                       T.C. Memo. 1997-550



                     UNITED STATES TAX COURT



    GEORGE C. SCRIMSHAW AND ERNA C. SCRIMSHAW, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3195-82.                Filed December 16, 1997.



     Richard Stephen Kestenbaum, John M. Kemp, and Bridget

Mcinerney Harris, for petitioners.1

     Edward O.C. Ord and Christian M. Winther, for petitioner

Erna C. Scrimshaw.

     Allan D. Hill, for respondent.




     1
          Although Richard Stephen Kestenbaum, John M. Kemp, and
Bridget Mcinerney Harris are listed as counsel of record, they
did not participate in the filing or prosecuting of the motion
that is the subject of this opinion.
                                       -2-


                             MEMORANDUM OPINION


       JACOBS, Judge:      This case is before the Court on the motion of

Erna   C.     Scrimshaw   (hereinafter       petitioner   when    used   in   the

singular) for leave to file a motion to vacate decision entered on

July 26, 1991.       Petitioner's motion to vacate decision is based

upon    the    theory     that   the   stipulated    decision       entered   in

petitioners' case was the result of fraud on the Court because her

signature on the decision document is a forgery.                 In her motion,

petitioner requests, among other things, that she be allowed to

amend the pleadings in order to raise the defense of "innocent

spouse". Respondent filed a response in opposition to petitioner's

motion.     As explained below, we shall deny petitioner's motion.

       Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the matter under consideration.

All Rule references are to the Tax Court Rules of Practice and

Procedure.

       Petitioner and George C. Scrimshaw (collectively referred to

as petitioners) were husband and wife and resided in Orinda,

California, at the time the petition was filed.

                                  Background

       Petitioners were married on September 14, 1957.               Petitioner

worked as a registered nurse, and her husband was a physician.                 In

1962, after the birth of petitioners' first child, petitioner
                                         -3-

remained at home to take care of their children until January 1987,

when she resumed her nursing career.

       Petitioners filed joint Federal income tax returns for years

1975       through    1979.      On   December   3,    1981,    respondent       sent

petitioners a notice of deficiency regarding these years. Pursuant

to the notice of deficiency, respondent disallowed losses and

deductions      petitioners      claimed    on   their   1975-79       returns   and

determined negligence additions to tax for 1976-79.                Respondent's

adjustments were made with regard to the losses and deductions

petitioners          claimed   for    1975-79,   arising    from       transactions

involving: (1) Investors Mining Program 77-5 in 1977 and 1978; (2)

commodity      options     and   futures   contracts     with   Gardner    Lohmann

Limited and Amalgamated Metal Trading Limited in 1976 and 1977;2

and (3) investments with Six Star Cablevision Management Corp. in

1978 and 1979. (Petitioners' 1975 tax year was involved because of

the disallowance of an investment credit claimed to have been

generated in 1979 and carried back to 1975.)

       On February 12, 1982, petitioners filed a petition in this

Court,       disputing    respondent's     adjustments     in    the    notice     of

deficiency and claiming that the period of limitations had expired

for petitioners' 1975-77 tax years.



       2
          Respondent and the Court treated the options and
futures contracts with Gardner Lohmann Limited and Amalgamated
Metal Trading Limited as part of the "London Options" tax shelter
project.
                                     -4-

     On March 22, 1982, petitioner filed a petition for divorce

with the Superior Court of California, Contra Costa County.3

     On April 8, 1982, respondent's answer in the proceeding before

this Court was filed.        Petitioners did not file a reply to the

answer.     Accordingly, on May 20, 1982, respondent filed a Motion

for Entry of Order that Undenied Allegations in Answer Be Deemed

Admitted.    On June 23, 1982, we granted that motion.

     On February 3, 1986, a Stipulation of Settled Issues was filed

with this Court relating solely to petitioners' investment in the

Investors Mining Program 77-5.         It was signed by petitioner, Dr.

Scrimshaw, their then attorney, and an Internal Revenue Service

(IRS) special trial attorney. On March 12, 1987, a Stipulation of

Settlement relating solely to that investment was filed with the

Court, signed by petitioner, Dr. Scrimshaw, their then attorney,

and Assistant District Counsel in New York. Petitioner read,

reviewed, and signed these documents.

