7.2.1  TE/GE Closing Agreements

7.2.1.1  (04-01-2002)
Overview

  1. These procedures are applicable only to closing agreements originating in the office of the Director, Employee Plans, Tax Exempt and Government Entities Division (TE/GE).

  2. These procedures are for TE/GE Employee Plans employees in the Washington D.C. POD. For procedures relating to closing agreements entered into under the Employee Plans Compliance Resolution System (EPCRS) see IRM 7.2.2.

7.2.1.1.1  (04-01-2002)
Authority

  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 No. 97 (as revised), the Commissioner redelegates to the Commissioner, Tax Exempt and Government Entities Division (TE/GE) in cases under its jurisdiction to enter into and approve a written agreement with any person relating to the internal revenue tax liability of such person, but only with respect to related specific items affecting other taxable periods. The authority delegated does not, however, include the authority to set aside any closing agreement.

  3. Closing agreements originating within Employee Plans may cover any case under the jurisdiction of the Director, Employee Plans.

7.2.1.2  (04-01-2002)
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. Closing agreements involving the same issue may impact a single taxpayer or a number of taxpayers.

    1. In single taxpayer cases, closing agreements are requested on behalf of each of a number of (not to exceed 25) taxpayers. See IRM 7.2.1.4.

    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 7.2.1.5.

7.2.1.2.1  (04-01-2002)
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. See IRM 4.72.12, for information on the tax implications of revoking a trust.

    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.

  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 Service 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 rarely 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) on file, special consideration should be given to sending a written request to the person listed on the POA. In either event, the file should include signed and dated documentation from the taxpayer or the taxpayer’s representative, and complete notes on the case history sheet (Form 5464 or other applicable form), evidencing the process used to obtain any waiver subject to this provision.

7.2.1.2.2  (04-01-2002)
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. 2001-4, 2001-1 I.R.B. 121 (revised annually).

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

  3. Use Form 906, Closing Agreement on Final Determination Covering Specific Matters, as the format for preparing the first page of the closing agreement.

    Note:

    Form 906 is a two-page form designed to be used as the first and last pages of a closing agreement. However, the last page of the form cannot be used for closing agreements originating in Employee Plans. Therefore, discard the last page. For the last page before typing additional pages, use letter size paper.

  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 Director, Rulings and Agreements signature, except where it must be prepared for the Commissioner’s signature. If the latter, see IRM 1.11.

    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, 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 Service 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).

7.2.1.3  (04-01-2002)
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.

7.2.1.4  (04-01-2002)
Single Closing Agreements

  1. The Employee Plans employee (initiator) prepares the closing agreement. Use Form 906 as the format for preparing the first page. See text 7.2.1.5 for a discussion of Form 906.

    1. The opening paragraph of Form 906 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 execution paragraph is the last paragraph in the agreement.

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

  2. Prepare three originals of each page of the agreement.

  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 the upper right corner of the first page (Form 906 or photocopy thereof) of the original, duplicate, and triplicate of the closing agreement, type the following:

    a.

    On the Type
    Original ORIGINAL
    Duplicate DUPLICATE
    (Taxpayer's copy)
    Triplicate TRIPLICATE
    (Area copy)

  6. 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.

  7. When a closing agreement case is forwarded to the Division Counsel/Associate Chief Counsel (CC:TEGE) for comment, prepare the appropriate number of copies, (in accordance with established procedures).

7.2.1.5  (04-01-2002)
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 Form 906 except for changes in the first paragraph and in the signature line. Thus, the first paragraph will not typically contain the names, addresses and EIN’s of all parties to the agreement. For this reason, DO NOT USE the first paragraph (or the second page) of Form 906 as the format for a Mass Closing 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.

7.2.1.6  (04-01-2002)
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 the original, duplicate and triplicate 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.

  4. Once the Director, Employee Plans has signed the ruling letter and the official file copy (Form 1937) of the closing agreement, the file is returned to the originating Group for dating and mailing the closing agreement, in triplicate, to the taxpayer.

7.2.1.7  (04-01-2002)
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 (TLS). 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.

  4. The initiator will transmit a signature package containing the closing agreement(s) executed by the taxpayer(s) to the Director, Employee Plans through the Director, 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.

7.2.1.7.1  (04-01-2002)
Signature and Closing Procedures

  1. The following procedures are provided for securing the Director, Employee Plans signature.

    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, Rulings and Agreements.

  2. The Rulings and Agreements Director’s office documents receipt of the signature package in accordance with office procedures.

