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In negotiating the 1998 settlement, petitioner agreed to the
disallowance of the $5,433 loss for 1998. Petitioner, however,
contends that prior to signing the stipulated decision, an
agreement was reached to allow the $5,433 deduction for 1999.
Petitioner contends that respondent has breached the terms of the
parties’ settlement agreement. Petitioner further asserts that
the alleged agreement should be enforced, allowing the deduction
for 1999. Petitioner has advanced no other reason for the
allowance of the $5,433 loss for 1999.
Analysis
At the heart of this controversy is the question of whether
a binding agreement6 was reached between petitioner and
respondent to allow the 1998 loss deduction, in the amount of
$5,433 for 1999. In resolving this question, we apply general
principles of contract law in determining whether a settlement
agreement has been reached. Dorchester Indus., Inc. v.
Commissioner, 108 T.C. 320, 330 (1997), affd. 208 F.3d 205 (3d
Cir. 2000). Formation of a contract requires the mutual assent
of the parties to its essential terms, and mutual assent
generally requires an offer and an acceptance. Id.
6 On brief respondent raises alternative defenses to the
alleged contract. We need not address these arguments as the
general principles of contract law are sufficient to guide us in
our holding on this issue.
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