                     105 T.C. No. 24



                 UNITED STATES TAX COURT



         HARVEY M. PERT, TRANSFEREE, Petitioner v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent


  KATHLEEN M. PERT, F.K.A. KATHLEEN M. RIFFE, TRANSFEREE,
Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent



 Docket Nos. 13783-94, 13784-94.    Filed November 15, 1995.



      Kathleen M. Pert signed closing agreements (Forms
 866) pursuant to sec. 7121 I.R.C., for tax years 1986,
 1988, and 1989 for both herself and as personal
 representative of the estate of her deceased husband,
 Timothy C. Riffe. Respondent accepted the closing
 agreements.

      Timothy Riffe and Kathleen Pert filed joint
 returns for those years. Under the closing agreements,
 Timothy Riffe, deceased, is liable for the addition to
 tax for fraud for 1986 and Kathleen Pert is not.

      Kathleen Pert signed a settlement stipulation for
 1987 on her own behalf and as personal representative
                               - 2 -


     of the Estate of Timothy Riffe. The Tax Court entered
     a decision based on that settlement stipulation.

          Respondent determined that petitioner, Kathleen
     Pert's second husband, Harvey Pert, is liable as a
     transferee of assets from Kathleen Pert and as a
     successor transferee of assets from Timothy Riffe,
     deceased.

          Respondent filed a motion for partial summary
     judgment to establish that: (1) Petitioner Harvey Pert
     may not contest Timothy Riffe's and Kathleen Pert's tax
     liability, and that (2) the statute of limitations
     does not bar assessment of transferee liability against
     petitioner Harvey Pert for 1986.

          Held: If it is established that petitioner Harvey
     Pert is a transferee, then: (1) He may not contest the
     deficiencies and additions to tax for fraud as
     established by the closing agreements except on the
     grounds available to the parties to the closing
     agreements under sec. 7121 I.R.C. (fraud, malfeasance,
     or misrepresentation of a material fact); and (2)
     the statute of limitations does not bar assessment
     of transferee liability against petitioner.



     B. Gray Gibbs for petitioner.

     Michael A. Pesavento for respondent.


                              OPINION


     COLVIN, Judge:   This case is before the Court on

respondent's motion for partial summary judgment on two issues:

     (1)   Whether petitioner Harvey Pert may contest (on grounds

other than fraud, malfeasance, or misrepresentation of a material

fact) the tax liability established by closing agreements for

1986, 1988, and 1989 under section 7121 which were agreed to:
                                - 3 -


(a) By Kathleen Pert, and (b) by Kathleen Pert, personal

representative of the Estate of Timothy C. Riffe, the alleged

transferors in this case.    We hold that he may not.

     (2)   Whether the statute of limitations bars assessment of

transferee liability against petitioner for 1986.    We hold that

it does not.    Petitioner does not claim that the statute of

limitations bars the assessment of transferee liability against

him for 1987, 1988, or 1989.

     Respondent's motion raises issues of first impression for

this Court.    Our decision on both issues is based on our holding

that a transferee (and a successor transferee) is bound by a

closing agreement made under section 7121 by Commissioner and the

transferor.    We leave certain other issues for trial, such as

whether (or to what extent) petitioner is a transferee.

     References to petitioner are to Harvey Pert.    Kathleen Pert,

his wife, was formerly married to Timothy Riffe, deceased.

Kathleen Pert was formerly Kathleen Riffe.

     Section references are to the Internal Revenue Code of 1986

as in effect during the years at issue.    Rule references are to

the Tax Court Rules of Practice and Procedure.

     Summary judgment or partial summary judgment is appropriate

if the pleadings, answers to interrogatories, depositions,

admissions, affidavits and any other acceptable materials, show

that there is no genuine issue as to any material fact and that a
                               - 4 -


decision may be rendered as a matter of law.   Rule 121(b);

Sturniolo v. Sheaffer, Eaton, Inc., 15 F.3d 1023, 1024 (11th Cir.

1994); Zaentz v. Commissioner, 90 T.C. 753, 754 (1988).     The

moving party has the burden of making this showing.    Weinberger

v. Hynson, Westcott & Dunning, 412 U.S. 609, 621-622 (1973);

Espinoza v. Commissioner, 78 T.C. 412, 416 (1982).    In deciding

whether to grant summary judgment, we view the facts and

inferences drawn therefrom in the light most favorable to the

nonmoving party.   Velten v. Regis B. Lippert, Intercat, Inc., 985

F.2d 1515 (11th Cir. 1993); Naftel v. Commissioner, 85 T.C. 527,

529 (1985).   Respondent's motion is appropriate for partial

summary judgment because no fact necessary for our consideration

of the motion is in dispute.

