Unless there is some issue with respect to interest liability, a closing agreement should not determine such liability or make any provision therefor. However, see information pertaining to barred years. See IRM 8.13.1.7.1. Interest legally due should not be waived in a closing agreement. Interest applicable to tax liabilities determined by a closing agreement must be assessed and collected pursuant to IRC 6201, IRC 6301 and Regulations 26 CFR section 301.7121-1(d)(2) of the Regulations on Procedure and Administration. The latter provides: "Collection, credit or refund. Any tax or deficiency in tax determined pursuant to a closing agreement shall be assessed and collected, and any overpayment determined pursuant thereto shall be credited or refunded, in accordance with the applicable provisions of law."

Where a closing agreement as to tax liability is entered into, the provisions of IRC 6601(c), relating to the suspension of interest for a period beginning 30 days after a waiver of restrictions under IRC 6213(d) is received (or accepted where an Appeals waiver such as Form 870-AD, are not applicable unless such waiver:

Closing agreements determining transferee liability are ordinarily entered into as combined agreements. See Exhibit 8.13.1-7. The combined agreement should set forth the amount of the transferee’s liability and make specific determinations as to the transferee’s status as a transferee and the extent of the transferee’s liability (e.g., the value of the property transferred to the transferee).

A determination of transferee liability should be set forth in a separate closing agreement and not combined with determinations of the tax liability of the transferor or other tax liabilities of the transferee. In a closing agreement with a transferee, the recital of the name of the taxpayer entering into the agreement should indicate that the taxpayer is acting in the capacity of a transferee (e.g., John Doe, as Transferee of the Estate of Mary Roe). The applicable taxable period (or date of death, etc.) and type of tax (citing Code chapters and subchapter), penalty and interest of the transferor should be specified in the agreement, as well as the amount of transferee liability agreed to with respect to such transferor liability. See IRM 8.13.1.7.5. See this subsection for information on successors in interest.

A closing agreement with a transferee should be signed in a manner equivalent to the following:

Determinations should not attempt to settle matters for future years where correct tax treatment will depend on events occurring after the date of the agreement, such as the application of capital gains treatment to future sales of IRC 1231 assets (there may be a loss) or treatment of farm losses for future years (practice may change).

Although closing agreements may reflect corrected taxable income and tax liability for specified taxable periods, interpretive difficulties can occur if a deficiency or over-assessment is determined. To prevent interpretation problems, a determination of a tax deficiency or over-assessment should be avoided in closing agreements.

A closing agreement should not determine tax liability where this determination is in the jurisdiction of an appropriate court (unless authorized by court order), as in a bankruptcy case). Closing agreements determining specific matters arising in years being litigated affecting years not before the court may be appropriate. Such a closing agreement will not be executed by or for the Commissioner until an agreed decision is entered or a decision in a tried case becomes final. See IRM 8.13.1.1.1. Paragraphs (8) and (9) discuss that the agreement not be executed until certain events occur.

If unknown future developments will not change the tax treatment of items arising from a completed transaction (recurring matters), the agreement should provide for this treatment (stating amounts where determined) in all applicable years. However, there are those overriding the agreement. See IRM 8.13.1.6.1.2.

In cases involving Joint Committee review, closing agreements should not be executed on behalf of the government until a report, in accordance with IRC 6405, has been submitted to the Joint Committee on Taxation (JCT) and the views of the JCT have been considered. See IRM 8.13.1.4.6.1.

The determination of a specific matter may have a direct or indirect impact on other years or related cases. This impact, particularly where another office may have jurisdiction, should be carefully considered. Coordination with other offices on related cases or years should be initiated at the earliest possible stage in the processing of closing agreements.

The closing agreement portion of the report or Appeals Case Memorandum should describe the extent and result of such coordination. See IRM 8.13.1.4. IRM 8.13.1.5.

The agreement should not depend upon executory provisions, i.e., that the taxpayer agrees to do something. To avoid the difficulties that may occur if the taxpayer does not do what is promised, the agreement should state the tax treatment to be given the transaction or amount. Do not include a statement that "the taxpayer shall report" but rather use statements such as "such amount is includible in the taxpayer’s taxable income in the year of receipt."

A closing agreement should provide adequate coverage for reasonably foreseeable developments. For example, an agreement signed by husband and wife determining taxable treatment of a specific matter as it impacts future years should be stated so as to avoid interpretive problems if there is a divorce or separate returns are filed for whatever reasons.

It is preferable to determine the taxable consequences of an event that has not yet occurred by reference to the event rather than to the specific taxpayer (e.g., by stating that an item is includible in income in the year of receipt).

