7.2.1  TE/GE Closing Agreements

Manual Transmittal

September 17, 2014


(1) This transmits revised IRM 7.2.1, TE/GE Closing Agreements, TE/GE Closing Agreements.


IRM 7.2.1 provides guidelines for closing agreements originating in the Office of the Director, Employee Plans, Tax Exempt and Government Entities Division (TE/GE).

Material Changes

(1) This transmittal reissues and provides additional details regarding existing procedures.

Effect on Other Documents

This document supersedes IRM 7.2.1 issued April 1, 2002.


TE/GE (Employee Plans)

Effective Date


Signed by
Robert Choi
Director, Employee Plans
Tax Exempt and Government Entities  (09-17-2014)

  1. The specific procedures in this IRM 7.2.1 are applicable only to closing agreements originating in the office of the Manager, Employee Plans (EP) Technical, Tax Exempt and Government Entities Division (TE/GE).

  2. Other procedures applicable to closing agreements that may apply to TE/GE Employee Plans employees include:

    1. Procedures relating to closing agreements entered into under the Employee Plans Compliance Resolution System (EPCRS). See IRM 7.2.2, Employee Plans Compliance Resolution System (EPCRS).

    2. Procedures relating to closing agreements under the Employee Plans Determination Letter Program. See IRM 7.11.8, EP Determinations Closing Agreement Program.

    3. Procedures relating to closing agreements entered into in connection with an unagreed Form 5500, Annual Return/Report of Employee Benefit Plan, return examination. See IRM 4.71.3. Employee Plans Examination of Returns, Unagreed Form 5500 Examination Procedures and Delegation Order 8-3 (DO 8-3) Closing Agreements .

    4. Procedures relating to closing agreements entered into in connection with a Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, examination with respect to excise taxes. See IRM 4.71.5, Employee Plans Examination of Returns - Form 5330 Examinations.

  3. Use closing agreements when satisfactory resolutions may not be achieved using other existing and available standard procedures. This IRM 7.2.1. explains:

    • Authority for closing agreements.

    • When a closing agreement is appropriate.

    • The difference between a single and mass closing agreement.

    • How to obtain approval to pursue a closing agreement.

    • How to negotiate a closing agreement.

    • How to draft and process a closing agreement.

    • How to obtain proper signatures for a closing agreement.

    • How to process remittances under a closing agreement.

    • How to set aside or clarify a closing agreement.  (09-17-2014)
Authority for Closing Agreements

  1. Pursuant to IRC 7121 and the regulations thereunder, the Commissioner may enter into and approve a written closing agreement with any person relating to the liability of such person with respect to any internal revenue tax for any taxable period ending prior or subsequent to the date of such agreement.

  2. Under Delegation Order 8-3 (formerly DO-97, Dev.34) 97, (Rev. 34), Closing Agreements Concerning Internal Revenue Tax Liability (IRM, the Commissioner redelegates to the Commissioner, Tax Exempt and Government Entities Division (TE/GE) in cases under his or her jurisdiction to enter into and approve a written agreement with any person relating to the internal revenue tax liability of such person, or the person or estates for whom he or her acts. The authority delegated does not, however, include the authority to set aside any closing agreement. The authority may not redelegate to the Director, Employee Plans.

  3. Under Delegation Order 11, December 6, 1999, authority to enter into a closing agreement is further delegated to the Director, EP Rulings and Agreements.  (09-17-2014)
Entering Into Closing Agreements

  1. A taxpayer may be required to enter into a closing agreement:

    1. As a condition to the issuance of a ruling in any case in which the interests of the Government will be served by having the case permanently and conclusively closed.

    2. Upon request of a taxpayer and a showing of good and sufficient reasons for desiring a closing agreement and it is determined that the interests of the Government will not be prejudiced.