                            Background

     Petitioner lived in Florida when he filed the petition in

this case.

1.   Timothy Riffe, Deceased, and Kathleen Pert

     For taxable years ending 1986, 1987, 1988, and 1989,

Timothy Riffe, deceased, and Kathleen Pert timely filed joint

Federal income tax returns reporting income from several Schedule

C activities.   Timothy Riffe died on February 11, 1991.   When he

died, he was married to Kathleen Pert.

     According to Timothy Riffe's will, Kathleen Pert was

appointed personal representative of his estate.   She was also
                                - 5 -


the sole beneficiary of his estate.     On September 7, 1991, while

administrating the Estate of Timothy Riffe, Kathleen Pert was

married to petitioner.1

2.   The Closing Agreements

     On April 23, 1993, Kathleen Pert, in her fiduciary capacity,

on behalf of Timothy Riffe, deceased, and respondent, duly

executed a final closing agreement (Form 866, "Agreement as to

Final Determination of Tax Liability") under section 7121.    In

it, respondent and Kathleen Pert, personal representative for the

Estate of Timothy Riffe, agreed to deficiencies in and additions

to the income tax of Timothy Riffe, deceased, for taxable years

1986, 1988, and 1989, including liability for the addition to tax

for civil fraud for 1986 under section 6653(b)(1)(A) and (B).

     On April 23, 1993, Kathleen Pert, on her own behalf, and

respondent, duly executed another final closing agreement (Form

866) under section 7121.   In it, she and respondent agreed to

deficiencies in her income tax for 1986, 1988, and 1989, in the

same amounts as the tax liabilities agreed to for Timothy Riffe,

deceased, for those years.    No additions to tax were imposed upon

Kathleen Pert.


     1
       This proceeding, docket No. 13783-94, and the related
proceeding involving Kathleen M. Pert, docket No. 13784-94, were
consolidated for purposes of trial, briefing, and opinion on
Apr. 19, 1995. Respondent has also filed a motion for partial
summary judgment in docket No. 13784-94. An order will be issued
on that motion consistent with this opinion.
                               - 6 -


     The closing agreements state:

     This agreement is final and conclusive except:

     (1)   The liability it relates to may be reopened in the
           event of fraud, malfeasance, or misrepresentation
           of material fact and

     (2)   It is subject to the Internal Revenue Code
           sections that expressly provided that effect be
           given to their provisions notwithstanding any
           other law or rule of law except Code section 7121.

     By signing this agreement, the above parties certify
     that they have read and agreed to its terms.

3.   Settlement and Stipulated Decision for 1987

     Respondent determined a deficiency in the joint tax of

Timothy Riffe, deceased, and Kathleen Pert, for tax year 1987.

Timothy Riffe, deceased, and Kathleen Pert petitioned the Tax

Court (Docket No. 15214-91), challenging respondent's

determination for that year.   The parties settled that case.

This Court entered a stipulated decision on June 4, 1993, in

which Kathleen Pert, acting in her own behalf, and as personal

representative of the Estate of Timothy Riffe, agreed to a

deficiency in tax and additions to tax for 1987.   Under the

settlement, the Estate of Timothy Riffe and Kathleen Pert agreed

to the same deficiency.   Additions to tax for negligence and

substantial understatement of tax were imposed on Timothy Riffe,

deceased, but not on Kathleen Pert.

4.   Notices of Transferee Liability

     On May 27, 1994, respondent mailed two notices of transferee

liability to petitioner in which respondent determined:   (a)
                                - 7 -


Petitioner is liable as a successor transferee (i.e., a

transferee of a transferee) of the assets of Timothy Riffe,

deceased, in the amount of $140,075 plus interest; and (b)

petitioner is liable as a transferee of the assets of Kathleen

Pert in the amount of $67,672, plus interest as provided by law.

                           Discussion

1.   Position of the Parties

     Petitioner admits that Kathleen Pert, as a personal

representative of the Estate of Timothy Riffe, agreed to the

deficiencies and additions to tax for 1986, 1988, and 1989 with

respect to the income tax of Timothy Riffe.   Petitioner also

admits that the copies of the Forms 866 attached to respondent's

answer were the means by which the tax liabilities of Timothy

Riffe, deceased, and Kathleen Pert were compromised and later

assessed by the Commissioner.

     Petitioner argues that he is not precluded by the closing

agreements from litigating the underlying deficiencies and

additions to tax of Timothy Riffe, deceased, and Kathleen Pert,

in connection with respondent's determination that he is a

transferee of Kathleen Pert and a successor transferee of Timothy

Riffe, deceased.

