                          T.C. Memo. 2001-6



                       UNITED STATES TAX COURT



                TRANS WORLD TRAVEL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12390-96.                     Filed January 17, 2001.


     Steven S. Brown and Daniel T. Hartnett, for petitioner.

     Patricia Pierce Davis, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION

     GERBER, Judge:    This case was assigned to Special Trial

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

7443A(b)(5) and Rules 180, 181, and 183.1     The Court agrees with

and adopts the opinion of the Special Trial Judge, which is set

forth below.


     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 -

                  OPINION OF THE SPECIAL TRIAL JUDGE

         ARMEN, Special Trial Judge:   This matter is before the

Court on petitioner’s motion for leave to file a motion to vacate

the stipulated decision of this Court entered on March 26, 1997.

At issue is whether the Court lacked jurisdiction to enter the

stipulated decision because petitioner neither authorized nor

ratified the filing of the petition by its accountant.     As

explained in detail below, we shall deny petitioner’s motion for

leave.

                           FINDINGS OF FACT

     Some of the facts have been stipulated, and they are so

found.    The stipulated facts and attached exhibits are

incorporated herein by this reference.

     Petitioner’s sole office was located in Highland Park,

Illinois, at the time that its petition was filed with the Court.

A. Trans World Travel, Inc.

     Trans World Travel (petitioner) is a C corporation that was

formed in 1966.    Since 1984, it has maintained a single office

located at 734 Central Avenue, Highland Park, Illinois 60035 (the

Highland Park office).

     Petitioner is engaged in the group tour travel business.

Its clientele consists of approximately 200 churches of different

denominations located throughout the United States.
                               - 3 -

     Petitioner’s officers and shareholders are two brothers,

James M. Gibbs (James) and John W. Gibbs (John).    James and John

each own 50 percent of petitioner’s stock.   James is petitioner’s

vice president and secretary, and John is petitioner’s president

and treasurer.   James is primarily responsible for

administrative, financial and tax matters, and his duties include

running the office and dealing with the accountants.   In

contrast, John is primarily responsible for sales and promotion.

James and John each attended college for 2 years.

     Other than James and John, petitioner employs approximately

8 to 10 individuals.   None of these individuals exercises any

managerial responsibility; rather, these individuals perform only

clerical and sales-related duties.

     Both James and John spend much of their time traveling on

business.   John in particular spends between 30 to 50 percent of

his time traveling, both domestically and internationally.

Although James travels less frequently than John, some of his

destinations are also outside of the United States.

B. Steven Jaffe and the Firm of Coleman, Joseph & Jaffe

     Neither James nor John, nor any of petitioner’s other

employees, possessed any expertise in either accounting or

Federal tax matters.   Accordingly, from 1991 through 1998,

petitioner retained the accounting and consulting firm of

Coleman, Joseph & Jaffe (CJ&J) to provide both accounting and tax
                                 - 4 -

services, specifically including the preparation of periodic

financial statements and various tax returns.

     Steven Jaffe (Jaffe) was one of the named partners of CJ&J.

Jaffe is a graduate of the University of Illinois, where he

earned a bachelor of science degree in communications and

political science.   Jaffe also attended DePaul University for 2

years, where he studied accounting.      Jaffe is neither a certified

public accountant nor a licensed public accountant, nor is he

enrolled to practice before the Internal Revenue Service or

admitted to practice before this Court.

     From 1991 through July 1998, Jaffe was the CJ&J partner who

was responsible for servicing the Trans World Travel account.

Jaffe prepared periodic financial statements, as well as various

tax returns, specifically including Federal corporate income tax

returns (Forms 1120).    Jaffe also represented petitioner before

the Internal Revenue Service.2

     Seymour Coleman (Coleman) was another of the named partners

in CJ&J.   Coleman is a graduate of the University of Illinois,

where he earned a bachelor of science degree in accounting, and a

graduate of DePaul University, where he earned a master of

science degree in tax.   Coleman is a certified public accountant;

he is not admitted to practice before this Court.     From 1991


     2
        Jaffe also prepared individual income tax returns for
James and John and represented them before the Internal Revenue
Service.
                              - 5 -

through July 1998, Coleman devoted relatively little time to the

Trans World Travel account.

     James and John relied on CJ&J, and particularly on Jaffe, to

handle all of petitioner’s accounting and tax matters, and James

and John had confidence that CJ&J, and particularly Jaffe, would

do so in a professional, competent, and timely manner.

