ITG Voluntary Closing Agreement Process


What is a closing agreement?

A closing agreement is a binding agreement between the IRS and a taxpayer that, if properly executed, finally and conclusively settles a tax issue between the IRS and a taxpayer. While closing agreements exhibit some of the attributes of a contract, they are not strictly subject to the law of contracts.  Closing agreements are, however, legally binding.

Internal Revenue Code section 7121 authorizes the Internal Revenue Service and taxpayers to enter into closing agreements. Closing agreements are generally reflected on Form 866, Agreement as to Final Determination of Tax Liability or Form 906, Closing Agreement on Final Determination Covering Specific Matters.

What is a voluntary closing agreement?

A voluntary closing agreement is a taxpayer-initiated closing agreement that generally occurs outside of the audit and examination process for issues where a taxpayer has inadvertently failed to meet a requirement of the Internal Revenue Code. A voluntary closing agreement allows taxpayers to voluntarily come forward to the IRS with self-identified violations or deficiencies and work with the IRS towards a mutual resolution to correct the violations or deficiencies.

When is it appropriate to enter into a voluntary closing agreement?

Whether or not a voluntary closing agreement will be entered into is a matter within the IRS’ discretion. To increase the likelihood that the IRS will enter into a voluntary closing agreement, a taxpayer should be prepared to show:

  • the taxpayer has a good reason for requesting the agreement;
  • the taxpayer is willing to furnish necessary facts and documentation to establish its tax liabilities;
  • it is in the best interest of both the IRS and the taxpayer to enter into a closing agreement;
  • the federal government will suffer no disadvantage from entering into a closing agreement; and
  • any Internal Revenue Code violation or tax deficiency was unintentional.  

A voluntary closing agreement is generally not appropriate in situations where the matter:

  • is under current audit or examination by the IRS;
  • is currently in litigation with the United States Tax Court;
  • is determined to be part of a willful or intentional plan to avoid or evade the payment or reporting of taxes that was known to be owed; and
  • involves the Voluntary Classification Settlement Program (VCSP).

A voluntary closing agreement may be initiated anonymously (anonymous submissions are sometimes referred to as “John Doe” submissions) through a representative or a power of attorney. But voluntary closing agreements are highly dependent on the individual facts and circumstances, and the taxpayer’s identity will need to be revealed for proper consideration.  

Why enter into a voluntary closing agreement?

A voluntary closing agreement is an effective way of correcting a past error, mistake or misinterpretation of tax law or filing requirement. A closing agreement ensures that a controversy between a taxpayer and the IRS is disposed of with finality. Closing agreements are final and issues resolved in a closing agreement will not be reopened, annulled, modified, set aside, or disregarded by the federal government or the courts for tax years covered by a closing agreement (except in cases of fraud, malfeasance or misrepresentation of material fact on the part of the taxpayer).    

Closing agreements allow a taxpayer to resolve a tax issue or establish a tax liability outside of the examination or audit process. For example, a voluntary closing agreement could be generated from the discovery of a material accounting error that involved employment taxes, information reporting violations, and excise taxes. A closing agreement would not, however, be considered for retirement plan or exempt organization issues. In special circumstances, a taxpayer may be able to negotiate for a reduction or an abatement of penalties.  

If, during the course of this process, it is determined that there was a willful or intentional plan to avoid or evade the payment or reporting of the taxes that was known to be owed, the IRS reserves the right to convert the voluntary closing agreement submission into an examination referral.

How do I request to enter into a closing agreement?

For voluntary closing agreements involving Indian Tribal Government issues or taxpayers, you should contact the ITG manager for your area.

Initial contacts may be conducted anonymously through a representative or a power of attorney to determine if a voluntary closing agreement is appropriate for your individual facts and circumstances. In order to efficiently and effectively determine whether you can enter into a closing agreement, you should be prepared to discuss the following:

  • Explanation of why a closing agreement is appropriate;
  • Description of the facts and circumstances surrounding the non-compliant activities;
  • Description of the advantage(s) to the taxpayer and federal government and indicate how the federal government will sustain no disadvantage(s) because of a closing agreement;
  • Detailed description of the method proposed for correcting the non-compliant activities;
  • Explanation of how the taxpayer will achieve future compliance, and steps taken to ensure that non-compliance will not be repeated;
  • Description of the proposed methodology to calculate any tax, interest and penalty;
  • Explanation of whether the taxpayer is prepared to pay any tax deficiencies prior to entering into a closing agreement; and
  • Precise statement of the issues and the facts surrounding the matters you wish to agree upon.

Once entertained, however, it will eventually be necessary for the representative or power of attorney to reveal the taxpayer’s identity and the facts surrounding the agreement.

Authority to accept voluntary closing agreements for the office of Indian Tribal Governments (ITG) is delegated to the ITG Director.


  • I.R.C. § 7121
  • Treas. Reg. § 301.7121-1
  • Internal Revenue Manual 4.75.25
  • Rev. Proc. 68-16, 1968-1 C.B. 770