§301.7122-1., Compromises

In general

 

(1) If the Secretary determines that there are grounds for compromise under this section, the Secretary may, at the Secretary's discretion, compromise any civil or criminal liability arising under the internal revenue laws prior to reference of a case involving such a liability to the Department of Justice for prosecution or defense.

 

(2) An agreement to compromise may relate to a civil or criminal liability for taxes, interest, or penalties. Unless the terms of the offer and acceptance expressly provide otherwise, acceptance of an offer to compromise a civil liability does not remit a criminal liability, nor does acceptance of an offer to compromise a criminal liability remit a civil liability.

 

(b) Grounds for compromise

 

(1) Doubt as to liability. --Doubt as to liability exists where there is a genuine dispute as to the existence or amount of the correct tax liability under the law. Doubt as to liability does not exist where the liability has been established by a final court decision or judgment concerning the existence or amount of the liability. See paragraph (f)(4) of this section for special rules applicable to rejection of offers in cases where the Internal Revenue Service ( IRS ) is unable to locate the taxpayer's return or return information to verify the liability.

 

(2) Doubt as to collectibility. --Doubt as to collectibility exists in any case where the taxpayer's assets and income are less than the full amount of the liability.

(3) Promote effective tax administration

 

(i) A compromise may be entered into to promote effective tax administration when the Secretary determines that, although collection in full could be achieved, collection of the full liability would cause the taxpayer economic hardship within the meaning of §301.6343-1.

 

(ii) If there are no grounds for compromise under paragraphs (b)(1), (2), or (3)(i) of this section, the IRS may compromise to promote effective tax administration where compelling public policy or equity considerations identified by the taxpayer provide a sufficient basis for compromising the liability. Compromise will be justified only where, due to exceptional circumstances, collection of the full liability would undermine public confidence that the tax laws are being administered in a fair and equitable manner. A taxpayer proposing compromise under this paragraph (b)(3)(ii) will be expected to demonstrate circumstances that justify compromise even though a similarly situated taxpayer may have paid his liability in full.

 

(iii) No compromise to promote effective tax administration may be entered into if compromise of the liability would undermine compliance by taxpayers with the tax laws.

 

(c) Special rules for evaluating offers to compromise

 

(1) In general. --Once a basis for compromise under paragraph (b) of this section has been identified, the decision to accept or reject an offer to compromise, as well as the terms and conditions agreed to, is left to the discretion of the Secretary. The determination whether to accept or reject an offer to compromise will be based upon consideration of all the facts and circumstances, including whether the circumstances of a particular case warrant acceptance of an amount that might not otherwise be acceptable under the Secretary's policies and procedures.

 

(2) Doubt as to collectibility

 

(i) Allowable Expenses. --A determination of doubt as to collectibility will include a determination of ability to pay. In determining ability to pay, the Secretary will permit taxpayers to retain sufficient funds to pay basic living expenses. The determination of the amount of such basic living expenses will be founded upon an evaluation of the individual facts and circumstances presented by the taxpayer's case. To guide this determination, guidelines published by the Secretary on national and local living expense standards will be taken into account.

 

(ii) Nonliable spouses

 

(A) In general. --Where a taxpayer is offering to compromise a liability for which the taxpayer's spouse has no liability, the assets and income of the nonliable spouse will not be considered in determining the amount of an adequate offer. The assets and income of a nonliable spouse may be considered, however, to the extent property has been transferred by the taxpayer to the nonliable spouse under circumstances that would permit the IRS to effect collection of the taxpayer's liability from such property (e.g., property that was conveyed in fraud of creditors), property has been transferred by the taxpayer to the nonliable spouse for the purpose of removing the property from consideration by the IRS in evaluating the compromise, or as provided in paragraph (c)(2)(ii)(B) of this section. The IRS also may request information regarding the assets and income of the nonliable spouse for the purpose of verifying the amount of and responsibility for expenses claimed by the taxpayer.

 

(B) Exception. --Where collection of the taxpayer's liability from the assets and income of the nonliable spouse is permitted by applicable state law (e.g., under state community property laws), the assets and income of the nonliable spouse will be considered in determining the amount of an adequate offer except to the extent that the taxpayer and the nonliable spouse demonstrate that collection of such assets and income would have a material and adverse impact on the standard of living of the taxpayer, the nonliable spouse, and their dependents.

(3) Compromises to promote effective tax administration

 

(i) Factors supporting (but not conclusive of) a determination that collection would cause economic hardship within the meaning of paragraph (b)(3)(i) of this section include, but are not limited to --

 

(A) Taxpayer is incapable of earning a living because of a long term illness, medical condition, or disability, and it is reasonably foreseeable that taxpayer's financial resources will be exhausted providing for care and support during the course of the condition;

 

(B) Although taxpayer has certain monthly income, that income is exhausted each month in providing for the care of dependents with no other means of support; and

 

(C) Although taxpayer has certain assets, the taxpayer is unable to borrow against the equity in those assets and liquidation of those assets to pay outstanding tax liabilities would render the taxpayer unable to meet basic living expenses.

