                         T.C. Memo. 2007-70



                      UNITED STATES TAX COURT



                 GEORGE A. LOVENGUTH, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9708-02.                 Filed March 27, 2007.


     Charles A. Simmons and David Bunning, for petitioner.

     Robert W. Mopsick, for respondent.



                         MEMORANDUM OPINION


     HOLMES, Judge:   George Lovenguth is a U.S. Marine and a

combat veteran of the Vietnam War.   He left the service with an

honorable discharge and a crippling case of posttraumatic stress

disorder.   This disability has led him to endure long periods of

homelessness punctuated by stays at Department of Veterans

Affairs (VA) mental health facilities.    It has also brought him
                                 - 2 -

tax trouble--important notices from both the IRS and this Court

have failed to reach him, and the accrual of interest led a small

tax debt to grow into a large one.       In an effort to win abatement

of that interest, he filed a petition in this Court; representing

himself, he agreed to stipulations that would amount to conceding

his case.     Pro bono counsel have now entered an appearance on his

behalf, and they have moved to relieve him of this stipulation

and have the case proceed to a reasonable settlement or trial on

the merits.

                              Background

     Lovenguth enlisted in the U.S. Marine Corps in January 1969

when he was only 17.    He fought as a helicopter gunner in

Vietnam, receiving a Combat Action Ribbon and Air Medal.      In

1971, however, he was discharged after developing severe

psychological problems, since diagnosed as posttraumatic stress

disorder (PTSD).    A return to civilian life did not cure him.

Though he seems to have earned some income in 1988 and 1989,1 by

1990 his illness overwhelmed him and he became homeless for

several months before being involuntarily hospitalized.      It was

during his hospitalization that he was diagnosed as having PTSD,

which led the VA to classify him as a 100-percent service-



     1
       The IRS has long since destroyed its records on Lovenguth
for those years, leaving behind only the notices of deficiency
that it sent him and the record of the assessments that they led
to.
                                 - 3 -

connected disabled veteran.   This triggered a large, lump-sum

payment (much of which Lovenguth set aside for his son’s future

education) followed by periodic disability checks.       He remained

hospitalized off and on until early 1994.

     During this time, the Commissioner sent him two notices of

deficiency: the first, sent in December 1991, asserted a

deficiency of a little over $1,000 for 1988; the second, sent in

May 1992, asserted a deficiency of about $4,000 for 1989.

Lovenguth apparently never received the notice of deficiency for

1988, and so he never filed a petition.       He did manage to file a

timely petition for the 1989 year.       Although a notice for

Lovenguth’s court date was sent, Lovenguth claims that he never

received it.   Given that he was involuntarily committed when it

was sent, this is at least plausible.       Our own records show that

we dismissed his case when he failed to appear after it was

called from the calendar.   Though the merits of the notices of

deficiency for both the 1988 and 1989 tax years were never

adjudicated, the Commissioner assessed both deficiencies under

the default rules in the Code.

     After making these assessments, the Commissioner sent

several notices to Lovenguth’s last known address to try to

collect.   His last known address, though, was the home that he

had shared with his former wife many years before.       Their

relationship had not improved with his mental illness and
                                - 4 -

homelessness--even if she had cared to forward his mail, it is

likely that she was in touch with him only very rarely.

Lovenguth plausibly claims not to have received any further

communications from the Commissioner until May 2000, when the

Commissioner sent him a letter reminding him of the balance due

and telling him that collection might entail seizing his wages

and property, though the Commissioner seems never to have sent

him a collection due process notice.     Lovenguth reacted by

selling the bonds he had bought with his lump-sum disability

payment, and sending almost $18,000 (interest having compounded

for over a decade) to the IRS to pay his entire tax liability--

simply to “stop the bleeding” as he put it.     He then filed a

claim for refund and request for abatement of interest--the

interest having become the overwhelming majority of the amount he

paid.    The Commissioner denied them.   Lovenguth then timely filed

a request for review of that determination in this Court pursuant

to section 6404(e).2

     Lovenguth, who was acting pro se, was apparently unclear

about his relationship with Commissioner’s counsel.     A comment

made during a conference call led him to believe that the IRS

counsel was there to help, rather than represent the



     2
       Unless otherwise noted, all section references are to the
Internal Revenue Code; all Rule references are to the Tax Court
Rules of Practice and Procedure.
                               - 5 -

Commissioner.   He was also led to believe that he had to sign the

stipulation of facts immediately or he would not be able to do so

later.   It was only when Commissioner’s counsel informed

Lovenguth in a later telephone conversation that he would “eat

[him] up in court” that Lovenguth realized he was mistaken.

