Opinion
23069-16
10-15-2021
Kevin John, Sr. & Whitney S. Witasick, Petitioners v. Commissioner of Internal Revenue, Respondent
ORDER
Courtney D. Jones, Judge.
This case is scheduled for trial at the remote trial session of the Court scheduled to commence at Baltimore, Maryland, on November 1, 2021. On September 17, 2021, petitioners Kevin John, Sr. and Whitney S. Witasick (the Witasicks) filed a motion for relief pursuant to Rule 91(e) (docket entry no. 84).For the reasons discussed below, we will deny the motion.
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all monetary amounts to the nearest dollar.
I. Background
On July 26, 2016, respondent issued the Witasicks a notice of deficiency for the 1999 and 2000 taxable years. On October 25, 2016, the Witasicks timely filed a petition for redetermination of the notice of deficiency. There have been seven continuances in this case since the filing of the petition (docket entry nos. 7, 12, 18, 22, 27, 35, 66).
One continuance occurred when the court canceled the trial session at which this case was scheduled to be tried, due to the COVID-19 pandemic (docket entry no. 35). But petitioners had a motion for continuance pending at the time (docket entry no. 34).
The Witasicks retained counsel, Mr. Kirk A. McCarville and Mr. Philip C. Wilson, who entered appearances in this case on October 26, 2020 (docket entry nos. 49 and 50). Over the next three months, the parties engaged in negotiation of the stipulation of facts (docket entry no. 94). This negotiation included email correspondence, written correspondence, telephone calls, and markups of the draft stipulations of facts (docket entry no. 94).
On January 15, 2021, the parties jointly filed the First Stipulation of Facts (docket entry no. 63). The First Stipulation of Facts provides at paragraph 78 that, "[T]he parties agree" that the total amount of interest expense for Stoneleigh was $66,106 for taxable year 2000. The stipulation indicates that the parties "Agreed 100%" to this amount. The parties did not list any amount of the interest expense as disputed.
Two days before the filing the First Stipulation of Facts, the Witasicks attempted to introduce into the draft Stipulation of Facts an additional $84,000 of interest expense for Stoneleigh for the 2000 taxable year (docket entry nos. 83 and 94). The additional interest expense originated from an amended return that was unsigned, undated, unsubstantiated, and never filed with the IRS (docket entry nos. 83 and 94). The amended return was presented at Mr. Witasick's sentencing hearing in 2010 following his conviction in a criminal trial (docket entry nos. 83 and 94).
Respondent contends that the Witasicks did not offer documents to show that the $84,000 was personally incurred and that they were legally entitled to the additional interest expense. Respondent further alleges that the Witasicks could not demonstrate that the portion of the amount was not already part of the $66,106 total interest expense to which the parties stipulated in paragraph 78. Respondent refused to stipulate to the additional amount and the Witasicks ultimately agreed to omit it from the First Stipulation of Facts (docket entry nos. 63, 83 and 94). The parties instead stipulated that the total interest figure for taxable year 2000 for Stoneleigh was $66,106 (docket entry no. 63).
II. Stipulations
The stipulation process is considered "the bedrock of Tax Court practice" and acts "as an aid to the more expeditious trial of cases". Branerton Corp. v. Commissioner, 61 T.C. 691, 692 (1974). Stipulations eliminate burdensome and unnecessary discovery and result in "an orderly trial with a full and fair exposition Teller v. Commissioner, T.C. Memo. 1992-402.
Generally, we treat a stipulation of fact as a conclusive admission by the parties and the Court is bound to enforce it. See Rule 91; Stamos v. Commissioner, 87 T.C. 1451, 1454 (1986). Rule 91(e) provides an exception by permitting relief from the binding effect of a stipulation where justice so requires. In general, we use our broad discretion to permit relief from a stipulation only when necessary to prevent "manifest injustice". See Bokum v. Commissioner, 992 F.2d 1132, 1135-1136 (11th Cir. 1993), aff'g 94 T.C. 126 (1990); see also Lovenguth v. Commissioner, T.C. Memo. 2007-70, 2007 WL 922231 ("we enforce stipulations unless not just 'injustice,' but 'manifest injustice' would result").