 

(ii) Factors supporting (but not conclusive of) a determination that compromise would undermine compliance within the meaning of paragraph (b)(3)(iii) of this section include, but are not limited to --

 

(A) Taxpayer has a history of noncompliance with the filing and payment requirements of the Internal Revenue Code;

 

(B) Taxpayer has taken deliberate actions to avoid the payment of taxes; and

 

(C) Taxpayer has encouraged others to refuse to comply with the tax laws.

 

(iii) The following examples illustrate the types of cases that may be compromised by the Secretary, at the Secretary's discretion, under the economic hardship provisions of paragraph (b)(3)(i) of this section:

 

Example 1. The taxpayer has assets sufficient to satisfy the tax liability. The taxpayer provides full time care and assistance to her dependent child, who has a serious long-term illness. It is expected that the taxpayer will need to use the equity in his assets to provide for adequate basic living expenses and medical care for his child. The taxpayer's overall compliance history does not weigh against compromise.

 

Example 2. The taxpayer is retired and his only income is from a pension. The taxpayer's only asset is a retirement account, and the funds in the account are sufficient to satisfy the liability. Liquidation of the retirement account would leave the taxpayer without an adequate means to provide for basic living expenses. The taxpayer's overall compliance history does not weigh against compromise.

 

Example 3. The taxpayer is disabled and lives on a fixed income that will not, after allowance of basic living expenses, permit full payment of his liability under an installment agreement. The taxpayer also owns a modest house that has been specially equipped to accommodate his disability. The taxpayer's equity in the house is sufficient to permit payment of the liability he owes. However, because of his disability and limited earning potential, the taxpayer is unable to obtain a mortgage or otherwise borrow against this equity. In addition, because the taxpayer's home has been specially equipped to accommodate his disability, forced sale of the taxpayer's residence would create severe adverse consequences for the taxpayer. The taxpayer's overall compliance history does not weigh against compromise.

 

(iv) The following examples illustrate the types of cases that may be compromised by the Secretary, at the Secretary's discretion, under the public policy and equity provisions of paragraph (b)(3)(ii) of this section:

 

Example 1. In October of 1986, the taxpayer developed a serious illness that resulted in almost continuous hospitalizations for a number of years. The taxpayer's medical condition was such that during this period the taxpayer was unable to manage any of his financial affairs. The taxpayer has not filed tax returns since that time. The taxpayer's health has now improved and he has promptly begun to attend to his tax affairs. He discovers that the IRS prepared a substitute for return for the 1986 tax year on the basis of information returns it had received and had assessed a tax deficiency. When the taxpayer discovered the liability, with penalties and interest, the tax bill is more than three times the original tax liability. The taxpayer's overall compliance history does not weigh against compromise.

 

Example 2. The taxpayer is a salaried sales manager at a department store who has been able to place $2,000 in a tax-deductible IRA account for each of the last two years. The taxpayer learns that he can earn a higher rate of interest on his IRA savings by moving those savings from a money management account to a certificate of deposit at a different financial institution. Prior to transferring his savings, the taxpayer submits an e-mail inquiry to the IRS at its Web Page, requesting information about the steps he must take to preserve the tax benefits he has enjoyed and to avoid penalties. The IRS responds in an answering e-mail that the taxpayer may withdraw his IRA savings from his neighborhood bank, but he must redeposit those savings in a new IRA account within 90 days. The taxpayer withdraws the funds and redeposits them in a new IRA account 63 days later. Upon audit, the taxpayer learns that he has been misinformed about the required rollover period and that he is liable for additional taxes, penalties and additions to tax for not having redeposited the amount within 60 days. Had it not been for the erroneous advice that is reflected in the taxpayer's retained copy of the IRS e-mail response to his inquiry, the taxpayer would have redeposited the amount within the required 60-day period. The taxpayer's overall compliance history does not weigh against compromise.

 

(d) Procedures for submission and consideration of offers

 

(1) In general. --An offer to compromise a tax liability pursuant to section 7122 must be submitted according to the procedures, and in the form and manner, prescribed by the Secretary. An offer to compromise a tax liability must be made in writing, must be signed by the taxpayer under penalty of perjury, and must contain all of the information prescribed or requested by the Secretary. However, taxpayers submitting offers to compromise liabilities solely on the basis of doubt as to liability will not be required to provide financial statements.