     Petitioner points out that Kathleen Pert was not a party in

her individual capacity to the closing agreement for Timothy

Riffe, deceased, and contends that the closing agreement is not

binding on petitioner.
                                 - 8 -


2.   Closing Agreements Under Section 7121

     Section 7121 provides as follows:

     Sec. 7121.    Closing Agreements.

          (a) Authorization.--The Secretary is authorized
     to enter into an agreement in writing with any person
     relating to the liability of such person (or of the
     person or estate for whom he acts) in respect of any
     internal revenue tax for any taxable period.

          (b) Finality.--If such agreement is approved by
     the Secretary (within such time as may be stated in
     such agreement, or later agreed to) such agreement
     shall be final and conclusive, and, except upon a
     showing of fraud or malfeasance, or misrepresentation
     of material fact--

            (1)   The case shall not be reopened as to the
                  matters agreed upon or the agreement modified
                  by any officer, employee, or agent of the
                  United States, and

            (2)   In any suit, action, or proceeding, such
                  agreement, or any determination, assessment,
                  collection, payment, abatement, refund, or
                  credit made in accordance therewith, shall
                  not be annulled, modified, set aside, or
                  disregarded.

     Statutory authority for closing agreements has existed

since 1921.    Revenue Act of 1921, ch. 136, tit. XIII, sec. 1312,

42 Stat. 227, 313.    At least since 1934, the U.S. Treasury

Department has had two forms on which closing agreements may be

executed.    XIII-1 C.B. 162, 162-163 (1934).   Form 866 provides

for a final and conclusive agreement between the Commissioner and

the taxpayer to the total tax liability of the taxpayer.     Form

906 provides for a final and conclusive agreement between the

Commissioner and the taxpayer to matters or issues specified in
                               - 9 -


the agreement.   Sec. 301.7121-1(d)(1), Proced. & Admin. Regs.

Both closing agreements in this case were executed on Forms 866,

Agreement as to Final Determination of Tax liability.

     The closing agreements establish the tax liability of

Timothy Riffe, deceased, and Kathleen Pert for income tax

deficiencies and additions to tax for 1986, 1988, and 1989.

Sec. 7121(b); Estate of Magarian v. Commissioner, 97 T.C. 1, 4-5

(1991); Zaentz v. Commissioner, 90 T.C. at 753.    Timothy Riffe,

deceased, Kathleen Pert and respondent are bound by the closing

agreements, absent a showing of fraud, malfeasance, or a

misrepresentation of material fact.    Sec. 7121(b).2   Petitioner

does not allege that the closing agreements in this case were

obtained by fraud, malfeasance, or a misrepresentation of a

material fact.

3.   Whether a Transferee Is Bound by a Closing Agreement Made by
     the Transferor

     We are not aware of any case that decides whether a

transferee or successor transferee is bound by a closing

agreement made under section 7121 by the transferor.




     2
       The standards for invalidating a closing agreement under
sec. 7121 are similar to the standards for vacating a stipulated
decision entered by a court; i.e., fraud, malfeasance, or the
misrepresentation of a material fact. See Korangy v.
Commissioner, 893 F.2d 69, 72 (4th Cir. 1990), affg. T.C. Memo.
1989-2; Stamm International Corp. v. Commissioner, 90 T.C. 315
(1988). Estate tax closing agreements (Form 870-AD) do not have
the same finality as closing agreements under sec. 7121.
Schwager v. Commissioner, 64 T.C. 781, 789 (1975).
                              - 10 -


     Section 7121(b)(2) provides that "in any suit, action or

proceeding" the closing agreement shall not be "annulled,

modified, set aside or disregarded."   If petitioner can contest

the deficiencies and fraud additions established by Timothy

Riffe's and Kathleen Pert's closing agreements, we are then

"disregarding" the agreements to that extent.   To allow

petitioner to contest Timothy Riffe's and Kathleen Pert's tax

liabilities for tax years 1986, 1988, and 1989 would conflict

with section 7121, and undermine its purpose.

     Cases holding that res judicata applies between a transferor

and a transferee are analogous.   Under the doctrine of res

judicata, parties and their privies to a prior action that

concluded with a final decision on the merits, are bound as to

all issues that were or might have been decided in the prior

action.   Commissioner v. Sunnen, 333 U.S. 591, 597 (1948).    Res

judicata applies in tax cases.    United States v. International

Building Co., 345 U.S. 502, 506 (1953).

