                          T.C. Memo. 1997-299



                        UNITED STATES TAX COURT



         BENNESS M. RICHARDS AND JANE RICHARDS, Petitioners
           v. COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 8922-87.                  Filed June 30, 1997.



     Robert Alan Jones, for petitioners.1

     Milton J. Carter, Jr., for respondent.



                    SUPPLEMENTAL MEMORANDUM OPINION




     *
      This opinion supplements our previous Memorandum Opinion
in Richards v. Commissioner, T.C. Memo. 1997-149, filed March 24,
1997.
     1
       Although Luis C. DeCastro, Esq., continues to be listed as
counsel of record in docket No. 8922-87, he did not participate
in the filing or prosecuting of the motion that is the subject of
this opinion.
                                 - 2 -


     BEGHE, Judge:     In Richards v. Commissioner, T.C. Memo. 1997-

149, the Court denied petitioners' Motion for Leave To File

Motion To Vacate Decision.     This matter is now before the Court

on petitioners' Motion for Reconsideration and attached Motion To

Consolidate.

Background2

1. Petitioners' Case

     On or about June 25, 1979, Benness M. Richards and Jane

Richards filed a joint Federal income tax return for 1978

reporting adjusted gross income of $86,574, taxable income of

$11,975, and tax due of $3,495.     In computing their taxable

income, petitioners claimed an interest deduction attributable to

their participation in certain programs managed by Henry

Kersting.     Because petitioners' 1978 tax return is not part of

the record in this case, we are unable to determine the specific

amount of the Kersting-related interest deduction that

petitioners claimed on their return.

     On January 22, 1981, following an undercover investigation,

the Internal Revenue Service (IRS) searched Mr. Kersting's

offices pursuant to a search warrant issued by the U.S. District

Court for the District of Hawaii.     Among the materials seized

during the search were lists identifying, by name and address,

     2
       Although the background of this case is set forth in
Richards v. Commissioner, T.C. Memo. 1997-149, for the sake of
completeness and convenience we will repeat the background here.
                               - 3 -


approximately 1,800 of Mr. Kersting's clients, and schedules

showing the amount of interest purportedly paid by each client to

one of several Kersting companies during the taxable years 1977,

1978, and 1979.   The circumstances of the search of Mr.

Kersting's offices are described in the Court's opinion in Dixon

v. Commissioner, 90 T.C. 237 (1988) (Dixon I).

     On April 15, 1982, respondent issued a joint notice of

deficiency to petitioners determining a deficiency in their

Federal income tax for 1978 in the amount of $47,580.75 and an

addition to tax under section 6653(a)3 in the amount of $2,379.4

The notice of deficiency, a form of notice apparently issued to a

number of taxpayers with Kersting-related adjustments, states

that respondent was disallowing $67,972.50 in interest deductions

that petitioners purportedly paid to any entity owned, associated

with, or controlled, either directly or indirectly, by Henry

Kersting.




     3
       Section references are to the Internal Revenue Code, as
amended. Rule references are to the Tax Court Rules of Practice
and Procedure.
     4
       The notice of deficiency was issued approximately 70 days
prior to the expiration of the normal 3-year period of
limitations applicable to the assessment of Federal income taxes.
Sec. 6501(a).
                               - 4 -


     A simple arithmetical calculation reveals that respondent

computed petitioners' tax deficiency by applying a tax rate of 70

percent, which was the highest tax rate imposed for 1978.5

     On July 12, 1982, Lu N. Nevels, Jr., Esq., filed a joint

petition for redetermination (assigned docket No. 17445-82) on

behalf of a large group of taxpayers, including petitioners, who

had received notices of deficiency with Kersting-related

adjustments.6   Disputing the $67,972.50 figure used in the notice

of deficiency, the petition includes an allegation that the

interest deduction reported on petitioners' 1978 income tax

return attributable to their participation in Kersting programs

was only $38,523.7   In addition, the petition includes an

allegation that the notice of deficiency issued to petitioners is

arbitrary and capricious.

     On September 13, 1982, respondent filed an answer to the

petition.   Specifically, respondent denied for lack of sufficient

information the allegation respecting the specific amount of the

     5
       Inasmuch as there were no other adjustments in the notice
of deficiency, and assuming that the adjusted gross income that
petitioners reported is correct, respondent erred in computing
petitioners' tax liability for 1978 using a 70-percent tax rate,
which was only applicable with respect to taxable income
exceeding $203,200 for joint filers.
     6
       Petitioners resided in Woodland Hills, California, at the
time the petition was filed.
     7
       The petition identifies the payees as Atlas Funding Corp.,
Fargo Acceptance Corp., Federated Finance Co., Forbes Acceptance
Corp., and Mahalo Acceptance Corp.
                                - 5 -


interest deduction reported on petitioners' 1978 tax return and

denied without qualification the allegation that the notice of

deficiency is arbitrary and capricious.

