement agreement, the actual merits of the
     settled controversy are without consequence. This
     Court has declined to set aside a settlement duly
     executed by the parties and filed with the Court in the
     absence of fraud or mutual mistake. Stamm Intl. Corp.
     v. Commissioner, 90 T.C. 315 (1988); Spector v.
     Commissioner, 42 T.C. 110 (1964). However, a court
     will not force a settlement on parties where no
     settlement was intended. Autera v. Robinson, 419 F.2d
     1197 (D.C. Cir. 1969).

          A settlement is a contract and, consequently,
     general principles of contract law determine whether a
     settlement has been reached. Robbins Tire & Rubber Co.
     v. Commissioner, 52 T.C. 420, 435-436, supplemented by
     53 T.C. 275 (1969). A prerequisite to the formation of
     a contract is an objective manifestation of mutual
     assent to its essential terms. Heil v. Commissioner,
     T.C. Memo. 1994-417; 17A Am. Jur. 2d, Contracts, secs.
     27 and 28 (1991); 1 Williston on Contracts, sec. 3:5
     (4th ed. 1990). Mutual assent generally requires an
     offer and an acceptance. 17A Am. Jur. 2d, Contracts,
     sec. 41 (1991). "An offer is the manifestation of
     willingness to enter into a bargain, so made as to
     justify another person in understanding that his assent
     to that bargain is invited and will conclude it."
     1 Restatement, Contracts 2d, sec. 24 (1981).

          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." Lamborn v. Commissioner,
     T.C. Memo. 1994-515. Settlement offers made and
     accepted by letters are enforced as binding agreements.
     Haiduk v. Commissioner, T.C. Memo. 1990-506; see also
     Himmelwright v. Commissioner, T.C. Memo. 1988-114.

Manko v. Commissioner, T.C. Memo. 1995-10.

     B.   Authority

     If a settlement agreement was reached here, it was not

reached by Frank Wheaton negotiating directly on his own behalf

and on behalf of Dorchester.   Respondent was represented by
                               - 16 -

attorney William Garofalo (Garofalo), and Dorchester and Frank

Wheaton were represented by attorneys William Gilson (Gilson) and

Gary Wodlinger (Wodlinger).    No question has been raised as to

Frank Wheaton's authority to act on behalf of Dorchester, of

which he was president and sole shareholder.    Frank Wheaton and

Dorchester do question, however, the authority of Gilson to enter

into any settlement agreement on their behalf.

          Whether an attorney has authority to act on behalf
     of a taxpayer is a factual question to be decided
     according to the common law principles of agency.
     Adams v. Commissioner, 85 T.C. 359, 369-372 (1985);
     Kraasch v. Commissioner, 70 T.C. 623, 627-629 (1978).
     Under common law principles of agency, authority may be
     granted by express statements or may be derived by
     implication from the principal's words or deeds. Dahl
     v. Commissioner, T.C. Memo. 1995-179; DiSanza v.
     Commissioner, T.C. Memo. 1993-142, affd. 9 F.3d 1538
     (2d Cir. 1993); Casey v. Commissioner, T.C. Memo. 1992-
     672; John Arnold Executrak Systems, Inc. v.
     Commissioner, T.C. Memo. 1990-6.

Estate of Quirk v. Commissioner, T.C. Memo. 1995-234.

     We have no doubt that Gilson received express authority from

Frank Wheaton to settle the cases at docket Nos. 20515-93, 20572-

93, 27121-93, and 23092-94 (the docketed cases) on the basis

presented by the Government.    Indeed, Frank Wheaton conceded at

the hearing that he authorized Gilson and Wodlinger to enter into

an agreement with the Internal Revenue Service (IRS).    Frank

Wheaton testified:

     They [Gilson and Wodlinger] said they had talked to
     Mr. Riley and they all agreed that the best thing for
     us to do was to agree to the statements of the IRS and
     that would amount to a $40 million fine * * *. But I
     said as long as Mr. Riley and you two [Gilson and
                                 - 17 -

     Wodlinger] think that's the thing to do, you're my
     counsel, I guess we'll have to do so. [Emphasis
     added.]

In response to questioning by the Court, Frank Wheaton testified

that he instructed Gilson to enter into a settlement agreement on

the terms presented by the Government and then subsequently

decided that he did not want to settle the cases.     Frank Wheaton

also testified that he understood that the settlement agreement

would encompass the docketed cases and would not affect

petitioners' tax liabilities with respect to any tax years not

before the Court.    Under these circumstances, we find that Gilson

possessed express authority to enter into the settlement

agreement on behalf of Dorchester and Frank Wheaton.

