                          T.C. Memo. 1996-181



                        UNITED STATES TAX COURT



ESTATE OF WILLIAM F. LUTON, DECEASED, NANCY L. JACKSON, ROBERT S.
HERDMAN, AND WILLIAM F. LUTON, JR., CO-EXECUTORS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No 23339-91.                        Filed April 15, 1996.



     Richard J. Sideman and Wendy Abkin, for petitioner.

     Cynthia K. Hustad, for respondent.



                    SUPPLEMENTAL MEMORANDUM OPINION


     Parr, Judge:    The opinion in this case, T.C. Memo. 1994-539,

was filed on October 27, 1994.    In that opinion, we determined

the value of certain property includable in petitioner’s gross



     *    This memorandum opinion supplements Estate of Luton v.
Commissioner, T.C. Memo. 1994-539.
                               - 2 -

estate for Federal estate tax purposes.     Furthermore, we held

that petitioner was not liable for an addition to tax for

undervaluation pursuant to section 6660.1    We directed the

parties to submit computations pursuant to Rule 155.

     On October 20, 1995, respondent filed her Rule 155

computations for entry of decision.    On November 20, 1995,

petitioner filed its Rule 155 Computation.     Both parties filed

memoranda in support of their Rule 155 computations and in

support of their objections to the other party’s Rule 155

computations.   Petitioner also filed a response to respondent’s

memorandum.   Hereinafter, the parties’ Rule 155 computations and

memoranda in support thereof will be referred to as petitioner’s

or respondent’s Rule 155 computation, as the context requires.

     Prior to the trial of this case, the parties filed a

stipulation of partial agreement (SPA) containing nine numbered

paragraphs.   The SPA reflected the parties’ agreement as to a

number of issues relating to adjustments to the gross estate,

estate deductions, and adjusted taxable gifts to be incorporated

in the computation of petitioner’s estate tax deficiency, if any,

for entry of decision by the Court.

     In the notice of deficiency, inter alia, respondent

determined an adjustment to the value of the decedent’s stock

     1
          All section references are to the Internal Revenue Code
in effect as of the date of decedent’s death, and all Rule
references are to the Tax Court Rules of Practice and Procedure,
unless otherwise indicated.
                               - 3 -

interest in Dune Lakes, Ltd. (Dune Lakes).2   Another adjustment

related to an account receivable due the decedent from Dune

Lakes.   Paragraphs 2 and 4 of the SPA address these adjustments.

     Paragraph 2 provides:

          That the value of the underlying real estate assets of
     Dune Lakes, Ltd. (adjustment b in the notice of deficiency
     for the tax year ending April 27, 1987) is determined to
     be $4,800,000.00 without consideration of any discounts, if
     applicable. The amount of any discounts is still in
     dispute.
          The parties agree that the amount of $671,688.00 shown
     on the books of Dune Lakes, Ltd. for the year ending
     December 31, 1987, as loans from stockholders will be
     disregarded for purposes of valuing the stock and assets of
     Dune Lakes, Ltd.


     Paragraph 4 provides:

          That of the adjustment of $83,961.00 for Schedule C -
     Mortgages, Notes and Cash (adjustment c in the notice of
     deficiency for the tax year ending April 27, 1987),
     Respondent concedes $164,436.00 of the adjustment - Item
     27(a) Dune Lakes Limited, and $1,743.00 of the adjustment -
     Item 27(a) “Open book account”. Petitioners make no
     concessions. There is no amount left in dispute.


     The parties’ memoranda in support of their respective Rule

155 computations incorporate the SPA and the issues decided by

the Court in T.C. Memo. 1994-539.   However, the parties failed to

agree as to how two of the issues, agreed to in the SPA, were to

be reflected in the calculations of petitioner’s estate tax

liability for the years at issue.   The parties, therefore, filed

     2
          The valuation of Dune Lakes was at issue and was
addressed in our prior memorandum opinion. Accordingly, for
factual background relating to the corporation see T.C. Memo.
1994-539.
                               - 4 -

the instant motions for entry of decision based on their

respective interpretations of the terms of the SPA.