 

(2) When offers become pending and return of offers. --An offer to compromise becomes pending when it is accepted for processing. The IRS may not accept for processing any offer to compromise a liability following reference of a case involving such liability to the Attorney General for prosecution or defense. If an offer accepted for processing does not contain sufficient information to permit the IRS to evaluate whether the offer should be accepted, the IRS will request that the taxpayer provide the needed additional information. If the taxpayer does not submit the additional information that the IRS has requested within a reasonable time period after such a request, the IRS may return the offer to the taxpayer. The IRS may also return an offer to compromise a tax liability if it determines that the offer was submitted solely to delay collection or was otherwise nonprocessable. An offer returned following acceptance for processing is deemed pending only for the period between the date the offer is accepted for processing and the date the IRS returns the offer to the taxpayer. See paragraphs (f)(5)(ii) and (g)(4) of this section for rules regarding the effect of such returns of offers.

(3) Withdrawal. --An offer to compromise a tax liability may be withdrawn by the taxpayer or the taxpayer's representative at any time prior to the IRS ' acceptance of the offer to compromise. An offer will be considered withdrawn upon the IRS ' receipt of written notification of the withdrawal of the offer either by personal delivery or certified mail, or upon issuance of a letter by the IRS confirming the taxpayer's intent to withdraw the offer.

 

(e) Acceptance of an offer to compromise a tax liability

 

(1) An offer to compromise has not been accepted until the IRS issues a written notification of acceptance to the taxpayer or the taxpayer's representative.

 

(2) As additional consideration for the acceptance of an offer to compromise, the IRS may request that taxpayer enter into any collateral agreement or post any security which is deemed necessary for the protection of the interests of the United States.

 

(3) Offers may be accepted when they provide for payment of compromised amounts in one or more equal or unequal installments.

 

(4) If the final payment on an accepted offer to compromise is contingent upon the immediate and simultaneous release of a tax lien in whole or in part, such payment must be made in accordance with the forms, instructions, or procedures prescribed by the Secretary.

 

(5) Acceptance of an offer to compromise will conclusively settle the liability of the taxpayer specified in the offer. Compromise with one taxpayer does not extinguish the liability of, nor prevent the IRS from taking action to collect from, any person not named in the offer who is also liable for the tax to which the compromise relates. Neither the taxpayer nor the Government will, following acceptance of an offer to compromise, be permitted to reopen the case except in instances where --

 

(i) False information or documents are supplied in conjunction with the offer;

 

(ii) The ability to pay or the assets of the taxpayer are concealed; or

 

(iii) A mutual mistake of material fact sufficient to cause the offer agreement to be reformed or set aside is discovered.

 

(6) Opinion of Chief Counsel. --Except as otherwise provided in this paragraph (e)(6), if an offer to compromise is accepted, there will be placed on file the opinion of the Chief Counsel for the IRS with respect to such compromise, along with the reasons therefor. However, no such opinion will be required with respect to the compromise of any civil case in which the unpaid amount of tax assessed (including any interest, additional amount, addition to the tax, or assessable penalty) is less than $50,000. Also placed on file will be a statement of --

 

(i) The amount of tax assessed;

 

(ii) The amount of interest, additional amount, addition to the tax, or assessable penalty, imposed by law on the person against whom the tax is assessed; and

 

(iii) The amount actually paid in accordance with the terms of the compromise.

 (f) Rejection of an offer to compromise

 

(1) An offer to compromise has not been rejected until the IRS issues a written notice to the taxpayer or his representative, advising of the rejection, the reason(s) for rejection, and the right to an appeal.

 

(2) The IRS may not notify a taxpayer or taxpayer's representative of the rejection of an offer to compromise until an independent administrative review of the proposed rejection is completed.

 

(3) No offer to compromise may be rejected solely on the basis of the amount of the offer without evaluating that offer under the provisions of this section and the Secretary's policies and procedures regarding the compromise of cases.

 

(4) Offers based upon doubt as to liability. --Offers submitted on the basis of doubt as to liability cannot be rejected solely because the IRS is unable to locate the taxpayer's return or return information for verification of the liability.

(5) Appeal of rejection of an offer to compromise

 

(i) In general. --The taxpayer may administratively appeal a rejection of an offer to compromise to the IRS Office of Appeals (Appeals) if, within the 30-day period commencing the day after the date on the letter of rejection, the taxpayer requests such an administrative review in the manner provided by the Secretary.

 

(ii) Offer to compromise returned following a determination that the offer was nonprocessable, a failure by the taxpayer to provide requested information, or a determination that the offer was submitted for purposes of delay. --Where a determination is made to return offer documents because the offer to compromise was nonprocessable, because the taxpayer failed to provide requested information, or because the IRS determined that the offer to compromise was submitted solely for purposes of delay under paragraph (d)(2) of this section, the return of the offer does not constitute a rejection of the offer for purposes of this provision and does not entitle the taxpayer to appeal the matter to Appeals under the provisions of this paragraph (f)(5). However, if the offer is returned because the taxpayer failed to provide requested financial information, the offer will not be returned until a managerial review of the proposed return is completed.

