                          T.C. Memo. 2005-17



                       UNITED STATES TAX COURT



             DORI R. MERRIAM, TRANSFEREE, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 26075-92.              Filed February 1, 2005.


     Patrick E. McGinnis, for petitioner.

     John A. Weeda, for respondent.



         SUPPLEMENTAL MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:    This case is before the Court on

petitioner’s motion for special leave to file motion to vacate

decision and motion to vacate decision.




     *
       This Memorandum Findings of Fact and Opinion supplements
Merriam v. Commissioner, T.C. Memo. 1995-432, affd. without
published opinion 107 F.3d 877 (9th Cir. 1997)
                               - 2 -

     In a prior opinion issued in this case, we held that

petitioner was liable as a transferee for Federal income tax owed

for the year ending September 30, 1986, by Napa Investment Corp.

(Napa).   Merriam v. Commissioner, T.C. Memo. 1995-432, affd.

without published opinion 107 F.3d 877 (9th Cir. 1997).

Petitioner was president and sole shareholder of Napa.    James

Merriam, petitioner’s then-husband, ran Napa.   He signed

petitioner’s name to many Napa documents.   Petitioner personally

signed many other Napa documents including a consent to action

which stated that she, as sole director, approved Napa’s lending

substantial sums to her, a promissory note stating that she

borrowed substantial sums from Napa, and Napa checks including

checks payable to her.

     James Merriam arranged for his son from a prior marriage,

Ted Merriam, to represent petitioner in that proceeding.    The

case was fully stipulated under Rule 122.   Petitioner contends

that (1) the stipulation erroneously overstated her role in Napa,

which caused the Court to decide erroneously that she was liable

as a transferee; (2) she had no knowledge of the existence of the

case until after decision was entered; and (3) these

circumstances constitute fraud on the Court.

     The sole issue for decision is whether fraud on the Court

occurred in this case.   We hold that it did not.
                                - 3 -

     Unless otherwise indicated, section references are to the

Internal Revenue Code as amended.    Rule references are to the Tax

Court Rules of Practice and Procedure.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

A.   Petitioner

     Petitioner was a resident of California when the petition

was filed.    Petitioner graduated from the University of Southern

California in 1963 with a degree in psychology.

     Petitioner married William D. Lusk (Lusk) in 1966.    In 1979,

they were divorced, and petitioner married James Merriam.    Also

in 1979, petitioner received her home in Newport Beach,

California, as part of the marital settlement agreement with

Lusk.    In 1980, petitioner sold her Newport Beach home for $1.4

million and received net proceeds of $876,936.

     In 1981, petitioner and James Merriam paid $1,005,000 to buy

a 7,000-square-foot residence in Tiburon, California (Tiburon

residence).    Petitioner paid a deposit of $201,000 and earnest

money of $350,026.28, and she and James Merriam borrowed $550,000

to buy that residence.1   James Merriam signed a quitclaim deed on

March 12, 1981, in which he relinquished any interest that he

might have had in the Tiburon residence.



     1
        The parties do not explain why payments for the Tiburon
residence do not equal its cost.
                              - 4 -

     Petitioner and James Merriam lived in the Tiburon residence.

Petitioner ran the family household.   James Merriam controlled

their business and tax matters.

B.   Ted Merriam

     Ted Merriam graduated from law school in 1978.   He received

a Master of Laws degree in taxation in 1982 and has practiced tax

law in Denver, Colorado, since then.   Ted Merriam and his family

visited James Merriam and petitioner in California three or four

times a year from 1983 to 1999.   Ted Merriam did legal work

related to James Merriam’s business activities, but he very

rarely spoke to petitioner about business or tax matters.

     Petitioner signed joint individual tax returns that Ted

Merriam prepared for her and James Merriam.   Petitioner knew that

Ted Merriam had prepared those returns.   Petitioner signed a Form

2848, Power of Attorney, in which she and James Merriam

authorized Ted Merriam to represent them before respondent with

respect to their 1986 joint return.    Ted Merriam received several

Forms 2848 purportedly bearing petitioner’s signature,2 including

one relating to petitioner’s transferee liability.