     On January 27, 1987, Luis C. DeCastro, Esq. (Mr. DeCastro),

filed an entry of appearance on behalf of petitioners in docket

No. 17445-82.    In the interim, on December 23, 1986, respondent's

counsel assigned to the Kersting project, Kenneth McWade, Esq.

(Mr. McWade), had mailed Mr. DeCastro a letter enclosing proposed

decision documents for petitioners and several other taxpayers

with cases before the Court involving Kersting-related

adjustments.    On December 30, 1986, Mr. DeCastro executed a

stipulated decision on behalf of petitioners which states that

petitioners are liable for a deficiency in income tax for the

taxable year 1978 in the amount of $23,000 and that petitioners

are not liable for additions to tax under section 6653(a) or

6621(d).    On the same date, Mr. DeCastro mailed a check to Mr.

McWade, signed by petitioners and made payable to the IRS in the

amount of $53,571, representing $23,000 in tax and $30,571 in

interest.    Mr. McWade executed the stipulated decision on April

27, 1987, and mailed the document to the Court.

     On March 30, 1987, Mr. McWade filed a Motion to Sever

petitioners' case from docket No. 17445-82.    Shortly thereafter,

the Court granted the motion, severed petitioners' case from

docket No. 17445-82, and assigned the case docket No. 8922-87.
                               - 6 -


On May 8, 1987, the Court entered the parties' stipulated

decision as described above in docket No. 8922-87.

      Petitioners did not file a notice of appeal or a timely

motion to vacate or revise the decision entered May 8, 1987.

Consequently, the decision became final on August 6,

1987, 90 days after the decision was entered.   Sec. 7481(a)(1).

2.   The Test Cases

      During the period that petitioners' case was docketed with

the Court, 14 dockets and eight petitioners with Kersting-related

adjustments were selected as test cases for trial.

      On January 12, 1987, during the same period that

Mr. DeCastro was negotiating petitioners' settlement, the test

case taxpayers filed a motion for leave to file an amendment to

their petitions to raise various evidentiary issues based upon

their contention that the search of Mr. Kersting's offices was

illegal.   On January 14, 1987, the Court granted the test case

taxpayers' motion for leave to file.   The evidentiary issues

raised in the amendment to petition were resolved in the Court's

opinion in Dixon I.8


      8
       In Dixon v. Commissioner, 90 T.C. 237 (1988), the test
case taxpayers argued that the search of Mr. Kersting's office
was illegal, that the materials seized during the search should
be suppressed in the test case proceedings, and that the burden
of proof and burden of going forward with the evidence should be
shifted to respondent. The Court rejected these contentions on
the ground that the test case taxpayers failed to establish
                                                   (continued...)
                               - 7 -


     Mr. McWade served as respondent's lead counsel during the

trial of the test cases.   One of the taxpayers selected as a test

case, John Thompson, was represented by Mr. DeCastro at trial.

     The Kersting test cases went to trial in January 1989 in

Hawaii.   Following the trial, the Court issued its Memorandum

Opinion in Dixon v. Commissioner, T.C. Memo. 1991-614 (Dixon II),

sustaining virtually all of respondent's determinations in each

of the test cases.

     The Court's decision in Dixon II subsequently was vacated

and remanded on appeal to the Court of Appeals for the Ninth

Circuit in Dufresne v. Commissioner, 26 F.3d 105 (9th Cir. 1994).

Specifically, in response to respondent's posttrial admission

that, prior to the trial of the test cases, Mr. McWade had

entered into secret settlement agreements with two of the test

case taxpayers, John Thompson and John Cravens, the Court of

Appeals remanded the test cases to this Court with instructions

to conduct an evidentiary hearing “to determine the full extent

of the admitted wrong done by the government trial lawyers.”     Id.

at 107.   The Court of Appeals, citing Arizona v. Fulminante, 499

U.S. 279, 309 (1991), directed the Court to consider “whether the

     8
      (...continued)
standing to contest the search and seizure in question.