     If res judicata applies to a taxpayer who was a party to a

prior case, it also applies to persons in privity with the

taxpayer.   It is well settled that a transferee is in privity

with the transferor for purposes of the Internal Revenue Code.

Baptiste v. Commissioner, 29 F.3d 1533, 1539 (11th Cir. 1994);

affg. 100 T.C. 252 (1993), affd. and revd. on other grounds 29

F.3d 433 (8th Cir. 1994); First Natl. Bank v. Commissioner, 112

F.2d 260 (7th Cir. 1940); Krueger v. Commissioner, 48 T.C. 824,
                                - 11 -


830 (1967); Jahncke Serv., Inc. v. Commissioner 20 B.T.A. 837

(1930).     In Krueger, we noted that "it would be a strange rule to

confer upon the transferee broader rights than the transferor by

allowing the transferee to relitigate an issue when a transferor

is denied that privilege."     Krueger v. Commissioner, supra at

830.3

        In First Natl. Bank v. Commissioner, supra, the Court of

Appeals for the Seventh Circuit said:

             It is intended by the statute that the
        commissioner shall pursue the liability against the
        property of the taxpayer whether retained by the latter
        or transferred gratuitously by him to others. There is
        in this situation privity of title to the assets
        transferred and now sought to be reached by virtue of
        the statute. * * *

        [the transferees] took the property * * * subject to
        the statutory liability and, that being fixed, in the
        absence of fraud, collusion or lack of jurisdiction,
        they are bound by the determination. * * *

First Natl. Bank v. Commissioner, supra at 262.

        Petitioner points out that in Phillips v. Commissioner, 178

F.2d 270, 271 (3d Cir. 1949), affg. 8 T.C. 1286 (1947)

supplemented by 11 T.C. 653 (1948), the Court of Appeals for the

Third Circuit held that a final closing agreement (Form 866)

under section 3720 of the Internal Revenue Code of 1939 (the

predecessor to section 7121) between a corporation and the


        3
       In light of our holding that a transferee or successor
transferee is bound by a transferor's closing agreement under
sec. 7121 as a matter of law, we need not further address
petitioner's contention that petitioner is not in privity with
Timothy Riffe.
                                  - 12 -


Commissioner was not binding on the stockholders of the

corporation.    The Court of Appeals for the Third Circuit

explained that a closing agreement does not bind "strangers to

the agreement".     Id. at 271.   The Court of Appeals for the Third

Circuit said that the shareholders are strangers to the

agreement, and neither are bound by nor can take advantage of the

agreement.     We disagree that Phillips controls here because in

Phillips the shareholders were not transferees of the

corporation.    The relationship between transferors and

transferees is not the same as between shareholders and the

corporation.

     We conclude that a closing agreement under section 7121

binds a transferee of the party to the closing agreement, in a

manner analagous to the way res judicata binds a transferee to

a prior judicial decision in which the transferor was a party.

Our holding applies to petitioner to the extent he is either a

transferee or a successor transferee.      Petitioner correctly

states that respondent has cited no case in which the Court

concluded that a transferee of a transferee is in privity with

the original transferor.    Petitioner contends that petitioner is

not in privity with the Estate of Timothy Riffe and thus the

closing agreement does not apply to petitioner.      We disagree

because, if it is established that petitioner is a transferee or

successor transferee, he is in privity with the transferor as a

matter of law.    We see no basis for distinguishing between a
                               - 13 -


transferee and a successor transferee for purposes of this issue.

See Bos Lines, Inc. v. Commissioner, 354 F.2d 830, 833-834 (8th

Cir. 1965), affg. T.C. Memo. 1965-71; see Robinette v.

Commissioner, 139 F.2d 285, 286 (6th Cir. 1943), affg. 46 B.T.A.

1138 (1942); Estate of Goldsborough v. Commissioner, 70 T.C.

1077, 1086 (1978), affd. without published opinion 673 F.2d 1310

(4th Cir. 1982); Fibel v. Commissioner, 44 T.C. 647, 659 (1965).

4.   Statute of Limitations for Assessment of Transferee
     Liability for 1986

     In the closing agreements relating to Timothy Riffe's and

Kathleen Pert's 1986 joint return, it was agreed that Timothy

Riffe (but not Kathleen Pert) was liable for the addition to tax

for fraud.    If there were no fraud on Timothy Riffe's and

Kathleen Pert's 1986 tax return, then the time to assess tax

against petitioner as transferee would apparently have expired

before May 27, 1994, when respondent sent the notices of

transferee liability to petitioner.

     Petitioner contends that respondent is not entitled to

summary judgment on the issue of the statute of limitations for

1986 because the evidence, viewed most favorably for petitioner,

does not require a finding that the statute of limitations is

still open.    However, petitioner cites no fact that is material

to deciding respondent's motion and that remains in dispute.

