Lee D. Froehlich - Page 1

                                 T.C. Memo. 1996-487                                  

                               UNITED STATES TAX COURT                                

                           LEE D. FROEHLICH, Petitioner v.                            
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 15382-94.             Filed October 19, 1996.               

                    P, P’s accountant, and R’s counsel engaged in a                   
               pretrial conference.  The conference began with a                      
               discussion of settlement.  R’s counsel did not believe                 
               that settlement would be achieved and, from his                        
               perspective, he began what he believed to be a                         
               discussion of matters to be stipulated for trial.  P                   
               and his accountant, who were not familiar with the                     
               pretrial procedures of this Court, believed that the                   
               settlement discussions had continued.  The matter                      
               discussed between R’s counsel, P, and P’s accountant                   
               involved whether there had been a duplication of a                     
               $400,000 amount and whether P was entitled to losses                   
               that were capital or ordinary in character.  R, at                     
               trial, offered statements made by or on P’s behalf as                  
               admissions against P’s interest.  P contends that Fed.                 
               R. Evid. 408 prohibits R’s offer of admissions because                 
               the statements were made in the context of settlement                  
                    Held:  Under Fed. R. Evid. 408 both offers of                     
               settlement and statements made during settlement                       
               negotiations are not admissible to prove liability or                  

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