  2. Do not use a closing agreement to:

    1. Circumvent a tax liability, regardless of the type or amount of tax.

    2. Allow a taxpayer to just reduce the amount of a tax or penalty.

    3. Bypass an existing standard procedure (e.g., IRC 7805(b) relief).  (09-17-2014)
Single Versus Mass Closing Agreements

  1. Closing agreements involving the same issue may impact a single taxpayer or a number of taxpayers.

    1. In single taxpayer cases, closing agreements may be requested on behalf of each of a number of (not to exceed 25) taxpayers. See IRM, Obtaining Approval to Pursue a Closing Agreement.

    2. If the issues and holdings are identical as to all of the taxpayers (more than 25), then the procedure for a "Mass Closing Agreement" applies. See IRM, Mass Closing Agreements.  (09-17-2014)
Mass Closing Agreements

  1. The "Mass Closing Agreement" is a closing agreement in which one agreement is prepared on behalf of a group of taxpayers. It is similar in form to a single taxpayer closing agreement except that the first paragraph will not typically contain the names, addresses and EINs of all parties to the agreement.

  2. The names and addresses of the taxpayers who are to authorize the principal taxpayer to execute the agreement on their behalf are ordinarily not known. Ask the taxpayer to prepare a list in triplicate and attach it to the agreement when it is executed and returned for approval.  (09-17-2014)
Processing Rulings Accompanied by Closing Agreement Requests

  1. The procedure for processing and disposing of a taxpayer’s request for a ruling accompanied by a request for a closing agreement is the same as that described in Rev. Proc. 2014–4, 2014-1 IRB 125 (revised annually).

  2. The proposed closing agreement must accompany the ruling letter. The EP employee (initiator) prepares the closing agreement.

  3. See Exhibit 7.2.1-1, Closing Agreement on Final Determination Covering Specific Matters, as the format for preparing the closing agreement.

  4. Inform the taxpayer of the procedure for executing the agreement and returning it to the Washington D.C. office for approval.

  5. Prepare the ruling letter for the Group Manager's signature.

    1. If the proposed ruling is not in accordance with the taxpayer’s request, a closing agreement is not necessary and the adverse ruling letter is signed in accordance with established procedures.

    2. If the proposed ruling is in accordance with the taxpayer’s request but denies the request for a closing agreement, the ruling letter must be signed at a level no lower than the Director, EP Rulings and Agreements.

    3. Refer the closing agreement and the letter ruling, etc., on which it is based to the Division Counsel/Associate Chief Counsel (CC:TEGE) for concurrence, when appropriate.

  6. Where a closing agreement is based on a proposed ruling that requires the determination of an important question of tax policy (as distinguished from the statement of the IRS position on a tax matter) and the views of the Assistant Secretary for Tax Policy must be obtained, the memorandum for the proposed ruling will include a reference to the closing agreement.

    1. Prepare a memorandum for the signature of the Commissioner, TE/GE, to refer the policy question.

    2. State the policy question involved and the proposed interpretation, and request concurrence.

    3. Obtain the concurrence of the Division Counsel/Associate Chief Counsel (CC:TEGE).  (09-17-2014)
Obtaining Approval to Pursue a Closing Agreement

  1. Before considering a closing agreement:

    1. Assess the legal aspects of the case.

    2. Ascertain the IRS’ position.

    3. Discuss the IRS’ position on the issue(s) with the taxpayer.

    4. Establish the taxpayer’s position on the issue(s).

    5. Determine the effect adverse action(s) would have on the public interest.

    6. Clarify whether organizational and/or operational deficiencies can be corrected.

    7. Decide if the IRS will sustain any disadvantage(s) by entering into a closing agreement.

  2. Consult with your Group Manager. Resolve whether a closing agreement is worth pursuing.

  3. Talk to the taxpayer to see if they would consider a closing agreement. However, don’t guarantee a closing agreement as it may not be approved.

  4. If the taxpayer agrees, consult with your manager. If your manager concurs with you that a closing agreement is warranted, the next step is to obtain approval to negotiate.