     2
        James Merriam frequently signed petitioner’s name to
documents. If the record shows that petitioner actually signed a
document, we state that she signed the document. Where the
record indicates that her signature appears on a document but
does not indicate that she signed it, we state that the document
“purportedly” bears her signature.
                                - 5 -

C.   James Merriam’s Business Activities

     1.   James Merriam’s Early Businesses

     In the late 1960s and 1970s, James Merriam started the Sir

Speedy Printing Centers franchise business and other franchise

businesses.    In the early 1980s, he started Texas State Video

Co., which he envisioned would become a nationwide video rental

franchise business.    James Merriam raised about $2 million in a

stock offering relating to the video franchise company.

     2.   James Merriam’s Offices, Office Staff, and Procedures

     James Merriam had offices at the Tiburon residence and at

other locations.    He had numerous corporations and bank accounts.

     James Merriam and members of his office staff received and

sorted mail delivered to the Tiburon residence.    James Merriam

gave petitioner mail not related to his businesses or taxes.

James Merriam told his staff not to give petitioner any

information about his businesses.

     3.   Napa

     Ted Merriam incorporated Merriam Investment Corp. (MIC) in

Colorado in 1983 and was its registered agent.    MIC was Napa’s

predecessor.    Initially, the members of the MIC board of

directors were James Merriam, Ted Merriam, and petitioner.    James

and Ted Merriam resigned as directors shortly after MIC was

incorporated and before MIC changed its name to Napa.

Thereafter, petitioner was the president, sole shareholder, and
                                - 6 -

only director of Napa.    James Merriam ran Napa and made all of

the decisions for Napa.    Napa, a holding company, owned 12

million shares of Hammer Technologies Inc.

     Ted Merriam prepared Napa’s corporate minutes, resolutions

and other legal documents and kept track of distributions from

Napa bank accounts.    Napa conducted business through consents to

action.3   Ted Merriam prepared hundreds of Napa documents for

petitioner to sign and mailed them in envelopes addressed either

to her or to James Merriam.    Those documents were returned to him

purportedly bearing petitioner’s signature.

     Petitioner personally signed the following Napa documents:

(a) A promissory note dated March 31, 1986, in which she promised

to pay Napa $421,843.22 on demand but no later than March 31,

1992; (b) a consent to action in which she, as sole director of

Napa, approved loans from Napa to her from April through June

1986 totaling $702,503.904 in exchange for her promissory note to

Napa in that amount; and (c) at least 54 Napa checks, including

12 payable to her.    On two of the checks dated in February 1985

and made payable to her, petitioner wrote “Napa Investment

Corporation” above her signature.

     3
        A consent to action is a document signed by the directors
of a corporation in lieu of a board meeting.
     4
        The parties erroneously stipulated that this amount was
$703,503.90 in the underlying case. The discrepancy does not
affect our decision to deny petitioner’s motion to vacate
decision.
                                - 7 -

     Petitioner signed several checks made payable to the IRS on

which appeared Napa’s taxpayer identification number.     Petitioner

also signed some Napa checks payable to lawyers and to James

Merriam’s bookkeeper.   James Merriam frequently signed

petitioner’s name on Napa documents, including checks.

     Ted Merriam prepared articles of dissolution for Napa on

October 17, 1986.   Petitioner’s signature as president and Ted

Merriam’s signature as secretary on this document were notarized

by Diane Lalosh (Lalosh), an administrative assistant of James

Merriam.   Ted Merriam did not talk to petitioner about the

decision to liquidate Napa.

     James Merriam was a party to many lawsuits in which it was

alleged that he had violated securities laws.   Petitioner knew

that James Merriam was a party to many lawsuits.   Petitioner,

James Merriam, and Napa were defendants in a lawsuit in which

Burton Finkelstein (Finkelstein), an attorney, represented

petitioner and James Merriam.   Petitioner signed a $25,000 Napa

check payable to Finkelstein to retain him for legal services.