 

(g) Effect of offer to compromise on

(1) In general. --The IRS will not levy against the property or rights to property of a taxpayer who submits an offer to compromise, to collect the liability that is the subject of the offer, during the period the offer is pending, for 30 days immediately following the rejection of the offer, and for any period when a timely filed appeal from the rejection is being considered by Appeals.

(2) Revised offers submitted following rejection. --If, following the rejection of an offer to compromise, the taxpayer makes a good faith revision of that offer and submits the revised offer within 30 days after the date of rejection, the IRS will not levy to collect from the taxpayer the liability that is the subject of the revised offer to compromise while that revised offer is pending.

(3) Jeopardy. --The IRS may levy to collect the liability that is the subject of an offer to compromise during the period the IRS is evaluating whether that offer will be accepted if it determines that collection of the liability is in jeopardy.

 

(4) Offers to compromise determined by IRS to be nonprocessable or submitted solely for purposes of delay. --If the IRS determines, under paragraph (d)(2) of this section, that a pending offer did not contain sufficient information to permit evaluation of whether the offer should be accepted, that the offer was submitted solely to delay collection, or that the offer was otherwise nonprocessable, then the IRS may levy to collect the liability that is the subject of that offer at any time after it returns the offer to the taxpayer.

 

(5) Offsets under section 6402. --Notwithstanding the evaluation and processing of an offer to compromise, the IRS may, in accordance with section 6402, credit any overpayments made by the taxpayer against a liability that is the subject of an offer to compromise and may offset such overpayments against other liabilities owed by the taxpayer to the extent authorized by section 6402.

 

(6) Proceedings in court. --Except as otherwise provided in this paragraph (g)(6), the IRS will not refer a case to the Department of Justice for the commencement of a proceeding in court, against a person named in a pending offer to compromise, if levy to collect the liability is prohibited by paragraph (g)(1) of this section. Without regard to whether a person is named in a pending offer to compromise, however, the IRS may authorize the Department of Justice to file a counterclaim or third-party complaint in a refund action or to join that person in any other proceeding in which liability for the tax that is the subject of the pending offer to compromise may be established or disputed, including a suit against the United States under 28 U.S.C. 2410. In addition, the United States may file a claim in any bankruptcy proceeding or insolvency action brought by or against such person.

 

(h) Deposits. --Sums submitted with an offer to compromise a liability or during the pendency of an offer to compromise are considered deposits and will not be applied to the liability until the offer is accepted unless the taxpayer provides written authorization for application of the payments. If an offer to compromise is withdrawn, is determined to be nonprocessable, or is submitted solely for purposes of delay and returned to the taxpayer, any amount tendered with the offer, including all installments paid on the offer, will be refunded without interest. If an offer is rejected, any amount tendered with the offer, including all installments paid on the offer, will be refunded, without interest, after the conclusion of any review sought by the taxpayer with Appeals. Refund will not be required if the taxpayer has agreed in writing that amounts tendered pursuant to the offer may be applied to the liability for which the offer was submitted.

 

(i) Statute of limitations

 (1) Suspension of the statute of limitations on collection. --The statute of limitations on collection will be suspended while levy is prohibited under paragraph (g)(1) of this section.

 

(2) Extension of the statute of limitations on assessment. --For any offer to compromise, the IRS may require, where appropriate, the extension of the statute of limitations on assessment. However, in any case where waiver of the running of the statutory period of limitations on assessment is sought, the taxpayer must be notified of the right to refuse to extend the period of limitations or to limit the extension to particular issues or particular periods of time.

(j) Inspection with respect to accepted offers to compromise. --For provisions relating to the inspection of returns and accepted offers to compromise, see section 6103(k)(1).

 

(k) Effective date. --This section applies to offers to compromise pending on or submitted on or after July 18, 2002. [Reg. §301.7122-1.]

 

[2001-2 USTC ¶50,647] Lorentz Opdahl, Plaintiff v. United States of America , Defendant

U.S. District Court, D.C., 98-0262 (TPJ), 8/16/2001, 2001 U.S. Dist. LEXIS 14098.

[Code Sec. 6323 ]

Tax liens: Notice: Uncertified notice.--Notices of tax liens challenged by a pro se taxpayer that were in standard IRS form and filed in the taxpayer's state of residence, but which were not certified, were valid. The IRS was not required to certify the notices under applicable state ( South Dakota ) law to enforce them.