     C.   Offer and Acceptance

     On November 3, 1995, Garofalo transmitted a letter via

facsimile to Gilson (the November 3 letter).     The November 3

letter contains respondent’s proposed settlement figures for the

docketed cases.     The November 3 letter required a response by

11:00 a.m., on Monday, November 6, 1995.     In a telephone

conversation with Gilson during the morning of that Monday,

Garofalo told Gilson of certain changes to those proposed

settlement figures.     Gilson told Garofalo that the Government’s

proposals were acceptable.     At some point during the morning of

November 6, 1995, Garofalo or his secretary transmitted by

facsimile, and Gilson received, a letter (the November 6 letter),

which made the changes to the Government’s proposed settlement
                              - 18 -

figures that were previously communicated by Garofalo to Gilson

by telephone and which reduced the settlement amount slightly.

The November 6 letter required a response by 1:00 p.m.   Also by

telephone during the morning of November 6, 1995, Garofalo

extended the 1:00 p.m., deadline contained in the November 6

letter.   At 3:30 p.m., on November 6, 1995, Gilson faxed a letter

to Garofalo (the November 6 response) accepting respondent’s

revised offer of November 6, 1995.

     Dorchester and Frank Wheaton point to some uncertainty in

Garofalo’s testimony concerning whether he faxed the November 6

letter to Gilson or whether he had his secretary fax that letter.

Dorchester and Wheaton conclude that respondent has failed to

prove that the November 6 letter was transmitted to Gilson on

November 6, 1995.   They view the November 3 letter as a proposal

and not a definite offer.   They argue:

          A prerequisite to the formation of an agreement is
     the manifestation of mutual assent to material terms by
     all the parties. Lamborn v. Commissioner, T.C. Memo.
     1994-5[1]5. Consequently, there must be a “meeting of
     the minds” on material terms in order to reach an
     agreement. Olefins Trading, Inc. v. [Han Yang Chem.]
     Corp., 9 F.3d 282 (3d Cir. 1993). This intended
     agreement [the November 3 letter] purports to conclude
     cases involving eleven calendar years, between 133 and
     155 issues and numerous penalties. This document
     outlined above simply does not show a settlement was
     ever reached of a case of this complexity and
     magnitude.

     The attachments to the November 3 letter contain a great

amount of detail supporting respondent’s proposed settlement

figures for the docketed cases.   On the morning of November 6,
                              - 19 -

1995, by telephone, Garofalo made certain minor changes to those

proposed settlement figures, which changes were confirmed by the

November 6 letter.   The November 6 letter was faxed to and

received by Gilson during the morning on November 6, 1995.     We

base that finding principally on Garofalo’s testimony that he

believed that the November 6 letter was faxed to Gilson at

11:30 a.m., on November 6, 1995, and Gilson’s testimony that he

recollects reviewing the November 6 letter on November 6, 1995.

Moreover, the November 6 response refers to Garofalo’s “revised

offer of this morning, November 6, 1995.”   We are convinced that

the proposed settlement figures conveyed to Gilson by way of the

November 3 letter and modified somewhat on November 6, 1995, by

way of the November 6 letter constitute the definite and material

terms of an offer to settle the docketed cases, and we so find.

     Dorchester and Frank Wheaton argue that the November 6

response, faxed by Gilson to Garofalo at 3:30 p.m., was too late

and, thus, no agreement was reached.   We do not agree.   First,

Gilson accepted the Government’s proposals during his telephone

conversation with Garofalo during the morning of November 6,

1995.   The November 3 letter, however, called for a written

acceptance.   The November 6 letter extended the time for the

written acceptance to 1:00 p.m.   By telephone during the morning

of November 6, 1995, Garofalo extended the 1:00 p.m., deadline

contained in the November 6 letter.    It is hornbook law that, if

an acceptance fails to comply with a time requirement in an
                                - 20 -

offer, the time requirement may be waived.     E.g., 1 Jaeger,

Williston on Contracts, sec. 53, at 171 (3d ed. 1957):

     Not infrequently an offeror who has imposed a limit of
     time in his offer does not care to insist upon it and
     by further negotiations may indicate a continued
     willingness to stand by the terms of his offer. Any
     such manifestation of continued willingness is in
     effect a new offer, which may be accepted and if
     accepted will ripen into a new contract. [Fn. ref.
     omitted.]