     Much of the resulting stipulation of facts is in the form

that our Court sees in nearly every case--a list describing

attached documents, noting that the “truth of assertions in

stipulated exhibits is not necessarily agreed to and may be

rebutted or corroborated by additional evidence.”   Such

stipulations of routine evidence are essential to orderly

procedure in a high-volume court like ours.

     But these stipulations also include a number of paragraphs

aimed at stating what Lovenguth’s testimony would be--not its

truthfulness, simply what it would be.   Even Lovenguth’s

documents that were attached to the stipulation were included not

for the truth of any statements they contained but as

“indicating” that those statements were made in the documents

themselves.

     A motion to submit the case as fully stipulated under Rule

122 was filed at the same time as the stipulation of facts.

However, the stipulations do little to prove Lovenguth’s case--

they actually prohibit Lovenguth from pointing to any useful

evidence--and if the order granting the Rule 122 motion were not
                                - 6 -

vacated, it would force the Court to decide the case solely on

this paltry record.    Noting the extreme disparity in legal

skills3 and its probable effect on the ability of the judicial

process to reach a just result, pro bono counsel stepped in to

represent Lovenguth.    Those counsel completed their review of the

spotty record and have now moved to vacate or modify the

stipulations so that the case can be decided on its merits.

     As reformulated by counsel, Lovenguth bases his claim for

interest abatement on three arguments.      The first is that he was

incompetent to attend to his daily living activities, let alone

litigation in this court, when his original deficiency case was

dismissed for lack of prosecution.      The second is that the

Commissioner failed to make the necessary efforts to contact him,

which resulted in a large portion of the interest Lovenguth was

forced to pay.   His third claim, which is an extension of the

second, is that because his VA benefits were paid out of Treasury

funds and the IRS is part of the Treasury, the Commissioner

should have been able to locate him.      Lovenguth believes that had

the Commissioner contacted him in a timely manner, he would have

been able to satisfy both his tax liability and the then much

smaller interest liability out of his lump-sum VA payment.


     3
       Here, for instance, is Lovenguth’s entire brief on the
merits, which he wrote in longhand: “I request my abatement of
be approved. The Dept. Treasury have been sending me my
compensation payment for 100 percent service-connection since
1991. IRS clearly knew my addresses.”
                                - 7 -

     There are also other possible issues in this case that are

untouched by the stipulations in their present condition:

     !      Should the Commissioner’s communications with Lovenguth
            after the enactment of the IRS Restructuring and Reform
            Act of 1998, Pub. L. 105-206, 112 Stat. 685, have
            triggered a collection due process notice and hearing?

     !      Is section 6511(h)--suspending the running of the
            statute of limitations when an individual “is unable to
            manage his financial affairs” if even a part of a tax
            liability remains unpaid--relevant to this case? and,

     !      Is section 6334(a)(10) implicated if Lovenguth in fact
            paid these taxes from assets traceable to disability
            payments?

     We list these not as issues about which we’ve formed any

conclusions, but as issues noticeable to a trained eye that went

unnoticed by a petitioner suffering from severe disability yet

trying to represent himself.   Unless the Court sets aside the

stipulations and vacates its order submitting the case for

decision under Rule 122, Lovenguth will not be able to present

the facts and make the arguments that could prove his case.

                             Discussion

     The stipulation process is the bedrock of Tax Court

practice.   Branerton Corp. v. Commissioner, 61 T.C. 691, 692

(1974).   Because we are a high-volume court, we use the

stipulation process to encourage settlement and streamline trials

by requiring parties to “stipulate, to the fullest extent to

which complete or qualified agreement can or fairly should be

reached, all matters not privileged which are relevant to the
                                   - 8 -

pending case.”    Rule 91(a).    Put another way, the stipulation

process requires the “voluntary exchange of necessary facts,

documents, and other data between the parties * * *.”       Branerton,

61 T.C. at 692.   The process works because the parties are bound

by the stipulations.   Rule 91(e).     And this means that we “will

not permit a party to a stipulation to qualify, change, or

contradict a stipulation * * * [unless] justice requires.”       Id.

