                         T.C. Memo. 1998-81



                       UNITED STATES TAX COURT



   BRUCE L. CARPENTER AND CAROLYN L. CARPENTER, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23735-94.               Filed February 25, 1998.



     Alan R. Herson, for petitioners.

     Gerald W. Douglas, for respondent.



                         MEMORANDUM OPINION

     CHIECHI, Judge:    This case is before the Court on petition-

ers' motion for leave to file a motion to vacate decision out of

time embodying petitioners' motion to vacate decision (petition-

ers' motion).   Respondent filed a response to petitioners' motion

in which respondent objects to the granting of that motion.    We

shall deny petitioners' motion.
                              - 2 -


Background

     On September 23, 1994, respondent issued a notice of defi-

ciency (notice) to petitioners that determined certain deficien-

cies in, additions to, and accuracy-related penalties on their

Federal income tax (tax) for 1988, 1989, and 1990.   Respondent

determined in the notice, inter alia, that petitioners received a

constructive dividend (constructive dividend) during each of the

years 1989 and 1990 from an entity called East Oregon Cattle

Company (EOCC) in an amount equal to the fair rental value of a

house located on property in Jackson County, Oregon (Modoc

property), which respondent determined EOCC owned and in which

petitioners lived without paying rent during each of those years.

     This case was calendared for trial at the Court's trial

session in Portland, Oregon, that began on October 2, 1995.    On

October 4, 1995, the parties submitted to the Court a stipulated

decision document (stipulated decision document) that was signed

by counsel for respondent and by petitioners, who were not at

that time represented by counsel, and that reflected the agree-

ment of the parties as to the amounts, if any, of petitioners'

deficiencies in, additions to, and accuracy-related penalties on

their tax for the years at issue.   On October 16, 1995, the Court

entered a decision in this case pursuant to the agreement of the

parties as reflected in the stipulated decision document.
                               - 3 -


     Although no stipulation of settled issues or other similar

document was filed with the Court in this case which shows the

agreement of the parties with respect to each of respondent's

determinations in the notice, petitioners contend in petitioners'

motion, and respondent agrees, that, as part of the parties'

agreement resolving the issues in this case, petitioners conceded

that they received a constructive dividend during each of the

years 1989 and 1990, as determined by respondent in the notice.

     As part of its efforts to collect the liability resulting

from the decision that was entered by the Court in this case, the

Internal Revenue Service (IRS) filed a nominee notice of Federal

tax lien (nominee lien notice) on July 2, 1996.    Different

attorneys employed by the IRS were responsible for handling the

instant case and the nominee lien notice.   The IRS' attorney

responsible for the nominee lien notice approved that notice on

June 20, 1996.   In the nominee lien notice, the IRS alleged that

the Colby B. Foundation (foundation) was a nominee of petitioners

and of EOCC and that the Modoc property, which was titled at the

time of that notice in the name of the foundation, was held by

the foundation as nominee of petitioners and EOCC.

     On or about September 9, 1996, the IRS issued a levy on the

Modoc property (Modoc levy).   On or about September 19, 1996, the

IRS issued a notice of seizure of that property.    On October 3,

1996, the IRS issued a notice of sealed bid sale, which indicated
                                - 4 -


the IRS' intent to sell the Modoc property in order to satisfy

the respective tax liabilities of petitioners and EOCC.    That

notice scheduled the commencement of the sale of the Modoc

property on November 6, 1996.

     On October 3, 1996, the foundation filed a complaint in the

U.S. District Court for the District of Oregon (District Court

case), naming the United States as the defendant, alleging that

the Modoc levy constituted a wrongful levy under section

7426(a)1, and seeking injunctive relief from the imminent sale of

the Modoc property.   The foundation filed a motion for summary

judgment in the District Court case (foundation's motion) that

the United States wrongfully levied against the Modoc property in

order to collect taxes owed by petitioners and/or EOCC.    The

United States filed a motion for summary judgment (defendant's

motion) in the District Court case that the Modoc levy was

proper.   On October 22, 1997, the U.S. District Court for the

District of Oregon (District Court) issued a detailed order

(order) denying the foundation's motion and granting defendant's




1
   All section references are to the Internal Revenue Code in
effect at relevant times. Unless otherwise indicated, all Rule
references are to the Tax Court Rules of Practice and Procedure.
                               - 5 -


motion.2   The foundation has filed a notice of appeal, appealing

the judgment in the District Court case.