We have no doubt that the time requirement contained in the

November 6 letter was waived and that the November 6 response was

a timely acceptance of an offer made by respondent, and we so

find.     Indeed, respondent relied on that response in informing

the Court that no trial was necessary.

     The contractual prerequisites of offer and acceptance are

present:     The November 3 letter, the November 6 letter, the

November 6 response, and the surrounding circumstances constitute

the objective manifestation of mutual assent to the essential

terms of a settlement agreement.     The agreement that was reached

is the agreement proposed in the November 3 letter, as modified

during the morning telephone conversation of November 6, 1995,

which is all set forth in the November 6 letter.     We believe that

the parties entered into a contract to settle the docketed cases,

and we so find.

     D.     Repudiation

        By order dated November 6, 1995, upon information that the

parties had reached a basis for settlement, the Court struck the
                               - 21 -

cases at docket Nos. 20515-93, 20572-93, and 27121-93 (the 1993

docketed cases) from the November 8, 1995, Philadelphia,

Pennsylvania, special trial session (the November 8 special trial

session) and ordered the parties to submit settlement documents

to the Court on or before December 4, 1995.   On November 21,

1995, Garofalo mailed decision documents (the decision documents)

to Gilson.   The decision documents address not only the 1993

docketed cases but also the case at docket No. 23092-94 (the 1994

docketed case), which deals with Frank and Mary Wheaton’s 1990

tax year (the 1993 docketed cases and the 1994 docketed case

being referred to together as the docketed cases).   Frank Wheaton

refused to execute the decision documents.    At the hearing, the

Court asked Frank Wheaton why he believed the trial did not start

on November 8, 1995.    He answered that he assumed that the trial

did not start because he had agreed to the Government’s

settlement proposals.   He testified that the reason he had

refused to execute the decision documents was because he had

changed his mind about the settlement sometime after November 8,

1995.   Dorchester and Frank Wheaton argue that Frank Wheaton was

free to repudiate his agreements with the Government when he was

presented with the decision documents some time soon after

November 21, 1995.

     Among the general propositions set forth above (section

II.A) are that (1) a settlement is a contract and (2) a valid

settlement, once reached, cannot be repudiated by either party.
                              - 22 -

Nevertheless: “The law is well established that a court has some

power to set aside a settlement stipulation filed with it but its

discretion will not be exercised unless good cause is shown.”

Saigh v. Commissioner, 26 T.C. 171, 176 (1956).   In Adams v.

Commissioner, 85 T.C. 359, 375 (1985), we set forth criteria

appropriate for determining when we should exercise our

discretion to modify or set aside a settlement stipulation:

     The party seeking modification * * * must show that the
     failure to allow the modification might prejudice him.
     * * * Discretion should be exercised to allow
     modification where no substantial injury will be
     occasioned to the opposing party; refusal to allow
     modification might result in injustice to the moving
     party; and the inconvenience to the Court is slight.
     * * * [Citations omitted.]

     In Himmelwright v. Commissioner, T.C. Memo. 1988-114, we

faced a situation similar to that which we face with respect to

the 1993 docketed cases.   In the Himmelwright case, we had

canceled a trial in reliance on the representation of counsel for

one of the parties that a settlement agreement had been reached.

We enforced that agreement, memorialized in a letter from the

taxpayer’s counsel to the Commissioner’s counsel, by analogizing

the taxpayer’s request to be relieved of the agreement to a

motion to vacate a settlement agreement filed on the eve of

trial.   In Stamm Intl. Corp. v. Commissioner, 90 T.C. 315 (1988),

the Commissioner moved to vacate a settlement agreement

negotiated shortly before trial was scheduled to commence.    We

stated that the settlement agreement had led to the vacation of
                               - 23 -

the trial date and would have led to entry of decisions had the

parties complied with their agreement and the Court’s order with

respect to settlement documents.    Id. at 321.   Because of those

circumstances, we stated that more stringent standards were

applicable than the criteria set forth in Adams v. Commissioner,

supra.   We stated that the moving party had to satisfy standards

akin to those applicable in vacating a judgment entered into by

consent:   “In such cases, the parties are held to their agreement

without regard to whether the judgment is correct on the merits.”

