                        T.C. Memo. 1997-576



                      UNITED STATES TAX COURT



     THE MANCHESTER GROUP AND SUBSIDIARIES, FORMERLY TORREY
ENTERPRISES, INC., AND SUBSIDIARIES, FORMERLY TORREY DEVELOPMENT
          CORPORATION AND SUBSIDIARIES, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20509-92.              Filed December 31, 1997.



     J. Clancy Wilson, for petitioners.

     William H. Quealy, Jr., and Alice M. Harbutte, for

respondent.


                        MEMORANDUM OPINION


     DAWSON, Judge:   This case was assigned to Special Trial

Judge Robert N. Armen, Jr., pursuant to the provisions of section

7443A(b)(4) of the Internal Revenue Code of 1986, as amended, and
                                -2-


Rules 180, 181, and 183.1   The Court agrees with and adopts the

Opinion of the Special Trial Judge, which is set forth below.

                OPINION OF THE SPECIAL TRIAL JUDGE

      ARMEN, Special Trial Judge:     This case is before the Court

on petitioners' Motion for Leave of Court to File Motion to

Vacate or Revise Decision to Seek Litigation Costs Under Code

Section 7430 (petitioners' Motion for Leave).

      On December 10, 1993, the Court entered a decision in this

case pursuant to the agreement of the parties.     Ninety-four days

later, on March 14, 1994, the Court filed petitioners' Motion for

Leave and lodged two additional motions submitted by petitioners,

namely: (1) Motion to Vacate or Revise Decision to Seek

Litigation Costs Under Code Section 7430 (petitioners' Motion to

Vacate), and (2) Motion for Reasonable Litigation Costs

(petitioners' Motion for Litigation Costs).2

      The issues for decision are as follows:




  1
    Unless otherwise indicated, all section references are to the
Internal Revenue Code, as amended, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
  2
    The Court of Appeals for the Ninth Circuit has held that
petitioners' Motion for Leave was timely filed because it was
mailed within 90 days after the decision in the case was entered.
Manchester Group v. Commissioner, 113 F.3d 1087 (9th Cir. 1997),
revg. T.C. Memo. 1994-604.
                                       -3-


      (1) Whether we should exercise our discretion and grant

petitioners' Motion for Leave (and thereby file petitioners'

Motion to Vacate); and, if so,

      (2) whether we should grant petitioners' Motion to Vacate.3

      Neither party requested an evidentiary hearing, and the

Court concludes that such a hearing is not necessary for the

proper disposition of petitioners' Motion for Leave and Motion to

Vacate.      We therefore decide the matter before us based on the

record that has been developed to date.

      Petitioners' principal place of business was in San Diego,

California, at the time that the petition was filed with the

Court.

Background

      In June 1992, respondent sent petitioners a notice of

deficiency.      In the notice, respondent determined the following

deficiency and additions to tax in petitioners' consolidated

income tax for the taxable year ended March 31, 1986:


                                     Additions to tax
Deficiency         Sec. 6653(a)(1)      Sec. 6653(a)(2)   Sec. 6661(a)
                                               1
$14,458,059           $722,903                             $3,614,515
      1
          50% of the interest due on $14,458,059.




  3
     Although only petitioner's Motion for Leave is presently
before the Court, petitioners' Motion to Vacate is essentially
identical to petitioners' Motion for Leave.
                                -4-


Respondent also determined in the notice that petitioners were

liable for additional interest under section 6621(c) by virtue of

a substantial underpayment of tax attributable to a tax-motivated

transaction.

     The deficiency in income was essentially attributable to

respondent's determination that petitioners derived substantial

gain in a complex transaction involving the disposition of an

indirect interest in an office building.

     In September 1992, petitioners filed a timely petition

contesting respondent's determinations.    At the same time,

petitioners designated San Diego, California, as the place of

trial.