     We further note that Mr. Kersting's claims that   the
search and seizure were illegal have been repeatedly   rejected by
the U.S. District Court for the District of Hawaii.    See Kersting
v. United States, 865 F. Supp. 669, 674-675 (D. Haw.   1994).
                                 - 8 -


extent of the misconduct rises to the level of a structural

defect voiding the judgment as fundamentally unfair, or whether,

despite the Government's misconduct, the judgment can be upheld

as harmless error.”    Id.   In carrying out this mandate, we also

were directed to consider on the merits all motions of

intervention filed by parties affected by Dixon II.     Id.9

     Upon remand, the Court gave effect to the direction of the

Court of Appeals regarding intervention by allowing a number of

non-test-case taxpayers who had previously signed stipulations to

be bound by the decision in Dixon II to participate in the

evidentiary hearing.   Robert Alan Jones, Esq. (Mr. Jones),

entered his appearance on behalf of a group of non-test-case

taxpayers allowed to participate in this fashion.

     During the evidentiary hearing, which was held at a special

trial session of the Court in Los Angeles in May-June 1996, Mr.

Jones expressed concern that, in addition to the settlement with

John Thompson, Mr. McWade may have entered into settlements with

other clients of Mr. DeCastro on terms more favorable than the

standard Kersting project settlement offer.    In this regard, Mr.

Jones requested respondent's counsel, Mary Elizabeth Wynne, Esq.

(Ms. Wynne), to disclose the details of settlements entered into


     9
       The appellate panel in Dufresne v. Commissioner, 26 F.3d
105 (9th Cir. 1994), vacating and remanding Dixon v.
Commissioner, T.C. Memo. 1991-614, issued an order stating that
the panel would retain jurisdiction over any subsequent appeal.
                              - 9 -


with Mr. DeCastro's clients, including petitioners.   In a letter

to Mr. Jones dated September 3, 1996, Ms. Wynne attempted to

explain that petitioners did not receive special treatment from

Mr. McWade in the settlement of their case as follows:

          As we discussed on the telephone, I have received
     authorization from Mr. and Mrs. Richards to disclose
     the attached copy of the computer transcript of the
     Richards' account for 1978. As you are aware, neither
     the government nor the Richards has a copy of the
     Richards' 1978 return. But the information on the
     enclosed transcript reflects the following information
     concerning the 1978 return filed by the Richards.

          The 1978 tax return was filed June 25, 1979, and
     showed an income tax liability of $3,495. Advance or
     estimated payments of $8,931 were credited to the
     account on April 15, 1979. On June 25, 1979, a refund
     of $5,489.09 was generated to the Richards (along with
     interest of $53.09). On December 31, 1986, the
     Richards's account was credited with a tax payment of
     $23,000 and interest of $30,571. The tax of $23,000
     and interest of $30,571 were assessed on October 5,
     1987 (which date was within 60 days of the date the Tax
     Court decision became final).

          In addition to showing the above information, the
     enclosed transcript also shows that the Richards's
     reported adjusted gross income of $86,574 on their 1978
     return, and taxable income of $11,975. The maximum tax
     rate in 1978 was 70 percent, but that rate did not
     apply until taxable income reached $203,200 for joint
     filers. Accordingly, even without allowance of the
     Kersting related deductions, the Richards's taxable
     income in 1978 was not high enough to trigger the
     maximum tax rate of 70 percent that was used in the
     notice of deficiency. Thus, any comparison of the
     amount asserted in the notice with the amount on
     decision must be made after adjusting for the proper
     tax rate.

          As the Court noted during the hearing, the
     petition filed on behalf of the Richards alleged that
     Kersting related deductions were only $38,523.
     Assuming the petition is correct, the tax on taxable
                             - 10 -


     income of $50,498 ($11,975 per the return and $38,523
     disallowed Kersting deductions) is $15,709, which
     produces a deficiency of $12,214 ($15,709 less the
     $3,495 reported on the return). A seven percent
     reduction of this deficiency results in a deficiency of
     $11,359, far less than the deficiency in the decision
     of $23,000.

          The explanation for this discrepancy lies in the
     fact that several Kersting participants received
     notices of deficiency based on a reconstruction of
     records obtained from Mr. Kersting's office in 1981.
     For the year 1978, the statute of limitations would
     have expired in 1982. Thus, the notice may have been
     issued without access to the original return. Whatever
     the reason for the discrepancy, it is clear that the
     Richards did not receive any kind [of] special
     treatment from Mr. McWade.

