§7121 — Closing agreements

18, 1953) (transferring the Secretary’s closing agreement functions to the Commissioner), modified and superseded by Treas.

A closing notice is to b e distinguished from a closing agreement under section 7121 .

This case is distinguishable from Hurt in that here respondent's proposed decision document explicitly stated that interest would be due, and the parties' disagreement became apparent before they signed the final decision document .

451, 462-463 (2003), we held that a taxpayer was entitled to raise a claim for relief under section 6015 where a closing agreement under section 7121 was signed before the effective date of section 6015, and the tax liabilities assessed pursuant to the agreement remained unpaid as of the effective date. The instant case is distinguishable because it involves an offer in compromise under section 7122 - 11 - that was submitted and accepted after the effective date of section 6015.

A closing letter is to be sharply distinguished from a closing agreement entered under section 7121.

" Accordingly, we need not decide whether the IRS "proceeds with administrative orjudicial action" based on a whistleblower's information when: (1) the IRS examines a taxpayer's return in connection with a voluntary disclosure and (2) the disclosure was prompted by the taxpayer's discovery that an informant had named him or her in

However, we need not decide whether Rev.

We disagree with both of petitioners’ arguments.

Because we hold for petitioners on other grounds, we need not consider the merits of this or other alternative arguments.

An agreement made pursuant to section 7121 for any taxable period is final and binding on both the taxpayer and the IRS ifthe agreement complies with - 48 - [*48] the procedures in section 7121 and the regulations thereunder.

Here, the redacted plea agreement does not satisfy the procedural requirements ofa closing agreement pursuant to section 7121.

But other than his vague argument that there is some relationship between sending a notice ofdeficiency and making ajoint return, respondent does not contend that there is any impediment--otherthan the section 6013(b)(2) limitation, which we hold is inapplicable--to giving a taxpayer such as Mr.

Closing Agreements Generally The Secretary is authorized to enter into closing agreements with taxpayers pursuant to section 7121(a).

7121 applies to cases involving (continued .

On July 1, 1992, pursuant to section 7121, the Hilton and the Commissioner of the Internal Revenue Service entered into a closing agreement in the form of a Tip Compliance Program “to ensure maximum compliance by the employees of the Employer [Hilton] with those provisions of the Internal Revenue Code of 1986 * * *”.

As pointed out by respondent, section 7121 provides a basis for parties to enter into a closing agreement binding the parties.

Accordingly, we hold that petitioners and respondent did not enter into a binding agreement to waive - 17 - all additions to tax.

We hold that it does not.

7121 applies to cases involving closing agreements, and sec.

We hold that he may not.

- 4 - Petitioner argues that Exhibits AF and AE are not admissible pursuant to Federal Rules of Evidence 408 (hereinafter rule 408) and section 7121, and that Exhibits AD and AG are not admissible pursuant to this Court's standing pretrial order.

9 [*9] For an agreement to be covered by section 7121, it must relate to a taxpayer’s tax liability. Petitioners take that statutory requirement to mean that an agreement to which section 7121 applies must address “an actual liability.” Petitioners apparently reason that, if Mr. Aubin’s agreement is not entitled to the protections afforded by section 7121, it could be set aside on grounds other than those listed in section 7121(b), such as a failure of consideration. We can readily reject petiti

paid by [BAI] to Mr. Burbach as an employee" and stated that the "amounts [Burbach] received as 'director's fees' would all be included as 'compensation' for Plan purposes." We recognize that the compliance statement isn't a closing agreement under section 7121. But Burbach's and BAI's representations to the IRS about Burbach's compensation still bolster our finding; they are also consistent with the other facts in evidence that show BAI's payments to Burbach were for the services he performed

the estate tax return ofa predeceased spouse to determine the correct DSUE amount. SERVED Sep 11 2017 - 2 - HM, further, a letter stating that the estate tax return ofa predeceased spouse has been accepted as filed is not a closing agreement under I.R.C. sec. 7121. Ijeld, further, a letter stating that the estate tax return ofa predeceased spouse has been accepted as filed does not estop R from examining the return ofthe predeceased spouse. Held, further, an examination ofthe estate tax return

451, 462-463 (2003), we held that a taxpayer was entitled to raise a claim for relief under section 6015 where a closing agreement under section 7121 was signed before the effective date of section 6015, and the tax liabilities assessed pursuant to the agreement remained unpaid as of the effective date.

Respondent and petitioner never executed a closing agreement, pursuant to section 7121, for petitioner’s 1992 tax year.

Both raise the same point: That because of the closing agreement, the Court lacks jurisdiction pursuant to section 7121 and must dismiss the case.