     James and John placed a very high level of trust in Jaffe,

and they also regarded him as their friend.   James and John gave

Jaffe full and unfettered access to petitioner’s books and

records, and they authorized him to contact directly the vice

president of the financial institution with which petitioner

banked.

     Because of their trust in, and reliance on, Jaffe, neither

James nor John paid close attention to petitioner’s tax matters.

Rather, James and John adopted a hands-off approach, essentially

delegating responsibility for petitioner’s tax matters to Jaffe.

Both James and John frequently signed, without scrutiny or

inquiry, tax-related documents that were presented to them by

Jaffe for their signature.

C. Petitioner’s Office Procedures Related to Mail

     Mail addressed to petitioner at its Highland Park office was

received and sorted by petitioner’s receptionists.   Mail routed

to John was opened and read by him.   Tax-related mail was routed

to James’ office, where it was placed in a box reserved for
                               - 6 -

Jaffe’s use.   Such mail was, on occasion, opened by James;

generally, however, it was left unopened until it was picked up

by Jaffe, who regularly visited petitioner’s office, often as

frequently as two or three times per week.   Any legal mail that

might be received was routed to James and opened by him.

D. The IRS Examination

     In 1991, respondent commenced an examination of one of

petitioner’s corporate income tax returns.   The examination was

subsequently expanded to specifically include petitioner’s income

tax returns for the fiscal years ended August 31, 1990 through

1993.

     Jaffe represented petitioner during the course of the IRS

examination, with some participation by Coleman.3   Although James

was aware of the examination, he did not participate in it, other

than to attend the brief, initial meeting between Jaffe and the

revenue agent in 1991 and to execute the written protest to the

agent’s report, see infra, that was prepared by CJ&J and

submitted to IRS Appeals Office in October 1994.




     3
        The record in this case includes a copy of a Power of
Attorney and Declaration of Representative (Form 2848) naming
Jaffe and Coleman as petitioner’s representatives. This
document, which was executed by James in Oct. 1993, is limited to
the fiscal years ended Aug. 31, 1991 through 1993. We are
satisfied, however, that petitioner also named Jaffe and Coleman
as its representatives for the fiscal year ended Aug. 31, 1990,
as well as for the initial year of the examination.
                                 - 7 -

     In 1993, Jaffe complained to James about the revenue agent.

In or about 1994 or 1995, Jaffe told James that the examination

had been resolved and that petitioner would be liable for

additional taxes; Jaffe also told James that any amounts paid by

petitioner would be refunded by the IRS or reimbursed by CJ&J.

James apparently accepted these statements at face value and did

not question Jaffe about them.

     John was also aware of the examination of petitioner’s

income tax returns.   John would periodically ask Jaffe, typically

at a social occasion such as during a round of golf, how the

examination was going.    Jaffe would assure him that there was

nothing to worry about, and John would not inquire further.

     In October 1994, CJ&J filed a protest on petitioner’s behalf

with the Internal Revenue Service.       The protest served to

administratively appeal the determination of the revenue agent as

set forth in his report.    The taxable years covered by the

protest were the fiscal years ended August 31, 1990 through 1993.

The protest was signed first by Coleman and then by James under

penalties of perjury.

     In or about 1995, Jaffe and Coleman met with an IRS Appeals

Officer in Milwaukee to discuss petitioner’s protest of the

revenue agent’s report.
                               - 8 -

E. The Tax Court Proceeding

     On March 15, 1996, respondent’s Milwaukee Appeals Office

mailed a notice of deficiency to petitioner.   The notice was

addressed to petitioner at its Highland Park office.    The notice

determined deficiencies in petitioner’s Federal income taxes and

accuracy-related penalties under section 6662(c) as follows:

                                Accuracy-related Penalty
                                         I.R.C.
       Year     Deficiency             Sec. 6662
       1990      $66,194               $53,620
       1992      129,526                25,905
       1993       96,884                22,048

     On June 14, 1996, a petition was filed with this Court

disputing the deficiencies and penalties determined by respondent

in the notice of deficiency.   The petition was purportedly signed

by John in his capacity as petitioner’s president.    However, the

petition was actually signed by Jaffe.   Jaffe had not been

expressly authorized by John to sign John’s name on the petition.

     On June 17, 1996, the Court sent petitioner a Notification

of Receipt of Petition (notification).   The notification was

mailed to petitioner at its Highland Park office.    The

notification served to confirm the receipt of a petition, its

filing date, and the payment of the filing fee.   The notification

also disclosed the docket number that had been assigned by the

Court to the petition.   Finally, the notification advised that a
                                   - 9 -

designation of place of trial had not been received.4      See Rule

140.