      As pertinent here, the foundation contended in the founda-

tion's motion (1) that the United States was precluded from

asserting that petitioners owned the Modoc property based on

the principles of issue preclusion and/or judicial estoppel and

(2) that the foundation cannot simultaneously own the Modoc

property on behalf of petitioners and EOCC.   The United States

contended in defendant's motion, inter alia, (1) that the United

States is entitled to levy on the Modoc property to satisfy

EOCC's tax liability because the foundation's "interest in the

property derives from a fraudulent conveyance" and (2) that the

United States is entitled to levy on the Modoc property to

satisfy petitioners' tax liability because the foundation quali-

fies as petitioners' nominee and also "is so thoroughly dominated

by * * * [petitioners] as to render it a sham entity."

     The District Court found in its order that on September 23,

1994, respondent issued a notice of deficiency to EOCC, which set

forth respondent's determinations of deficiencies in, and penal-

ties on, EOCC's tax for 1988, 1989, and 1990.   The District Court

further found in its order that on December 23, 1994, EOCC filed


2
   A U.S. magistrate judge of the District Court entered the
District Court order and judgment in the District Court case in
accordance with the consent of the parties in that case pursuant
to Fed. R. Civ. P. 73 and 28 U.S.C. sec. 636(c) (1994).
                               - 6 -


a petition with this Court, that EOCC and respondent settled the

case pending in this Court, and that that settlement was re-

flected in a decision entered by this Court.

     The District Court further recited the following facts in

its order:   (1) On December 31, 1985, petitioners purchased the

Modoc property on behalf of EOCC; (2) on September 16, 1994,

petitioners executed a "Bill of Sale" that purported to convey

for $10 the Modoc property and all personal property located

thereon to a new entity that petitioners established, called New

EOCC (New EOCC); (3) sometime after September 1994, EOCC no

longer existed, and all that remained of that entity was its

unpaid tax liability; (4) on September 16, 1994, petitioners

created the foundation; and (5) around October or November 1995,

petitioners purported to transfer the Modoc property to the

foundation on behalf of New EOCC for no consideration.

     With respect to the foundation's assertion of issue preclu-

sion, the District Court held that nonmutual issue preclusion is

not available against the United States and that there was no

mutuality between the parties to the District Court case and the

parties to the respective cases of petitioners and EOCC before

this Court because the foundation was not a party to either of

those latter cases.

     With respect to the foundation's assertion of judicial

estoppel, the foundation argued that the United States was
                              - 7 -


precluded from asserting that "EOCC had title to the Modoc

property as the nominee of * * * [petitioners] between 1989 and

1990" since petitioners conceded as part of their agreement with

respondent resolving the case that petitioners brought before

this Court that they had a constructive dividend which was

subject to tax because EOCC, and not petitioners, owned the Modoc

property, and petitioners lived on that property rent free.    The

United States contended (1) that its position was not inconsis-

tent with any prior positions taken by respondent in petitioners'

case before this Court and (2) that the issues in the District

Court case were being presented for the first time and had not

been litigated in petitioners' case before this Court.   The

District Court agreed with the United States and held:

     'Judicial estoppel, an equitable doctrine invoked in
     the discretion of a court, is intended to protect
     against a litigant playing fast and loose with the
     courts.' In this case, the court finds that the * * *
     [United States] is not 'playing fast and loose with the
     courts'. As pointed out by * * * [the United States],
     the issues in this case were not and could not have
     been litigated in the tax court case. The issues in
     this case involve the relationship between the Carpen-
     ters [petitioners] and plaintiff [the foundation] and
     the EOCC entities and plaintiff [the foundation]. This
     case involves the propriety of certain tax levies,
     rather than the assessment of taxes. The court will
     not apply the doctrine of judicial estoppel in this
     case. [Citations omitted; emphasis added.]

     With respect to the United States' contention that the Modoc

levy for EOCC's tax liability was proper, the District Court held

that the transfer of the Modoc property from EOCC to New EOCC and
                               - 8 -


from New EOCC to the foundation constituted a fraudulent convey-

ance under applicable Oregon law and that therefore the United

States had demonstrated a sufficient nexus between EOCC and that

property to make the levy on that property valid for the purpose

of collecting EOCC's tax liability.

