                  T.C. Memo. 1995-590



                UNITED STATES TAX COURT



     ESTATE OF GOLDA E. RIXON KOKERNOT, DECEASED,
      MARY ANN K. LACY, EXECUTRIX, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 16088-94.          Filed December 13, 1995.



     Before trial, the parties negotiated a settlement
specifying the manner of resolving all issues raised in
R's notice of deficiency. During discussions regarding
the proposed stipulated decision document, P sought to
raise an issue as to its entitlement to use the special
use valuation provisions of sec. 2032A, I.R.C. This
issue was not covered in R's notice of deficiency, and
was not raised or preserved by P in the pleadings or
the stipulated settlement agreement. Held: The issue
raised by P is a new issue that is not before the
Court.
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     Stanard T. Klinefelter, for petitioner.

     Susan T. Mosley, for respondent.



                          MEMORANDUM OPINION

     LARO, Judge:   This matter is before the Court on the

parties' cross-motions for entry of decision in accordance with a

stipulation of settlement filed July 3, 1995.   We must decide

whether the subject decision should reflect the application of

section 2032A.1   We hold that it should not.

     We refer to Golda E. Rixon Kokernot as decedent.   At the

time of her death decedent was a resident of the State of Texas.

We refer to Mary Ann Kokernot Lacy as Executrix.   At the time

Executrix filed her petition with the Court she was also a

resident of the State of Texas.

                            Background

     Decedent died on December 7, 1990.   At the time of her death

decedent owned a large cattle ranch located in Brewster and Jeff

Davis Counties, Texas, called the "Kokernot 06 Ranch" (Ranch).

On September 7, 1991, Mary Ann K. Lacy as the Executrix for the

estate of Golda E. Rixon Kokernot, filed the estate's Federal

estate tax return, in which Executrix reported the fair market


     1
       Unless otherwise stated, section references are to the
Internal Revenue Code in effect for the date of the decedent's
death, and Rule references are to the Tax Court Rules of Practice
and Procedure.
                                   - 3 -


value of the Ranch as $2,696,536.       Decedent's estate’s tax return

included a Schedule A-1 "Section 2032A Valuation," on which

Executrix made a protective election pursuant to section

20.2032A-8(b), Estate Tax Regs.2      The estate tax return was

subsequently selected for audit.       The principal issue on audit

centered on the fair market value of the Ranch.       Unable to

resolve the fair market value issue at the audit level,

respondent issued a notice of deficiency to Executrix on June 9,

1994.       Respondent's notice makes no mention of Executrix's

protective election under section 2032A and the regulations

thereunder.       Nor does the petition filed with this Court by the

Executrix.

     The case was set for the trial session in Washington, D.C.,

commencing on June 19, 1995.       At the suggestion of the Court, the

parties engaged in negotiations prior to the start of this

session in an attempt to resolve the fair market value of the

Ranch.       During these negotiations Executrix never mentioned



        2
       Enacted by the Tax Reform Act of 1976, Pub. L. 94-455,
sec. 2003, 90 Stat. 1856, primarily to encourage the continued
operation of family farms, sec. 2032A permits qualified real
property to be valued for estate tax purposes by reference to its
use in the farming activity, rather than at its value based on
its highest and best use. Where it is not certain that property
meets the requirements for special use valuation, an estate may
under sec. 20.2032A-8(b), Estate Tax Regs., make a protective
election to specially value qualified real property, contingent
on the property values as finally determined meeting the
requirements of sec. 2032A.
                                 - 4 -


section 2032A, and she never mentioned that she might want to

consider the application of that section once the parties finally

agreed to the fair market value of the Ranch.    On June 19, 1995,

when the case was called for trial, counsel for respondent

announced that the parties had reached a basis for settlement on

all issues raised in the notice of deficiency.    Subsequently, on

July 3, 1995, the parties filed a three-page stipulation of

settled issues.    The agreement contains no reference to section

2032A or to Executrix's protective election under that section.

In relevant part the stipulation of settlement states:

     3.   The parties stipulate to the following terms of
     settlement:

          a.   With respect to the increase in the value of
     real estate included in the gross estate, the issues
     were resolved as follows:

                  I.   The parties agree to the value of the
                  entire 103,843 acres of the cattle ranch at
                  $80.00 per acre.

                  ii. In addition, the parties agree that
                  petitioner is entitled to a discount of 20%
                  on the entire 103,843 acres to reflect the
                  deceased's partial interest in the property.

                  iii. In addition, petitioner concedes that
                  the gifts made on January 24, 1990 under the
                  authority of the power of attorney should be
                  included in the gross estate for tax
                  purposes.

          b.   With respect to the $18,867.00 increase in
     miscellaneous property due to the inclusion of ranch
     lease income, the petitioner concedes the issue in
     full, as reflected in petitioner's amended return filed
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     subsequent to the issuance of the statutory notice of deficiency.

          c.   With respect to the issues of the disallowed
     claim against the estate in the amount of $500,000.00,
     respondent concedes petitioner is entitled to an
     adjustment of $500,000.00 reducing the amount of the
     gross estate reported on petitioner's estate tax
     return. This adjustment is in lieu of the claim
     against the estate in the amount of $500,000.00.

          d.   With respect to the increase in adjusted
     taxable gifts in the total amount of $21,578.00, the
     petitioner concedes the issue in full, as reflected in
     petitioner's amended return filed subsequent to the
     issuance of the statutory notice of deficiency.

     4.   In addition, the parties agree that petitioner is
     entitled to deductions for additional expenses incurred
     in administering the property of the estate which
     expenses were incurred subsequent to the filing of the
     estate tax return. These deductions will be allowed as
     verified.