Id. at 322.   Absent a showing of lack of formal consent, fraud,

mistake, or some similar ground, a judgment entered by consent

will be upheld.    E.g., Swift & Co. v. United States, 276 U.S.

311, 324 (1928).   Those same principles are applicable here.     The

Court struck the 1993 docketed cases from the November 8 special

trial session in reliance on the representation made by the

parties that they had reached a basis for settlement.    Dorchester

and Frank Wheaton have failed to prove fraud, mistake, or some

similar ground; accordingly they are bound by the terms of the

settlement with respect to the 1993 docketed cases.

     The situation is different with respect to the case at

docket No. 23092-94 (the 1994 docketed case), which deals with

Frank and Mary Wheaton’s 1990 tax year.   The 1994 docketed case

was not set for trial at the November 8 special trial session.

It was noticed for trial on May 13, 1996, in Philadelphia,

Pennsylvania (which trial was continued).   Trial was not imminent
                                - 24 -

on November 6, 1995, when respondent and Frank Wheaton entered

into the settlement agreement.    The 1994 docketed case is, thus,

unlike Himmelwright v. Commissioner, supra, and we need not apply

the stringent eve-of-trial standards of Stamm Intl. Corp. v.

Commissioner, supra.     For good cause shown, we may refuse to

implement the settlement agreement as it applies to the 1994

docketed case.   Cf. Saigh v. Commissioner, supra at 176 (stating

that rule with respect to a settlement stipulation).    We apply

the criteria set forth in Adams v. Commissioner, supra.

     Since the settlement agreement entered into by respondent

and petitioners amounts to a virtual capitulation by petitioners,

it does not appear that respondent gave up much of anything to

get a settlement of the 1994 docketed case or would be

substantially injured were we to modify the settlement agreement

with respect to the 1994 docketed case.    Respondent might be

forced to try that case, but that possibility exists for any

decision to set aside a settlement agreement.    If attention is

focused only on the 1994 docketed case, the Court has not been

unduly inconvenienced.    Nevertheless, Frank Wheaton has failed to

prove that a failure to modify the settlement agreement would

result in an injustice being done to him.    He consulted with four

attorneys after receiving respondent’s settlement proposal.       Two

of those attorneys, Richard F. Riley and K. Martin Worthy, are

experienced tax attorneys.    Frank Wheaton has not alleged that

respondent tried to deceive him by including the 1994 docketed
                               - 25 -

case in the settlement proposal; indeed, it appears that the 1994

docketed case was included in the settlement proposal at Frank

Wheaton’s request in order to settle as many tax years as

possible.   Frank Wheaton cannot assert that he was not fully

cognizant of the terms for settling the 1994 docketed case or

that he did not approve that settlement.   In fact, beyond the

assignments of error and averments in the petition, he has failed

to argue that there is any merit to his claims with respect to

the 1994 docketed case.   He has not informed us what witnesses he

would call, what they would testify to, or what other evidence he

would present.   All we know is that Frank Wheaton changed his

mind with respect to settling that case.   Frank Wheaton has

failed to prove that any injustice would result by holding him to

his bargain, and he has failed to convince us that we should

exercise our discretion to modify the settlement agreement as it

applies to the 1994 docketed case.

     Finally, we are not compelled to allow Frank Wheaton to

repudiate the settlement agreement with respect to the 1994

docketed case because of what we said in Cole v. Commissioner, 30

T.C. 665, 674 (1958), affd. 272 F.2d 13 (2d Cir. 1959).   In the

Cole case, we refused to redetermine deficiencies in accord with

certain proposed stipulations that we found had not been executed

by the Commissioner and had not been filed in the Court as

stipulations.    After finding that the proposed stipulations had
                              - 26 -

not been accepted or signed on behalf of the Commissioner, we

added:

          Moreover, even if it be assumed that either
     stipulation had been signed, petitioner would not be
     entitled to have an order entered disposing of the case
     upon the basis of such document. This Court will, of
     course, enter an order adjudicating liability in
     accordance with an agreement of the parties, for the
     existence of such agreement shows that there is no
     longer any controversy between them. And once a
     stipulation is filed by both sides, it is binding upon
     them. Cf. Fred M. Saigh, Jr., 26 T.C. 171. But where,
     for whatever reason, the parties are not in agreement
     at the time the case is called for trial, it is wholly
     irrelevant in this connection that they may have been
     in agreement at some earlier time. The inquiry into
     whether respondent’s Chief Counsel had “signed” the
     stipulations in this case is therefore beside the
     point. Furthermore, the mere signing of a paper, while
     retaining custody of it, does not necessarily render it
     an operative document. Until it is delivered or until
     some appropriate action is taken with respect thereto,
     it is far from clear that the signer may not scratch
     out his signature.