     The petition was subscribed by J. Clancy Wilson, the

attorney who has continued to represent petitioners throughout

these proceedings.   Petitioners' counsel was formerly an attorney

for the Tax Division of the U.S. Department of Justice.    He is

also certified by the State of California as a specialist in

taxation law and is an experienced tax litigator.

     In November 1992, an answer was filed by respondent's

District Counsel Office in San Diego.   Shortly thereafter, in

December 1992, the case was referred to respondent's Appeals

Office in San Diego for settlement consideration.    Because of the

amounts in controversy and the complexity of the issues, the case

was assigned to a senior Appeals officer.
                                 -5-


      On September 23, 1993, while negotiations between the

parties were ongoing, the Court served the parties with notice

that this case would be called for trial at the Court's trial

session scheduled to commence on February 28, 1994, in San Diego.

      In late September or early October 1993, respondent's

Appeals Office, after a period of consultation with respondent's

attorneys in both San Diego and Washington, D.C., decided to

concede the deficiency, additions to tax, and additional interest

as determined in the notice of deficiency and so notified

petitioners' counsel.    Sometime thereafter, respondent sent a

settlement document to petitioners' counsel for his review and

signature.

      The settlement document was a standard stipulated decision

consisting of a form of decision, which embodied respondent's

concession of the deficiency, additions to tax, and additional

interest, and a stipulation to be signed by counsel for the

parties agreeing to entry of the form of decision by the Court.

The stipulated decision was silent regarding litigation costs.

      Petitioners' counsel reviewed the stipulated decision and

revised its language.4   In revising the language, petitioners'

counsel did not introduce the issue of litigation costs.



  4
    The nature of the revision made by petitioners' counsel
appears to relate to the description of the additions to tax and
additional interest addressed in the stipulated decision.
                                 -6-


     Petitioners' counsel executed the stipulated decision in

November 1993.   Nevertheless, petitioners' counsel did not intend

the stipulated decision to be conclusive as to litigation costs.

     In December 1993, respondent's counsel executed the

stipulated decision and forwarded it to the Court.

     On December 9, 1993, the Court received the stipulated

decision.   The portion consisting of the form of decision recited

that "Pursuant to the agreement of the parties in this case",

petitioners were not liable for any deficiency, additions to tax,

or additional interest for the taxable year in issue.   The

portion consisting of the stipulation recited that "It is hereby

stipulated that the Court may enter the foregoing decision in the

above-entitled case" and was executed by counsel for the parties.

As previously indicated, the stipulated decision was silent

regarding litigation costs.

     On December 10, 1993, the Court executed the form of

decision and formally entered decision pursuant to the agreement

of the parties (the Decision).   Also on December 10, 1993, the

Court served conformed copies of the Decision on the parties.

Thereafter, the Court struck petitioners' case from the February

28, 1994, trial session in San Diego.

     In January 1994, respondent closed the administrative and

litigation files related to this case and discarded certain
                                -7-


handwritten notes and other such informal materials that had been

generated prior to the entry of the Decision.

     On March 9, 1994, the 89th day after the Decision was

entered, petitioners mailed their Motion for Leave, Motion to

Vacate, and Motion for Litigation Costs to the Court.   All three

motions were received by the Court on March 14, 1994, the 94th

day after the Decision was entered.   On the same day, March 14,

1994, the Court filed petitioners' Motion for Leave and lodged

petitioners' Motion to Vacate and petitioners' Motion for

Litigation Costs.

     Prior to March 9, 1994, petitioners had not disclosed their

intention of seeking litigation costs.   However, at the time that

he executed the stipulated decision in November 1993,

petitioners' counsel fully contemplated that petitioners would

seek litigation costs.   Nevertheless, petitioners' counsel did

not mail petitioners' three motions to the Court until March 9,

1994.   Petitioners' counsel intentionally delayed submitting the

motions for two reasons.   First, petitioners' counsel was

concerned that claiming litigation costs might cause respondent

to withhold concession of the amounts in issue in the present

case.   Second, petitioners' counsel was concerned that claiming

litigation costs might negatively influence the resolution of

another dispute between petitioners and respondent that was also
                                -8-


under consideration by respondent's Appeals Office in San Diego.5

Therefore, in an effort to "avoid burning bridges", petitioners'

counsel intentionally delayed submitting a motion for litigation

costs until the eve of the expiration of the 90-day period that

typically leads to the finality of a stipulated decision.    See

secs. 7481(a)(1), 7483.