However, a "closing letter" is to be sharply distinguished from a "closing agreement" under section 7121, entered into by both the taxpayer and the Commissioner which is binding in accordance with its terms.

384, 393 (2004) (stating that section 7121 is the exclusive means by which a closing agreement may be accorded finality).

2012): "If* * * [a] CDP officer or employee enters into an installment agreement under section 6159, a closing agreement under section 7121, or an OIC [offer-in-compromise] under section 7122 with the taxpayer, then ofcourse the agency will be bound under general contract principles to honor the agreement." But we concluded that determinations ofAppeals personnel not reflected in such an agreement are not final and binding on the IRS.

Petitioners do not argue, and the record does not establish, that the requirements of section 7121 or section 7122 were satisfied when the Service cashed the $2 ;166 check that it received from them in March 2009 .

384, 93 (2004) ("it is firmly established that section 7121 sets for h the exclusive means by which an agreement between the CommissOner and a taxpaye r concerning the latter's ta x liability ay be accorded finality .") ; Estate 0f Meyer v Commis 3ioner , 58 T .C .

; (2) whether respondent's use of the bank deposits method to reconstruct petitioner's income for the years at issue was arbitrary and unreasonable; (3) whether a Service Center's closing notice for 2001 was a closing agreement within the meaning of section 7121 ; (4) whether respondent's examination of petitioner's 2001 tax year violated section 7605(b) ; (5) whether petitioner substantiated Schedule C, Profit or Loss From Business, costs of goods sold or deductions for th e 1 Unless otherwise

7121 applies to cases involving closing agreements, and sec. 7122 applies to cases involving compromises. Sec. 301.6402-2(b)(l), Proced. & Admin. Regs., provides: No refund or credit will be allowed after the expiration of the statutory period of limitation applicable to the filing of a claim therefor except upon one or more of the grounds set

--- MAJORITY --- RUWE, Judge: The issue for decision is whether a closing agreement entered into under section 7121 precludes the assertion of a claim for relief from joint and several liability under section 6015 where petitioner signed the closing agreement before the effective date of section 6015.

301.7121-1(d), Proced. & Admin. Regs; see Botany Worsted Mills v. United States, 278 U.S. 282, 288 (1929); Estate of Meyer v. Commissioner, 58 T.C. 69, 70-71 (1972). A no change letter is not a closing agreement under section 7121; thus, respondent is not bound by any representations in the no change letter. See Miller v. Commission

It has long been established that the statutory procedure provided under section 7121 is the exclusive method by which an agreement regarding a taxpayer's tax liability may be accorded finality.

- 5 - agreement under the provisions of section 7121.4 Holland v.

ntended the term “tax” in the phrase “the final determination of tax” to mean the Joneses’ tax liability for the entire 1981 year. Based on the foregoing, we hold that, because there was no closing agreement signed for the Joneses’ entire 1981 year, sec. 7121; Estate of Meyer v. Commissioner, 58 T.C. 69, 70 (1972); see - 18 - also Botany Worsted Mills v. United States, 278 U.S. 282, 288 (1929)3, and the assessment made on June 17, 1985, was not a final determination of tax, the Form 872-A did no

Respondent KATHLEEN M. PERT, F.K.A. KATHLEEN M. RIFFE, TRANSFEREE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 13783-94, 13784-94. Filed November 15, 1995. Kathleen M. Pert signed closing agreements (Forms 866) pursuant to sec. 7121 I.R.C., for tax years 1986, 1988, and 1989 for both herself and as personal representative of the estate of her deceased husband, Timothy C. Riffe. Respondent accepted the closing agreements. Timothy Riffe and Kathleen Pert filed joint retu

-- MAJORITY --- OPINION Colvin, Judge: This case is before the Court on respondent’s motion for partial summary judgment on two issues: (1) Whether petitioner Harvey Pert may contest (on grounds other than fraud, malfeasance, or misrepresentation of a material fact) the tax liability established by closing agreements for 1986, 1988, and 1989 under section 7121 which were agreed to: (a) By Kathleen Pert, and (b) by Kathleen Pert, personal representative of the Estate of Timothy C.