Petitioner argues that if respondent fails to establish civil

fraud, then the statute of limitations bars the assessment of any
                              - 14 -


transferee liability for the year 1986.    Petitioner points out

that the closing agreement provided that Kathleen Pert was not

liable for the civil fraud additions to tax assessed against the

Estate of Timothy Riffe, and contends that respondent may not now

assess transferee liabilities against Kathleen Pert or against

petitioner based upon those civil fraud additions.    We disagree.

     The income tax due from Kathleen Pert for 1986, may be

assessed at any time because it was agreed in the closing

agreement for the Estate of Timothy Riffe that the joint income

tax return filed for that year was false or fraudulent.    Sec.

6501(c)(1).   Where a joint fraudulent return is filed, the

Commissioner may assess a tax at any time against either spouse,

even if only one of the spouses committed fraud in filing the

return.   Sec. 6501(c)(1); Benjamin v. Commissioner, 66 T.C. 1084,

1100-1101 (1976), affd. 592 F.2d 1259 (5th Cir. 1979); Vannaman

v. Commissioner, 54 T.C. 1011, 1018 (1970); Estate of Sawcza v.

Commissioner, T.C. Memo. 1993-210, affd. without published

opinion 46 F.3d 70 (11th Cir. 1995).

     If the transferor's tax may be assessed at any time because

of fraud, the period of limitations against a transferee of the

transferor remains indefinitely open.     Bartmer Automatic Self

Serv. Laundry, Inc. v. Commissioner, 35 T.C. 317, 322 (1960);

Forehand v. Commissioner, T.C. Memo. 1993-618.    Thus, we hold

that the limitations period for assessing transferee liability

against petitioner for the tax year 1986 has not expired.
                              - 15 -


5.   Stipulated Settlement Decision for 1987

     Petitioner concedes that Kathleen Pert, in her capacity as

personal representative of the Estate of Timothy Riffe, agreed to

a stipulated decision that Timothy Riffe, deceased, was liable

for deficiencies and additions to tax for negligence and

substantial understatement of tax for 1987.    Petitioner also

concedes that Kathleen Pert agreed to a stipulated decision that

established her tax liabilities for 1987.   Petitioner also

concedes that liabilities were assessed by respondent pursuant

to such agreement.

     Petitioner argues that he may relitigate the liability

of Timothy Riffe, deceased, and Kathleen Pert for 1987.    We

disagree.   As we stated in par. 3 above, res judicata bars a

transferee from relitigating the income tax liabilities of a

transferor once a final decision has been entered by the Tax

Court in the transferor's case, if the decision was stipulated.

Krueger v. Commissioner, 48 T.C. at 829-830; Baptiste v.

Commissioner, 29 F.3d 1533 (11th Cir. 1994); Forehand v.

Commissioner, supra; see Huddleston v. Commissioner, 100 T.C. 17

(1993).

     Petitioner acknowledges that Baptiste v. Commissioner,

supra, and Krueger v. Commissioner, supra, hold that petitioners

are bound by the stipulated decision signed by the Estate of

Timothy Riffe.   Petitioner acknowledges that, unless we

reconsider our previous decisions on this issue, res judicata
                              - 16 -


bars him from contesting the deficiencies and additions to tax

for 1987 as stipulated by Kathleen Pert for herself and Timothy

Riffe.   Petitioner urges us to reconsider those cases.

     One of the requirements for res judicata to apply is that

the earlier proceeding must have resulted in a final judgment on

the merits.   Commissioner v. Sunnen, 333 U.S. 591 (1948); Peck v.

Commissioner, 90 T.C. 162, 166 (1988), affd. 904 F.2d 525 (9th

Cir. 1990); Gammill v. Commissioner, 62 T.C. 607, 613 (1974).

Petitioner asserts that it is at best a legal fiction to treat a

stipulated decision as a judgment on the merits.   Petitioner

asserts that Kathleen Pert agreed to the stipulated decision

because she lacked funds, and that she filed bankruptcy 8 months

after the stipulated decision was entered.   In spite of

petitioner's argument, we decline to reconsider the well-

established principle that a Tax Court decision entered pursuant

to the stipulation of the parties is considered to be judgment on

the merits for purposes of res judicata.   See Baptiste v.

Commissioner, supra at 1539-1541; see also United States v. Intl.

Building Co., 345 U.S. at 506.

     To reflect the foregoing,


                                       Orders will be issued

                                    granting respondent's motions

                                   for partial summary judgment.
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