     With respect to the United States' contention that the Modoc

levy for petitioners' tax liability was proper, the District

Court explained that if it were to find that the foundation was

either a nominee of petitioners or a sham entity, there would be

a sufficient nexus between petitioners and the Modoc property to

make the Modoc levy valid for the purpose of collecting petition-

ers' tax liability.   The District Court found on the record

before it that the foundation was both a nominee of petitioners

and a sham entity and that there was a sufficient nexus between

petitioners and the Modoc property to make the levy on that

property valid for the purpose of collecting petitioners' tax

liability.   The District Court stated in pertinent part:

          It is clear from the facts, cited in defendant's
     memorandum and reply memorandum and contained in the
     statement of facts, that * * * [petitioners], espe-
     cially [petitioner] Bruce Carpenter, maintained total
     control over the * * * [foundation]. It is also clear
     from the facts that * * * [petitioners] transferred the
     Modoc property from * * * EOCC to New EOCC and from New
     EOCC to * * * [the foundation] in anticipation of the
     income tax deficiencies. * * * It is also clear from
     the facts that the funds used to purchase the Modoc
     property are properly attributed to * * * [petitioners]
     as set forth in defendant's reply memorandum. * * *
     [Petitioners] continue to enjoy possession, control,
     and the benefits of * * * [the foundation's] assets,
                               - 9 -


     including the Modoc property. Defendant has demon-
     strated that * * * [petitioners] and * * * [the founda-
     tion] share a 'close relationship'. * * * [Petitioners]
     have continued to use the property despite the transfer
     of the property among different entities. * * * [Peti-
     tioners] continue to pay the bills associated with the
     maintenance of the property. It is clear from the
     facts that * * * [the foundation] is * * * [petition-
     ers'] nominee. [Citations omitted.]

Discussion

     The Court's decision in this case was entered on October 16,

1995.   No notice of appeal or timely motion to vacate or revise

the decision was filed in this case, see sec. 7483; Rule 162, and

the decision herein became final on January 15, 1996, see sec.

7481(a)(1); Fed. R. App. P. 13(a).

     Petitioners' motion was filed on December 2, 1997, over two

years after the Court entered the decision in this case.   Once a

decision becomes final, the Court may vacate it only in narrowly

circumscribed situations, such as where the decision was obtained

through fraud on the Court, see Abatti v. Commissioner, 859 F.2d

115, 118 (9th Cir. 1988), affg. 86 T.C. 1319 (1986); Senate

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

1975), or where the decision is void or a legal nullity for lack

of this Court's jurisdiction over either the subject matter or

the party, see Billingsley v. Commissioner, 868 F.2d 1081, 1084-
                               - 10 -


1085 (9th Cir. 1989); Abeles v. Commissioner, 90 T.C. 103, 105-

106 (1988).3

     The Court of Appeals for the Ninth Circuit (Ninth Circuit)

has defined the phrase "fraud on the court" to be "'an unconscio-

nable plan or scheme which is designed to improperly influence

the court in its decision.'"   Toscano v. Commissioner, 441 F.2d

930, 934 (9th Cir. 1971) (quoting England v. Doyle, 281 F.2d 304,

309 (9th Cir. 1960)); see Abatti v. Commissioner, supra at 118.

     In order to prove fraud on the Court, petitioners must

establish that "an intentional plan of deception designed to

improperly influence the Court in its decision has had such an

effect on the Court."   Abatti v. Commissioner, 86 T.C. at 1325;

see Drobny v. Commissioner, 113 F.3d 670, 677-678 (7th Cir.

1997), affg. T.C. Memo. 1995-209, and cases cited therein.