        On June 25, 1996, the Court received and filed a Designation

of Place of Trial (DPT), a simple, one-page document that

designated Chicago, Illinois, as the place of trial.      The DPT was

signed and dated by James.5      The Court served the DPT on

petitioner at its Highland Park office in order to confirm the

receipt and filing of the document.

       On July 9, 1996, respondent served his answer to the

petition, see Rule 36, by mailing a copy to petitioner at its

Highland Park office.      The envelope containing the answer was

delivered to petitioner and opened by James.      James printed

“Attn: Steve Jaffe” in the upper right corner of the answer and

placed it in the box in his office reserved for Jaffe’s use.

       On October 17, 1996, the Court sent petitioner a Notice

Setting Case For Trial (the trial notice).      The trial notice

was mailed to petitioner at its Highland Park office by certified

mail.       The trial notice served to notify petitioner that its Tax

Court case had been calendared for trial at the Trial Session



        4
        Consistent with its regular practice, the Court enclosed
with the notification, for petitioner’s use, the form designed to
designate a place of trial. See Form 5 in Appendix I to the Tax
Court Rules of Practice and Procedure.
        5
        It was Jaffe, however, and not James who printed
“Chicago, Illinois” on the DPT and added “Vice President”
immediately to the right of James’ signature.
                                - 10 -

beginning on March 17, 1997, in Chicago, Illinois.

     In October 1996, at or about the time that the trial notice

was sent to petitioner, Jaffe and Coleman met with respondent’s

District Counsel attorney in Chicago to discuss the issues raised

by the notice of deficiency.

     On March 12, 1997, shortly before the scheduled trial

session, John signed and dated a stipulated decision.    The

stipulated decision reflected a complete concession of the

deficiencies and penalties determined by respondent in the notice

of deficiency.    The Court entered the stipulated decision on

March 26, 1997, and so notified petitioner by mailing a conformed

copy on that date to petitioner at its Highland Park office.

F. Post-Decision Developments

     In July 1998, CJ&J terminated Jaffe’s status as a partner in

the firm.

     In August 1998, CJ&J6 commenced a civil action against Jaffe

in the Circuit Court for Cook County, Illinois.    The complaint

included counts for fraud, embezzlement, and forgery.    This

action was apparently still pending at the time of the

evidentiary hearing in the present case.

     In or about July or August 1998, petitioner retained an

attorney for the purpose of addressing its tax liabilities for

fiscal years for which Jaffe, as well as Coleman and CJ&J, had


     6
         Actually, the successor firm to CJ&J.
                              - 11 -

provided representation.   In December 1998, the attorney filed an

application with the IRS for audit reconsideration of the 3

taxable years that were the subject of the Tax Court proceeding

and the stipulated decision entered on March 26, 1997.    In

September 1999, the attorney was advised by representatives of

the IRS District Director’s Office in Chicago, Illinois, that

audit reconsideration could not be granted.

     On February 14, 2000, petitioner filed its Motion For Leave

To File Petitioner’s Motion To Vacate in respect of the

stipulated decision entered on March 26, 1997, and lodged its

Motion to Vacate.

     In March 2000, petitioner, James, and John filed a civil

action against (inter alia) Jaffe, Coleman, and CJ&J (see supra

note 6) in the circuit court for Lake County, Illinois.    The

complaint includes counts for breach of contract, breach of

fiduciary duty, and malpractice.   The complaint’s “Statement of

Facts” includes the following allegations:

          On March 13 [sic], 1996, the IRS sent Trans World
     a notice of deficiency of income tax for tax years
     ended August 31, 1990, August 31, 1992, and August 31,
     1993, claiming an increase in tax to be paid by Trans
     World for such years of $292,604.00 and penalties of
     $101,573.00, a copy of which notice is attached hereto
     as Exhibit A.

          Upon Plaintiffs’ receipt of Exhibit A they
     immediately gave the same to Jaffe who advised them
     that the notice was not a problem and that the Audit
     would eventually be resolved in Plaintiffs’ favor.
     [Emphasis added.]
                               - 12 -

This action was still pending at the time of the evidentiary

hearing in the present case.

                               OPINION

       The question presented is whether grounds exist in this case

for vacating what is otherwise a final decision.     As explained

in greater detail below, we shall deny petitioner’s

Motion For Leave To File Petitioner’s Motion to Vacate Decision.