     On November 8, 1996, Mr. Jones filed an entry of appearance

on behalf of petitioners and a Motion for Leave To File Motion To

Vacate Decision (motion for leave).   On that same date, the Court

lodged petitioners' Motion To Vacate Decision and Set Aside

Settlement and petitioners' Memorandum of Points and Authorities.

Petitioners' Motion To Vacate Decision was based upon the theory

that the notice of deficiency issued to petitioners was invalid

under Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987), revg.

81 T.C. 855 (1983), and, therefore, the Court lacked jurisdiction

to enter the stipulated decision in their case.

     On November 14, 1996, the Court issued a Notice of Filing

directing respondent to file an objection, if any, to

petitioners' motion for leave on or before December 5, 1996.

On November 29, 1996, respondent filed a Motion to Extend Time To

File Respondent's Objection to petitioners' motion for leave.    In
                               - 11 -


an Order dated December 4, 1996, the Court granted respondent's

motion and extended the date for respondent to file an objection

to January 6, 1997.10   On January 6, 1997, the Court filed

respondent's Response in opposition to petitioners' motion for

leave.

     On March 24, 1997, the Court filed its Memorandum Opinion,

Richards v. Commissioner, T.C. Memo. 1997-149 (Richards I),

rejecting petitioners' Scar argument and denying petitioners'

motion for leave.   Mr. Jones subsequently was served with the

Court's Memorandum Opinion as well as respondent's Response to

petitioners' motion for leave.

     On April 9, 1997, the Court filed petitioners' Motion for

Reconsideration with attached Motion To Consolidate and

petitioners' Memorandum of Points and Authorities.   Petitioners

contend that the Court should reconsider its denial of

petitioners' motion for leave on the grounds that the Court

“misinterpreted” petitioners' Motion To Vacate Decision, and the

Court incorrectly denied petitioners' motion for leave without

first allowing petitioners to file their Motion To Vacate

Decision, conduct necessary discovery, and have a hearing.

     Petitioners maintain that the Court misinterpreted their

Motion To Vacate Decision insofar as the Court treated the motion


     10
       The Court's Dec. 4, 1996, Order expressly directed that
the Order be served on Mr. Jones.
                               - 12 -


as an attempt to challenge the validity of the notice of

deficiency under Scar v. Commissioner, supra.    Petitioners assert

that their Motion To Vacate Decision was based upon the theory

that the stipulated decision entered in their case was the result

of a fraud upon the Court.    Petitioners also contend that the

Court incorrectly allowed respondent to file a response in

opposition to petitioners' motion for leave without serving

petitioners with the response and allowing petitioners to file a

reply to the same.

       In conjunction with their Motion for Reconsideration,

petitioners contend that their case should be consolidated with

Dixon v. Commissioner, docket No. 9382-83--the group of cases

that the Court previously consolidated pursuant to the mandate of

the Court of Appeals for the Ninth Circuit in Dufresne v.

Commissioner, 26 F.3d 105 (9th Cir. 1994).    Petitioners argue

that

       it is an abuse of discretion under the circumstances of
       the Kersting cases including the massive and continuing
       fraud committed and condoned by representatives of
       Respondent and its Office of Chief Counsel for the
       Office of Chief Counsel, and this Honorable Court, to
       further attempt to “split off and contain” the illegal
       and improper fraudulent conduct of Respondent by
       attempting to deal with the overall conspiracy by
       ruling on improper actions one at a time, thus
       preventing their consolidation into a single action
       which may be properly ruled upon by the panel of United
       States Court of Appeals for the Ninth Circuit which has
       retained jurisdiction over these matters.
                                - 13 -


     In an order dated April 11, 1997, the Court directed

respondent to file a response to petitioners' motion, while

allowing Robert Patrick Sticht, Esq. (Mr. Sticht), counsel for

non-test-case taxpayers participating in the Dixon evidentiary

hearing, and Joe Alfred Izen, Jr., Esq. (Mr. Izen), counsel for

test-case and non-test-case taxpayers participating in the Dixon

evidentiary hearing, to file a response to petitioners' motion in

their discretion.

     On May 12, 1997, respondent filed a response in opposition

to petitioners' Motion for Reconsideration with attached Motion

To Consolidate.

     On May 30, 1997, pursuant to the Court’s order dated

April 11, 1997, Mr. Sticht filed a response in opposition to

petitioners' motion insofar as petitioners seek to have their

case consolidated with the Dixon group of cases.     Mr. Izen did

not file a response to petitioners' motion.

