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Closing agreements.

Closing Agreements

The IRS is allowed under Section 7121 to enter into a written "closing agreement" with any person with respect to any tax liability for any tax period. A closing agreement is a final settlement of either an entire tax liability (Form 866) or a specific tax item (Form 906). The agreements are most often used when both the IRS and the taxpayer have made concessions and it is advantageous to prevent further action by either party.

The Tax Court has recently determined that since additions to tax was not an issue in a closing agreement, the IRS was not precluded from assessing additional tax at a later date.

The Service challenged various deductions claimed by the taxpayers with respect to certain partnership dealings. In September of 1987, the IRS and the taxpayers executed a closing agreement. The agreement provided for adjustments to certain items of income and deductions. The agreement, however, did not mention any additions to the actual tax liability that resulted (and was subsequently paid) from these adjustments. Two years later, the IRS assessed taxes due and interest charges for the taxable year 1981.

In ruling that the IRS was not barred from assessing the additional tax, the court stated that the parties involved in a closing agreement are bound only to the "specific matters agreed upon." Since additions to tax per se were not mentioned in the agreement, they could be assessed at a later date.
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Title Annotation:tax settlement rule
Publication:The National Public Accountant
Article Type:Brief Article
Date:Sep 1, 1991
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