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the 75 percent and a reasonable person would not have settled the
case on the terms respondent claims; and (c) respondent should
have told petitioners that the Government would collect the
entire 75 percent from both the estate and the individuals.
a. Mutual Mistake
General principles of contract law govern the compromise and
settlement of Federal tax cases. Dorchester Indus. Inc. v.
Commissioner, 108 T.C. 320, 330 (1997); Robbins Tire & Rubber Co.
v. Commissioner, 52 T.C. 420, 435-436 (1969); Brink v.
Commissioner, 39 T.C. 602, 606 (1962), affd. 328 F.2d 622 (6th
Cir. 1964); Saigh v. Commissioner, 26 T.C. 171, 177 (1956); Davis
v. Commissioner, 46 B.T.A. 663, 671 (1942).
Mutual mistake occurs when both parties to a transaction
share an erroneous belief and their acts do not accomplish their
mutual intent. Healy v. Rich Prods. Corp., 981 F.2d 68, 73 (2d
Cir. 1992). We may reform a contract if there is clear and
convincing evidence of mutual mistake. Id. Unilateral mistake
occurs when only one of the parties to a transaction is in error.
Id. We do not reform a contract based solely on unilateral
mistake. Id.
Petitioners contend that mutual mistake occurred here
because the parties had agreed that the fraud penalty for Mrs.
Lorenz and the estate of Mr. Lorenz would apply to one-half of
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