     On   October   5,    1990,   respondent   prepared   computations   of

petitioners'    1975-79    tax    liability,   reflecting   the   following

changes to the adjustments made in the notice of deficiency:             (1)

On their 1978 and 1979 tax returns, petitioners claimed losses of

$36,032.00 and $16,118.00, respectively from their investment in

     3
          In the divorce settlement, Dr. Scrimshaw was awarded
petitioners' interests in Investors Mining Program 77-5 and Cable
TV-Tele Communications as his separate property "subject to all
liens, encumbrances, assessments and/or tax liabilities which
Respondent [Dr. Scrimshaw] shall pay and hold Petitioner [Mrs.
Scrimshaw] harmless thereon."
                               -5-

Six Star Cablevision Management Corporation that were disallowed in

the statutory notice of deficiency.   As part of the computation,

petitioners were entitled to claim a loss of $12,750.00 in 1978;

(2) The adjustments in the notice of deficiency for options and

futures transactions with Gardner Lohmann Limited and Amalgamated

Metal Trading Limited were computed based upon the Court's opinion

in the case of Glass v. Commissioner, 87 T.C. 1087 (1987), affd.

sub nom. Keane v. Commissioner, 63 AFTR2d 89-622, 89-1 USTC par.

9134 (9th Cir. 1989) (also affirmed in five other Courts of

Appeals); (3) The Investors Mining Program 77-5 adjustments were

computed based upon the Stipulation of Settlement executed in the

name of Erna C. Scrimshaw, George C. Scrimshaw and petitioners'

then attorney; and (4) Respondent conceded the negligence additions

determined for 1976 through 1979.

     On June 20, 1991, the IRS District Counsel's office in New

York mailed petitioners a decision document4 based upon the October

     4
          The decision document states as follows:

               Pursuant to the agreement of the parties
          in the above-entitled case, it is

               ORDERED AND DECIDED: That there are
          deficiencies in income tax due from the
          petitioners for the taxable years 1975, 1976,
          1977, 1978 and 1979 in the amounts of
          $1,929.00, $6,448.00, $5,476.00, $11,776.00
          and $8,582.00, respectively;

               That there are no additions to tax due
          from the petitioners for the taxable years
          1976, 1977, 1978, and 1979 under the
                                                   (continued...)
                                   -6-

5, 1990, computations. The decision document was prepared in

accordance with the agreement reached by the parties.      On July 18,

1991, Dr. Scrimshaw mailed the signed decision document back to the

District Counsel's office.

        The stipulated decision was entered by the Court on July 26,

1991. The second page of the stipulated decision bears the putative

signatures for petitioner and Dr. Scrimshaw.      However, petitioner

did not sign this document, and it is unclear from the record who

did.5

        On December 2, 1992, the IRS placed a tax lien on petitioner's

house.      In 1993, the IRS withheld a 1992 tax refund due petitioner

and applied it to the 1975 deficiency.      In 1994, the IRS placed a

freeze on petitioner's bank accounts, which was lifted only after

petitioner entered into an installment agreement with the IRS. And

currently, the IRS has placed a levy on her wages.

        Petitioner filed an Offer in Compromise with the IRS, which

was rejected.     It was in the preparation of the Offer in Compromise

that petitioner, through her representative, realized that the

signature that purported to be hers on the stipulated decision

document was not hers in fact.


        4
         (...continued)
             provisions of I.R.C. sec. 6653(a).

        5
          The parties agree that Richard Kestenbaum, petitioners'
then counsel, did not sign petitioner's name to the July 26,
1991, stipulated decision.
                               -7-

     On April 16, 1996, petitioner's motion for leave to file a

motion to vacate decision was filed and an accompanying motion to

vacate decision and memorandum in support was lodged.    On May 6,

1996, respondent's response to petitioner's motion was filed.

     On March 4, 1997, the Court issued an Order which noted in the

preamble that even if petitioner did not sign the stipulated

decision that alone would not be sufficient to require vacating the

decision; petitioner must show that a different decision might have

been entered if the earlier decision were vacated.       The Order

provided petitioner an opportunity to show a meritorious claim

which was precluded by the alleged fraudulent act. In this regard,

the Order required:

          That, on or before May 5, 1997, the parties shall
     serve on each other and file with the Court detailed
     offers of proof, setting forth those facts that the
     parties would offer in evidence at a hearing on the
     pending motions of Erna C. Scrimshaw, including a list of
     all witnesses to be called at such hearing, identified by
     name, address, and a brief description of anticipated
     testimony of such witness, and attaching copies of all
     documents to be offered in evidence at such hearing.