       The decision in this case was entered on March 26, 1997.

See sec. 7459(c).    A decision of this Court becomes final upon

expiration of the time to file a notice of appeal with respect to

such decision.    See sec. 7481(a)(1).   Generally, a notice of

appeal must be filed within 90 days after the decision is entered

by this Court.    See sec. 7483; Fed. R. App. P. 13(a).   The 90-day

appeal period may be extended with the timely filing of a motion

to vacate or revise the decision.    See Fed. R. App. P. 13(a).

Absent special leave of the Court, such a motion must be filed

within 30 days after the decision has been entered.    See Rule

162.    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.    See Heim v. Commissioner, 872 F.2d 245, 246 (8th Cir.

1989), affg. T.C. Memo. 1987-1.

       In the present case, petitioner did not file a notice of

appeal or a timely motion to vacate or revise the decision

entered on March 26, 1997.    Thus, the decision became final on
                              - 13 -

Tuesday, June 24, 1997, 90 days after the decision was entered.

See sec. 7481(a)(1).

     Once a decision of this Court becomes final, we may vacate

the decision only in certain narrowly circumscribed situations.

See Helvering v. Northern Coal Co., 293 U.S. 191 (1934); Drobny

v. Commissioner, 113 F.3d 670, 677 (7th Cir. 1997), affg. T.C.

Memo. 1995-209; Curtis v. Commissioner, T.C. Memo. 1996-371.     The

Court of Appeals for the Seventh Circuit, the court to which this

case is appealable, has held that the Tax Court lacks general

equitable powers, and, therefore, lacks the authority to vacate

or revise an otherwise final decision on grounds such as

“mistake, newly discovered evidence, and the like.”   Kenner v.

Commissioner, 387 F.2d 689, 690 (7th Cir. 1968).   Indeed, the

Court of Appeals has recently stated that “this circuit has

continued to recognize only a single, narrow exception to the

general rule of finality prescribed by Congress in 26 U.S.C.

§7481", namely, that the decision resulted from fraud on the

court.   Drobny v. Commissioner, supra.

     Other courts 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 (9th

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

Brannon's of Shawnee, Inc. v. Commissioner, 71 T.C. 108, 111-112
                              - 14 -

(1978); or if the decision was obtained through fraud on the

Court, see Abatti v. Commissioner, 859 F.2d 115 (9th Cir. 1988),

affg. 86 T.C. 1319 (1986); Senate Realty Corp. v. Commissioner,

511 F.2d 929, 931 (2d Cir. 1975); Stickler v. Commissioner, 464

F.2d 368, 370 (3d Cir. 1972); Casey v. Commissioner, T.C. Memo.

1992-672.   In addition, some courts have indicated that the Tax

Court has the power in its discretion, in extraordinary

circumstances, to vacate and correct a final decision where it is

based on a mutual mistake of fact.     See LaFloridienne J.

Buttgenbach & Co. v. Commissioner, 63 F.2d 630 (5th Cir. 1933).7

     In the present case, petitioner contends that the decision

entered on March 26, 1997, is a legal nullity and is therefore

not final, because the Tax Court lacked jurisdiction over

petitioner.   In support of its contention, petitioner cites and

relies on Billingsley v. Commissioner, supra; Abeles v.

Commissioner, supra; and Brannon's of Shawnee, Inc. v.

Commissioner, supra.   Notably, petitioner does not contend that

fraud on the court was committed and provides an exception to the

general rule of finality.


     7
       Although the U.S. Court of Appeals for the Sixth Circuit
cited mutual mistake of fact as a grounds for vacating a final
decision of this Court in Reo Motors, Inc. v. Commissioner, 219
F.2d 610 (6th Cir. 1955), that Court of Appeals more recently
concluded that Reo Motors, Inc. was effectively overruled by
virtue of the Supreme Court's affirmance of Lasky v.
Commissioner, 235 F.2d 97 (9th Cir. 1956), affd. per curiam 352
U.S. 1027 (1957). See Harbold v. Commissioner, 51 F.3d 618, 621-
622 (6th Cir. 1995).
                               - 15 -

     If we were to construe literally the statement of the Court

of Appeals that fraud on the court is the only exception to the

general rule of finality in the Seventh Circuit, then we could

dispose of petitioner’s motion for leave in short order.    After

all, petitioner has not alleged, much less demonstrated, any

fraud on the court.    However, the statement of the Court of

Appeals was made in the context of the Tax Court’s lack of

general equitable powers, and one might question whether vacating

an otherwise final decision for lack of jurisdiction is

equivalent to vacating such a decision on grounds such as

“mistake, newly discovered evidence, and the like.”    Kenner v.