Discussion

1.   Petitioners' Motion for Leave To File Motion To Vacate
     Decision

     Section 7481(a)(1) provides the general rule that a decision

of the Tax Court becomes final upon expiration of the time to

file a notice of appeal.     Section 7483 provides that a notice of

appeal generally must be filed within 90 days after a decision is

entered.     However, the 90-day appeal period may be extended if
                              - 14 -


the taxpayer files a timely motion to vacate or revise the

decision.   Fed. R. App. P. 13(a).   Pursuant to Rule 162, a motion

to vacate or revise a decision must be filed within 30 days after

the decision is entered, unless the Court allows otherwise.

     Petitioners did not file a notice of appeal or a timely

motion to vacate or revise the stipulated decision that was

entered in this case on May 8, 1987, and the decision became

final on August 6, 1987.   See secs. 7459(c), 7481(a)(1).   As a

consequence, petitioners were required to file a motion for leave

to file their motion to vacate the stipulated decision entered in

their case.

     Petitioners' assertion that the Court incorrectly denied

their motion for leave without first permitting petitioners to

file their Motion To Vacate Decision, conduct necessary

discovery, and have a hearing, is misconceived.   In deciding

whether to grant or deny a motion for leave to file a motion to

vacate a final decision, it is ordinarily the Court’s practice to

consider the merits of the underlying (lodged) Motion To Vacate

Decision to determine whether the moving party has alleged

sufficient facts to properly question the validity of the

decision.   See Brannon's of Shawnee, Inc. v. Commissioner, 69

T.C. 999, 1002 (1978); see also Toscano v. Commissioner, 52 T.C.

295, 296 (1969), vacated on another issue 441 F.2d 930 (9th Cir.

1971); Kenner v. Commissioner, 387 F.2d 689, 690-691 (7th Cir.
                              - 15 -


1968); Campbell v. Commissioner, T.C. Memo. 1988-105.     However,

the disposition of a motion for leave to file a motion to vacate

or revise a decision 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.

     In the present case, the Court thoroughly considered the

arguments contained in petitioners' supporting Memorandum of

Points and Authorities as reflected in the detailed analysis set

forth in the Court's Memorandum Opinion in Richards I.

Specifically, based upon petitioners' clear reliance on Scar v.

Commissioner, supra, the Court analyzed the controlling case law,

applied the law to the relevant facts, and concluded that the

notice of deficiency issued to petitioners is valid.    Implicit in

the Court's analysis is the determination that petitioners failed

to allege sufficient facts to properly question our jurisdiction

to enter the stipulated decision in this case.   Brannon's of

Shawnee, Inc. v. Commissioner, supra.

     Petitioners also complain that they were not timely served

with respondent's Response to their motion for leave, and that

the Court denied their motion for leave without first allowing

them to reply thereto.   Any prejudice to petitioners occasioned

by the delay in service of respondent's Response, which was made

in accordance with Rule 21(b), has been obviated by our

consideration of petitioners' Motion for Reconsideration
                              - 16 -


articulating their position respecting respondent's Response to

their motion for leave, to which we now turn.

2.   Petitioners' Motion for Reconsideration

     The Tax Court generally lacks jurisdiction to vacate a final

decision.   Abatti v. Commissioner, 859 F.2d 115, 117 (9th Cir.

1988), affg. 86 T.C. 1319 (1986); Lasky v. Commissioner, 235 F.2d

97, 100 (9th Cir. 1956), affd. per curiam 352 U.S. 1027 (1957).

The Court will vacate a final decision only in certain narrowly

circumscribed situations.   For instance, this Court and some

Courts of Appeals, including the Court of Appeals for the Ninth

Circuit, have ruled that this Court may vacate a final decision

if that decision is shown to be void, or a legal nullity, for

lack of jurisdiction over either the subject matter or the party,

see Billingsley v. Commissioner, 868 F.2d 1081, 1084-1085 (9th

Cir. 1989); Abeles v. Commissioner, 90 T.C. 103, 105-106 (1988);

Brannon's of Shawnee, Inc. v. Commissioner, supra at 1002, or if

the decision was obtained through fraud upon the Court, see

Abatti v. Commissioner, supra; Senate Realty Corp. v.

Commissioner, 511 F.2d 929, 931 n.1 (2d Cir. 1975); Stickler v.

Commissioner, 464 F.2d 368, 370 (3d Cir. 1972); Toscano v.

Commissioner, 441 F.2d at 933; Kenner v. Commissioner, supra;

Casey v. Commissioner, T.C. Memo. 1992-672.