     On May 8 and 9, 1997, the parties' offers of proof were filed.

On August 6, 1997, we held a hearing on petitioner's motion.

                            Discussion

     The date of a decision of this Court is the date an order

specifying the amount of the deficiency is "entered" in the records

of the Court, which, in this case, was July 26, 1991.            Sec.

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

the time to file a notice of appeal if no notice of appeal is
                                     -8-

filed.     Sec. 7481(a)(1).     A notice of appeal must generally be

filed within 90 days after the decision is entered by this Court.

Sec. 7483; Fed. R. App. P. 13(a).          A motion to vacate or revise a

decision must be filed within 30 days after the decision is entered

unless the Court "shall otherwise permit".         Rule 162.   A motion to

vacate a decision, filed more than 30 days after entry of the

decision, may be filed only by leave of the Court, usually by the

granting    of   a   motion   for   leave to file an untimely motion to

vacate.6   The granting of such a motion for leave to file a motion

to vacate, or the granting of a timely motion to vacate, lies

within the sound discretion of this Court.          Heim v. Commissioner,

872 F.2d 245, 246 (8th Cir. 1989), affg. T.C. Memo. 1987-1.

     Once a decision becomes final, this Court may vacate the

decision    only     in   certain   narrowly    constricted    situations.

Helvering v. Northern Coal Co., 293 U.S. 191, 193 (1934).             For

instance, the Court may vacate a final decision if that decision is

shown to be void, or a legal nullity, for lack of jurisdiction over

the subject matter or a party, see Billingsley v. Commissioner, 868

F.2d 1081, 1084-1085 (9th Cir. 1989); Abeles v. Commissioner, 90


     6
          Petitioner 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 July 26, 1991. Consequently, because
that decision became final on Oct. 24, 1991, petitioner was
required to file a motion for leave to file a motion to vacate
the stipulated decision entered in this case. Petitioner's
motion for leave to file a motion to vacate decision entered on
July 26, 1991, was filed on Apr. 16, 1996, almost 5 years after
the Court entered the decision in this case.
                                    -9-

T.C.    103,   105-106    (1988);   Brannon's    of    Shawnee,     Inc.   v.

Commissioner, 71 T.C. 108, 111-112 (1978), or if the decision was

obtained through fraud upon the Court, see Abatti v. Commissioner,

859 F.2d 115, 118 (9th Cir. 1988), affg. 86 T.C. 1319 (1986);

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).

       General principles of contract law govern the compromise and

settlement     of   tax   cases.    Robbins     Tire   &   Rubber    Co.   v.

Commissioner, 52 T.C. 420, 435-436, supplemented by 53 T.C. 275

(1969).    Where a decision is entered pursuant to a stipulated

settlement, the parties are usually held to their agreement without

regard to whether the decision is correct on the merits.               Stamm

Intl. Corp. v. Commissioner, 90 T.C. 315, 321-322 (1988); Spector

v. Commissioner, 42 T.C. 110 (1964).

       Petitioner argues that her forged signature upon the decision

document is sufficient reason for the Court to hold that a "fraud

upon the Court" has occurred and that the decision should be

vacated.    Assuming the decision is vacated, petitioner desires to

amend the petition in order to assert an "innocent spouse" defense

to the deficiencies due pursuant to the stipulated decision.

       In Abatti v. Commissioner, 86 T.C. at 1325, we defined "fraud

on the court" as follows:

           Fraud on the court is "only that species of
           fraud which does, or attempts to, defile the
           court itself, or is a fraud perpetrated by
           officers of the court so that the judicial
           machinery can not perform in the usual manner
                                -10-

          its impartial task of adjud[g]ing cases that are
          presented for adjudication.       Fraud, inter
          partes, without more, should not be a fraud upon
          the court." Toscano v. Commissioner, 441 F.2d
          at 933, quoting 7 J. Moore, Federal Practice,
          par. 60.33 (2d ed. 1970). To prove such fraud,
          the petitioners must show that an intentional
          plan of deception designed to improperly
          influence the Court in its decision has had such
          an effect on the Court. * * * [Citations
          omitted.]

The Court of Appeals for the Ninth Circuit, where an appeal in this

case would lie, defined "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".   Id., 859 F.2d at

118-119 (citations omitted).