[Code Sec. 7122 ]

Compromise agreements: Writing requirement: Proper form.--A pro se taxpayer failed to prove that he had reached an enforceable settlement agreement with the IRS . He did not allege that he submitted an offer on the proper IRS forms, he could not produce a written offer or acceptance of an offer, and no written offer or acceptance existed in the IRS file.

[Code Secs. 6103 and 7431 ]

Disclosures: Necessary to collection activity exemption.--An allegation made by a pro se taxpayer, who was challenging notices of tax liens, that the IRS made unauthorized disclosures of his return information was rejected. Limited information concerning the taxpayer's tax deficiencies that was included in the notices of lien and levies was necessary to IRS collection activities. BACK REFERENCES: 2001 FED ¶36,894.75 and 2001 FED ¶41,758.10

[Code Sec. 7433 ]

Damages: Unauthorized collection: Statute of limitations.--A damage claim made by a pro se taxpayer for allegedly unauthorized collection was barred because it exceeded the two-year statute of limitations. The taxpayer had reasonable opportunities to discover the essential elements of a possible cause of action for the unauthorized collection as early as four years prior to filing his lawsuit.

[Code Sec. 7421 ]

Anti-Injunction Act: Application of statute.--Claims for declaratory and injunctive relief made by a pro se taxpayer to prevent the IRS from seizing his property were barred under the Anti-Injunction Act.

Lorentz Opdahl, Hudson, S.D., pro se. Samuel Alvin Mitchell, Pat S. Genis, Department of Justice, Washington, D.C. 20530, for defendant.

MEMORANDUM AND ORDER

JACKSON, District Judge:

Presently pending before the Court are the parties' cross motions for summary judgment and plaintiff's motion for partial summary judgment. Plaintiff, Lorentz Opdahl, challenges tax liens and levies filed against him by the Internal Revenue Service (" IRS "). He contends that the liens and levies are invalid because they were not properly "certified." He also contends that he reached an agreement with the IRS to settle all of his outstanding tax liabilities for $289,000, but that the IRS has failed to honor that compromise. ¹ His amended complaint seeks the return of property allegedly seized by the IRS , an injunction to prevent the IRS from seizing his property, a declaration that a settlement exists between him and the IRS , and a determination that the IRS made unauthorized disclosures and committed a wrongful collection pursuant to 26 U.S.C. §7431 & 7433.

The Court concludes that the notices of tax liens are valid under 26 U.S.C. §6323(f) and Rev. Rul. 71-466, 1971-s C.B. 409. The notices are in standard IRS form and were filed in Mr. Opdahl's state(s) of residence, as required by 26 U.S.C. §6323(f). Notices of tax lien need not be "certified" under state law, as plaintiff contends. See 26 U.S.C. §6323(f)(3) ("The form and content of the notice referred to in subsection (a) shall be prescribed by the Secretary. Such notice shall be valid notwithstanding any other provision of law regarding the form or content of a notice of lien.").

Mr. Opdahl has not proved that he had an enforceable settlement agreement with the United States . The parties agree that any alleged settlement between Mr. Opdahl and the United States was made orally, not in writing. 26 U.S.C. §7122 governs the settlement of tax liabilities and provides that "the Secretary [of Treasury] may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense. . . . " Section 7122 "is the exclusive method by which tax cases may be compromised." Brooks v. United States [87-2 USTC ¶9626], 833 F.2d 1136, 1145 (4th Cir. 1987) (citing Botany Worsted Mills v. United States [1 USTC ¶348], 278 U.S. 282, 288-89, 73 L.Ed. 379, 49 S.Ct. 129 (1929) (prior version of statute)). Although §7122 does not on its face require an agreement to be in writing, it is clear from the case law that all settlement offers must be in writing pursuant to Treas. Reg. §301.7122-1 and must otherwise comply with the requirements of 26 U.S.C. §7122. See Boulez v. Commissioner of Internal Revenue [87-1 USTC ¶9177], 258 U.S. App. D.C. 90, 810 F.2d 209, 212 (D.C. Cir. 1987) ("We agree with Boulez that the statute does not of its own accord forbid oral compromise agreements, but conclude that the regulation, which requires that all compromises be reduced to writing, has the force and effect of law, and that the Director [of International Operations of the IRS ] lacked authority to waive it."). Treasury Regulation §301.7122-1 (1987), which was in effect at the time of the purported settlement in the instant case, provided:

Procedure with respect to offers in compromise--

(1) Submission of offers. Offers in compromise shall be submitted on forms prescribed by the Internal Revenue Service which may be obtained from district directors of internal revenue, and should generally be accompanied by a remittance representing the amount of the compromise offer or a deposit if the offer provides for future installment payments. . . .

[(2)] Acceptance. An offer in compromise shall be considered accepted only when the proponent thereof is so notified in writing.

