UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
____________________________________
ROBERT L. DUFRESNE; CAROLYN S. DUFRESNE, )
)
Petitioners-Appellants, ) No. 92-70346 )
V. ) T.C. No.
) 15907-84
COMMISSIONER, INTERNAL REVENUE )
SERVICE, ) ______________________Respondent-A ppellee. )
_________________________________________
JERRY DIXON; PATRICIA DIXON, )
)
Petitioners-Appellants, ) No.92-70355
)
V. ) T.C. No.
) 9382-83
COMMISSIONER, INTERNAL REVENUE )
SERVICE, ) ______________________Respondent-A ppellee. )
_________________________________________
RICHARD HONGSERMEIER; FIORELLA )
HONGSERMEIER, )
)
Petitioners-Appellants, ) No.92-70352
)
V. ) T.C. No.
) 29643-86
COMMISSIONER, INTERNAL REVENUE )
SERVICE, )______________________Respondent-A ppellee. )
6291
6292 DUFRESNE v. CIR
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HOYT W. YOUNG; BARBARA D. )
YOUNG, )
Petitioners-Appellants, ) No. 92-70347 )
V. ) T.C. No.
) 4201-84
COMMISSIONER, INTERNAL REVENUE )
SERVICE, ) Respondent-A ppellee. )
___________________________________________
TERRY D. OWENS; GLORIA OWENS, )
)
Petitioners-Appellants, ) No.92-70349
)
V. ) T.C. No.
) 40159-84
COMMISSIONER, INTERNAL REVENUE )
SERVICE, ) Respondent-A ppellee . )
___________________________________________
RALPH RINA, )
Petitioners-Appellants, ) No.92-70662
)
V. ) T.C. No.
) 17640-83
COMMISSIONER, INTERNAL REVENUE ) OPINION
SERVICE, ) Respondent-A ppellee. )
Appeal from the United States Tax Court
Argued and Submitted
April 11, 1994-San Francisco, California
Filed June 14, 1994
DUFRESNE V. CIR 6293
Before: Alfred T. Goodwin, Warren J. Ferguson, and
Stephen S. Trott, Circuit Judges.
Per Curiam
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SUMMARY______________________________________________________
Tax/Litigation and Procedure (Civil) Attorneys and Judges
The court of appeals vacated a decision of the United States Tax Court and remanded with
directions.
The court held that the tax court must conduct an evidentiary hearing to determine if the
government's
secret settlement agreements with plaintiffs in tax cases warrant vacating the tax court's
decision.
Appellee Commissioner of the Internal Revenue Service disallowed interest deductions
claimed by
taxpayers who participated in certain investment programs. Approximately 1300 cases were
filed in the tax
court by participants seeking a redetermination of tax deficiencies assessed against them.
>From those
cases, a group were chosen by the parties as test cases. It was agreed that the decision
in the tax cases
would be binding in all the cases.
The tax court found that the interest deductions were not allowable. The court entered
decisions against
the taxpayers determining deficiencies in their tax liability.
The Commissioner filed motions in the test cases to vacate the decision and to conduct an
evidentiary
hearing. The Commissioner stated that it appeared that prior to the trial of the test
cases, a secret
settlement agreement been entered into between her district counsel and one of the test
case plaintiffs,
contingent upon the plaintiff not prevailing in his case. The
6294 DUFRESNE v. CIR
Commissioner further stated that a similar contingent settlement might also have been
reached with
another plaintiff prior to trial and which similarly had not been disclosed. The
Commissioner pointed out
that, under the agreements, the government, in effect, agreed to pay the legal fees for
the two test case
plaintiffs. The tax court denied the Commissioner's motion.
One of the test case plaintiffs, appellant Ralph Rina, filed a motion to reconsider the
tax court's order
denying the Commissioner's motion to vacate. Rina's motion was denied. Rina and others
appealed.
[1] The taxpayers, the government, and the tax court have allbeen cheated by the conduct
described by
the Commissioner and Rina, [2] it could not be determined from the record whether the
extent of
misconduct rose to the level of a structural defect voiding the judgment as fundamentally
unfair, or
whether, despite the government's misconduct, the judgment could be upheld as harmless
error. [3] Thus,
the tax court's decision was vacated. The tax court was directed to conduct an evidentiary
hearing to
determine the full extent of the admitted wrong done by the government trial lawyers.
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COUNSEL
Joe Alfred Izen, Jr., Bellaire, Texas, for petitioners-appellants Robert L. DuFresne, et
a!.
Steven Parks, United States Department of Justice, Washing- ton, D.C., for
respondent-appellee
Commissioner Internal Revenue Service.
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