     The limited definition of "fraud upon the court" reflects the

policy of putting an end to litigation and serves the important

legal and social interest in preserving the finality of judgments.

Toscano v. Commissioner, 441 F.2d 930, 934 (9th Cir. 1971), vacating

52 T.C. 295 (1969).   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, 677-678 (7th Cir.

1997), affg. T.C. Memo. 1995-209, and cases cited therein.

      In addition to establishing improper conduct, a taxpayer who

attempts to set aside a final decision of the Tax Court must also

explain how the alleged conduct induced, caused, or had a material

effect upon the decision.   See Chao v. Commissioner, 92 T.C. 1141,

1144 (1989)(motion to vacate denied because same result would have
                                   -11-

been reached even in the absence of the alleged fraud upon the

Court).    Thus,   petitioner   must   demonstrate,   not   only   that   her

purported signature was intended to mislead the Court but more

importantly that it materially affected the outcome of the case.

Drobny v. Commissioner, supra at 678.

     Although the parties agree that petitioner did not sign the

stipulated decision, petitioner has failed to introduce any evidence

upon the issue of whether this had any material effect upon the

stipulated decision.       Absent the demonstration that the purported

deception created an improper influence that affected the Court's

decision in this case, there can be no "fraud upon the Court".            See

Drobny v. Commissioner, supra; Chao v. Commissioner, supra.

     Petitioner relies on Toscano v. Commissioner, supra, to support

her fraud upon the Court claim.        However, the facts of Toscano are

distinguishable from those herein.        The relevant facts in Toscano

are as follows: Josephine Toscano (Josephine Zelasko) moved to

vacate a stipulated decision of this Court 15 years after entry upon

the grounds that she was not and had not been the wife of Mr.

Toscano.    Mr. Toscano was not married when he filed what purported

to be a joint return, having either forged the signature of Ms.

Zelasko as his spouse or coerced her to sign the joint return

against her will.     Mr. Toscano allegedly perpetrated three frauds.

First,    he   allegedly   defrauded   the   Commissioner    by    filing   a

fraudulent joint income tax return claiming he owed less tax than

was due by law.       Second, he allegedly defrauded Ms. Zelasko by
                                -12-

purporting to make her liable for his taxes.    Third, he allegedly

committed fraud against the Tax Court when he filed a joint petition

with this Court for a redetermination of the deficiency.   Pursuant

to the parties' stipulation, the Court entered a decision holding

Mr. Toscano and Ms. Zelasko jointly liable for deficiencies.    The

Court of Appeals for the Ninth Circuit vacated the Tax Court's

decision and held that Ms. Zelasko, under these circumstances, was

entitled to a hearing on her allegations.

     In the case before us, it is undisputed that petitioners filed

joint income tax returns.    Petitioner was aware of respondent's

adjustments to the 1975 through 1979 returns, as well as the

proceeding before this Court.   She knew or certainly should have

known that she could be held liable for the tax deficiencies in the

event we sustained respondent's adjustments to the 1975-79 returns.

And most importantly, she signed the Stipulation of Settled Issues

and a Stipulation of Settlement, upon which the stipulated decision

document was partially based.

     Petitioner has not satisfied her heavy burden of proving that

her purported signature on the stipulated decision affected the

outcome of the case; in other words, petitioner has failed to prove

that a different result might have occurred had the stipulated

decision been vacated.

     In addition to requesting that the Court vacate the stipulated

decision, petitioner requests permission to amend a petition filed

14 years ago in order to assert an "innocent spouse" defense.
                                      -13-

Respondent objects, asserting that petitioner is precluded as a

matter of law from being able to qualify as an innocent spouse with

respect to the three adjustments in this case, i.e., the Investors

Mining Program 77-5, the "London Options" futures contracts, and the

Six Star Cablevision Management Corp. adjustments.

     In opposing petitioner's request to assert an innocent spouse

defense   for   the   first   time,    respondent   relies   on   Russo   v.

Commissioner, 98 T.C. 28, 31 (1992), in which we denied a taxpayer's

motion for leave to file an amendment to the petition to raise an

innocent spouse defense.      We therein concluded that such a belated

amendment would be inconsistent with justice.         Rule 41(a).

     We agree with respondent's position. Petitioner's innocent

spouse claim is clearly untimely. See id.; Bernard v. Commissioner,

T.C. Memo. 1995-332.7     Nevertheless, we are reluctant to rest our

decision solely on the belatedness of the claim.             See Wilson v.

