In AM 20133301F, the IRS addressed the validity of a closing agreement that was not submitted to the Joint Committee on Taxation or JCT for review prior to signing the agreement.
Facts & Procedural History
The taxpayer was an insurance company whose tax returns were being audited by the IRS.
The IRS and taxpayer asked the IRS Office of Appeals (“Appeals”) to settle an issue related to the taxpayer’s reserves.
The taxpayer and Appeals reached a settlement agreement and formalized the agreement via a closing agreement.
The Appeals team manager and team case leader and the taxpayer signed the closing agreement and did not submit the agreement for review by the JCT.
The taxpayer also filed a tentative carryback claim and the IRS made adjustments for the audit year, which, when combined the settlement agreement, resulted in a tax refund in excess of $2 million.
Both the IRS and the taxpayer desired to keep the closing agreement in place but questioned whether the agreement was valid.
About IRS Closing Agreements
IRS closing agreements are written agreements to settle a tax issue. They are binding on the taxpayer and the IRS.
They are more formal than closing a case with the IRS by executing a Form 870.
You can read more about IRS closing agreements here.
Is the Closing Agreement Valid?
The question addressed in the IRS memo is whether the closing agreement is valid even though it was not reviewed by the JCT.
The IRS is required to provide a report to the JCT for any refund in excess of $2 million to Subchapter C corporations prior to paying the refund. This requirement is set out in the tax code. This report helps ensure that Congress is aware of what large refunds are being issued and why they are being issued.
On the other hand, Appeals has the authority to sign closing agreements. This is authorized in the delegation orders that govern how the IRS operates.
In considering these rules, the IRS determined that:
In our opinion, the closing agreement was within the Appeals Officer’s settlement jurisdiction and his signature is therefore valid to bind the Service to that agreement. In accordance with the above citations, an Appeals Team Case Leader has authority delegated to him to sign closing agreements in settlements reached in a fast-track mediation. Although the settlement at issue here was statutorily required to be submitted to the JC for its review prior to signing the closing agreement, the failure of the ATCL to submit the agreement for review by the JC does not strip the ATCL of signing authority.
Thus, the IRS concluded that it would not issue the refund in question before the JCT reviewed the closing agreement.