Treas. Reg. §301.7122-1(d) (1987) (emphasis added); see also Boulez [87-1 USTC ¶9177], 810 F.2d at 213 n.33. Mr. Opdahl does not allege that he submitted any offer on proper IRS forms, he has not produced a written acceptance of the offer, and the IRS file contains no written offer or acceptance. See Def's Rule 108 Statement, P16 and Declaration of Crystal Foster, PP3-4. Plaintiff admits that the settlement was not written but contends that under the common law, "nothing was needed in writing, the moment the tender for payment was accepted," otherwise the property should have been returned. See Pl's Response at P16. Such an argument was addressed and dismissed in Brooks, which held that "the exclusivity of §7122 prevents the application of general contract rules to enforce apparent agreements between the IRS and taxpayers." Brooks [87-2 USTC ¶9626], 833 F.2d at 1147. Thus, the Court concludes that there was no valid settlement in this case.

Plaintiff's wrongful disclosure claims under 26 U.S.C. §7431 also fail. To bring a cause of action under 26 U.S.C. §7431, plaintiff must show that a U.S. employee disclosed taxpayer's tax return information in violation of 26 U.S.C. §6103, which forbids the disclosure of tax return information "except as authorized by this title." 26 U.S.C. §6103(a). One of the exceptions is 26 U.S.C. §6103(k)(6), which authorizes internal revenue officers in connection with their official duties relating to any collection activity to disclose return information "to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax, liability for tax, or the amount to be collected or with respect to the enforcement of any other provision of this title." Federal courts have held that disclosure of return information in notices of levy is "necessary to the collection activity" and thus falls within the §6103(k)(6) exemption. Farr v. United States [93-1 USTC ¶50,229], 990 F.2d 451, 455 (9th Cir. 1993); see also Long v. United States [92-2 USTC ¶50,431], 972 F.2d 1174, 1180 (10th Cir. 1993) ("It is undisputed that §6103(k)(6) authorizes an IRS employee to disclose tax return information in the issuance of liens and levies. Thus, the general rule is that liens and levies do not constitute unauthorized disclosures under §6103."). The limited information concerning plaintiff's tax deficiencies included in the notices of lien and levies was "necessary to the collection activity" and did not violate 26 U.S.C. §7431.

Plaintiff's claim for unauthorized collection of $120,000 under 26 U.S.C. §7433 is barred by the statute of limitations, which provides that an action "may be brought only within two years after the date the right of action accrues." 26 U.S.C. §7433(d)(3). A right of action accrues when the taxpayer has had "reasonable opportunity to discover all essential elements of a possible cause of action." Treas. Reg. §301.7433-1(g)(2). Plaintiff had a reasonable opportunity through his criminal trial and other proceedings to discover that the IRS had not credited his tax account for the $120,000 he allegedly paid to an IRS agent. Moreover, as early as 1994, plaintiff filed civil suits to recover this money, indicating he knew that it had not been credited to his account. He did not file the instant case until February 2, 1998, well over two years after he had reasonable opportunity to discover all elements of the potential claim. ²

Plaintiff's requests for declaratory and injunctive relief are barred by statute. See 26 U.S.C. §7421 & 28 U.S.C. §2201(a). ³

For the foregoing reasons and for substantially the reasons raised in defendant's opposition to plaintiff's motion for partial summary judgment, it is, this 16th day of August, 2001.

ORDERED, that defendant's motion for summary judgment [19] is granted; and it is

FURTHER ORDERED, that judgment is entered for the defendant; and it is

FURTHER ORDERED, that plaintiff's motion for summary judgment [18] is denied; and it is

FURTHER ORDERED, that plaintiff's motion for partial summary judgment [26] is denied.

¹ Some of the background facts of this alleged compromise are contained in the Eleventh Circuit's opinion in United States v. Opdahl, 930 F.2d 1530 (11th Cir. 1991), which overturned plaintiff's bribery conspiracy conviction.

² The Court observes that many of plaintiff's claims under 26 U.S.C. §7431, discussed supra, are also barred by the statute of limitations.

³ Plaintiff's amended complaint does not dispute the calculation of the tax assessment, so those claims are not before the Court. To the extent that plaintiff raises such claims in his briefing, the Court observes that the Secretary of the Treasury (or his designee) is authorized to make tax assessments pursuant to 26 U.S.C. §6201, and the assessments are presumed correct. See Welch v. Helvering [3 USTC ¶1164], 290 U.S. 111, 115, 78 L.Ed. 212, 54 S.Ct. 8 (1933). The burden is on the taxpayer to offer evidence to show that the Commissioner's determination is invalid, which plaintiff has not done. See Helvering v. Taylor [35-1 USTC ¶9044], 293 U.S. 507, 515, 79 L.Ed. 623, 55 S.Ct. 287 (1935). The only evidence plaintiff offers to rebut the assessments is a hand-written page of figures that plaintiff claims represents his accountant's calculation of plaintiff's tax liability for 1976 to 1985. This unidentified document is insufficient to rebut the IRS assessments. This same reasoning also applies to plaintiff's motion for partial summary judgment, which challenges the validity of an IRS assessment for tax year 1983 but offers no evidence in support thereof.