Discussion

      A. Time and Manner of Making a Claim for Litigation Costs

      Petitioners advance arguments in support of their view that

they are entitled, without first filing a motion to vacate

decision, to file a motion for litigation costs at any time

before the decision becomes final.    Thus, petitioners contend

that we must consider the merits of their Motion for Litigation

Costs without regard to their Motion for Leave.    We disagree for

the reasons discussed in our prior opinion.    Manchester Group v.

Commissioner, T.C. Memo. 1994-604, revd. on another issue 113

F.3d 1087 (9th Cir. 1997).   We hold, as before, that we will not

consider the merits of petitioners' Motion for Litigation Costs




  5
     The other dispute apparently involved another taxable year
in respect of which a 30-day letter had been issued.
                                -9-


unless and until we first grant petitioners' Motion for Leave and

then grant petitioners' Motion to Vacate.6

      The reasoning that supports our holding is set forth in our

prior opinion and will not be repeated herein.   See Manchester

Group v. Commissioner, T.C. Memo. 1994-604.    However, we make

mention of several cases that petitioners cite in support of

their argument that a motion for litigation costs may be filed at

any time before a decision becomes final.    We do not think that

these cases support such proposition.   In each case, it appears

that a motion to vacate the decision, or for litigation costs,

was mailed or delivered to the Court within 30 days after the

entry of the decision, and in no case was there anything to

suggest that the taxpayer intentionally delayed submitting an

appropriate motion.   See Comer v. Commissioner, 958 F.2d 136 (6th

Cir. 1992); Cassuto v. Commissioner, 93 T.C. 256 (1989), affd. in

part, revd. in part and remanded 936 F.2d 736 (2d Cir. 1991);


  6
     In Manchester Group v. Commissioner, 113 F.3d 1087, 1089
(9th Cir. 1997), the Court of Appeals did not take issue with our
holding that petitioners' Motion for Litigation Costs was not
separately reviewable; rather, the Court of Appeals reversed our
dismissal for lack of jurisdiction and remanded this case "to
decide the motion for leave on the merits." In reaching its
conclusion, the Court of Appeals appeared to agree that
petitioners' Motion to Vacate cannot be considered without first
granting petitioners' Motion for Leave. Thus:

      "As the Tax Court held, the motion to vacate could not
      be considered without first granting the motion for
      leave because more than thirty days had passed." [Id.
      at 1088.]
                               - 10 -


Minahan v. Commissioner, 88 T.C. 492 (1987); Bouterie v.

Commissioner, T.C. Memo. 1993-510, revd. and remanded 36 F.3d

1361 (5th Cir. 1994).

     B. The Interests of Justice

     In the alternative to their argument that their Motion for

Litigation Costs is separately reviewable, petitioners argue that

we should grant their Motion for Leave.   In this regard,

petitioners argue that "the inadvertent actions of petitioners'

counsel should be viewed in light of the lack of specific

guidance in the Tax Court Rules as to when a party should move

for litigation costs."   Therefore, according to petitioners,

justice would be served by granting their Motion for Leave.     We

disagree with both the premise and the conclusion of petitioners'

argument.

     Whether to grant or deny a motion for leave is a matter that

lies within the sound discretion of the Court.   Heim v.

Commissioner, 872 F.2d 245, 246 (8th Cir. 1989), affg. T.C. Memo.

1987-1; Estate of Egger v. Commissioner, 92 T.C. 1079, 1083

(1989).   In deciding what action to take,

     We are guided primarily by whether it would be in the
     interest of justice to vacate the prior decision. But,
     we also recognize that litigation must end at sometime.
     [Estate of Egger v. Commissioner, supra; citation
     omitted.]