Finkelstein represented petitioner in a deposition taken in that

case.

     Petitioner received substantial amounts each month from

Napa, totaling about $1.5 million in a 2-year period before

September 30, 1986.   In June 1986, about 3 months before Napa

liquidated, petitioner bought a Rolls Royce automobile.
                                 - 8 -

D.   The Tax Court Case

     Napa reported an unpaid tax liability of $474,363 on its

corporate income tax return for its year ending September 30,

1986.   Respondent determined that petitioner was liable as a

transferee of Napa.    Respondent sent a notice of transferee

liability to petitioner’s Tiburon residence and a copy to Ted

Merriam in Colorado.

     James Merriam asked Ted Merriam to represent petitioner in

this case, and Ted Merriam agreed.       James Merriam told Ted

Merriam to send the legal bills related to this case to James

Merriam.

     Ted Merriam timely filed a petition in this case in 1992.

He sent copies of all documents related to the case in envelopes

addressed to James Merriam or petitioner.       He designated Denver

as the place of trial, and he listed petitioner as a witness in

his pretrial memorandum.

     The case was submitted fully stipulated under Rule 122 in

1994.   Ted Merriam signed the stipulation of facts without

discussing it with petitioner.    In an opinion filed in this case

on September 6, 1995, we found that petitioner was the sole

director and shareholder of Napa, James Merriam made all

decisions for her regarding Napa, she had borrowed money from

Napa as shown by promissory notes bearing her signature, she

caused Napa to be liquidated, and, as part of the liquidation,
                                 - 9 -

she distributed to herself cash and a note and canceled

promissory notes that she had signed.     We held that petitioner

was a transferee of Napa under former Colo. Rev. Stat. sec. 7-5-

114(1)(c) (1986) (Director Dissolution Statute) because she

caused the corporation to liquidate, and she distributed

corporate assets to herself.     Merriam v. Commissioner, T.C. Memo.

1995-432.

     We entered decision that petitioner was liable as a

transferee for Napa’s 1986 income tax and additions to tax for

1986 in the amount of $1,154,034.56.     The case was appealed to

and affirmed without published opinion by the U.S. Court of

Appeals for the Ninth Circuit.    Ted Merriam discussed collection

alternatives with James Merriam after the decision became final.

     Ted Merriam never spoke to petitioner about the case.     He

believed that: (a) Petitioner had signed Napa corporate

documents; (b) petitioner knew that she was a shareholder,

director, and officer of Napa; (c) James Merriam kept petitioner

informed of important business and tax matters; and (d)

petitioner had expressly authorized James Merriam to act on her

behalf in this case.

E.   Sale of the Tiburon Residence

     On February 22, 1996, IRS agent Michael Buttress (Buttress)

went to the Tiburon residence and gave petitioner some
                               - 10 -

paperwork.5    Petitioner gave the paperwork to James Merriam.

Buttress went to the Tiburon residence many times.     Petitioner

never spoke to him about respondent’s sale of the Tiburon

residence; however, she knew that Ted Merriam had been

communicating with respondent about selling the Tiburon

residence, and she believed that Ted Merriam was representing her

regarding respondent’s sale of the house.

     On July 19, 1996, petitioner wrote a letter to Buttress in

which she said that Ted Merriam had told petitioner and James

Merriam that their real estate agent was advertising the sale of

the house, the proceeds from which they could use to pay

delinquent taxes.

     On February 25, 1997, Buttress visited the Tiburon residence

and gave petitioner some paperwork including a notice of seizure

and a minimum bid worksheet that listed petitioner as the

taxpayer with a liability of $1,800,451.32 and the Tiburon

residence as the subject property.      James Merriam was not at home

at the time.    Petitioner called Ted Merriam.   Ted Merriam told

petitioner to fax the paperwork to him.     Later that day,

petitioner faxed that paperwork to Ted Merriam with a transmittal

letter that included the following:

          Mike Buttress was just here and gave me the
     following minimum bid worksheet.