Commissioner, supra.

     In the present case, the parties have proceeded as if lack

of jurisdiction is an exception to the general rule of finality

in the Seventh Circuit.    Because such an approach is not flatly

inconsistent with Drobny v. Commissioner, supra, we have chosen

to address petitioner’s contentions on their merits.

     Petitioner contends that this Court lacks jurisdiction to

bind petitioner because the petition was filed without proper

authorization from petitioner.    See Hoj v. Commissioner, 26 T.C.

1074 (1956).   Whether the filing of the petition was authorized

or later ratified by petitioner is a question of fact to be

determined based on principles of the law of agency, as

applicable under Illinois law.    See Mishawaka Properties Co., 100
                                - 16 -

T.C. 353, 363-367 (1993); Adams v. Commissioner, 85 T.C. 359,

369-372 (1985); Kraasch v. Commissioner, 70 T.C. 623, 627-629

(1978); John Arnold Executrak Sys., Inc. v. Commissioner, T.C.

Memo. 1990-6.    Petitioner bears the burden of proof.   See Kenner

v. Commissioner, supra at 691; Kraasch v. Commissioner, supra at

626.

A. Jaffe’s Authority To File a Tax Court Petition

       Under the common law of agency, authority may be granted by

an express statement or may be derived from implication of the

principal’s words or deeds.    See John Arnold Executrak Sys., Inc.

v. Commissioner, supra (citing Restatement, Agency 2d, sec. 26

(1957)).    Therefore, it is the principal who is the source of the

agent’s power, and the agent’s authority is traced back to the

word or act of the principal.    See Yugoslav-Am. Cultural Ctr. v.

Parkway Bank and & Co., 289 Ill. App. 3d 728 (1997).     Moreover,

the scope of an agent’s authority is evaluated in an objective

manner, taking into consideration what a reasonable person in the

agent’s position would conclude that the principal intended,

regardless of whether that is what the principal actually

intended.    See John Arnold Executrak Sys., Inc. v. Commissioner,

supra (citing Restatement, supra).

       In order to bind the principal, the agent must either have

actual or apparent authority, or the principal must ratify the

agent’s acts.    Authority is examined taking into account all the
                                 - 17 -

circumstances, including the relationship of the parties, the

common business practices, the nature of the subject matter, and

the facts of which the agent has notice concerning objects the

principal desires to accomplish.     See id. (citing Restatement,

supra sec. 34).

     The existence and scope of an agency relationship are

questions of fact, unless the relationship is so clear as to be

undisputed.   See Anetsberger v. Metropolitan Life Ins. Co., 14 F.

3d 1226, 1234 (7th Cir. 1994).    As the trier of fact, “it is our

duty to listen to the testimony, observe the demeanor of the

witnesses, weigh the evidence, and determine what we believe.”

Kropp v. Commissioner, T.C. Memo. 2000-148; cf. Diaz v.

Commissioner, 58 T.C. 560, 564 (1972).

     Petitioner first contends that the Court lacked jurisdiction

to enter the stipulated decision because petitioner never

authorized Jaffe to file a petition on its behalf.      We disagree.

In our view, the record demonstrates that Jaffe acted as

petitioner’s authorized agent in filing the petition and that

Jaffe acted within the general scope of his employment when he

signed the petition.   In this regard, two prior cases of this

Court are particularly instructive.       See Kraasch v. Commissioner,

supra; Shopsin v. Commissioner, T.C. Memo. 1984-151, affd.

without published opinion 751 F.2d 371 (2d Cir. 1984).

     In Kraasch v. Commissioner, supra, a petition was filed and
                              - 18 -

signed in the taxpayers’ names by the taxpayers’ accountant and

tax consultant, an individual who was neither an attorney nor

admitted to practice before this Court.   The Commissioner filed a

motion to dismiss for failure to state a claim upon which relief

could be granted.   After the taxpayers failed to file a proper

amended petition, the Court entered an order of dismissal and

decision.   Thereafter, the taxpayers filed a motion to modify the

order, alleging that the Court lacked jurisdiction because the

taxpayers neither signed the petition nor authorized anyone to

file a petition on their behalf.