  5. The Director of EP, Rulings and Agreements must approve any negotiations to arrive at a closing agreement and any finalized closing agreement.

  6. Don’t start negotiating a closing agreement without first obtaining approval.

  7. Write a short memo to the Director, EP Rulings and Agreements, that explains:

    • The facts.

    • The legal analysis.

    • The taxpayer's proposal, if any.

    • Why it is in the IRS’ and the taxpayer’s best interests to enter into a closing agreement.

  8. Prepare a Routing Sheet on which the following executives may initial and date their concurrence:

    1. The Group Manager

    2. The Director of EP Technical

    3. Director of EP, Rulings and Agreements

  9. Once all of the necessary concurrences have been obtained, negotiations may begin.  (09-17-2014)
Overview of Closing Agreement Negotiations

  1. In negotiations, the goal is collaboration, not just a compromise. Consider taking the Interest Based Conflict Management Skills Workshop (ELMS Catalogue number 11294) before negotiating with the taxpayer. Additional materials, information, and tools are available at http://talkfirst.web.irs.gov/.

  2. Negotiation is a four-step process:

    1. Preparation

    2. Information exchange

    3. Bargaining

    4. Commitment  (09-17-2014)
Preparing for Negotiations

  1. Determine who should be present for the negotiation. The taxpayer’s representative(s) may be present. In some situations, the entire board of an organization may be present during negotiations. Many practitioners try to negotiate without their client present, which can prolong the negotiation process.

  2. The IRS side of the negotiation team need not be limited to the initiator and manager. Among those who may take part, or be invited to take part in the negotiations:

    • Director of EP Technical

    • Director of EP, Rulings and Agreements

    • Chief Counsel

    • Personnel from other divisions or functions that may be impacted by the negotiations

  3. Determine the time, location and method of negotiation. Consider the following issues:

    • Are the negotiations in person or by conference call?

    • If negotiating in person, who is physically attending the negotiation?

    • How long should each negotiation session last?

    • When should subsequent sessions be held?

    • Should taxpayer records be on hand for the negotiations?

  4. Determine any ground rules for the negotiation(s). At the start, agree on ground rules that both parties can abide by.

  5. Prepare a checklist of issues. Make notes of items to be addressed in the negotiation.

  6. As a final action item before starting the negotiation, determine our best alternative to a negotiated agreement. That does not always have to be the default action that would occur in the event the Director, EP Rulings and Agreements, had not approved the negotiations.  (09-17-2014)
Information Exchange at Negotiations

  1. Prior to negotiating, review the information previously obtained. This includes any documents secured from the taxpayer, any correspondence, and any memoranda or other documents in the case file.

  2. Determine whether additional information is needed from the taxpayer, and properly request any such information.

  3. During the negotiation, either side may request additional items. For requests from the taxpayer, promptly provide the materials requested, unless prohibited by disclosure laws (i.e., confidential informant identity, other taxpayer’s tax return information, etc.,).


    During the negotiation, the taxpayer asks what the tax consequences would be of taking a particular action. Perform the tax computation(s) and provide the taxpayer with the result.

  4. Set mutually agreed upon deadlines to provide/receive information. If extensions of time are needed, document the request and the reason for the request.  (09-17-2014)
Bargaining Over Terms of Closing Agreement

  1. The manager is generally the lead negotiator. At the start of negotiations, the lead negotiator advises the taxpayer:

    1. A closing agreement is an attempt to fashion an evenhanded resolution of the differences.

    2. The parties are under no obligation to continue the process if they can’t reach an agreement.

    3. The taxpayer doesn’t waive any rights under any applicable appeals procedure should the parties fail to reach an agreement.

  2. Document all sessions held with the taxpayer and their representative. Track each and every issue discussed. Note those issues where agreement is reached.