Id. (emphasis added).   In Estate of Jones v. Commissioner, 795

F.2d 566, 573 (6th Cir. 1986), affg. T.C. Memo. 1984-53, the

Court of Appeals for the Sixth Circuit (the Sixth Circuit) upheld

this Court’s determination that a settlement was not validly

executed because it had not been filed with the Court and had not

been signed by or on behalf of the Chief Counsel, although it had

been approved by an IRS Appeals officer.   This Court had relied

on the Cole case, which the Sixth Circuit quoted in part,

beginning its quotation with the underscored language set forth

above.   The Sixth Circuit acknowledged that, had it been passing

on a settlement agreement independently reached “by ordinary
                                - 27 -

litigation”, it might well have concluded that such agreement

should be enforced.    It concluded, however, that this Court had

not erred as a matter of law in reaching its conclusion.   This

Court, however, has not been consistent in interpreting (or even

acknowledging) the Cole case.    For example, in Nelson Bros., Inc.

v. Commissioner, T.C. Memo. 1991-52, we cast doubt on whether an

agreement could be repudiated before trial.   We emphasized what

we had said in the Cole case about the mere signing of a proposed

stipulation not always being sufficient evidence that the parties

were in agreement.    We continued:

      Instead, delivery of the stipulation or other
      appropriate action would be needed in order for this
      Court to accept that a binding agreement was reached by
      the parties. Therefore, [in the Cole case] we did not
      state that the parties, while in agreement before
      trial, could cancel the agreement if they were no
      longer in agreement when the case was called for trial.
      * * *

Id.   In Haiduk v. Commissioner, T.C. Memo. 1990-506, we enforced

a settlement agreement evidenced only by an exchange of letters

between the parties.    We did not even mention the Cole case.    The

repudiation language in the Cole case does not recite a rule of

contract law.   Cf. Estate of Jones v. Commissioner, supra at 573.

It appears to implement this Court’s inherent power to regulate

what will be tried before it.    See Saigh v. Commissioner, 26 T.C.

at 176.   We have reconsidered the Cole case, and we can see no

reason to empower a party to a settlement agreement with the

authority unilaterally to set that agreement aside. Upon a
                              - 28 -

showing of sufficient cause, we have the power to modify the

agreement.   Saigh v. Commissioner, supra.    In light of those

considerations, we will not follow the Cole v. Commissioner,

supra, case to the extent it indicates that a party to a

settlement agreement that is not filed as a stipulation may

repudiate that agreement up until (and including) the time the

case is called for trial.

     E.   Setting Aside the Agreement

     Dorchester and Frank Wheaton argue that each was ill-served

because, in addition to representing them, Gilson and Wodlinger

represented Mary Wheaton.   Dorchester and Frank Wheaton claim

that Gilson and Wodlinger faced a “blatant” and “nonwaivable”

conflict of interest in representing both Mary and Frank Wheaton.

That conflict, they claim, arises because Mary Wheaton had

available to her an “innocent spouse” defense under section

6013(e), and one element of that defense is that the

understatement of tax on the joint return be attributable to

“grossly erroneous” items of Frank Wheaton.    See sec.

6013(e)(1)(B), (e)(2).

     Certainly, one spouse’s claim that she (he) is an innocent

spouse can present a conflict of interest to counsel trying to

represent both spouses.   If, indeed, the spouses do have

differing interests with respect to any issue in a case, our

rules provide that counsel must secure informed consent of the

client, withdraw from the case, or take whatever other steps are
                               - 29 -

necessary to obviate the conflict of interest.   Rule 24(f).   On

rare occasion, we require separate representation of persons with

differing interests, even if an apparent waiver has been

obtained.   E.g., Para Techs. Trust v. Commissioner, T.C. Memo.

1992-575.

     Although Gilson and Wodlinger may have believed that there

was some chance that Mary Wheaton could succeed with an innocent

spouse defense, they were far from convinced that such a claim

would succeed.   Wodlinger testified that he believed that Mary

Wheaton failed two of the tests for innocent spouse relief.