     As previously mentioned, in Richards I we rejected

petitioners' contention that the notice of deficiency issued to

them was invalid and that the Court lacked jurisdiction to enter
                               - 17 -


the stipulated decision in their case.    In so holding, we

determined that the notice of deficiency issued to petitioners

was not invalid on its face.   We see no benefit to revisiting

that issue in any detail here.

     Petitioners contend that we should reconsider our decision

denying their Motion for Leave To File Motion To Vacate Decision

on the ground that we misinterpreted the basis for the motion.

Although we are confident that we did not “misinterpret” the

basis for petitioners' motion,11 we nevertheless will address

petitioners' Motion for Reconsideration insofar as they now

contend that the stipulated decision entered in their case should

be vacated due to fraud upon the Court.    In particular, we will

consider the merits of petitioners' allegations that the

stipulated decision entered in their case is the result of fraud

upon the Court.   We will grant petitioners' motion for leave only




     11
         Petitioners' Motion for Leave to File Motion To Vacate
Decision states that the holding in Scar v. Commissioner, 814
F.2d 1363 (9th Cir. 1987), establishes that the notice of
deficiency issued to petitioners “was wrongfully and fraudulently
issued.” Any ambiguity with respect to the ground for
petitioners' motion for leave was eliminated by petitioners'
Memorandum of Points and Authorities, which contains multiple
references to the Scar case and states “it is abundantly clear
that the tests set forth in Scar v. C.I.R., supra were not met by
the Respondent when Petitioners' statutory notice was issued for
1978. We submit that no determination of deficiency was made by
the Commissioner in the case of * * * [petitioners'] 1978 tax
return”.
                              - 18 -


if we are satisfied that petitioners have alleged sufficient

facts to support further inquiry into the matter.

     In Abatti v. Commissioner, supra at 118-119, the Court of

Appeals for the Ninth Circuit defined the phrase “fraud on the

court” as “an unconscionable plan or scheme which is designed to

improperly influence the court in its decision” or a fraudulent

act that “prevents the opposing party from fully and fairly

presenting his case”.   See Toscano v. Commissioner, supra at 933;

Kenner v. Commissioner, supra at 691.    A party moving to vacate a

final decision of the Tax Court bears a heavy burden of

particularized pleading and proof.     Drobny v. Commissioner, 113

F.3d 670, ___ (7th Cir. 1997), affg. T.C. Memo. 1995-209, and

cases cited therein; Abatti v. Commissioner, supra at 118.

     Petitioners' allegations of fraud upon the Court are

summarized in petitioners' Memorandum of Points and Authorities

in support of petitioner's Motion for Reconsideration as follows:

          1. Respondent committed fraud upon the United
     States Tax Court by a series of actions as set out in
     paragraphs 1-4 herein, beginning by conducting an
     illegal search and seizure of the promoter Henry
     Kersting's offices and records in January 19811; then
     she utilized the seized materials to, without rational
     basis, issue statutory notices of deficiency to
     fraudulently toll the statute of limitations respecting
     the tax liabilities of Petitioners and many other
     taxpayers similarly situated.

          2. Respondent and her Office of Chief Counsel
     then deliberately concealed their actions from
     Petitioners and other taxpayers; they then forced the
     many taxpayers so affected into settlement or trial
                             - 19 -


     without revealing that Respondent had fraudulently
     obtained “jurisdiction” over them.

          3. The same counsel for Respondent, who obtained
     the fraudulent settlement from Petitioners, Kenneth
     McWade also, with others, committed a further series of
     frauds on the Court in the related consolidated
     Kersting test cases of Petitioners Thompsons and
     Cravens, and the settlement of the cases of non-test
     case petitioner Denis Alexander.

          4. The fraud on the Court regarding the specifics
     pertaining to Petitioners Richards was undiscovered
     until the facts were partially admitted in a letter
     from IRS Special Trial Attorney to Petitioner's counsel
     on September 3, 1996.


          1
            Petitioners do not agree with Judge Goffe's
     decision regarding Kersting investors' standing under
     the Fourth Amendment to contest the illegal search and
     seizure (Dixon v. Commissioner, 90 T.C. 237 (1988));
     however, these Motions do not per se include any claim
     of Petitioners' Fourth Amendment rights being violated.