rcompany services transactions during 2006 between 3M Company and 3M Brazil. 11. Closing agreement After the notice of deficiency was issued, but before the petition was filed, petitioner and respondent entered into a partial closing agreement under section 7121. One of the terms of the closing agreement was that petitioner agreed to the “Support Services Fee” adjustment of $4,751,136. At that time, petitioner understood that Brazilian law imposed no limits on what 3M Brazil could pay to 3M Comp

lement that is binding on both the taxpayer and the Government. Dormer v. Commissioner, T.C. Memo. 2004-167, slip op. at 11-12; Rohn v. Commissioner, T.C. Memo. 1994-244, 1994 WL 232360, at *4. Form 870-AD is not a binding settlement agreement under section 7121. Whitney v. United States, 826 F.2d 896, 898 (9th Cir. 1987); see also Botany Worsted Mills v. United States, 278 U.S. 282, 288-289 (1929). - 14 - [*14] Petitioner contends that the settlement agreement embodied in Form 870- AD equitably

may voluntarily limit his discretion in certain ways, e.g., by entering into an advanced pricing agreement (APA). See Eaton Corp. v. Commissioner, 140 T.C. 410, 413 (2013). He may also restrict his discretion by executing a closing agree- ment under section 7121. In 1996 the parties settled a transfer pricing dispute in- volving petitioner's 1987-1995 tax years and embodied the terms ofthat settle- ment in a closing agreement. Closing agreements are contracts and are "governed by the rules appli

nt in which they agreed that petitioner was liable under section 6707 for a reduced penalty of$169,855 for 1998 and that he was liable for no pen- alties for 1999-2001. The parties memorialized this settlement in a closing agree- ment executed under section 7121. Petitioner signed the closing agreement on October 13, 2016; AO Tate signed it the following day; and AO Tate's immediate supervisor signed the closing agreement on behalfofthe Appeals Office on November 9, 2016. By letter dated Novembe

paid by [BAI] to Mr. Burbach as an employee" and stated that the "amounts [Burbach] received as 'director's fees' would all be included as 'compensation' for Plan purposes." We recognize that the compliance statement isn't a closing agreement under section 7121. But Burbach's and BAI's representations to the IRS about Burbach's compensation still bolster our finding; they are also consistent with the other facts in evidence that show BAI's payments to Burbach were for the services he performed

ndus., Inc. v. Commissioner, 108 T.C. 320, 330 (1997), M, 208 F.3d 205 (3d Cir. 2000). In a case pending before this Court, a settlement agreement may be reached by correspondence, in the absence ofa formal document such as a closing agreement under section 7121. Manko v. Commissioner, T.C. Memo. 1995-10. A prerequisite to the formation of an agreement is that there be a "meeting ofthe minds", i.e., an objective manifestation ofmutual assent to its essential terms. Dorchester Indus., Inc. v. Com

a bill for $1,396, and he paid that bill. Even ifthe IRS employee were thought to have made a settlement offer, no settlement ofany kind is binding on the IRS unless it is duly authorized and properly memorialized, e.g., in a closing agreement under section 7121. See Broz - 9 - [*9] v. Commissioner, 137 T.C. 46, 55-56 (2011); Becker Holding Corp. v. Commissioner, T.C. Memo. 2004-58, 87 T.C.M. (CCH) 1069, 1071 ("This Court has repeatedly declined to enforce a settlement agreement when the person

2006-273.7 In his supplemental brief, petitioner cites a delegation order that grants Appeals the authorityprovided in section 7121 to enter into closing agreements.

Background Petitioners' 2004 and 2005 income tax liabilities were assessed on the basis of(1) returns petitioners filed and (2) two valid section 7121 closing agreements, both completed on Form 870-LT, Settlement Agreement for Partnership Items and Partnership Level Determinations as to Penalties, Additions to Tax, and Additional Amounts and Agreement for Affected Items.

Petitioner does not claim that Letter 4364C is a closing agreement under section 7121 or compromise under section 7122.

In a Federal tax case, a settlement agreement outside the scope ofsection 7121 or 7122 may be reached through offer and acceptance evidenced by an exchange ofletters or even in the absence ofa writing.

2000), as follows: "In a tax case, it 'is not necessary that the parties execute a closing agreement under section 7121 in order to settle a case pending before this Court, but, rather, a settlement agreement may be reached through offer and acceptance made by letter, or even in the absence of a writing.' Lamborn v.

The letter therefore does not affect the Harrises' deficiency amount. 3. Interest The Harrises next argue they should be relieved ofinterest on their 2012 unpaid tax liability. A taxpayerwho fails to pay tax is liable for interest accruing from the day the payment was due until the tax is paid. Sec. 6601(a). In 1986 Congress enacted sect

* * * In 2008 Mylan entered into two closing agreements with the Internal Revenue Service (IRS) under section 7121 to defer inclusion in income ofthe $75 million upfront payment and the $25 million hypertension treatment approval milestone payment under provisions ofRev.

* * * In 2008 Mylan entered into two closing agreements with the Internal Revenue Service (IRS) under section 7121 to defer inclusion in income ofthe $75 million upfront payment and the $25 million hypertension treatment approval milestone payment under provisions ofRev.