See also Commissioner v. Estate of Long, 304 F.2d 136, 144 (9th

Cir. 1962).
                                 - 11 -


      In the present case, justice does not demand that we grant

petitioners' Motion for Leave.

      First, we disagree with the assertion that the actions of

petitioners' counsel were "inadvertent".        Rather, the record

clearly demonstrates that petitioners' counsel intentionally

delayed submitting petitioners' various motions until the eve of

the expiration of the 90-day period that typically leads to the

finality of a stipulated decision.        Petitioners' counsel

intentionally delayed submitting the motions for what he regarded

as strategic reasons.   Thus, it cannot be said that the actions

of petitioners' counsel were "inadvertent".

      Second, we disagree that our Rules lack specific guidance

regarding the time when a claim for litigation costs should be

made.   We have previously discussed at length the provisions of

our Rules regarding the time and manner of making a claim for

litigation costs, see Manchester Group v. Commissioner, T.C.

Memo. 1994-604, and we will not repeat that discussion herein.7

Suffice it to say that petitioners' counsel should not have

waited to file the instant motions until the 89th day after the

entry of the stipulated decision if he did not intend it to be

conclusive as to litigation costs.        Rather, when respondent


  7
     Cf. Abatti v. Commissioner, 859 F.2d 115, 119 (9th Cir.
1988) (holding that a taxpayer's misunderstanding of the Tax
Court's Rules is insufficient to overcome the doctrine of
finality).
                                 - 12 -


mailed the settlement document to petitioners' counsel for his

review and signature, if not sooner, petitioners' counsel should

have alerted respondent to petitioners' claim for litigation

costs.   At that point, either the proposed stipulated decision

could have been revised to reflect petitioners' entitlement to

litigation costs, see Rule 231(a)(1), or the parties could have

executed a stipulation of settled issues, see Rule 231(a)(2)(C),

(b)(3), and (c), thereby preserving the issue of litigation costs

for subsequent disposition by the Court.     Petitioners could then

have filed their Motion for Litigation Costs, accompanied by the

stipulation of settled issues.     See Rule 231(c).   Alternatively,

petitioners' counsel, having executed the stipulated decision in

November 1993 but not intending that it be conclusive as to

litigation costs, could have filed the Motion to Vacate within

the 30-day period provided by Rule 162.     See Rule 230(a).

However, petitioners' counsel did not pursue either of these

alternatives because they did not comport with his litigation

strategy.

     C. Public Policy

     Petitioners assert that they incurred substantial costs in

defending against what they regard as respondent's unreasonable

position.   Petitioners then argue that because section 7430 was

enacted by Congress to deter the Commissioner from taking
                               - 13 -


unreasonable positions, "public policy" would be served by

granting their Motion for Leave.

     We agree that section 7430 was enacted by Congress to deter

unreasonable conduct by the Commissioner.   Indeed, the

legislative history of section 7430 sets forth some guidelines

for determining whether the Commissioner's conduct was

unreasonable:

     The committee intends that the determination by the
     court on this issue is to be made on the basis of the
     facts and legal precedents relating to the case as
     revealed in the record. Other factors the committee
     believes might be taken into account in making this
     determination include, (1) whether the government used
     the costs and expenses of litigation against its
     position to extract concessions from the taxpayer that
     were not justified under the circumstances of the case,
     (2) whether the government pursued the litigation
     against the taxpayer for purposes of harassment or
     embarrassment, or out of political motivation, and (3)
     such other factors as the court finds relevant. * * *
     [H. Rept. 97-404, at 12 (1981).]