Gilson and Wodlinger discussed both the innocent spouse defense

and separate representation with Mary Wheaton, and she stated

that she did not want separate counsel and did not want to raise

the innocent spouse defense.   She instructed Gilson and Wodlinger

to take their instructions from Frank Wheaton.   Frank Wheaton

directed Gilson and Wodlinger not to raise an innocent spouse

defense.

     We believe that Gilson and Wodlinger did obtain informed

consent from Mary Wheaton to represent both her and Frank Wheaton

with respect to the 1993 docketed cases, and we so find.

Moreover, nothing in the record puts these cases into the same

category as Para Techs. Trust v. Commissioner, supra, so that we

would require separate counsel even with an apparent waiver.

Although Mary Wheaton and respondent did, on July 1, 1996,

stipulate that Mary Wheaton is an innocent spouse for tax years
                                - 30 -

1979 through 1990, we do not take that stipulation as

determinative of the fact that Frank and Mary Wheaton had a

nonwaivable conflict.

     Dorchester and Frank Wheaton also argue that, besides a

conflict of interest, Gilson and Wodlinger had no authority to

enter into a joint settlement because they had no authority to do

so on behalf of Mary Wheaton.    We do not believe that Gilson and

Wodlinger lacked authority with respect to Mary Wheaton.    First,

Mary Wheaton had told Gilson and Wodlinger to take their

direction from Frank Wheaton.    We have found that Frank Wheaton

authorized a settlement of the docketed cases.    Second, Mary

Wheaton has stipulated with respondent that Gilson and Wodlinger

had authority to enter into a settlement of the docketed cases on

her behalf (Mary Wheaton’s authority stipulation), “which

settlement was set forth in an exchange of correspondence between

the parties dated November 6, 1995.”     In Mary Wheaton’s response

to respondent’s motions for entry of decision (Mary Wheaton’s

response), she avers that she was neither consulted with respect

to the settlement nor did she authorize the purported settlement

or have any knowledge of it.    In Mary Wheaton’s response, she

also claims that she has been in poor health during the period of

this litigation and has relied “totally” on her husband.    From

the various papers filed in these cases by Frank Wheaton and by

Mary Wheaton and from other evidence in the record, we conclude

that Mary Wheaton did not involve herself in these cases and
                               - 31 -

relied on her husband for leadership and direction.    Indeed, in

his affidavit attached to Mary Wheaton’s response, Frank Wheaton

states:    “She [Mary Wheaton] has never been involved in any of my

many business ventures.    She has very little, if any, knowledge

of any of these ventures, or of this proceeding.”     We believe

that Mary Wheaton gave Frank Wheaton full authority to represent

her interests in these cases and to make decisions on her part.

That reflects the instruction that Mary Wheaton gave to Gilson

and Wodlinger, that they take their instructions from Frank

Wheaton.   We find that Gilson and Wodlinger had authority to

enter into a settlement with respect to the docketed cases on

behalf of Mary Wheaton.

     We have found that Gilson and Wodlinger obtained an informed

waiver from Mary Wheaton and had authority to enter into a joint

settlement.   We also find that there was no showing of prejudice

to either Dorchester or Frank Wheaton on account of the

simultaneous representation of Mary Wheaton.   Dorchester has not

favored us with a brief, so we have no idea what it might claim.

Frank Wheaton claims that his representation was materially

limited.   He states that, in November 1995, he was totally

unaware that, if his wife claimed to be an innocent spouse, her

assets would not be available should they settle:   He “depended

on their existence and availability should the parties settle.”

First, we do not believe that Frank Wheaton was unaware of the

innocent spouse defense.    He is the one that stated to Gilson and
                               - 32 -

Wodlinger that “he was not going to have that defense raised.”

Second, he has not demonstrated to us that his wife had any

substantial separate assets or, even if she did, that he would

have any claim to those assets should respondent choose to pursue

him for the full amount of the settlement figures in the docketed

cases in which he and Mary Wheaton are petitioners.    In any

event, section 6013(d)(3) imposes joint and several liability for

the tax on spouses making a joint return of income, and,

therefore, Frank Wheaton’s liability is independent of the

existence of Mary Wheaton’s separate assets.