1964), both ofwhich make clear that no document short ofa formal compromise or closing agreement that meets the requirements ofsection 7121 will preclude the Commissioner from asserting an additional liability for a previously audited tax year.

For the 2005 and 2006 excise tax liabilities, there is no evidence that the parties complied with the procedures specified under section 7121 or 7122 for either a closing agreement or an offer-in-compromise.

REVENUE, Respondent Docket No. 15675-11. Filed September 18, 2013. R determined that royalty payments from P to its controlled foreign corporation (CFC) were not arm's length under I.R.C. sec. 482. P and R then entered into a closing agreement under I.R.C. sec. 7121 making primary adjustments regarding the royaltypayments. The primary adjustments increased P's income and required P to conform its accounts with secondary adjustments. P accomplished the secondary adjustments by electing to establi

7121; Hudock v. Commissioner, 65 T.C. 351, 362 (1975); sec. 301.7121-1(a), Proced. & Admin. Regs. A closing agreement relating to a prior taxable period may relate to one or more separate items affecting the tax liability of the taxpayer. Sec. 301.7121-l(b)(2), Proced. & Admin. Regs. Some closing agreements decide only specific issues and bind

Under section 1313 (a), a determination is (1) :a decision by the Tax Court or a judgment, decree, or other order by any court of ompetent jurisdiction, which has become final; (2) a~closing ágreement made uncer section 7121; (3) a final disposition by the Secretary of a claim for refund; or (4) under regulations prescribed by the Secretary, an agreement for purposes of this part, signed by the Secretary and by any person relating to the liability of such person (or the person for whom he acts),

See also Fruit of the Loom, Inc.

The procedures for closing agreements and compromises are set forth in section 7121 (relating to closing agreements), section 7122 (relating to compromises) and the regulations thereunder.

The procedures for closing agreements and compromises are set forth in section 7121 (relating to closing agreements), section 7122 (relating to compromises) and the regulations thereunder.

d:127) If the liability determination made by the office of Appeals in the CDP context is favorable to the taxpayer, then the CD P process generally ends with a unilateral agency determination not to proceed with collection .60 Although the team manager i n charge of the case has the authority to execute a closing agreement with the taxpayer under section 7121, see IRS Deleg .

Settlement issue before the Court does not.,require the execution of a clos.ing agreement under section 7121, or ..any other particular Emethod or form .

7121; Estate of Wilbanks v. Commissioner, 94 T.C. 306 (1990) (the determination of reasonable cause by the director of an IRS service center under section 301.6651-l(c), Proced. & Admin. Regs., is an administrative action and does not estop the IRS from later reasserting the addition to tax for late filing); sec. 301.7121-l(a), Proced. & Admin

“In a tax case, it ‘is not necessary that the parties execute a closing agreement under section 7121 in order to settle a case pending before this Court, but, rather, a settlement agreement may be reached through offer and acceptance made by letter, or even in the absence of a writing.’ Lamborn v.

"In a tax case, it 'is not necessary that the parties execute a closing agreement under section 7121 in order to settle a case pending before this Court, but, rather, a settlement agreement may be reached through offer and acceptance made by letter, or even in the absence of a writing.' Lamborn v.

Section 7121 (closing agreements) and section 7122 (compromises) authorize the Service to enter into agreements to resolve a taxpayer’s tax liability. I interpret section 6015(g) to mean that we must take the provisions of sections 6511, 6512(b), 7121, and 7122 into account in making our determination regarding a refund or credit, but not any other

"In a tax case, it `is not necessary that the parties execute a closing agreement under section 7121 in order to settle a case pending before this Court, but, rather, a settlement agreement may be reached through offer and acceptance made by letter, or even in the absence of a writing .' Lamborn v .

Determination for purposes of the mitigation provision includes four things: (1) A decision by the Tax Court or a judgment, decree, or other order by any court of competent jurisdiction, which has become final; (2) a closing agreement made under section 7121; (3) a final disposition by the Commissioner of a claim for refund; and (4) under regulations prescribed by the Commissioner, an agreement for purposes of this part, signed by the Commissioner and a taxpayer, relating to the liability of the

Section 7121 (closing agreements) and section 7122 (compromises) authorize the Service to enter into agreements to resolve a taxpayer’s tax liability. I interpret section 6015(g) to mean that we must take the provisions of sections 6511, 6512(b), 7121, and 7122 into account in making our determination regarding a refund or credit, but not any other

Congress has provided that closing agreements under section 7121 and compromise agreements under section 7122 are the exclusive administrative means for the IRS to settle civil tax disputes with finality.

at 15-16) (“it is firmly established that section 7121 sets forth the exclusive means by which an agreement between the Commissioner and a taxpayer concerning the latter’s tax liability may be accorded finality”); Estate of Meyer v.