  3. If agreement can’t be reached on all issues, determine whether those that can’t be agreed upon are necessary for the agreement. Consider conceding on some proposals if not critical to the agreement.

  4. As both parties agree to resolutions of the various issues, start to draft the closing agreement.

  5. Regardless of whether or not the case results in a closing agreement, the administrative case file documents are to reflect:

    1. Negotiations with the taxpayer and/or representative.

    2. Terms offered if the negotiations aren’t successful.

    3. The reason a closing agreement is/isn’t in our best interest.  (09-17-2014)
Drafting and Processing Closing Agreements

  1. These guidelines apply when drafting a closing agreement.

    1. Fully develop the facts of the case. Determined matters should be stated with such clarity as to lead reasonably to only one interpretation. Although the material in the file may adequately explain the intent of the agreement, the agreement itself will be the primary basis for future action.

    2. Carefully assess the legal aspects of the case. Do not overlook essentials. For example, the agreement should state to whom the income pertains and clearly identify property. To avoid ambiguity in descriptive terms, use statutory terms where applicable.

    3. Ensure that the statute of limitations is protected on the returns of all affected parties. Carefully consider the direct or indirect impact of the determination of a specific matter upon other years or related cases.

    4. Determine the taxability of the various parties.

    5. After completing negotiations for the specific terms of the closing agreement, prepare a draft closing agreement for review by all parties.

  2. Generally, in accordance with the closing agreement, a payment is required to be made to the U.S. Treasury (certified or cashiers check) in return for the plan or organization not having its qualified status revoked. The payment is not a deductible payment for federal tax purposes and should be made at the time the agreement is executed.


    The payment or "consideration" may be a percentage of the tax liability that the taxpayer would have owed if no agreement was entered into. For closing agreements associated with a private letter ruling request, see IRM, the amount of the user fee paid to request the ruling may be accepted as consideration.

  3. Provisions on prohibition on requests to taxpayers to waive rights to bring actions, added by the IRS Restructuring and Reform Act of 1998 (RRA) section 3468, affect the closing agreement procedures. These RRA provisions are applicable to all closing agreements entered into by Employee Plans personnel.

    1. The closing agreement should not contain any release by the taxpayer of any right of action against the IRS or its employees for civil violations or any other action taken in connection with the federal internal revenue laws that may be available to the taxpayer.

    2. If the taxpayer does not have counsel, Employee Plans personnel should not ask the taxpayer to waive his/her right to bring a civil or other non-tax action against the government. In the case of a taxpayer with a power of attorney (POA). If the taxpayer’s representative doesn’t have a valid Form 2848 or it’s limited, explain why Form 2848 isn’t valid to the taxpayer. This should be included in the case history sheet. The file should include signed and dated documentation from the taxpayer or the taxpayer’s representative, and complete notes on the case history sheet evidencing the process used to obtain any waiver subject to this provision.  (09-17-2014)
Preparing the Closing Agreement Document

  1. The Employee Plans employee (initiator) prepares the closing agreement. See Exhibit 7.2.1.-1 for the format for preparing the closing agreement.

    1. The opening paragraph states that the agreement, pursuant to IRC 7121, is made between the taxpayer(s) and the Commissioner. This paragraph contains the taxpayer’s name, address and identifying number (EIN) of each taxpayer that is a party to the agreement.

    2. The "Whereas" paragraphs describe the facts upon which the agreement is based.

    3. Following “Now it is Hereby Determined and Agreed for Federal Tax purposes,” list the items to which the parties are agreeing, including the amount of consideration.