     Mr. Jones' affidavit in support of petitioners' Motion for

Reconsideration includes a statement that Mr. Jones is attempting

to obtain an affidavit submitted by an IRS employee to the Court

“in a related proceeding” purportedly stating that the materials

seized from Mr. Kersting were not used in the preparation of

notices of deficiency issued to Kersting investors--a statement

that would be inconsistent with statements made in Ms. Wynne's

letter dated September 3, 1996.

     We have considered petitioners' various contentions, and we

are not persuaded that they have satisfied their heavy burden of

particularized pleading and proof that the stipulated decision
                               - 20 -


entered in their case is the result of a fraud upon the Court.

We will address each of petitioners' allegations of fraud in

turn.

     Petitioners first assert that respondent conducted an

illegal search and seizure in Mr. Kersting's office in January

1981.   We note, however, that Mr. Kersting's various challenges

to the legality of the January 1981 search and seizure have been

repeatedly rejected by the U.S. District Court for the District

of Hawaii.   See Kersting v. United States, 865 F. Supp. 669, 674-

675 (D. Hawaii 1994).   In addition, in Dixon I, the Court

rejected the Kersting test case taxpayers' arguments that the

search of Mr. Kersting's office was illegal, that the materials

seized during the search should be suppressed in the test case

proceedings, and that the burden of proof and burden of going

forward with the evidence should be shifted to respondent.

Specifically, the Court held that the test case taxpayers failed

to establish standing to contest the search and seizure in

question.    Although petitioners state that they disagree with the

Court's holding in Dixon I, they also state that they do not

assert that their Fourth Amendment rights were violated.     In sum,

we are left with nothing more than a bald assertion that the

Kersting search was illegal.   Under the circumstances, we fail to

see how the Kersting search and seizure should be considered as

an element of a fraud perpetrated upon the Court in connection
                              - 21 -


with the case at hand, which was disposed of by decision entered

upon the stipulation of the parties.

     Petitioners further allege that respondent used the

materials that were seized from Mr. Kersting to issue statutory

notices of deficiency to Kersting investors, including

petitioners, without a rational basis, and thereby fraudulently

tolled the statute of limitations.     We find it necessary to break

this allegation down into its component parts.

     It has been evident for some time that the materials that

were seized from Mr. Kersting's offices were made available to

respondent's agents for purposes of conducting civil audits of

Kersting investors.   See Dixon v. Commissioner, 90 T.C. at 242.

For the sake of argument, we will assume that respondent's agents

used such materials in preparing the notice of deficiency issued

to petitioners in April 1982.12   Notwithstanding this assumption,

we are unable to conclude that the notice of deficiency issued to

petitioners lacks a rational basis.

     12
       Sec. 7602(a)(1) authorizes the Secretary to examine any
books, papers, records, or other data that may be relevant for
the purpose of ascertaining the correctness of any tax return.
In the absence of any allegations of fact that would support a
finding that the Kersting search was illegal, respondent's use of
the materials seized from Mr. Kersting in preparing the notice of
deficiency issued to petitioners is not per se illegal or
fraudulent, nor would it render the notice of deficiency invalid.
See, e.g., Proesel v. Commissioner, 73 T.C. 600 (1979); Petrie v.
Commissioner, T.C. Memo. 1990-168. Consistent with the
foregoing, the production of the document referred to in
Mr. Jones' affidavit is not necessary for the disposition of
petitioners' Motion for Reconsideration.
                                - 22 -


     Normally, an allegation that a notice of deficiency lacks a

rational basis is tantamount to an argument that the notice is

arbitrary.13    However, petitioners' argument that the notice of

deficiency issued to them lacks a rational basis, when considered

in conjunction with petitioners' argument that the notice served

to fraudulently toll the period of limitations, indicates that

petitioners continue to assert that the notice of deficiency is

invalid.   We rejected this contention in Richards I where we

observed that

     the notice of deficiency concerns petitioners' tax
     liability for 1978 and that the deficiency is
     attributable to respondent's determination to disallow
     an interest deduction in the amount of $67,972.50 with
     respect to petitioners' participation in Kersting
     programs. Petitioners do not dispute that they
     reported a Kersting-related interest deduction on their
     1978 income tax return. Consequently, we find that
     respondent considered information relating to
     petitioners' 1978 tax liability in preparing the notice
     of deficiency. Scar v. Commissioner, 814 F.2d at 1370.
     In addition, unlike Scar, * * * the notice does not
     contain a statement that respondent issued the notice
     without examining petitioners' tax return in order to
     protect the Government's interest. Under the
     circumstances, the notice of deficiency does not reveal
     on its face that respondent failed to make a
     determination with respect to petitioners' tax
     liability, and we so hold. [Richards v. Commissioner,
     T.C. Memo. 1997-149, slip op. at 18.]