     With “justice” as our standard, we do have broad discretion

to determine when it is appropriate to set aside a stipulation.

Blohm v. Commissioner, 994 F.2d 1542, 1553 (11th Cir. 1993),

affg. T.C. Memo. 1991-636; Estate of Eddy v. Commissioner, 115

T.C. 135, 137 n.4 (2000).       However, our discretion is tempered by

the importance of making stipulations stick--we enforce

stipulations unless not just “injustice,” but “manifest

injustice” would result.    See Bokum v. Commissioner, 992 F.2d

1132, 1135-36 (11th Cir. 1993), affg. 94 T.C. 126 (1990).

     The Commissioner cites Saigh v. Commissioner, 26 T.C. 171,

177 (1956); Bakare v. Commissioner, T.C. Memo. 1994-72, and

similar cases as additional constraints on our discretion.

In Saigh, 26 T.C. at 177, we restated the general rule that a

“stipulation is in all essential characteristics a mutual

contract by which each party grants to the other a concession of

some rights as a consideration for those secured and the

settlement stipulation is entitled to all of the sanctity of any
                               - 9 -

other contract.”   We do regard settlement stipulations as

contracts, requiring proof of mutual mistake, coercion, duress,

or some other contractual defenses before we would choose not to

enforce them.   See, e.g., Korangy v. Commissioner, 893 F.2d 69,

72 (4th Cir. 1990) (unilateral mistake), affg. T.C. Memo. 1989-2;

Saigh, 26 T.C. at 180 (reliance on false representation of the

other party).

     But in this case Lovenguth has asked us to set aside only a

“stipulation of fact” drafted in preparation for trial.    And, as

we noted in Stamm Intl. Corp. v. Commissioner, 90 T.C. 315, 321

(1988), “more stringent standards” should be applied to motions

to vacate a settlement agreement than to pretrial stipulations of

fact.   We do allow relief from both types under general

principles of contract law, see Mathia v. Commissioner, T.C.

Memo. 2007-4; Markin v. Commissioner, T.C. Memo. 1989-665, but

the plain language of our rule governing pretrial stipulations--

allowing relief from stipulations if justice requires--allows us

to consider factors that might not be sufficient to upset a

contract.

     The most common situation is where the stipulation is

contrary to facts brought out at trial.   See Blohm, 994 F.2d at

1553; Jasionowski v. Commissioner, 66 T.C. 312, 318 (1976).     It

is true that there has been no trial here, but such cases are

still relevant for showing that something less than a contractual
                              - 10 -

defense is a permissible ground for letting one party to a

pretrial stipulation out of his agreement.    Courts have

identified numerous factors, and their importance is almost

always dependent on the particular context.    One such factor is

whether both sides were represented by counsel when agreeing to

the stipulation.   See, e.g., Associated Beverages Co. v. P.

Ballantine & Sons, 287 F.2d 261, 263 (5th Cir. 1961); Jenkins v.

Commissioner, T.C. Memo. 1988-326.     This makes sense--the

participation of attorneys in drafting stipulations is more

likely to result in a fair and balanced presentation of the

facts, even as their participation in creating a trial record

presumably makes it more likely that relevant and material

evidence will be admitted.

     Another factor is whether the party opposing a motion for

relief from stipulations can point to evidence that has been lost

or to arguments that might have been made but no longer can be.

Courts are thus especially unlikely to grant relief from

stipulations when the request is made for the first time in a

posttrial brief, see La. Land & Exploration Co. v. Commissioner,

90 T.C. 630, 649 (1988), or on appeal, see United States v.

3,788.16 Acres, 439 F.2d 291, 296 (8th Cir. 1971).

     And even apart from whether a party was represented during

the drafting of stipulations and whether prejudice would result

from granting relief is the question of whether the stipulations
                                - 11 -

were entered into after careful negotiations or through

inadvertence or honest lack of ability.   Courts are unlikely to

grant relief from stipulations arrived at through bargaining and

“considerable negotiation,” Associated Beverages, 287 F.2d at

263, or stipulations which were “negotiated extensively,” Markin,

T.C. Memo. 1989-665.   But when a party has stipulated

inadvertently and honestly, courts may justifiably grant him

relief.   See, e.g., United States v. Montgomery, 620 F.2d 753,

757 (10th Cir. 1980); Jenkins, T.C. Memo. 1988-326.