 

99-1 USTC ¶50,260] United States of America, Plaintiff v. Keith E. Young, et al., Defendant

U.S. District Court, No. Dist. Ohio , West. Div., 3:97 CV 7689, 1/19/99

[Code Secs. 6511 and 7422 ]

Jurisdiction: Refunds: Counterclaim for: Statute of limitations: Sovereign immunity: Equitable recoupment: Tax liabilities: Settlement of.--A federal district court had jurisdiction to consider a taxpayer's counterclaim for refund under the doctrine of equitable recoupment, despite the fact that no administrative claim had been filed and a refund suit initiated by the taxpayer would have been untimely. The taxpayer claimed to have made a payment to a revenue officer in settlement of the tax liabilities at issue. Since the government raised the issue of the taxpayer's liabilities, equitable recoupment permitted him to assert any related defenses, and he was entitled to pursue a refund of overpayments from other years that were applied by the government to the allegedly settled tax liabilities.

[Code Sec. 7122 ]

Tax liabilities: Settlement of: Accord and satisfaction not permissible: Revenue officer not authorized.--A taxpayer who alleged that he had made a payment to a revenue officer in settlement of his tax liabilities could not assert the affirmative defense of accord and satisfaction in an IRS action to reduce tax liens to judgment. Accord and satisfaction does not meet the tax code's requirements for demonstrating a compromise in a tax case. The taxpayer produced no evidence to establish the existence of an offer of compromise or to prove that the IRS provided him with a written acceptance of such offer. Moreover, the revenue officer who purportedly accepted the payment was not authorized to enter into a compromise agreement. MEMORANDUM OPINION

KATZ, District Judge:

This matter is before the Court on a motion by the United States of America to dismiss the Defendants' counterclaim and strike their affirmative defense of accord and satisfaction. For the following reasons, Plaintiff's motion to dismiss Defendants' counterclaim is denied. Plaintiff's motion to strike the affirmative defense of accord and satisfaction is granted. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§1340 and 1345, and 26 U.S.C. §§7402 and 7403.

BACKGROUND

The United States filed a complaint on October 20, 1997 in an effort to reduce its tax assessments to judgment and foreclose its federal tax lien against Defendants Keith and Rosemary Young. Defendants maintain that on September 22, 1988 , Keith Young paid the Internal Revenue Service (" IRS ") the sum of $22,000.00, and that Revenue Officer Melvin Brennan accepted the payment as full and complete satisfaction of the Defendants' outstanding tax liability. On that date, Defendants' accrued tax liability, including penalties and interest, totaled $26,452.53. The IRS has no documentation of the Youngs' $22,000.00 payment. The IRS ' Internal Security Division conducted an investigation of the allegations of theft but determined that the Defendants never paid the claimed amount. The issue for trial centers on whether such a payment was in fact made.

On October 16, 1998 , the Defendants moved this Court to amend their answer to include a counterclaim against the United States . This Court granted the Defendants motion on October 23, 1998 , and the Defendants subsequently amended their pleadings to include a counterclaim and the affirmative defense of accord and satisfaction. The Defendants allege that they paid the United States $22,000 in full satisfaction of their tax liability. Additionally, Defendants maintain that overpayments totaling $2,596.39 taken from various years were applied to the liabilities the United States seeks to collect for the 1983 tax year, and thus the Defendants counterclaim for this amount.

DISCUSSION

A. Defendants' Counterclaim

The United States asserts that the Defendants' counterclaim should be dismissed on two grounds: (1) the Court is without jurisdiction over the counterclaim, and (2) a refund is barred by the statute of limitations period under 26 U.S.C. §6511. For the following reasons, Plaintiff's assertions under both grounds must fail.

i. Jurisdiction over the counterclaim

The Plaintiff asserts that the doctrine of sovereign immunity bars this Court from exercising jurisdiction over the United States unless there is a specific waiver by the United States to be sued. See Lehman v. Nakshian, 453 U.S. 156, 160, 101 S.Ct. 2698, 2701, 69 L.Ed.2d 548 (1981); United States v. Testan, 424 U.S. 392, 399, 96 S.Ct. 953-954, 47 L.Ed.2d 114 (1976). Under 26 U.S.C. §7422, the Internal Revenue Code provides such a specific waiver. The Code states:

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected . . . until a claim for refund or credit has been duly filed with the Secretary. . .