     The parties agree to this STIPULATION OF SETTLEMENT.

     Based on the stipulation of settlement, the Court allowed

the parties time to exchange information regarding additional

administrative expenses, to compute the correct amount of estate

tax due, and to prepare decision documents.   After reviewing the

agreed upon fair market value for the Ranch, petitioner's counsel

advised respondent that Executrix intended to pursue its

protective election under section 20.2032A-8(b), Estate Tax Regs.

Consequently, on August 26, 1995, Executrix mailed respondent an

amended Federal estate tax return in which she made an election

under section 2032A for the Ranch.
                                 - 6 -


                              Discussion

     The compromise and settlement of tax cases are governed by

general principles of contract law.      A settlement stipulation is

in essence a contract.    Each party agrees to concede some rights

which he or she may assert against his or her adversary as

consideration for those secured in the settlement agreement.

Saigh v. Commissioner, 26 T.C. 171, 177 (1956).      Like contracts,

stipulations of settlement bind the parties thereto to the terms

thereof.     Stamos v. Commissioner, 87 T.C. 1451, 1455 (1986).   In

determining the proper meaning of the terms, we focus on the

language of the stipulation and the circumstances surrounding its

execution.    Robbins Tire & Rubber Co. v. Commissioner, 52 T.C.

420, 435-436 (1969); see also Brink v. Commissioner, 39 T.C. 602,

606 (1962), affd. 328 F.2d 662 (6th Cir. 1964).     We will enforce

a stipulation of settlement, whether filed or orally stipulated

into the record, unless justice requires that we do otherwise.

Adams v. Commissioner, 85 T.C. 359, 375 (1985); Sennett v.

Commissioner, 69 T.C. 694 (1978); Saigh v. Commissioner, 26 T.C.

171, 177 (1956).

     Respondent contends that the Executrix failed to preserve a

claim to special use valuation under section 2032A.     Respondent

argues that Executrix's claim to section 2032A valuation involves
                                - 7 -


new factual issues that would require additional evidence

including, perhaps, expert testimony.   Respondent maintains that

the settlement agreement filed with the Court on July 3, 1995,

incorporates the full terms of the parties' agreement and that

the agreement speaks for itself.   Since the deficiency notice,

the petition and other pleadings, and the settlement document are

all silent with respect to the application of section 2032A,

respondent contends, Executrix is not entitled to the benefits of

that section and the regulations thereunder.

     Executrix argues that the parties' stipulation of settlement

encompasses only those issues raised in the notice of deficiency,

i.e., the fair market value of the Ranch.   Executrix contends

that the settlement agreement covered neither the amount of the

deficiency, nor its computation.   Executrix maintains that the

estate's use of section 2032A is a "mechanical computation", and

that Executrix's election of that section's provisions is

necessarily dependent on the fair market value of all of the

decedent's property, as finally determined or agreed to following

an examination of the return.   Executrix argues that respondent's

failure to consider the possible impact of Executrix's protective

election during the settlement negotiations does not constitute a
                                 - 8 -


valid basis to deny the benefits of that election in computing

the decedent's estate tax.

     We disagree with Executrix.    Whether petitioner is entitled

to the benefits of section 2032A requires the determination of

several factual issues; consequently, the application of 2032A is

not merely computational.3    The ability of Executrix to use

section 2032A raises a new issue that was not mentioned in the

subject notice of deficiency, the instant pleadings, or the

negotiations surrounding the settlement agreement.    Indeed,

Executrix acknowledges in her memorandum of law that she did not

advise respondent's counsel that she (Executrix) might want to

perfect her protective election under section 2032A once the

parties finally reached an agreement.    With this in mind, we

refuse to allow Executrix to raise this issue at this time.      The

agreement to settle this lawsuit, voluntarily entered into, must

be given binding effect.     It is no answer to say that the need to

follow such a course could not have been ascertained until the

     3
       To qualify for special-use valuation under sec. 2032A,
property must satisfy a series of requirements, relating to (1)
the nature of the property itself, (2) its use on the date of the
decedent's death and during the immediately preceding 8-year
period, (3) the relationship between the decedent and the person
acquiring the property from the decedent, and (4) the fair market
value of the property as compared with the fair market value of
the decedent's adjusted gross estate (i.e., the 50 percent and 25
percent tests). See sec. 2032A(b).
                                - 9 -


fair market value of the Ranch was finally determined.    Executrix

could have pleaded special use valuation as an alternative

position in this case.   For reasons unknown to the Court, she did

not do so.

     In short, the settlement agreement shows that the parties

agreed on the “value” of the ranch, and we believe that

respondent was entitled to infer that “value” in this context

meant value for estate tax purposes.    We have no doubt that

respondent entered into the stipulation on that assumption,

thereby forgoing the higher “value” asserted in the deficiency

notice.   Executrix would have us hold that the “value” ought to

be lower than in the stipulation due to the application of a

special form of valuation that is not mentioned in the pleadings,

in the stipulation, or in the negotiations leading to the

stipulation.   We refuse to do so.   The parties struck a bargain

in the stipulation, and Executrix must live with the benefits and

burdens of it.   Each party bore the responsibility to negotiate a

written settlement that accurately reflected that party’s

position.    In agreeing to the written settlement here, Executrix

failed to preserve her claim to special use valuation under

section 2032A.
                             - 10 -


     We have considered all of Executrix's arguments and, to the

extent not addressed above, have found them to be without merit.

To reflect the foregoing,


                                   An appropriate order will be

                              issued granting respondent's motion

                              for entry of decision and denying

                              petitioner's cross-motion for entry

                              of decision and decision will be

                              entered for respondent.