     5
        Petitioner testified that this was the first time that
she knew about her transferee liability.
                                - 11 -

          He asked if we were going to have the house
     appraised again and I told him that we would be talking
     to you and let him know.
          Jim is up in Roseville today, returning this
     evening.
          Looking forward to seeing you on Saturday!!

On that day, James Merriam took the paperwork from petitioner and

told her that he would take care of it.

     The Tiburon residence was sold on August 6, 1999.

Respondent received $1,815,539 from the sale, which fully paid

petitioner’s transferee liability.

F.   Later Events

     James Merriam began serving a sentence in Federal prison in

January 2002 for securities crimes not related to this case.

Petitioner filed for divorce from James Merriam in 2002.

     Petitioner retained her current counsel in this case in

August 2002.   Petitioner filed her motion for special leave to

file motion to vacate decision on July 31, 2003.

                                OPINION

A.   Petitioner’s Contentions

     Petitioner moves to vacate the decision in this case on the

grounds that it resulted from fraud on the Court by James Merriam

and Ted Merriam.    Petitioner contends that James Merriam and Ted

Merriam conspired to hold her liable for Napa’s income tax

liability.   She also contends that the stipulation of facts

submitted by Ted Merriam is almost entirely false and is based on

documents bearing her forged signature, and that she did not
                                - 12 -

retain Ted Merriam to represent her in this case or authorize

anyone else to retain him.

B.   Whether the Decision Was Entered as a Result of Fraud on the
     Court

     1.     Background

     Generally, we lack jurisdiction to vacate a decision once it

becomes final.    Abatti v. Commissioner, 859 F.2d 115, 117-118

(9th Cir. 1988), affg. 86 T.C. 1319 (1986); Cinema '84 v.

Commissioner, 122 T.C. 264, 270 (2004).    However, we have

jurisdiction to set aside a decision obtained by fraud on the

Court.    Toscano v. Commissioner, 441 F.2d 930, 933-934 (9th Cir.

1971), vacating 52 T.C. 295 (1969).

     Fraud on the court is an unconscionable plan or scheme which

is designed to improperly influence the court in its decisions.

Abatti v. Commissioner, supra at 118.     With specific facts which

plainly impugn the official record, the moving party must

establish by clear and convincing evidence that decision resulted

from fraud on the court.     Drobny v. Commissioner, 113 F.3d 670,

677 (7th Cir. 1997) (quoting Kenner v. Commissioner, 387 F.2d

689, 691 (7th Cir. 1968)), affg. T.C. Memo. 1995-209; England v.

Doyle, 281 F.2d 304, 309-310 (9th Cir. 1960); Atchison, Topeka &

Santa Fe Ry. Co. v. Barrett, 246 F.2d 846, 849 (9th Cir. 1957).

The concept of fraud on the court applies narrowly in the
                                - 13 -

interest of preserving the finality of judgments.     Toscano v.

Commissioner, supra at 934.6

     2.   Whether Fraud on the Court Occurred in This Case

          a.      Whether the Decision Was Based on a False
                  Stipulation of Facts

     Petitioner contends that James Merriam and Ted Merriam

submitted a false stipulation of facts.    Petitioner contends

that, contrary to the stipulation of facts, the following

statements are true: (i) She was not the president and sole

shareholder of Napa; (ii) she did not borrow money from Napa; and

(iii) she did not know anything about Napa except that it was one

of James Merriam’s companies.

     At the hearing on her motion, petitioner testified on direct

examination that she had no role in Napa, she did not know

anything about Napa except that it was one of James Merriam’s

companies, and she did not sign promissory notes or any other

Napa documents.    She testified that she first learned that

promissory notes with her signature existed in April 2002.     She

testified that she never borrowed money from Napa.    She testified

and contends that she was not involved with Napa, including the

decision to liquidate it.