    4. The execution paragraph is the last paragraph in the agreement.

    5. The date and signature lines follow the execution paragraph.

  2. Prepare four originals if the POA requests an original.

  3. Place a header on the original and all copies of each page other than page 1, identified in the upper left corner as follows:

    1. Closing Agreement (name of taxpayer)

  4. Number each additional page in the center of the bottom as (Page____ of ____).

  5. In any case where separate closing agreements are requested by or on behalf of a number of taxpayers (less than 25) and the agreements will be identical except for the names and addresses of the taxpayers, prepare a closing statement for only one of them, and the taxpayers or their representatives are requested to prepare similar agreements for the others.  (09-17-2014)
Obtaining the Taxpayer's Signature

  1. When the draft closing agreement is ready for signature, send a letter to the taxpayer with instructions on executing the closing agreement, see IRM Enclose three copies of the closing agreement. If the POA requests an original, enclose four copies.  (09-17-2014)
Taxpayer Instructions

  1. Provide instructions on the proper procedure for executing the agreement and returning it to the Washington D.C. office for approval, as appropriate, under the following circumstances:

    1. Where the current address of the taxpayer is unknown at the time the agreement is prepared, a space for that address is left in the first paragraph of the agreement and the taxpayer (or the taxpayer’s representative) is instructed to insert such address.

    2. Where the taxpayer is a corporation, enter the corporate name on the agreement, followed by the signature and title of an authorized officer, or officers, or by the signature of an authorized representative.

    3. Where an agreement is signed by an authorized representative for the taxpayer, attach to the original of the agreement a properly executed power of attorney which specifically authorizes the representative to enter into such an agreement on behalf of the taxpayer.

  2. Instruct the taxpayer to date and sign all copies of the closing agreement.

  3. Where a "Mass Closing Agreement" is involved, all copies of the agreement will be dated and signed by the taxpayer designated to sign for the group.

    1. Ask the taxpayer (or representative) to prepare and attach to each copy of the agreement a list setting forth the names and addresses of the taxpayers in the group on behalf of whom the designated taxpayer is executing the agreement.

    2. Attached to the original of the agreement, if applicable, should be properly executed powers of attorney for all of the taxpayers listed, authorizing the designated taxpayer (or representative) to execute the agreement on their behalf.  (09-17-2014)
Procedure for Executed Closing Agreements

  1. When a closing agreement has been executed by the taxpayer or authorized representative and returned for approval, it is directed to the initiator. No changes or additions may be made to the agreement.

    1. If additions or corrections have been made by the taxpayer or authorized representative, the initiator must ensure that such additions or corrections have been initialed and dated by the taxpayer or authorized representative.

    2. If a new page has been substituted by the taxpayer or authorized representative, the taxpayer’s initials and date must appear at the bottom of that page.

  2. In accordance with established procedure, the Group Manager will determine if any additional review of the agreement is necessary by other TE/GE officials and/or any other office before the agreement is finalized by all parties.

  3. The initiator will ensure that the closing agreement is executed by the applicable taxpayer(s) and secure the total amount due.

    1. All remittances must be by certified check(s) or cashier’s check(s) and made payable to the U.S. Treasury.

    2. When received, the check should be delivered to the check processing unit. See IRM, Processing Remittances.

  4. The initiator will transmit a signature package containing the closing agreement(s) executed by the taxpayer(s) to the Director, EP Rulings and Agreements, in accordance with established procedures.

  5. When the initiator receives the signed closing agreement and is satisfied that the file is in proper order, the initiator documents the case history sheet and prepares the case for closing.  (09-17-2014)
Signature and Closing Procedures

  1. The following procedures are provided for securing the signature of the EP Rulings and Agreements.

    1. The initiator prepares a signature package in accordance with Employee Plans office procedures.

    2. The initiator forwards the signature package to the Group Manager.

    3. The Group Manager reviews the agreement, signs and dates on the signature line of the sign-off copy as Reviewing Officer, and forwards the signature package to the Director, EP Rulings and Agreements.

  2. After the Director, EP Rulings and Agreements, has signed all copies of the closing agreement, it is returned to the initiator for further processing.

    1. The letter transmitting an original of the closing agreement to the taxpayer (and/or the taxpayer’s representative) and the memorandum transmitting an original of the closing agreement to the appropriate Area Manager are signed and dated by the Group Manager.