It is not necessary or desirable to attempt to foresee all possible eventualities relating to the matter being settled. Many eventualities are better left to the general application of the Internal Revenue Code rather than providing for specific tax treatment in a closing agreement.

If the agreement reclassifies a transaction or taxable entity (for example, corporate returns were filed but the business should be treated as a partnership), look for consequential changes which need to be covered. In this example, the agreement should specify appropriate treatment for pension plan contributions made after the effective date of the change in status and for benefits to be received pursuant to the plan by the "partners" . The validity of various elections, the basis of "corporate" assets deemed owned by the "partners" , treatment of distributions received by the "partners" (e.g., passive versus active or the timing of particular tax effects on the "partner" ), all should be determined.

Apparent inconsistencies between parties or years should be avoided or adequately justified. This requirement covers both the language used and the conclusions reached. For example, a transfer of funds should not be referred to as a gift in one portion of the agreement but determined to be includible in taxable income in another. Payments in different years to the same entity or to different entities in the same taxable year should receive the same treatment. Where different treatment is justified by circumstances, it must be thoroughly explained in the transmittal letter, report, workpapers, or Appeals Case Memorandum.

A closing agreement should not include matters of discussions, contentions, or other material unless needed for the determination. Any relevant additional information should be placed in the transmittal letter, report, workpapers, memorandum for reviewers or Appeals Case Memorandum.

Closing agreements must not contain provisions which would retroactively rescind or cancel the agreement. A retroactive cancellation provision would violate the congressional intention that closing agreements dispose of matters with finality.

Closing agreements may determine what the taxable treatment will be until a specified event occurs (or after it fails to occur within a specified period or by a specified date). See previous discussion when one agreement is contingent upon acceptance of another. See IRM 8.13.1.2.17.3.

A closing agreement should not include a promise or requirement to renegotiate the matter(s) resolved by the agreement. Such an agreement is not a final determination. An agreement that certain taxable treatment will apply until renegotiated is not final, since it would permit modification of the established treatment at any time. See IRM 8.13.1.6. This is a general discussion of finality and possible method for resolving interpretive problems in agreements.

Examining officers and reviewers should have sufficient information to permit a reasonable justification for any recommendation concerning acceptance of a closing agreement, whether it is an agreement determining tax liability (or net income or net operating loss) ( Form 866 or equivalent), or a specific matters closing agreement ( Form 906).

It is the responsibility of those preparing, receiving, and reviewing closing agreements to ensure that:

Preparation of the closing agreement will differ considerably among cases. The entire agreement may be prepared by the taxpayer or representative, or it may be entirely written by the examiner. In most situations, it is preferable that the parties collaborate in drafting the agreement. Where appropriate pattern agreements are available (see the exhibits) the draft should be based upon a pattern agreement that the Service has previously found to be acceptable, regardless of who prepares the draft. If one of the pattern agreements in Rev. Proc. 68-16, 1968-1, C.B. 770 is being used, the taxpayer should be aware of this fact. The pattern agreement should be carefully matched to the circumstances of the case before using it. Typically the pattern agreement must be modified to fit the case. Such modifications should be adequately discussed in the report. Lack of a closely matching pattern agreement does not preclude the use of a closing agreement in a particular situation. Extra care must be taken in the drafting process If no pattern is available. See IRM 8.13.1.2.4.3. This subsection covers stamping the agreements when submitted.

Each Compliance Operating Division will designate reviewers responsible for closing agreements recommended for acceptance by the examiner. If the examiner needs assistance in preparing or processing a closing agreement, the designated reviewer should be contacted. To avoid having the taxpayer sign one or more revised agreements, the proposed agreement should be submitted to the reviewer for approval before securing the taxpayer’s signature, even where prepared by the taxpayer.

When a closing agreement is forwarded for approval, it will be accompanied by affected tax returns, a completed RAR, if available, the workpapers, and any necessary additional documentary evidence to support the agreement. This will specifically include comment by specialist examiners (e.g., international or engineering agents) if applicable, and advisory opinions of Associate Area Counsel, if available.

The examining officer (or team coordinator or team manager, as appropriate) must sign and date the reverse side of the Form 906 , Closing Agreement on Final Determination Covering Specific Matters, in the space provided, as Receiving Officer. The reviewer, or if absent a designated alternate or the reviewer’s supervisor must also sign, as Reviewing Officer. Each copy of the closing agreement to be retained by the service should reflect these. However, only one original need be signed. Additional copies may be made and attached to the other retained forms. If computer generated or completely typed forms are used, a similar receiving and reviewing page must be included with each copy. The reviewer should also complete and attach to the file a checklist, for each agreement to assist in the review.

