In Burton v. Commissioner, T.C. Memo. 2009-60, March 18, 2009, the issue was whether the taxpayers had entered into a binding settlement agreement with the IRS Appeals Office relating to taxpayers’joint income tax liability for 2000.
Taxpayers asserted a final binding settlement was entered into under which they were to pay a single lump sum of $60,000 without any further liability to pay statutory interest. The IRS asserted, among other things, that no final binding agreement was ever reached-particularly with regard to tapayers’ statutory interest.
In the letter the IRS Appeals officer explained that the tax due under the proposed settlement would be $60,000 and that interest would "continue to accrue" thereon until paid. The taxpayers’ attorney notified the Appeals officer that he agreed on behalf of taxpayers to the revised closing agreement, and the Appeals officer sent to the attorney the closing agreement along with the Form 870-AD for signature.
Taxpayers and the attorney signed the closing agreement and the Form 870-AD and mailed them, along with a check for $60,000, back to the Appeals officer. On taxpayers’ $60,000 check the words "paid in full" were written in the lower left corner.
The Appeals officer mailed a letter to taxpayers’ attorney acknowledging receipt of the closing agreement, the Form 870-AD and the $60,000 check. The Appeals officer explained that he could not process taxpayers’ $60,000 check because the check and payment did not include an additional $23,684 in statutory interest.
Not having received a response from taxpayers, the Appeals officer returned taxpayers’ $60,000 check, and the IRS issued a notice of deficiency. No one on behalf of the IRS ever signed the closing agreement that taxpayers had signed.
The Court in the case of Dormer v. Commissioner, T.C. Memo. 2004-167, explained the law applicable to administrative settlement offers involving Federal income taxes is well established. Regulations establish the procedures for closing agreements and compromises under sections 7121 and 7122. Secs. 301.7121-1, 301.7122-1, Proced. & Admin. Regs. These procedures are exclusive and must be satisfied in order to effect an administrative compromise or settlement which will be binding on both a taxpayer and IRS. The regulations and procedures under section 7122 provide the exclusive method of effectuating a compromise. Regulations under sections 7121 and 7122 require that any closing agreement or offer-in-compromise be submitted and/or executed on or in the specific form prescribed by the IRS. Secs. 301.71211(d), 301.7122-1(d), Proced. & Admin. Regs.
The Court in this case found that no final closing agreement was signed by an individual authorized to bind the IRS. This is not an issolated situation. We have seen other cases where the taxpayer's representive has not made sure the settlement was completed.