Under section 7121(a) of the Internal Revenue Code, the IRS is authorized to enter into a closing agreement with a taxpayer. Once a closing agreement is executed, it is “final and conclusive” and will be binding on both the taxpayer and the government in the absence of “fraud or malfeasance, or misrepresentation of a material fact.” I.R.C. § 7121(b). There are two types of closing agreements:
- Closing agreements that conclusively determine tax liability for a particular year or series of years; these are recorded on Form 866. Most closing agreements fit this model.
- There are also narrower closing agreements that resolve one or more specific issues; these are recorded on Form 906.
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The late Al Davis, former owner of the Oakland Raiders, was a big fan of a Hail Mary: Davis liked them on the football field, and he liked them in the courtroom too. Recently, his estate attempted one, arguing that a technical violation of a closing agreement by the IRS invalidated a tax assessment, but the effort fell short. Davis v. United States, 2016 U.S. App. LEXIS 1167 (9th Cir. Jan 25, 2016).
While Davis was the public face of the Oakland Raiders for many years, the team was actually owned by a limited partnership (the “Partnership”), in which Davis held the largest interest; Davis was also the president of A.D.… Read More
Normally, each tax year is treated as a closed unit, and the IRS is not generally authorized to offset underpayments in one tax year against a refund due in another year without first issuing an assessment. Recently, the Fifth Circuit recognized an exception to this general principle where the IRS is acting pursuant to the mitigation provisions of Section 1314(b) of the Internal Revenue Code and a closing agreement. El Paso CGP Co., LLC v. United States, 2014 U.S. App. LEXIS 5090 (Mar. 18, 2014).
As a result of an audit, El Paso, in 2005, the taxpayer entered into a closing agreement with the IRS addressing the appropriate treatment of investment credits that it had claimed on its 1986 corporate tax return.… Read More