Discussion

     The two areas of disagreement3 involve (1) computations

relating to deductions for administrative expenses, and (2) the

proper interpretation of paragraphs 2 and 4 of the SPA.

Computations Relating to Administrative Expenses

     The parties’ dispute involves certain deductions for

administrative expenses.   Petitioner asserts that the Rule 155

computation should include deductions for statutory attorneys’

fees and commissions, additional attorneys’ fees and executor’s

fees awarded by the probate court, interest on California estate

tax, and interest on Federal estate tax.   In respondent’s Rule

155 computation, these items were not included due to lack of

substantiation.

     In respondent’s Rule 155 computation, she makes a number of

concessions relating to the aforementioned items.   Her

concessions recognize that petitioner has substantiated the

amounts claimed or that petitioner is entitled to deductions if,

and when it substantiates the amounts.        Accordingly, to the

extent petitioner can provide substantiation, we hold that such


     3
          In petitioner’s memorandum in objection to respondent’s
Rule 155 computation, it asserts that its payment of its estate
taxes was timely made pursuant to sec. 7502. Respondent concedes
that the return was filed and the tax was paid timely.
Accordingly, there is no issue before the Court in that respect.
                               - 5 -

amounts are to be allowed as deductions in the Rule 155

computation.



Interpretation of SPA

     The parties’ dispute relates to a loan amount due the

decedent from a related corporation, Dune Lakes.    The parties

addressed this issue in paragraphs 2 and 4 of the SPA.

Petitioner argues that, in the notice of deficiency, respondent

treated the receivable inconsistently.    That is, the amount of

the loan was disregarded for purposes of valuing the Dune Lakes

stock (i.e., the liability did not reduce the net asset value of

Dune Lakes); however, the amount was included in valuing the

decedent’s receivables.   Petitioner argues that paragraphs 2 and

4 of the SPA resolved the inconsistency.    Respondent contends

that paragraph 2 addressed only the valuation of Dune Lakes and

the treatment of the loans to the corporation for purposes of

valuing the stock of the corporation.    Respondent asserts that

paragraph 4 is merely a compromise that has the effect of

conceding only a part of the account receivable amount.

     A settlement stipulation is a contract.     Robbins Tire &

Rubber Co. v. Commissioner, 52 T.C. 420, 435-436 (1969); Smith v.

Commissioner, T.C. Memo. 1991-412.     General principles of

contract law are applied in construing a settlement agreement.

United States v. ITT Continental Baking Co., 420 U.S. 223, 238

(1975).   This Court has held that a settlement agreement is
                               - 6 -

binding in the absence of fraud, misrepresentation, or mutual

mistake of fact.   Spector v. Commissioner, 42 T.C. 110, 113

(1964); Saigh v. Commissioner, 26 T.C. 171, 177, 180 (1956).    In

describing a settlement agreement we have stated that:

     A settlement [agreement] is usually a compromise, and the
     mere fact that [one of the parties] now feels more confident
     about some point or points that he did not insist upon in
     first determining and later stipulating these particular
     deficiencies is not sufficient grounds for avoiding the
     settlement agreement. * * * [A] settlement 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 the sanctity of any other
     contract. * * * [Saigh v. Commissioner, supra at 177;
     citations omitted.]

     When an agreement is ambiguous, however, we may look to

extrinsic evidence to determine the parties’ intentions.     Woods

v. Commissioner, 92 T.C. 776 (1989).   In Constitution Pub. Co. v.