After approval by the reviewer, three (3) copies of the final agreement with an original signature of the taxpayer will be provided for execution by or for the Compliance Operating Division official. An additional copy of the executed agreement will be forwarded by the reviewer to the appropriate location if needed for a follow-up file. See IRM 8.13.1.4.4(3). This covers when the examination is not completed at the time of execution of the closing agreement.

Operating Division employees occasionally cooperate in securing closing agreements arising out of, and relating to, cases being litigated, when requested to do so by an appropriate office. When such an agreement affects years not being litigated, the Operating Division employee should prepare a memorandum detailing the effect of the agreement on those years. This memorandum, along with a copy of the proposed agreement, should be forwarded to the office that requested the agreement be secured. The final agreement must be signed by the appropriate officers on the reverse side of the form. A copy of the executed agreement should be returned to the requesting office.

Where the agreement will not be executed by the local office, then a memorandum will accompany the proposed closing agreement, when it is returned to the requesting office for their action.

Liabilities determined by a Form 866 or combined agreement.

Specific matters determined by a Form 906 or combined agreement.

Conditional waivers -
If the taxpayer desires that a waiver be effective only on approval of a closing agreement covering a tax liability, specific matters or both, that provision may be included on the waiver form.

The Revenue Agent’s report (RAR) and workpapers should adequately discuss all significant factors relating to the closing agreement (including the source of and modifications to pattern agreements). This discussion should be prominently located in the file and should explain the reasons for obtaining the agreement (or denying it), and what the parties intend to accomplish by it. This requirement covers all closing agreements, whether specific matters, determinations of net income or net operating loss, or determining tax liability. Follow the quality audit standard cited in the prior subsection in all cases with closing agreements. See IRM 8.13.1.4.1.

The discussion should address the following points:

A specific matter closing agreement may be secured even though Compliance action on the case cannot be completed for reasons not related to and not preventing acceptance of the closing agreement. In such cases, the returns, relevant files and workpapers, and explanation as to why the agreement should be approved prior to the case closure, and the RAR, if available, should be forwarded to the reviewer. Review and approval procedures covered in the prior subsection should be followed. See IRM 8.13.1.4.2.

Attach an original signed copy of the agreement to the latest return in the file affected by the agreement.

All returns in the case file covering years affected by the agreement will be marked as follows: "Agreement under section 7121, Internal Revenue Code of 1986, Year Affected __. Closing agreement attached to return for taxable period ended __."

If follow-up action is required, send a copy of the executed agreement and other relevant material to the Planning and Special Programs Branch (PSP), or equivalent, for appropriate future action and retain a copy in the file of the executed agreement together with sufficient backup material for use of the agreement in subsequent examinations. If there is no RAR file, return the third original signature copy of the agreement to the reviewer for retention in the files.

An executed original of the closing agreement will be mailed to the taxpayer (or to the representative) by appropriate transmittal letter patterned after See Exhibit 8.13.1-23. Certified or registered mail will be used if required by other instructions (e.g. personal holding company tax liability.) A copy of the letter should be included in the RAR file.

The designated reviewer will maintain sufficient material (including copies of executed agreements) to provide a historical record of all closing agreements executed in the district. This file will permit responses to questions from whatever source to be made from a central location, as well as to provide additional samples for later use.

Regardless of who is authorized to execute the closing agreement, responsibility for protecting the statute of limitations will remain in the recommending office, if it had such responsibility immediately before forwarding the agreement.

When the statute of limitations for a period (or return) involving a closing agreement will expire within 120 days from the date the agreement is to be submitted to Headquarters, the taxpayer will be advised that the closing agreement will not be forwarded unless a consent is signed extending the statute to a date at least 180 days after the agreement is signed by the taxpayer or 120 days after the agreement is submitted to Headquarters, whichever is later.

To comply with this section, consents will be secured to cover years for which overassessments are proposed.

Assistance should be requested from the Commissioner, LMSB Operating Division if a closing agreement is proposed that may be used throughout an industry, homogeneous commercial group, or a large group of taxpayers in similar circumstances where that agreement would:

This request should be contained in a memorandum to the Commissioner, LMSB Operating Division, forwarding three copies of the proposed Agreement (which will not be returned) and explaining the surrounding circumstances. One of the three copies will be forwarded by the Commissioner, LMSB Operating Division to the Chief, Appeals, C:AP.

If a problem arises concerning the interpretation, scope, and/or application of IRC 7121 which cannot be readily resolved by referring to existing instructions and regulations, a request for Technical Advice may be submitted.

The local Criminal Investigation field office has certain functions with respect to setting aside a closing agreement, as explained. See IRM 8.13.1.6.2.1.1.