Commissioner, 500 F.2d 645 (2d Cir. 1974), revg. and remanding T.C.

Memo. 1973-92. Accordingly, we shall discuss whether petitioner has

proven that she might prevail upon her innocent spouse claim with

respect to the adjustments determined in the notice of deficiency.

     Spouses who file a joint income tax return generally are

jointly and severally liable for its accuracy and the tax due,

including any additional taxes, interest, or penalties determined


     7
          Petitioner's untimely late-hour assertion of innocent
spouse has many of the earmarks of a proceeding maintained by the
taxpayer primarily for delay. See sec. 6673(a)(1).
                               -14-

on audit of the return.    Sec. 6013(d)(3).   However, pursuant to

section 6013(e), a spouse (or innocent spouse) can be relieved of

tax liability if that spouse proves: (1) A joint income tax return

was filed; (2) the return contained a substantial understatement of

tax attributable to grossly erroneous items of the other spouse; (3)

in signing the return, the spouse seeking relief did not know, and

had no reason to know, of the substantial understatement; and (4)

under the circumstances it would be inequitable to hold the spouse

seeking relief liable for the understatement.     Sec. 6013(e).   The

spouse seeking relief bears the burden of proving that each of the

four elements of the statute has been satisfied, and failure to

satisfy any one of the elements will prevent innocent spouse relief.

Bokum v. Commissioner, 94 T.C. 126, 138-139 (1990), affd. 992 F.2d

1132 (11th Cir. 1993).

     Items of omitted gross income are automatically considered to

be grossly erroneous,8 whereas disallowed deductions must be proven


     8
           Sec. 6013(e)(2) provides:

      For purposes of this subsection, the term
      "grossly erroneous items" means, with respect to
      any spouse--

                (A) any item of gross income
           attributable to such spouse which is
           omitted from gross income, and

                (B) any claim of a deduction,
           credit, or basis by such spouse in an
           amount for which there is no basis in
           fact or law.
                                     -15-

to be without any basis in fact or law.             In the instant case,

petitioner omits entirely any reference to her burden of proving

that the deductions are grossly erroneous.           Moreover, petitioner

failed to present facts that, even if proven, would allow her to

qualify for innocent spouse relief with respect to any of the

adjustments determined in the notice of deficiency.

     Petitioner voluntarily signed the March 1987 Stipulation of

Settled   Issues    with   respect     to   the   Investors   Mining   77-5

transaction, wherein she agreed to a basis of settlement for all the

notice of deficiency adjustments relating to such transactions. She

testified that she read, reviewed, and subsequently signed the

settlement stipulation.     Thus, petitioner may not claim innocent

spouse status with respect to the Investors Mining Program 77-5

adjustments.

     Petitioner also failed to produce evidence at the August 6,

1997, hearing to establish that petitioners' transactions with

Gardner Lohmann Limited and Amalgamated Metal Trading Limited were

any different from the "London Options" transfers at issue in Glass

v. Commissioner, 87 T.C. 1087 (1987). Indeed, petitioner stipulated

that she knew that the Court and respondent treated petitioners'

transactions as part of the "London Options" tax shelter project.

     "London Options" transfers are not "grossly erroneous items"

within the meaning of section 6013(e)(2).          Russo v. Commissioner,

98 T.C. at 32-33.   Because the options transactions involved herein

have not been shown to be different from the "London Options"
                                      -16-

transactions, petitioner cannot qualify as an innocent spouse with

respect to petitioners' "London Options" transfers.

       In regard to the final adjustments involved herein, the Six

Star Cablevision Management Corp. transactions, petitioner failed

to allege and prove that such transactions constitute "grossly

erroneous   items"     within   the    meaning    of   section   6013(e)(2).

Accordingly, petitioner cannot qualify for innocent spouse relief

with    respect   to   the   Six   Star      Cablevision   Management   Corp.

transactions in this case.

       Petitioner had an opportunity at the August 6, 1997, hearing

to prove that she might prevail on her innocent spouse defense. She

failed to do so.

       In sum, we shall deny petitioner's motion for leave to file a

motion to vacate decision.

       To reflect the foregoing,



                                             An order will be issued denying

                                      petitioner's motion for leave to file

                                      a motion to vacate decision.