     After an evidentiary hearing, the Court found that the

taxpayers’ accountant had acted within the scope of his

employment when he filed the petition and signed it in the

taxpayers’ names.   Among the facts and circumstances that the

Court found particularly relevant in reaching its conclusion were

the following:   The taxpayers permitted their accountant to

handle their tax affairs generally, and they had knowledge that

he did so; over a period of years, the taxpayers routinely

forwarded any tax information that they received to their

accountant and relied on him to handle such material; and the

conduct of petitioners’ accountant and tax consultant, in signing

and filing the petition, was of the same general nature as, or

incident to, that which he was employed to perform.

     In Shopsin v. Commissioner, supra, a petition was filed and
                                - 19 -

signed in the taxpayers’ names by the taxpayers’ accountant and

bookkeeper, an individual who was neither an attorney nor

admitted to practice before this Court.   There was no evidence

that the taxpayers ever saw the contents of the petition.     In any

event, after it was filed, the accountant engaged in negotiations

with the Commissioner’s Appeals Office and was successful in

reaching a settlement that reduced the deficiency.   A stipulated

decision was signed by the taxpayers and the Commissioner and

then entered by the Court.   Thereafter, petitioners filed a

motion to vacate the decision on the ground that the taxpayers

neither authorized nor ratified the filing of the petition on

their behalf by their accountant.

     After an evidentiary hearing, the Court found that the

taxpayers’ accountant had acted within the general scope of his

employment in signing the petition and as petitioners’ authorized

agent in filing the petition.    In so finding, the Court stated as

follows:

     It is clear from the record in this case that
     petitioners routinely and without question placed their
     tax affairs in the hands of Levy [petitioners’
     accountant]. Time and again at the hearing petitioners
     testified that, when they received tax-related
     documents, their practice was to forward them to Levy
     or telephone Levy for his instructions with respect to
     what to do with the documents. Further, petitioners
     invariably deferred to Levy’s judgment, signing without
     necessarily reading, or certainly understanding,
     whatever document Levy advised that they sign. In
     other words, petitioners permitted Levy to handle their
     tax affairs generally and knew that he did so. In
     essence, Levy was petitioners’ general agent authorized
                              - 20 -

     to perform on a continuing basis all necessary acts
     with respect to petitioners’ tax affairs. Levy’s
     conduct in filing the petition was of the same general
     nature as, and incident to, those functions that he was
     employed to perform. [Id.]

     In the present case, the record clearly demonstrates that

neither James nor John, nor any of petitioner’s other employees,

possessed any expertise in Federal tax matters and that, as a

consequence, James and John retained, and relied on for a period

of 7 or 8 years, CJ&J, and particularly Jaffe, to provide tax

services, including the representation of petitioner before the

Internal Revenue Service.   The record also clearly demonstrates

that James and John trusted Jaffe and had confidence in him.

Indeed, they regarded Jaffe as their friend, and they gave him

full and unfettered access to petitioner’s books and records;

Jaffe was even authorized to deal directly with the vice

president of petitioner’s bank.

     Because James and John trusted and relied on Jaffe, neither

brother paid close attention to petitioner’s tax matters.

Rather, they adopted a hands-off approach and essentially

delegated responsibility for petitioner’s tax matters to Jaffe.

They also instituted, or acquiesced in, an office procedure

whereby tax-related mail was routed to James’ office, where it

was placed, generally unopened and unread by James, in a box

reserved for Jaffe’s use.   They also frequently signed, without

scrutiny or inquiry, tax-related documents that were presented to
                                 - 21 -

them by Jaffe for their signature.

     The lack of involvement by James and John in the tax affairs

of their corporation, and the degree to which James and John

relied on Jaffe to handle those affairs, is aptly demonstrated by

the following colloquies between counsel and John and then James:

          PETITIONER’S COUNSEL:     And why would you sign
     these documents?

          JOHN GIBBS: I just totally trusted Steve. I
     would sign the papers, he’d put them down. I wouldn’t
     look at them.

                *   *    *   *     *      *   *

          PETITIONER’S COUNSEL: Before July ‘98, did you
     ever execute any tax document, returns, or financial
     statements for Trans World at the direction of Jaffe?

          JAMES GIBBS:   Yes, I did.

          PETITIONER’S COUNSEL:     Would you review these
     documents?

          JAMES GIBBS: No. Basically, again, he would just
     present them to me for my signature.

          PETITIONER’S COUNSEL:     Now why would you just
     execute documents?

          JAMES GIBBS: One, again, he was a friend. We
     trusted him. And for the most part, I wouldn’t have
     understood the documents that are given to me
     pertaining to the taxes.