    2. Also transmitted to the Area Manager with an original of the closing agreement is a copy of each of the following: taxpayer’s request for ruling and closing agreement, related ruling letter (if applicable), and transmittal letter to taxpayer.

    3. The original of the closing agreement and a copy of each to the related ruling, the transmittal letter of the taxpayer, and the transmittal memorandum to the Area Manager are retained in the EP Rulings and Agreements Director’s office.

  3. The EP Rulings and Agreements Director’s office returns the signature package to the originating Group so that the closing agreement and/or letter ruling can be mailed to the appropriate parties. The case file is then closed in accordance with prescribed procedures.  (09-17-2014)
Processing Remittances

  1. For closing agreements processed by EP Technical, any remittance should be forwarded for deposit to the Check processing unit.  (09-17-2014)
Finality of Closing Agreements

  1. Closing agreements are final and conclusive and may not, in the absence of fraud, malfeasance, or misrepresentation of material fact, be reopened as to matters agreed upon or be modified by any officer, employee, or agent of the United States. Such agreements may not be annulled, modified, set aside or disregarded in any suit, action or proceeding.

  2. However, any change in or modification of applicable statutes will render an agreement originating in Employee Plans ineffective to the extent that it is dependent upon such statutes.

  3. Because of the finality of these agreements, they must be carefully drafted.  (09-17-2014)
Modification of Closing Agreements

  1. Agreements made under IRC 7121 may be set aside by the Commissioner upon a showing of fraud or malfeasance, or misrepresentation of a material fact. The Commissioner’s authority in this respect has not been delegated, therefore, any such actions must be over the Commissioner’s signature.

  2. If a provision of a closing agreement is reasonably subject to more than one interpretation and the parties have reasonably differed in their interpretation of the provision, a new agreement may be executed restating more clearly, in terms acceptable to all parties, the intended meaning of the disputed provision.

Exhibit 7.2.1-1 

Under IRC 7121 of the Internal Revenue Code (the “Code”), [Name of Taxpayer, SSN], born [Date] (the “Taxpayer”), and the Commissioner of Internal Revenue make the following agreement (the “Closing Agreement”):
WHEREAS, ; and
WHEREAS, ; and
WHEREAS, the Taxpayer has determined that this Closing Agreement set forth herein is in their best interests; and
WHEREAS, $______ will be paid by the Taxpayer to the United States Treasury in consideration of this Closing Agreement; and
WHEREAS, the Service, on behalf of the Secretary of the Treasury, through its authorized representative, has determined that this Closing Agreement is also in its best interest and in the best interests of the Taxpayer;
NOW IT IS HEREBY DETERMINED AND AGREED for Federal income tax purposes that the above representations are material to this Closing Agreement and that:
  1. This agreement constitutes a resolution under the Code solely of the specific matters discussed herein. No inference shall be made as to the application of the Code under any facts and circumstances outside this Closing Agreement. No inference shall be made with respect to whether this resolution satisfies other Federal law, including Title I of the Employee Retirement Income Security Act of 1974.

This Closing Agreement is final and conclusive except:
  1. the matter it relates to may be reopened in the event of fraud, malfeasance, or misrepresentation of material fact;

  2. it is subject to the Code sections that expressly provide that effect be given to their provisions (including any stated exception for Code section 7122) notwithstanding any other law or rule of law; and

  3. if it relates to a tax period ending after the date of this agreement, it is subject to any law, enacted after the agreement date, that applies to that tax period.

By executing this Closing Agreement, the above parties certify that they have read and agreed to the terms of this document

[Name of Taxpayer, SSN]
By: ___________________________________ Date: ____________________
Commissioner of Internal Revenue on behalf of the Secretary of the Treasury
By: ___________________________________ Date: ____________________

Director, Employee Plans Rulings and Agreements
Tax Exempt and Government Entities

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