     13
       A finding that a notice of deficiency was issued on an
arbitrary basis does not render the notice invalid, see Clapp v.
Commissioner, 875 F.2d 1396, 1402-1403 (9th Cir. 1989), and would
not per se constitute a fraud upon the Court.
                             - 23 -


In sum, in Richards I we held that the notice of deficiency

issued to petitioners is facially valid.    Petitioners have

offered no evidence to the contrary.

     Although petitioners' Motion for Reconsideration does not

clearly state the proposition, we assume that petitioners seek

discovery and an evidentiary hearing in part to attempt to

develop evidence that the notice of deficiency is invalid.

However, to permit the use of such procedures under the

circumstances presented would run counter to the well-settled

principle that we generally will not look behind a notice of

deficiency to examine the evidence used by the Commissioner in

the determination of a deficiency.     Scar v. Commissioner, 814

F.2d at 1368; Greenberg's Express v. Commissioner, 62 T.C. 324,

327-328 (1974), and cases cited therein.    Considering that the

disputed notice of deficiency is facially valid, and in light of

petitioners' failure (as discussed above) to allege any facts

that would support a finding that respondent's agents engaged in

unconstitutional conduct, we will not look behind the notice of

deficiency in this case.

     Because we reject petitioners' argument that the notice of

deficiency lacks a rational basis, it follows that petitioners'

contention that the notice of deficiency served as the means for

respondent to fraudulently toll the period of limitations

likewise fails.
                              - 24 -


     The remaining elements of petitioners' theory of fraud upon

the Court merit little discussion.     Petitioners assert that

respondent deliberately concealed that respondent had

fraudulently obtained “jurisdiction” over Kersting investors,

including petitioners, and then forced the many taxpayers so

affected into settlement or trial.     As discussed above, we reject

the notion that respondent fraudulently obtained jurisdiction

over petitioners.   We have no reason to doubt that all

information necessary for petitioners to contest the validity of

the notice of deficiency, i.e., petitioners' 1978 tax return and

the notice of deficiency, was readily available to petitioners at

the time the notice of deficiency was issued.14    Finally, it is

evident that any misconduct of Mr. McWade in arranging

settlements with Messrs. Thompson, Cravens, and Alexander as part

of the test case proceedings bears no relation to the stipulated

settlement that petitioners entered into in this case.




     14
       Indeed, Mr. Nevels included allegations in the petition
that the notice of deficiency was arbitrary. Further,
allegations were raised in the test cases that the notices of
deficiency issued to the test case taxpayers were invalid due to
the use of materials seized from Mr. Kersting at the same time
that Mr. DeCastro was engaged in settlement negotiations with Mr.
McWade respecting petitioners' case. Although the record does
not disclose whether Mr. DeCastro pursued this particular point
with Mr. McWade, we note that petitioners do not allege, and
there is no evidence in the record, that the issue was not raised
because of any collusion or fraud.
                               - 25 -


     The stipulated decision that Mr. DeCastro executed on

petitioners' behalf is now final.    Petitioners have failed to

persuade us that the stipulated decision entered in their case

was the result of an unconscionable plan or scheme that was

designed to improperly influence the Court in its decision or

that any act was committed that prevented petitioners from fully

and fairly presenting their case to the Court.    Consequently, it

follows that we lack jurisdiction to vacate the decision in this

case.

     We now turn to petitioners' motion to consolidate their case

with the Dixon, et al., group of cases.    Petitioners argue that

their case should be consolidated with the Dixon cases so that

all cases involving respondent's alleged improper and illegal

conduct in the handling of the Kersting tax shelter project may

be presented to the Court of Appeals for the Ninth Circuit in one

appeal.    It is worth noting that petitioners did not request such

consolidation at the time they filed their Motion for Leave To

File Motion To Vacate Decision.    In any event, having denied

petitioners' Motion for Leave To File Motion To Vacate Decision

on the ground that we lack jurisdiction to vacate the decision

entered in this case, it follows that we likewise lack

jurisdiction to consolidate petitioners' case with the Dixon

cases.    Therefore, we will deny petitioners' request for

consolidation.
                        - 26 -


To reflect the foregoing,


                                 An order will be issued

                            denying petitioners' Motion for

                            Reconsideration with attached

                            Motion To Consolidate.