     This case--at least before counsel stepped in to help

Lovenguth--falls more on the side of Jenkins and Montgomery.

Lovenguth was not represented when the stipulations were being

drafted; the stipulations themselves were not so much negotiated

as given to him to sign; and all this happened well before

posttrial briefing or appeal.

     The Commissioner argues that Lovenguth should have to show

that a failure to modify the stipulations would prejudice him.

See Adams v. Commissioner, 85 T.C. 359, 375 (1985).      The

Commissioner reasons that deciding the case with the current

stipulations would not prejudice Lovenguth because he has offered

no new evidence that would change the result of the case and all

of the pertinent facts are included in the current stipulation.

These arguments fail to persuade us.

     Consider the argument that Lovenguth will not be prejudiced
                              - 12 -

because “[a]ll of the pertinent facts which the petitioner wishes

to include at trial are already stated within the stipulation of

facts as it is presently constituted.”   This argument might be

persuasive if the stipulations were the product of real

negotiation, but as far as we can tell, the Commissioner’s

counsel wrote the stipulations himself and included Lovenguth’s

arguments by guessing what he would testify to at trial.    Having

the opposing party decide what factors are pertinent is not the

voluntary exchange we had in mind in Branerton.   This is

especially true given that Lovenguth’s new counsel has identified

new issues that were omitted from the stipulation.

     We think, though, that the decisive factor here is that

Lovenguth did not understand the stipulation process itself.    We

do agree that he understood that he faced a deadline to enter the

stipulation of facts--Commissioner’s counsel called him more than

a dozen times in two weeks to remind him.   But Lovenguth learned

only two days before the deadline that the person calling him was

not his friend, but someone who was going to “eat [him] up in

court.”   Lovenguth responded to this pressure, and his fears, by

signing the stipulation that he thought the Commissioner’s

counsel was assisting him with.   We also acknowledge that, on a

human level, Commissioner’s counsel was faced with a pro se

litigant who was “confrontational and belligerent”--reasonably

leading him to think that writing the stipulations himself was
                              - 13 -

doing better by Lovenguth than moving for a dismissal of the case

for failing to properly prosecute.     See generally Levy v.

Commissioner, 87 T.C. 794 (1986) (discussing effects of case

dismissal).

     But we must also look at the process from Lovenguth’s

perspective.   And in doing so, we must remember that Lovenguth

has no legal training and is suffering from a weakened mental and

physical condition.   This case is not the first time Lovenguth

tried to challenge the IRS in our Court.    Some of his attempts

were unsuccessful because he missed deadlines, and when he

learned that his untimeliness was partly responsible for his tax

liability tripling, he was understandably fearful.

     The Commissioner nevertheless argues that Lovenguth always

knew that the IRS was his adversary and never believed that he

was being assisted.   We agree that Lovenguth did know the IRS was

his adversary in that it was trying to collect a debt from him.

But Lovenguth also knew that the IRS offered help, because he had

actually been referred to the IRS’s Taxpayer Advocate Service at

one time.   And so we find it reasonable that Lovenguth believed

that the Commissioner’s counsel was assisting him and not just

playing the role of his adversary.

     The Commissioner finally argues that Lovenguth has capacity

to enter into the stipulation because he is “cognizant enough” to

request an abatement of interest.    The Commissioner argues that
                                - 14 -

if Lovenguth has been competent enough to “handle his own

affairs” since leaving the VA hospital in 1995, then he is

competent enough to enter into a stipulation of facts.    See

Bakare, T.C. Memo. 1994-72.

     To suggest that Lovenguth understood the consequences of

signing the stipulation of fact just because he is no longer

institutionalized would be too high a hurdle.   The Rule tells us

to look not at whether a petitioner has the bare competence

sufficient to avoid involuntary commitment, but to the justice of

the particular situation.   We do wish to stress that we do not

believe that IRS counsel is in any way guilty of misconduct--in

an adversarial system, counsel is expected to zealously represent

his client.   It is just that in the peculiar circumstances of

this case--with a mentally disabled and sometimes voluble

taxpayer representing himself--it is very easy to create a

situation of deep misunderstanding between the parties.    In this

case we conclude that justice requires us to set aside the

stipulation of facts and vacate the order submitting the case for

decision on that stipulation.


                                     An appropriate order will be

                                issued granting petitioner’s

                                motion.