                *   *    *   *     *      *   *

          RESPONDENT’S COUNSEL: Did you ask Steve Jaffe
     what this document [the designation of place of trial]
     was?

          JAMES GIBBS:   No, I did not.

          RESPONDENT’S COUNSEL:     You didn’t ask him what it
                                    - 22 -

       meant?

            JAMES GIBBS:    I didn’t read it as I didn’t ask
       him. No.

            RESPONDENT’S COUNSEL: You didn’t even read the
       part under your signature that says, Signature of
       Petitioner or Counsel?

            JAMES GIBBS:    I’m sorry.       I didn’t.

                    *   *   *   *     *      *   *

            RESPONDENT’S COUNSEL: The fact is you didn’t pay
       close attention to your tax matters, did you, sir?

            JAMES GIBBS:    No, I relied on Steve Jaffe.

       In sum, James and John abdicated their responsibility as

petitioner’s sole corporate officers and shareholders for making

any tax-related decisions for petitioner and instead placed that

responsibility squarely on Jaffe.         The message from James and

John was clear: “We are not interested in tax matters.”         The

mandate to Jaffe was equally clear: “You handle those matters for

us.”

       Petitioner argues that neither James nor John was

knowledgeable about tax matters and that neither would have

understood what they were signing even if they had bothered to

read the particular document that was presented for their

signature.      Petitioner apparently thinks that corporate officers

have no duty to read any document before signing it, nor any duty

to educate themselves about matters of consequence to the

corporation, nor even any duty to ask fundamental questions about
                               - 23 -

actions being taken by their agents.    We categorically reject any

such view.   See Shopsin v. Commissioner, T.C. Memo. 1984-151,

wherein we stated:

     Had petitioners attempted to ascertain the precise
     status of their case at any particular point in time,
     we believe petitioners had the wherewithal to do so.
     Petitioners cannot avoid their responsibility on the
     basis of their failure to press the matter.

See also Kraasch v. Commissioner, 70 T.C. at 627-628, wherein we

stated: “That * * * [the taxpayers] might not have understood the

contents or chose at times not to read their mail before sending

it to * * * [their accountant] in no way absolves them of

responsibility or knowledge in this matter.”

     Petitioner also argues that Jaffe made it difficult for

James and John to appreciate what they were signing because he

typically presented them with a stack of documents, pointed to

where they were expected to sign, and stood over them while they

signed each document.    However, any suggestion of undue influence

is belied by the following colloquy between the Court and James:

          THE COURT: * * * Now, you said that Steve Jaffe
     typically would present you with documents to sign and
     basically say, Sign here.

          JAMES GIBBS:   That’s correct.

          THE COURT: If you had expressed an interest in a
     document, would he have precluded you from examining
     it?

          JAMES GIBBS:   I don’t think so.

          THE COURT: Did you feel free to examine the
     document should you have so chosen to do so?
                                - 24 -

           JAMES GIBBS:   I would say yes.

     The truth of the matter is that James and John simply had no

interest in what they were signing when it came to tax-related

matters.   For all intents and purposes, they had even delegated

their signature authority to Jaffe.

B. Ratification

     If, on the other hand, Jaffe acted without authority in

signing and filing the petition, petitioner contends that the

Court lacked jurisdiction to enter the stipulated decision

because petitioner never ratified such unauthorized act.      Again,

we disagree.

     A finding of ratification under Illinois agency law is a

complex, fact-intensive inquiry.    A wholly unauthorized act may

nevertheless be made valid by a subsequent ratification, in that

such subsequent assent would confirm what was originally an

unauthorized and illegal act.    See Hefner v. Vandolah, 62 Ill.

483, 485 (1872); see also Middle W. Tel. Co. v. U.S. Fire Ins.

Co., 296 Ill. App. 260, 265 (1938).      As applicable herein,

ratification means retroactive adoption of an unauthorized

signature by the person whose name is signed.

     Ratification may be found from express statements or it may

be inferred from the surrounding circumstances, for example,

where the principal takes a position inconsistent with

nonaffirmation of the transaction, see Hofner v. Glenn Ingram &
                               - 25 -

Co., 140 Ill. App. 3d 874, 883 (1st Dist. 1985), or fails to

repudiate the agent’s acts, see Chalet Ford, Inc. v. Red Top

Parking, Inc., 62 Ill. App. 3d 270 (1st Dist. 1978), or retains

the benefits of the unauthorized transaction, see Stathis v.