    1. Establishes a case control

    2. Obtains approval of Rulings and Agreements Director on the transmittal memorandum

    3. Forwards the signature package to the Director, Employee Plans for signature and dating of the original, duplicate, and triplicate of the closing agreement

  3. After the Director, Employee Plans has signed the closing agreement, it is returned to the Rulings and Agreements Director’s office 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 each to the related ruling, the transmittal letter to the taxpayer, and the transmittal memorandum to the Area Manager are retained in the Rulings and Agreements Director’s office.

  4. The 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.

7.2.1.7.2  (04-01-2002)
Processing Remittances

  1. For EP, use the following procedures for processing payment remittances to the U.S. Treasury.

    1. Prepare Form 3210, Document Transmittal, listing the plan sponsor’s name, plan sponsors EIN, the check number, the amount of the check, and the eight digit Agency Location Code (ALC) of the Ogden Service Center. The ALC of Ogden, UT is 20-09-2900.

    2. Prepare a Payment Posting Voucher (F3244) and an Assessment Voucher (F5734).

    3. Prepare a cover memorandum to the Ogden Service Center and attach to the front of the closing agreement.

      Note:

      Identify the payor’s name and EIN in the cover memorandum. This will be used as the control name for the closing agreement by the Service Center’s Receipt and Control Branch and Accounting Branch.

    4. If several checks are submitted as part of the closing agreement, then the payors’ names and EINs should be listed on the Form 3210 and totaled. This total must agree with the total amount stated in the closing agreement.

    5. The initiator then submits the file, containing the Forms 3210, 3244, and 5734, cover memorandum, checks and the closing agreement, to the Remittance Processors, who will forward the appropriate documents to the Service Center.

7.2.1.8  (04-01-2002)
Setting Aside or Clarification 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.

7.2.1.8.1  (04-01-2002)
Setting Aside

  1. In the event of litigation on the point, the burden of proof for setting aside a closing agreement has been held to be upon the party desiring to do so. See Holmes & Janes. Inc. 30 B.T.A. 74, and Thomas J. Ingram, 32 B.T.A. 1063.

  2. Setting aside of a closing agreement, even though deemed justified, is not mandatory. If it is in the best interests of the Government to refrain from setting aside the agreement it may do so.

  3. The term "fraud" , as applied under IRC 7121(b), must be based upon evidence showing intent to evade the payment of tax which the taxpayer believed to be owing as distinguished from mistake inadvertence, reliance on incorrect technical advice, honest difference of opinion, negligence, or carelessness. See IRM Handbook 104.2, Fraud Handbook.

    Note:

    Evidence of "fraud" that does not relate to the premises upon which the closing agreement and the findings therein are based will probably be insufficient to sustain setting aside a closing agreement unless the fraud goes to the agreement itself as in John Kehoe, 34 B.T.A. 59, affirmed by the Supreme Court, Court Decision 1447, 1940-1C.B. 187.

  4. The term "malfeasance" imports violation of a public trust or guilt with respect to some form of official act.

  5. The term "misrepresentation" , when used as a ground for setting aside a closing agreement, connotes intentional deceit. It does not refer to a mere mistake of fact or law, whether unilateral or mutual, no matter how material. In the Ingram case, the then Board of Tax Appeals stated: " "Obviously the use of the word misrepresentation denotes something more deliberate or more conscious than a mere error or mistake. Otherwise the entire rationale of a closing agreement would be lost. Congress intended that innocent mistakes should be buried in a closing agreement. ***This still leaves an ample field for protection against an agreement founded in trickery or deception." "

7.2.1.8.2  (04-01-2002)
Clarification

  1. 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.

  2. This procedure should rarely be necessary. It is not to be used where the taxpayer’s interpretation is unreasonable and unlikely to prevail in the event of litigation. Careful original draftsmanship should avoid the necessity of resorting to this procedure.

7.2.1.8.3  (04-01-2002)
Procedure for Setting Aside Closing Agreement

  1. Requests from field offices for consideration of setting aside a closing agreement executed in Employee Plans should be submitted to the Director, Employee Plans. The request should include a recommendation and the reasons therefor.

  2. In considering the field request, the taxpayer will be granted a conference only where it is deemed necessary. Approval must be obtained from the Rulings and Agreements Director before granting a conference in these cases.

  3. If it is determined that the closing agreement should not be set aside, a memorandum explaining the reasons should be issued to the field office. The signature of the Director, Employee Plans is required for this memorandum.

  4. If it is determined that the closing agreement should be set aside, a letter notifying the taxpayer of the decision will be prepared for the Director, Employee Plans signature. Submit to the Director, Employee Plans for approval, accompanied by an appropriate explanatory memorandum.

  5. A memorandum to the field office concerned transmitting a copy of the letter to the taxpayer will be mailed at the same time the letter to the taxpayer is mailed.


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