Hopkins signed a closing agreement under section 7121 in which they agreed to adjustments to the Far West Drilling partnership deductions.

Congress has provided that closing agreements under section 7121 and compromise agreements under section 7122 are the exclusive means by which the IRS can administratively settle civil tax disputes with finality.

Hopkins signed a closing agreement under section 7121 in which they agreed to adjustments to the Far West Drilling partnership deductions.

enalty, petitioners may not claim estoppel against respondent based on that promise. Even if petitioners 3 Respondent also argues that Ms. Flanagan had no authority to settle the matter, and that, if there was a settlement, a closing agreement under sec. 7121 was required. We see no reason in visiting these questions. - 7 - relied on that promise, they suffered no detriment that is legally cognizable. Petitioners did not surrender any rights. Petitioners paid the tax that was lawfully owing and

7121 (authorizing closing agreements that are generally final and conclusive), and we are aware of no case holding that a no-change letter is binding on the Commissioner. Under the circumstances, we think it was appropriate for petitioner to protect herself from the possibility that the no-change letter might not have represented respondent’s

Congress has provided that closing agreements under section 7121 and compromise agreements under section 7122 are the exclusive means for the IRS to settle civil tax disputes with finality.

For purposes of section 7121, a misrepresentation is not synonymous with a mistake: It “denotes something more deliberate or more conscious than mere error or mistake.” Ingram v.

301.7121- 1(d), Proced. & Admin. Regs. - 37 - Accordingly, respondent is not precluded from making an assessment for the taxable year 1982 after having issued a no- change letter for that year.8 Petitioner has made other arguments that we have considered in reaching our decision. To the extent that we have not discussed these argum

er claiming an interest deduction. On December 14, 1995, the Ogden Service Center erroneously issued petitioner a closing letter in response to the supplemental return. The closing letter provided: - 6 - This is not a formal closing agreement under Section 7121 * * *. However, we will not reopen this return unless: (1) There is evidence of fraud, malfeasance, collusion or misrepresentation of a material fact; (2) a substantial error, based upon an established service position, existing at the ti

301.7121- 1(d), Proced. & Admin. Regs. - 37 - Accordingly, respondent is not precluded from making an assessment for the taxable year 1982 after having issued a no- change letter for that year.8 Petitioner has made other arguments that we have considered in reaching our decision. To the extent that we have not discussed these argum

the capitalization of expenses, - 7 - or any allocation between capitalized and deductible expenses relating to the properties. In their agreement to settle the 1989 Fong case, petitioner and respondent did not enter into a closing agreement under section 7121. Further, petitioner and respondent did not agree that the settlement agreement reached in the 1989 Fong case would be treated as a final determination for purposes of the mitigation provisions of the Code, nor did petitioner and responde

After petitioner and the Appeals officer failed to settle the case, petitioners sent a letter to the Secretary of the Treasury, urging him to enter into a section 7121 closing agreement with petitioners.

In a tax case, it "is not necessary that the parties execute a closing agreement under section 7121 in order to settle a case pending before this Court, but, rather, a settlement agreement may be reached through offer and acceptance made by letter, or even in the absence of a writing." Lamborn v.

601.202 (a) , Statement of Procedural Rules. Thus, the termination of the 1990 tax year on March 24, 1990, conclusively resolved, for purposes of the closing agreement, only the issues for that period. Respondent was permitted to issue notices of deficiency relating to issues and time periods not covered by the agreement. - 19 - an

Under section 7121 a taxpayer may enter into an agreement with the Secretary relating to the taxpayer's liability for any internal revenue tax for any period, and such a closing agreement will be final and conclusive in the absence of fraud, malfeasance, or misrepresentation of a material fact. The Secretary has delegated to the Commissioner the authorit

. Next, petitioners allege that respondent's Appeals officer purportedly agreed with petitioners to drop the fraud penalty in return for extending the period of limitations. The record shows that the parties never reached a formal closing agreement, sec. 7121; sec. 601.202, Statement of Procedural Rules, and - 25 - petitioners have not shown that the Appeals officer had the authority to enter into any other promises or bargains that may have been reached, Klein v. Commissioner, 899 F.2d 1149, 11

In a tax case, it "is not necessary that the parties execute a closing agreement under section 7121 in order to settle a case pending before this Court, but, rather, a settlement agreement may be reached through offer and acceptance made by letter, or even in the absence of a writing." Lamborn v.