Geldermann, Inc., 295 Ill. App. 3d 844, 858 (1998); George F.

Mueller & Sons, Inc. v. Northern Ill. Gas Co., 12 Ill. App.3d 362

(1st Dist. 1973).   In contrast, ratification will not be implied

from acts or conduct that clearly evidences an intent not to

ratify.   See Evanston Bank v. Conticommodity Servs., Inc., 623 F.

Supp. 1014, 1037 (N.D. Ill. 1985).

     Our analysis continues with the specific circumstances that

support our conclusion that petitioner ratified the filing of the

petition by Jaffe on its behalf.

     Although not familiar with tax procedure, James and John

were aware, or should have been aware, that petitioner’s case was

before the Tax Court.   Evidence of this is found from various

events that occurred after the filing of the petition.

     First, the Designation of Place of Trial (DPT) was mailed to

petitioner at its Highland Park office by the Court.   More

importantly, James admitted that he signed and dated the DPT.

     James testified that he did not review the DPT before

signing it, but that if he had noticed it was a Tax Court

document, he would have questioned Jaffe about it.   We do not

find this testimony particularly convincing, however, given the
                                - 26 -

fact that the DPT is a simple, one-page document, with the words

                        UNITED STATES TAX COURT
                         WASHINGTON, D.C. 20217

prominently displayed in capital letters at the very top of the

page.    Surely, too, even a cursory glance at the document’s

heading, “DESIGNATION OF PLACE OF TRIAL” only a few lines above

the signature line, would have revealed the document’s nature and

origin.    Moreover, immediately below the signature line and

immediately above the “Dated” line was the preprinted

designation: “Signature of Petitioner or Counsel”.    This should

have alerted James to the fact that he was signing a document

related to a legal proceeding.

     Thus, at this early juncture, James either knew or should

have known that a petition had been filed in the Tax Court.     See

Kraasch v. Commissioner, supra at 628, concluding that

ratification occurred where the taxpayers “had, or reasonably

should have had, knowledge of the material facts of the case at

all times.”     Moreover, James’ act in signing the Designation of

Place of Trial constituted a ratification of Jaffe’s prior act in

filing the petition in the first instance.

        Second, when petitioner received respondent’s answer to the

petition, petitioner either knew, or reasonably should have

known, that it had a case pending before this Court.    See id.      In

fact, James opened the envelope containing the copy of

respondent’s answer and wrote “Attn: Steve Jaffe” in the upper
                                - 27 -

right corner of the document, immediately opposite “UNITED STATES

TAX COURT” and immediately above “Docket No. 12390-96".     At

trial, James admitted that he bears responsibility for reading

his mail.    He also bears responsibility for reading his mail with

reasonable care.    By placing respondent’s answer in the box in

his office reserved for Jaffe’s use, James obviously knew that

the document was tax related.    At the very least, James saw, or

should have seen, the Tax Court designation and knew, or should

have known, that the case had escalated beyond the audit phase.

See id.    James’ act of opening the envelope, annotating

respondent’s answer, and then forwarding it to Jaffe constituted

a ratification of the filing of the petition.

     Third, John signed and dated the stipulated decision.       The

decision is a relatively straightforward, two-page document that

sets forth the amount of the tax deficiencies and accuracy-

related penalties for which petitioner is liable.    The words

“UNITED STATES TAX COURT” appear prominently at the top of the

first page, followed by the caption and docket number, which

together clearly indicate that the document pertains to a court

case.     Immediately below the signature line on the second page of

the decision was the typewritten designation:

                  JOHN W. GIBBS, PRESIDENT
                  TRANS WORLD TRAVEL
                  Petitioner

which also indicated that the document pertained to a court case.
                              - 28 -

Thus, John either knew or should have known that he was

concluding a case that was in litigation.   See id.   By signing

and dating the stipulated decision, without even asking for

clarification about the nature of the document, John ratified the

filing of the petition.   See, e.g., Chalet Ford, Inc. v. Red Top

Parking, Inc., supra.

C. Conclusion

     In summary, we hold that petitioner failed to satisfy its

burden of proving that the filing of the petition by Jaffe was

unauthorized.   We also hold that, in any event, subsequent

conduct by James and John ratified Jaffe’s action in filing the

petition.   Accordingly, the Court had jurisdiction, and it

properly entered the stipulated decision on March 26, 1997.

     In order to give effect to our holdings,



                                         An appropriate order

                                    denying petitioner’s motion

                                    for leave to file a motion to

                                    vacate will be issued.