Commissioner, 22 B.T.A. 426, 428 (1931), the Board defined

ambiguity and set forth the applicable law concerning ambiguous

contracts as follows:

     if the expression used and the language of the instrument is
     merely ambiguous, the rules of construction with respect to
     doubtful or ambiguous contracts or documents are applicable
     here. Upon this ground we have the right and it is our duty
     to determine what * * * the parties intended by the
     expression used. An instrument is clearly ambiguous and is
     open to construction when its words, taken literally, lead
     to absurdity or have no meaning or when two meanings could
     be given. * * * It is a primary rule of construction of
     documents that the Court must if possible ascertain and give
     effect to the mutual intention of the parties and in doing
     this greater regard is to be had to the clear intent of the
     parties than to any particular words which they may have
     used in the expression of their intent. * * * [Citations
     omitted.]
                               - 7 -

     Petitioner contends that if the Dune Lakes receivable is

treated as a receivable includable in the estate, then it must be

treated as a payable in determining the net asset value of Dune

Lakes.   However, if the receivable is treated as a capital

contribution, and therefore not included in the net asset value

of Dune Lakes, then it must not be includable as a receivable in

the estate.   Petitioner contends that paragraph 2 of the SPA

settled part of the issue by providing that the receivable will

be disregarded for purposes of valuing the stock of Dune Lakes

(i.e., will be treated as a capital contribution) and will not

reduce the net asset value of the corporation.    Petitioner

further contends that the remaining part of the issue was

resolved in paragraph 4 of the SPA.    Petitioner claims that it

understood the language in paragraph 4 “as the logical and

necessary mirror of the language of paragraph 2" (i.e., the loan

would be disregarded for purposes of valuing the decedent’s

receivables).

     Respondent agrees with petitioner’s interpretation of

paragraph 2 but she notes that, by its terms, paragraph 2

addressed only the valuation of Dune Lakes, and the treatment of

the loans to the corporation for purposes of valuing the stock of

the corporation.   Respondent contends that paragraph 4, by its

terms, merely compromises the adjustment made in the notice of

deficiency.   Moreover, respondent contends that the adjustment in

the notice of deficiency related only to amounts taken as
                               - 8 -

marketability and collectability discounts ($82,218 relating to a

receivable in the amount of $164,436, and $1,743 relating to an

open book receivable in the amount of $3,485).   Respondent argues

that the amounts of the receivables, for purposes of valuing the

receivables, were never put in issue.   Therefore, respondent

argues that paragraph 4 did not necessarily relate to paragraph

2.   Respondent further asserts that her Appeals officer had the

primary responsibility for negotiating the settlement of the

adjustments in the SPA, and it is clear from his notes, that the

settlement in paragraph 4 was not directly related to the

settlement in paragraph 2.4

     Notwithstanding respondent’s assertions, we find paragraph 4

to be ambiguous.   First, the amount of the concession is more

than respondent’s adjustment in the notice of deficiency.

Second, the language in paragraph 4 which provides that

“petitioners make no concessions” and that “there is no amount

left in dispute” makes the stipulation ambiguous.   Moreover, it

seems reasonable to us that the loan amount reflected as a

payable in determining the net asset value of Dune Lakes and as a

receivable to the decedent would be treated consistently by the

     4
          Respondent asserts that the agent’s notes, dated June
19, 1995, state “propose 50/50 on Dune Lakes Receivables”, which
corresponds to a 50/50 split of the Dune Lakes receivables in
excess of the $82,218.00 already conceded (½ ($246,654-$82,218)
or $82,218). This would result in a total concession by
respondent of $164,436.00 ($82,218.00 + $82,218.00). The
purported notes are not part of the record. Furthermore,
petitioner disputes any agreement to a 50-percent concession.
                                 - 9 -

parties for purposes of valuing the assets of the estate.

Furthermore, we note that the general contract principle of

contra proferentem weighs against respondent in this case.       The

principle states that an ambiguous provision in a written

document is construed more strongly against the person who

selected the language.   Rink v. Commissioner, 100 T.C. 319, 328

(1993) n.8; see e.g., United States v. Seckinger, 397 U.S. 203,

216 (1970).

     Accordingly, we conclude that paragraphs 2 and 4 of the SPA

should be interpreted consistently with one another.       Therefore,

we hold that the Rule 155 computation shall be computed so that

the receivable amounts relating to the advances to Dune Lakes by

the decedent are not includable in the estate.

     To reflect the foregoing,

                                         Decision will be entered in

                                 accordance with the parties’

                                 Rule 155 computation as revised to

                                 conform with this opinion.