     Petitioners make, inter alia, the following contentions in

an affidavit attached to and incorporated as part of petitioners'

motion:

     The * * * [United States] filed a motion for summary
     judgment in the District Court Case. The * * * [United
     States] contended that the funds used to purchase Modoc
     Property [sic] were properly attributed to Petitioners,
     not to * * * EOCC. According to the * * * [United

3
   The Court of Appeals for the Fifth Circuit has indicated that
in extraordinary circumstances this Court has the power in its
discretion to vacate and correct a final decision where it is
based on a mutual mistake of fact. See La Floridienne J.
Buttgenbach & Co. v. Commissioner, 63 F.2d 630 (5th Cir. 1933).
But see Harbold v. Commissioner, 51 F.3d 618, 621-622 (6th Cir.
1995).
                             - 11 -


     States], * * * EOCC had held mere record title to the
     Modoc Property, with Petitioners being the beneficia-
     ries of the title. Accordingly, the * * * [United
     States] argued that economic interest in the Modoc
     Property had, since its purchase in the name of * * *
     EOCC, and including 1989 and 1990, belonged to peti-
     tioners, not to * * * EOCC.

Petitioners further contend, inter alia, in petitioners' motion:

          9.   Respondent perpetrated a fraud upon this
     court in failing to disclose that its true determina-
     tion was that Petitioners had been the owners of the
     Modoc Property in 1989 and 1990, and requesting the
     court to enter its Decision which included deficiencies
     against Petitioners on the basis, in part, that * * *
     EOCC was the true owner of the Modoc Property.

          10. Had Respondent's true determination been
     disclosed to Petitioners and to this court, Petitioners
     would not have agreed to the settlement, and this court
     would not have entered its Decision. Had Respondent
     disclosed to Petitioners that its true determination
     was that Petitioners were the owners of the Modoc
     Property in 1989 and 1990, Petitioners would not have
     agreed to the settlement which imposed a constructive
     dividend on them for their occupancy of the residence
     located on the Modoc Property.

     Respondent argues that petitioners have not established that

this Court should exercise its discretion under Rule 162 to grant

them leave to file a motion to vacate the decision in this case.

We agree with respondent.

     There is no evidence in the instant record showing that

during the time petitioners' case was pending before us respon-

dent's determination with respect to the Modoc property was that

petitioners, and not EOCC, were the owners of that property
                              - 12 -


during the years at issue.4   Indeed, the only determination of

respondent regarding the Modoc property that was in the record in

this case at the time we entered the decision is that set forth

in the notice, viz., petitioners received a constructive dividend

from EOCC during each of the years 1989 and 1990 in an amount

equal to the fair rental value of the Modoc property which

respondent determined was owned by EOCC and in which petitioners

lived rent free.

     Moreover, during the time this case was pending before the

Court the parties did not file a stipulation of settled issues or

other similar document showing the agreement of the parties with

respect to each of respondent's determinations in the notice.

Consequently, at the time the Court entered the decision in this

case it was unaware of what that agreement was.   Thus, the Court

did not enter its decision in this case based on respondent's

determination in the notice that petitioners received construc-

tive dividends for 1989 and 1990 because they lived on the Modoc


4
   Nor do we read the District Court's order as establishing that
the United States contended in defendant's motion in the District
Court case that petitioners were the owners of the Modoc property
during the years at issue in petitioners' case before this Court.
As we read the District Court's order, the United States con-
tended, and the District Court found, that the foundation, which
was not even created until after the years at issue in the
instant case (i.e., on Sept. 16, 1994) and which purportedly held
title to the Modoc property since around Oct. or Nov. 1995, was
both a nominee of petitioners and a sham entity and that, conse-
quently, the levy on the Modoc property, which the IRS issued on
Sept. 9, 1996, was valid.
                                - 13 -


property which respondent determined was owned by EOCC, or on any

other determination that respondent made in the notice.    The

Court entered its decision in this case based on the agreement of

the parties reflected in the stipulated decision document as to

the amounts of any deficiencies in, additions to, and accuracy-

related penalties on petitioners' tax for 1988, 1989, and 1990.

     On the record before us, we find that petitioners have

failed to establish that respondent's conduct while petitioners'

case was pending before this Court rises to the level of "an

intentional plan of deception designed to improperly influence

the Court in its decision", Abatti v. Commissioner, 86 T.C. at

1325, let alone that any such plan, if it had been established by

petitioners, "has had such an effect on the Court", id.    We

further find that petitioners have failed to show that the

decision entered in this case is the result of any other situa-

tion that warrants our exercise of our discretion under Rule 162

to grant petitioners' motion.

     To reflect the foregoing,



                                          An order will be issued

                                     denying petitioners' motion

                                     for leave to file a motion to

                                     vacate decision out of time

                                     embodying petitioners' motion

                                     to vacate decision.
