Parviz Lavi and Madeline Lavi, Petitioners-Appellants, v. Commissioner of Internal Revenue, Respondent-Appellee., United States Court of Appeals for the Second Circuit, No. 98-4244, September 24, 1999
Parviz Lavi and Madeline Lavi, Petitioners-Appellants, v. Commissioner of Internal Revenue, Respondent-Appellee.
United States Court of Appeals for the Second Circuit
September 24, 1999
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
THIS SUMMARY ORDER WILL NOT BE PUBLISHED IN THE FEDERAL REPORTER AND MAY NOT BE CITED AS PRECEDENTIAL AUTHORITY TO THIS OR ANY OTHER COURT, BUT MAY BE CALLED TO THE ATTENTION OF THIS OR ANY OTHER COURT IN A SUBSEQUENT STAGE OF THIS CASE, IN A RELATED CASE, OR IN ANY CASE FOR PURPOSES OF COLLATERAL ESTOPPEL OR RES JUDICATA.
═════ At a stated term of the United States Court of Appeals for the Second Circuit, held at the United States Courthouse, Foley Square, in the City of New York on the 24th **** day of September ******, one thousand nine hundred and ninety-nine.
═══════════ HONORABLE WILFRED FEINBERG,
═══════════ HONORABLE ELLSWORTH VAN GRAAFEILAND,
═══════════ HONORABLE ROBERT D. SACK,
═══════════════════════════════════ Circuit Judges .
PARVIZ LAVI and MADELINE LAVI, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
APPEARING FOR APPELLANTS: DAVID I. ROSENBERG, Rosenberg & Fortuna, LLP, Garden City, NY.
APPEARING FOR APPELLEE: ═ JOAN I. OPPENHEIMER, Tax Division, Department of Justice, Washington, D.C.
═════ Appeal from the United States Tax Court (Swift, J. ).
═════ UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the judgment of said tax court be and it hereby is AFFIRMED.
═════ In March of 1986, after being notified by the Internal Revenue Service of a deficiency in their 1979 and 1980 tax returns, Petitioners-Appellants Parviz and Madeline Lavi filed a petition for redetermination in the United States Tax Court (Swift, J. ). ═ The parties entered into two stipulations and a trial was held before the tax court. ═ The Internal Revenue Service (IRS) then submitted a proposed deficiency calculation pursuant to Rule 155 of the Tax Court Rules of Practice and Procedure. ═ The petitioners objected to the IRS's failure to include certain carryback deductions for Net Operating Losses (NOL) in its calculation and submitted their own Rule 155 proposal. ═ The tax court accepted the IRS's calculation and entered judgment accordingly. ═ Petitioners appealed.
═════ The petitioners contend that the tax court erred in using the IRS's Rule 155 calculation. ═ Their argument is based on the scope of a stipulation the parties entered into to resolve investments in something called "Arbitrage Management." ═ These transactions involved the purchase and sale of U.S. Treasury bills and options that the IRS found to be "either shams or devoid of the substance necessary for recognition for federal income tax purposes." ═ During the course of negotiations over the Arbitrage Management transactions, the IRS presented the Lavis with a "package" of three "proposals." ═ The first showed the tax deficiency without any adjustments for Arbitrage Management (proposal A). ═ The second showed "the deficiency with the T-bill adjustment factored solely into the 1979 tax year" (proposal A-1). ═ The last calculated "the tax for the agreed items and include[d] the 20/80 T-bill settlement in years 1979 through 1982" (proposal A-2). ═ No NOL carrybacks were included in the A-1 proposal, although they were contained in the A-2 proposal. ═ Of these proposals, A-1 was most advantageous to the petitioners. ═ The IRS and petitioners entered into a stipulation, the relevant provisions of which provided as follows:
5. ═ It is agreed that respondent [IRS] did not err in making the [deficiency notice adjustments to the Treasury bills and options transactions] for the 1979 and 1980 taxable years, but the following adjustments are agreed upon:
(a) Petitioners' income from the purchase and sale of United States Treasury bills and options during 1979 should be increased by $645,469.
(b) Petitioners are liable for the increased rate of interest pursuant to I.R.C. ╖═6621(c), formerly I.R.C. ╖═6621(d), with respect to the purchase and sale of United States Treasury bills and options for the 1979 tax year.
(c) Petitioners' income from the purchase and sale of United States Treasury bills and options in 1980 and from capital gains from the sale of United States Treasury bills and options in 1980 will not result in an adjustment to taxable income for the 1980 tax year.