In agreements dealing with specific matters, the objective should be to state as concisely as possible a description of the transaction or event giving rise to the specific matter requiring an adjustment. In the determination section of the agreement the preparer should clearly and precisely provide for the adjustments to be made to taxable income, deductions, basis, etc.

It is the responsibility of those preparing, receiving, reviewing, and executing closing agreements to ensure that:

With respect to IRM 8.13.1.5.1(2)(a), the unique finality of a closing agreement may become meaningless if the provisions are reasonably subject to more than one interpretation. See IRM 8.13.1.3(3).

With respect to IRM 8.13.1.5.1(2)(b), the agreement may be ineffectual if it can be attacked on various grounds of improper execution or upon showing of qualifying conditions stated in a separate document within possession of the Service. See IRM 8.13.1.2.

With respect to IRM 8.13.1.5.1(2)(c), specific matter closing agreements generally should not purport to make a determination for a taxable period that has not ended prior to the date of the agreement. See IRM 8.13.1.5(5).. Of course, a specific matter closing agreement that makes a determination affecting the calculation of tax liability in a period ending before the date of the agreement can also affect future taxable periods ending after the date of the agreement. For example, determinations can be made concerning the basis and depreciation method of a particular asset that was already acquired in a year ended before the date of the agreement. These determinations will establish the amount of depreciation deduction in the early year and affect the calculation of the depreciation deductions in future years. (See IRC 446(e)).

With respect to IRM 8.13.1.5.1(2)(d) above, Appeals Officers and reviewers should have sufficient information to permit a reasonable justification for any recommendation concerning acceptance of a closing agreement, whether it is an agreement determining tax liability (or net income or net operating loss) ( Form 866 or equivalent), or a specific matters closing agreement ( Form 906 ). In specific matters agreements the record must exhibit adequate development and coverage of matters pertinent to determining the acceptability of the agreement. Such development should be sufficient to provide the basis for the ACM discussion required. See IRM 8.13.1.5.2.2(2).

Appeals Area Directors are responsible for ensuring that the closing agreement function is successfully carried out by the Appeals offices in their areas.

Ordinarily, the closing agreement, executed on behalf of the taxpayer, is submitted for review along with the ACM.

Appeals officials authorized to enter into and approve closing agreements should appoint a reviewer for closing agreements for their respective offices. It is generally desirable that a review of the draft take place prior to signing by the taxpayer. This review is concerned primarily with the substance of the agreement. Another review should be made of the final version of the closing agreement, after it is executed by the taxpayer. This review is primarily to ensure proper layout, format, and execution of the agreement and should be done concurrently with execution by the reviewer of the Closing Agreement Checklist, Form 4222. The checklist should be distinctly labeled with the notation " do not destroy until after (six years from date of execution, or longer where necessary." During the case closing process, a folder should be set up, with a copy of the closing agreement, and should be retained as provided in the Records Disposition Handbook, IRM 1.15.2 and Appeals Case Processing Manual, IRM 8.20. Both the Appeals Officer who prepares and the official who reviews the agreement must sign the reverse side as receiver and reviewer, respectively.

Such agreement may not be modified by any officer, employee, or agent of the United States nor annulled, disregarded, or set aside in any suit or proceeding. The courts have consistently recognized and upheld the statutory finality of such agreements. In view of the statutory language, the parties to a closing agreement cannot rescind or modify it by consent. There is an exception to those statutory reasons for which a closing agreement may be set aside. See IRM 8.13.1.6(2). There is also a treaty authorizing modification or setting aside. See IRM 8.13.1.6.1.2. See IRM 8.13.1.7.3.

Although a closing agreement is final, it only determines matters expressly stated therein.

Although a closing agreement is final, where a specific matters type agreement was entered into, there would be no prohibition against entering into another agreement covering specific matters with the same taxpayer pertaining to the same taxable period determining other matters not expressly covered in the first.

Similarly, while a closing agreement may not be modified or rescinded by the parties either unilaterally or with the consent of all parties. See the exceptions. See IRM 8.13.1.6.1.2. IRM 8.13.1.7.3. It may be possible to satisfactorily remedy a dispute as to the meaning of the contents of the agreement. If one or more provisions of the closing agreement are reasonably subject to two or more interpretations and the parties have reasonably differed in their interpretation of such provision(s), it is possible for the parties to enter into a new closing agreement which, in terms acceptable to all parties, restates more clearly the intended meaning of the disputed provision(s). This is not a modification of the agreement but a clarification of its terms. 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 draftsmanship should prevent the necessity of resorting to this procedure.