     Petitioners' counsel intentionally delayed submitting

petitioners' three motions because of his concern that a claim

for litigation costs might:   (1) Cause respondent to withhold

concession of the amounts in issue in the present case and might

(2) negatively influence the resolution of a dispute in a

collateral matter.   Neither of these reasons constitutes good

cause, and in the absence of good cause, we are unwilling to

allow petitioners to ignore the orderly procedures of this Court

as embodied in Rule 162.   In short, the "public policy" of
                                - 14 -


section 7430, to which we give expression through our Rules,

simply does not justify a waiver of Rule 162 in this instance.8

      D. Impact on the Judicial Process

      We think that the Court has an interest in this matter that

petitioners do not recognize.

      The Court has an interest in fostering respect for the

judicial process and accomplishing orderly disposition of its

workload.   In part, the Court seeks to foster respect for the

judicial process through the evenhanded enforcement of its Rules,

which are designed to secure the just, speedy, and inexpensive

determination of every case.    See Rule 1(b); see also sec. 7453.9

If a party, in the pursuit of its own agenda, is permitted to

disregard the procedures established by this Court, unfairness to

others and disruption of the Court's processes occur.    See Estate




  8
     We note that sec. 7430(b)(4) precludes an award of
litigation costs with respect to any portion of the court
proceeding during which the prevailing party has unreasonably
protracted such proceeding. It is apparent, therefore, that the
statute itself does not excuse intentional delay by a taxpayer.
  9
     Cf. Commissioner v. Estate of Long, 304 F.2d 136, 144 (9th
Cir. 1962) (quoting and adopting Commissioner v. Erie Forge Co.,
167 F.2d 71, 76 (3d Cir. 1948): "The Tax Court is authorized to
determine whether its rules are complied with and where its
decision of such questions is not shown to be clearly wrong it
should not be disturbed.")
                                - 15 -


of Quirk v. Commissioner, 60 T.C. 520, 521 (1973).10   This is

particularly true if the party has disregarded those procedures

intentionally.

       As we have already stated, petitioners' counsel should not

have executed the stipulated decision and waited to file the

instant motions until 89 days after its entry if he did not

intend the stipulated decision to be conclusive as to litigation

costs.    However, by so doing, he signaled to the Court, as well

as respondent, that all of the issues in the case, specifically

including the issue of litigation costs, had been resolved by the

parties.    As a consequence, the Court struck this case from the

February 28, 1994, trial session in San Diego.    In contrast, if a

stipulation of settled issues had been filed, the Court would

have known that the issue of litigation costs remained in the

case and might have been able to entertain that issue at the San

Diego trial session.    Regardless, the fact remains that the

integrity of the Court's Rules was compromised through




  10
     "The Rules of this Court were adopted for serious reasons
and are not to be taken lightly. Time limitations, for example,
are necessary to ensure the speedy and efficient disposition of
cases so that evidence and witnesses will not grow stale.
Litigation before this Court would be significantly slowed if we
routinely countenanced violations of the time limitations set by
our Rules. And, of course, respondent must be held to the same
strict observance of the Rules that we require of taxpayers."
Estate of Quirk v. Commissioner, 60 T.C. 520, 521 (1973).
                                 - 16 -


petitioners' stratagem of "buying time" by intentionally waiting

until the 11th hour to submit the Motion for Litigation Costs.

     E. Conclusion

     Whether to grant or deny a motion for leave is a matter that

lies within the sound discretion of the Court.         In ruling on

such a motion, we are guided primarily by whether it would be in

the interest of justice to vacate the prior decision.

     Justice does not require us to vacate the prior decision in

this case.   Petitioners' counsel intentionally delayed mailing

the Motion for Leave to the Court until the 89th day after the

Decision had been entered.   Significantly, there was no good

cause for such delay.   Further, respect for the judicial system

is compromised when a party, in pursuit of its own litigation

strategy, is permitted to disregard the procedures established by

this Court for the orderly disposition of disputes.

     In view of the foregoing, we will deny petitioners' Motion

for Leave.   Accordingly, we need not address petitioners' Motion

to Vacate.

     To reflect the foregoing,



                                          An appropriate order will

                                 be issued.