Based on this stipulation, the IRS's Rule 155 calculation included a $645,469 adjustment to taxable income in 1979, no adjustment in 1980, and no NOL carrybacks from 1980 or 1981. Petitioners claim this is incorrect, that the stipulation was meant to allow "for the increase of gross income for the 1979 tax period of $645,469.00. ═ It was not intended to be an increase in taxable income. ═ Accordingly, any proper NOLs or carrybacks which can be taken against the total increase of 1979 income for the United States Treasury bills and options in the amount of $645,469.00 should be allowed" (emphasis in original). ═ We disagree.
═════ By its terms, the stipulation is a "settlement concerning the issue resulting from petitioners' investment in Arbitrage Management." ═ At the same time, the stipulation makes no mention of any remaining Arbitrage Management related NOLs or the right of the Lavis to deduct such NOLs from the stipulated increase in 1979 income. ═ The plain language of the stipulation indicates it was meant to net all adjustments relating to Arbitrage Management transactions into the 1979 tax year.
═════ To the extent the stipulation is ambiguous in its reference to "income" in paragraph 5(a) and "taxable income" in paragraph 5(c), suggesting that "income" in 5(a) may have meant "gross income" rather than "taxable income," the weight of the available extrinsic evidence compels the interpretation embodied in the IRS's Rule 155 calculations. ═ See, e.g. , Haber v. St. Paul Guardian Ins. Co. , 137 F.3d 691, 694 (2d Cir. 1998) (stating that it is appropriate for courts to consider extrinsic evidence where contract language is ambiguous). ═ IRS proposal A-1 "shows the deficiency with the T-bill adjustment factored solely into the 1979 tax year," and shows no NOL carrybacks. ═ Given the stipulation's placement of all Arbitrage Management adjustments into the 1979 tax year, leaving 1980 "untouched," and its failure to mention NOLs, the inescapable conclusion is that it was meant to embody the A-1 settlement offer. ═ Petitioners' repeated reference to the inclusion of NOL carrybacks in an alternative IRS proposal is unconvincing because they did not accept the terms of that proposal. ═ That was the A-2 proposal, which "include[d] the 20/80 T-bill settlement in years 1979 through 1982." ═ The final stipulation, however, placed the settlement solely in 1979, not in years 1979 through 1982. ═ Thus, proposal A-2, which included the NOL carrybacks for which the petitioners now argue, was not accepted and is of no moment here. ═
═════ In addition, of the three calculations presented in the IRS settlement package, the one containing no NOL carrybacks was most advantageous to the Lavis. ═ Also, it appears that the meanings of the calculations and stipulations were clearly explained to the petitioners prior to the stipulations' signing. ═ The tax court therefore did not err in using the IRS's Rule 155 calculations.
═════ Further, Tax Court Rule 155 "establishes a procedure by which . . . parties determine the financial ramifications of" decisions by and stipulations in the court. ═ Chimblo v. Commissioner , 177 F.3d 119, 125 (2d Cir. 1999). ═ A Rule 155 proceeding is not one in which "new issues" may be raised. ═ See Tax Ct. R. Prac. & Proc. 155(c). ═ The tax court has held that the raising of NOLs in a Rule 155 calculation can constitute a new issue. ═ See Vest v. Commissioner , 69 T.C.M. (CCH) 2491 (1995). ═ The touchstone of the "new issue" analysis is whether the tax court "would be compelled to reopen the record." ═ Id. at 2494. ═ As discussed above, the stipulation was silent as to NOL carrybacks. ═ Prior to the Rule 155 proceeding and after the entry of the stipulation, there was no agreement or determination as to the NOL carryback amounts. ═ The Lavis offer to use NOL figures that the IRS utilized in a previous proposal. ═ Because the stipulation was entered into after the proposal was made, the Rule 155 hearing record would have had to have been reopened for the tax court to take those figures into consideration in making its decision. ═ The tax court thus properly concluded that in order to rule in the Lavis' favor on the arguments they present here, it would have been required impermissibly to consider a new issue contained in their Rule 155 submission. ═ It therefore correctly ruled against the Lavis on this argument.
═════ We have considered all of the Lavis' arguments and find them to be without merit. ═ The judgment of the tax court is hereby AFFIRMED.
FOR THE COURT,
Karen Greve Milton, Acting Clerk