     6
       We reach this result without requiring petitioner to show
prejudice. See Dixon v. Commissioner, 316 F.3d 1041, 1046 (9th
Cir. 2003), revg. T.C. Memo. 1999-101.
                               - 14 -

     We decide whether a witness is credible on the basis of

objective facts, the reasonableness of the testimony, and the

demeanor of the witness.    Quock Ting v. United States, 140 U.S.

417, 420-421 (1891); Wood v. Commissioner, 338 F.2d 602, 605 (9th

Cir. 1964), affg. 41 T.C. 593 (1964); Pinder v. United States,

330 F.2d 119, 124-125 (5th Cir. 1964); Concord Consumers Hous.

Coop. v. Commissioner, 89 T.C. 105, 124 n. 21 (1987).

     On cross-examination, when presented with documents offered

to impeach her testimony, petitioner admitted that she had signed

(1) a promissory note in which she promised to pay Napa

$421,843.22; (2) a consent to action in which she, as sole

director, approved loans from Napa to her totaling $702,503.90 in

exchange for her promissory note; and (3) at least 54 Napa

checks, including 12 payable to her.

     Petitioner is a college graduate.    We believe that

petitioner knew that she could not sign a corporate check without

authority from Napa.    Petitioner denied knowing anything about

Napa’s liquidation and testified that she did not sign the Napa

liquidation document.    However, her signature on that document

was notarized.   Although the notarization was made by Lalosh, an

employee who worked in James Merriam’s office, Lalosh testified

in this case on matters other than the notarization, and we have

no reason to doubt her integrity or the validity of the

notarization.
                                - 15 -

     Petitioner contends that Lalosh testified that petitioner

had no role in Napa.   We disagree.      Lalosh testified about James

Merriam’s office procedures, that petitioner signed several Napa

checks, and that James Merriam signed Napa documents.      Lalosh did

not testify that petitioner had no role in Napa.

     Petitioner denies receiving substantial sums from Napa.      Our

bases for finding that she received about $1.5 million in a 2-

year period are that: (a) Petitioner said that she received

monthly payments from Napa for household expenses; and (b) Ted

Merriam testified that (i) James Merriam wanted petitioner to

receive at least $20,000 to $30,000 per month for that purpose;

(ii) Napa gave petitioner $1.5 million in a 2-year period; and

(iii) petitioner gave Napa $1.5 million in notes during that

period.   The hearing record for petitioner’s motion includes the

three Napa checks payable to and signed by petitioner: $9,000 on

April 15, 1985, $9,000 on April 22, 1985, and $5,000 on April 24,

1985.   These checks, the consent to action, and the promissory

note that petitioner admitted that she signed show that

petitioner received substantial sums from Napa.      We are not

convinced that the submission to the Court of the stipulation of

facts was fraud on the Court.
                                - 16 -

          b.      Whether Ted Merriam Filed the Petition in This
                  Case Without Authority

     Petitioner contends that Ted Merriam failed to inform her

about the case because he and James Merriam conspired to have her

held liable as a transferee.    We disagree.

     The tax year in issue is 1986.      We do not believe that James

Merriam and Ted Merriam conspired to make petitioner liable as a

transferee for 1986.    Petitioner and James Merriam had been

married for 7 years in 1986 and remained married another 16

years.   Petitioner and James Merriam remained married 8 years

after the stipulation was filed.    We do not believe that James

Merriam, who lived at the Tiburon residence with petitioner until

it was sold in 1999, conspired to lose that residence to the tax

collector.     If Ted Merriam had not filed the petition, respondent

could have assessed the proposed transferee liability and begun

collection activity in 1992 rather than 1996.

     We are not convinced that James Merriam and Ted Merriam

sought to have petitioner held liable as a transferee.

C.   Conclusion

     We conclude that petitioner has not shown by clear and

convincing evidence that fraud on the Court occurred in this

case.

                                            An appropriate order

                                      will be issued.