     F.   Rescission

     Lastly, Dorchester and Frank Wheaton argue that respondent

has rescinded her agreement with Dorchester and Frank Wheaton by

entering into a subsequent agreement with Mary Wheaton allowing

her to claim innocent spouse relief (the innocent spouse

agreement).    Dorchester and Frank Wheaton claim that Mary

Wheaton’s assets are no longer available to satisfy the

“$40 million settlement”:    “Respondent’s counsel has unilaterally

pulled the rug out from under Mr. Wheaton.”

     As a preliminary matter, we fail to see how that argument

benefits Dorchester.    On the facts as we understand them, nothing

in the Code or the settlement agreement makes either Mary or

Frank Wheaton responsible for Dorchester’s liability or vice

versa.    Dorchester has failed to show any protected right or

interest that is affected by respondent’s agreement with Mary
                                 - 33 -

Wheaton.    Dorchester is entitled to no relief on account of

respondent’s agreement with Mary Wheaton.

       Also, we fail to see that any protected right or interest of

Frank Wheaton is affected by the innocent spouse agreement.

First, nothing in either the November 3 letter, the November 6

letter, or the November 6 response makes Frank Wheaton’s income

tax liability contingent in any way upon Mary Wheaton’s

continuing to be liable for her joint return liability.     Second,

section 6013(d)(3) provides that the signers of a joint return

are jointly and severally liable for any tax due.     That fact was

a significant factor in our denying relief to taxpayers making

claims similar to Frank Wheaton’s in Himmelwright v.

Commissioner, T.C. Memo. 1988-114, and Garvey v. Commissioner,

T.C. Memo. 1993-354.     Frank Wheaton’s primary concern appears to

be economic; he expected Mary Wheaton to contribute to payment of

the deficiency.      As explained in Estate of Ravetti v.

Commissioner, T.C. Memo. 1989-45, however, the right of

contribution with which Frank Wheaton is concerned is a matter to

be resolved under State law.     Frank Wheaton is entitled to no

relief on account of respondent’s agreement with Mary Wheaton.

III.    Conclusion

       Dorchester, Frank Wheaton, and respondent entered into a

settlement agreement in the docketed cases.     For the reasons

stated, we shall (1) grant respondent’s motion with respect to

Dorchester in docket No. 20515-93, (2) grant respondent’s motions
                              - 34 -

with respect to Frank Wheaton in docket Nos. 20572-93, 27121-93,

and 23092-94.   We shall deny respondent’s motions to the extent

that they ask for entry of decisions with respect to Mary

Wheaton, and we shall enter decisions with respect to Mary

Wheaton in docket Nos. 20572-93, 27121-93, and 23092-94 in

accordance with the innocent spouse agreement.


                                    Appropriate orders and

                               decisions will be entered.

     Reviewed by the Court.

     COHEN, CHABOT, SWIFT, JACOBS, GERBER, WELLS, RUWE, COLVIN,
BEGHE, CHIECHI, LARO, VASQUEZ, and GALE, JJ., agree with this
majority opinion.

     WHALEN, J., did not participate in the consideration of this
opinion.
                               - 35 -

     PARR, J., concurring: I agree with the result reached in

this case.    I write separately, however, to emphasize that

nothing in the majority opinion should be understood to limit the

sound discretion of the Court to reject an agreement between the

parties, where good cause is shown and the interests of justice

require it.

     It is easy to imagine a situation, not here present, where

an agreement between the parties may not be in the interests of

justice.    For instance, agreements that would abuse the process

of this Court, would usurp the Court’s control over its calendar,

or that would be contrary to sound public policy should not be

enforced.    Adams v. Commissioner, 85 T.C. 359, 370-371 (1985).

     CHABOT, JACOBS, and LARO, JJ., agree with this concurring
opinion.
                                - 36 -

     FOLEY, J., dissenting:     With respect to the three 1993

docketed cases, I agree with the majority.    We should hold the

parties to their stipulation.    If, however, a stipulation has not

been filed with, or relied upon by, the Court, and either party

objects to its enforcement, the stipulation generally should not

be enforced.   In Cole v. Commissioner, 30 T.C. 665, 674 (1958),

affd. 272 F.2d 13 (2d Cir. 1959), we stated:

     once a stipulation is filed by both sides, it is
     binding upon them. Cf. Fred M. Saigh, Jr., 26 T.C.
     171. But where, for whatever reason, the parties are
     not in agreement at the time the case is called for
     trial, it is wholly irrelevant in this connection that
     they may have been in agreement at some earlier time.
     * * *

I agree.   With respect to the 1994 docketed case, we should not

enforce the parties' prior agreement.