Given the importance of the stipulation process to this Court, we are reluctant to relieve a party of a stipulation it negotiated and executed. Mathia v. Commissioner, T.C. Memo. 2007-4. Challenges to otherwise binding stipulations of fact undermine the stipulation process and inject uncertainty into our litigation process. Id.; see also Logsdon v. Commissioner, T.C. Memo. 1997-8 (relief from stipulation denied where the taxpayer sought to introduce evidence not in the record in his posttrial brief to support his motion because the Commissioner would be prejudiced by the lack of opportunity to develop his position at trial); Williams v. Commissioner, T.C. Memo. 2011-227, 2011 WL 4424330 (relief denied where repudiation of a concession would likely prejudice the Commissioner because he reasonably thought the issue had been resolved before trial). We are also unlikely to grant relief from a stipulation entered into after considerable negotiation. See Saigh v. Commissioner, 26 T.C. 171, 179 (1956); Lovenguth v. Commissioner, 2007 WL 922231, at *4. Unilateral mistake of fact in a binding, unambiguous stipulation is not a sufficient ground for relief. Stamm Int'l Corp. v. Commissioner, 90 T.C. 315, 320-321 (1988).
We infrequently conclude that justice requires us to set aside a stipulation. In Lovenguth v. Commissioner, 2007 WL 922231, at *6, we considered the "peculiar circumstances", and held that in the instance that "a mentally disabled and sometimes voluble taxpayer [was] representing himself--it [was] very easy to create a situation of deep misunderstanding between the parties." The Court vacated the pretrial stipulations in that case because otherwise manifest injustice would result. Id.
The factors in Lovenguth are not present here. The Witasicks have repeatedly stated in various filings that they were aware of the $84,000 amount of interest expense, attempted to stipulate to this amount with respondent's counsel, and ultimately agreed to omit it from the First Stipulation of Facts (see docket entry nos. 65, 71, 81, 82, and 83). If the Witasicks did not agree with the terms of the stipulation, they could have rejected it. Instead, the parties freely and fairly signed the stipulation after the Witasicks retained counsel (October 2020) and after communication spanning three months between the parties (October 2020 until early January 2021). Furthermore, the $84,000 interest expense figure was presented on an amended return that was presented at Mr. Witasick's sentencing hearing in 2010.
The Witasicks contend that they lost all of their records in Hurricane Sandy and were therefore unaware of the $84,000 interest expense until days before the filing deadline of the stipulation of facts. Although the Court is sympathetic to those who experience hardships due to natural disasters, the Witasicks were aware of the existence of the purported $84,000 interest expense since at least 2010. The Witasicks were represented by counsel and the Stipulation of Facts were entered into after considerable negotiation. Consequently, we conclude that the arguments that paragraph 78 of the First Stipulation of Facts was entered into inadvertently or that it was a product of mutual mistake lack merit.
The Witasicks filed the instant motion nine months after signing the First Stipulation of Facts, and a little over a month before their trial date. If we granted the Witasicks' motion for relief from the stipulation, respondent would have to expend considerable time and effort developing and preparing evidence on the issue of interest expense for the 2000 taxable year for the upcoming trial. We conclude that granting the Witasicks' motion for relief from the stipulation would undoubtedly prejudice respondent.
In unusual circumstances, the Court will not be bound by a stipulation when clearly contrary evidence is presented to us at trial. Mead's Bakery, Inc. v. Commissioner, 364 F.2d 101 (5th Cir. 1966); Jasionowski v. Commissioner, 66 T.C. 312, 318 (1976). Errors in stipulated estimates and substantial mathematical errors are examples of unusual circumstances. See Stice v. Commissioner T.C. Memo. 1980-14; Larimore v. Commissioner, T.C. Memo. 1986-326.
In an attempt to have their stipulation relieved in this manner, the Witasicks argue that "it would be premature to rule at this stage in the proceedings that Petitioners, and indeed this Court, are bound by the specific language of Stipulation 78" (docket entry no. 83). The Witasicks argue that they "must" be allowed to present evidence as to the total interest expense for the 2000 taxable year. They contend that if at the conclusion of the trial, the record shows that the expenses were greater than that stipulated by the parties, then the Court could grant them relief from paragraph 78 of the First Stipulation of Facts. The Court views this request as a thinly veiled attempt to circumvent the First Stipulation of Facts during their trial. Again, a stipulation of fact is a conclusive admission by the parties and the Court is bound to enforce it. See Rule 91; Stamos v. Commissioner, 87 T.C. at 1454. The Witasicks cannot attempt to repudiate the stipulation by intentionally introducing contrary evidence at trial. Consequently, we conclude that the Witasicks' argument on this issue lacks merit and contravenes the rules of this Court.
We perceive no manifest injustice in holding the Witasicks to the terms of the Stipulation of Facts. We have considered all of the arguments made by the parties and, to the extent they are not addressed herein, we deem them to be moot, irrelevant, or without merit.
Upon due consideration, it is hereby
ORDERED that petitioners' motion for relief pursuant to Rule 91(e) filed September 17, 2021, is denied.