## Facts

- Amrit Bakare, Norman Katz, and other investors participated in a tax shelter involving purported uranium-mining exploration and drilling and claimed mining-development and mining-exploration deductions.
- The IRS issued deficiency notices after concluding the shelter lacked economic substance and disallowed the deductions; the IRS also asserted additions to tax for negligence.
- Thirty-four investors, represented by attorney Gregory Altman, filed separate petitions in the U.S. Tax Court challenging the deficiencies.
- Altman and the Commissioner designated nine of the petitions as “test cases” and consolidated them for trial.
- In Katz’s case, Altman signed a stipulation in which Katz agreed to be bound by the outcome of the test-case litigation.
- After trial in the test cases, the Tax Court concluded the shelter transactions should be disregarded as shams and that the investors were not entitled to the claimed mining deductions.
- The Tax Court’s sham determination rested in part on findings that the drilling company expected to perform the work received very little of the funds investors claimed had been invested in the project.
- The Tax Court also held the test-case investors liable for negligence additions to tax, finding it not believable that reasonable investors thought the shelter would work as promised or that it was authentic.
- The court of appeals affirmed the Tax Court’s test-case decision.
- After the affirmance, Katz moved the Tax Court to set aside his stipulation, arguing that Altman’s representation in the test cases was incompetent due to a serious health condition.
- Katz supported the motion with a post-trial letter from Altman stating he was closing his practice because of a life-threatening brain condition, plus Katz’s own statement that he observed troubling signs in Altman’s trial performance; Katz submitted no medical records or other independent proof.
- Katz asserted that if his case were tried separately, he would be the only witness and would testify that he invested with a genuine profit motive, acted prudently, and relied on Altman’s representations that the shelter was a legitimate, profit-seeking venture.
- Katz also argued that the Tax Court should trace the shelter’s expenditures to show drilling began and therefore the shelter had economic substance, but Katz did not have the relevant records and had not tried to obtain them.

## Issues

1. Whether Katz could be relieved from a stipulation to be bound by consolidated test-case outcomes based on a claim that his counsel’s illness resulted in incompetent representation in the test cases.
2. Whether Katz’s proposed testimony and his speculative request to trace expenditures, without records or efforts to obtain them, justified reopening his case after the test-case loss and appellate affirmance.

## Decision

- The Tax Court denied Katz’s motion to set aside the stipulation.
- The court treated the stipulation to be bound by the test-case results as enforceable and declined to disturb it absent a strong showing that enforcing it would be unjust.
- The court found Katz’s showing of attorney incapacity inadequate because it relied on a post-trial letter and Katz’s own observations, without independent evidence tying the medical condition to a level of impairment that would warrant relief.
- The court concluded Katz’s proffered testimony about his subjective profit motive and reliance on counsel was not a sufficient basis to reopen, particularly given the prior findings regarding the sham nature of the shelter and the unreasonableness of investors’ beliefs.
- The court rejected Katz’s tracing argument as unsupported and speculative where Katz had no records and had made no effort to obtain them.

## Legal Principles

- A taxpayer who stipulates to be bound by the outcome of designated test cases is generally held to that agreement; relief requires more than dissatisfaction with the result.
- To set aside a binding stipulation after judgment, a movant must present specific, reliable evidence of an exceptional circumstance (such as fraud, misrepresentation, or a comparable basis) showing that enforcement would be unjust.
- Allegations that counsel performed poorly, including claims tied to counsel’s later-disclosed illness, do not justify relief without objective support and a concrete showing of how the alleged impairment likely affected the result.
- Proposed evidence that is largely self-serving, subjective, or cumulative—such as a party’s after-the-fact testimony about profit motive or reliance—does not ordinarily justify reopening a case already decided through test-case litigation.
- A request to revisit an economic-substance/sham determination must be supported by actual evidence; conjecture about what missing records might show, especially without attempts to obtain them, is insufficient.

## Conclusion

The Tax Court refused to release Katz from his stipulation to be bound by the uranium-shelter test cases, holding that an uncorroborated claim of counsel’s illness and unsupported, speculative proffers of new testimony and records did not justify reopening a case resolved through test-case litigation and affirmed on appeal.


Bakare v. Commissioner, 67 T.C.M. 2234 (1994)