Defendants have not alleged that they have filed a claim with the Secretary, and therefore Plaintiff asserts that sovereign immunity has not been waived.

However, the Defendants maintain that they may counterclaim against the United States under the doctrine of equitable recoupment. The doctrine of equitable recoupment "permit[s] a transaction which is made the subject of suit by a plaintiff to be examined in all its aspects, and judgment to be rendered that does justice in view of the one transaction as a whole." Rothensies v. Electric Storage Battery Co. [47-1 USTC ¶9106], 329 U.S. 296, 299, 67 S.Ct. 271, 272, 91 L.Ed. 296 (1946). Equitable recoupment has been utilized by the Supreme Court to hold that where the Government sues for taxes owed, a court is too rigid if it denies the defendant an opportunity to defend by articulating a claim for recoupment in the same action. See Bull v. United States [35-1 USTC ¶9346], 295 U.S. 247, 262, 55 S.Ct. 695, 700, 79 L.Ed. 1421 (1935). In Bull, the Supreme Court explained:

No direct suit can be maintained against the United States; but when an action is brought by the United States, to recover money in the hands of a party who has a legal claim against them, it would be a very rigid principle to deny to him the right of setting up such claim in a court of justice, and turn him round to an application to congress. If the right of the party is fixed by the existing law, there can be no necessity for an application to congress, except for the purpose of remedy. And no such necessity can exist, when this right can properly be set up by way of defense, to a suit by the United States .

Bull v. United States [35-1 USTC ¶9346], 295 U.S. 247, 262, 55 S.Ct. 695, 700, 79 L.Ed. 1421 (1935) quoting United States v. Ringgold, 33 U.S. 150, 160, 8 Pet. 150, 8 L.Ed. 899 (1834). Therefore, it is clear that if Defendants had brought the original claim for a refund against the United States , they would have to comply with the provisions of 26 U.S.C. §7422 before the doctrine of sovereign immunity would be waived. However, because the United States commenced the action, the Defendants may counterclaim under the doctrine of equitable recoupment.

ii. Statute of limitations

Plaintiff claims that any refund the Defendants may claim is barred by 26 U.S.C. §6511, which provides:

Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever such period expires later. . .

Plaintiff contends that Defendants did not file a claim for a refund within three years of the date of the filing of their 1983 or 1984 tax returns nor did Defendants allege that they filed a claim for a refund within two years after they paid the tax. Therefore, Plaintiff maintains that Defendants are time-barred from their counterclaim for $2,596.39.

Defendants again assert the doctrine of equitable recoupment. Equitable recoupment allows the Youngs to seek a refund in this action despite the statute of limitations because this Court already has independent jurisdiction over this suit. The case of United States v. Dalm [90-1 USTC ¶50,154], 494 U.S. 596, 598, 110 S.Ct. 1361, 1362, 108 L.Ed.2d 548 (1990) specifically stands for this proposition. In Dalm, the taxpayer did not comply with the statutory requirements in 26 U.S.C. §6511. Id. at 602. The taxpayer was not allowed to seek a tax refund because he had filed a separate suit to obtain the refund. However, the Court stated that "a party litigating a tax claim in a timely proceeding may, in that proceeding, seek recoupment of a related, and inconsistent, but now time-barred tax claim relating to the same transaction." Id. at 608. See also Bull v. United States [35-1 USTC ¶9346], 295 U.S. 247, 262, 55 S.Ct. 695, 700, 79 L.Ed. 1421 (1935) (allowing a taxpayer's otherwise time-barred equitable recoupment claim when trial court had undisputed jurisdiction). Therefore, under Dalm and Bull, Defendants' counterclaim is not barred by the statute of limitations because it was brought as a result of a suit commenced by the United States .

B. Defendants' Affirmative Defense of Accord and Satisfaction

Defendants assert that on September 22, 1988 , they paid IRS Revenue Officer Melvin Brennan a sum of $22,000.00, and were informed that the payment would function as full and complete satisfaction of the Defendants' then outstanding tax liability. On September 22, 1988 , Defendants' accrued tax liability, including penalties and interest, totaled $26,452.53. Defendants maintain that Officer Brennan accepted this payment and agreed that the amount constituted an accord and satisfaction of their entire tax liability.

Under 26 U.S.C. §§7121 and 7122, explicit provisions are set forth which dictate when the Secretary of the Treasury can compromise or settle a tax liability. Under §7122, an offer of compromise must be submitted on special forms and an offer will not be considered to have been accepted unless the taxpayer is notified in writing of the acceptance. 26 C.F.R. §301.7122-1(d)(1) and (d)(3). Defendants failed to submit the requisite forms and were not notified in writing of the acceptance of the compromise. Furthermore, Officer Brennan did not have the authority to enter into a compromise agreement. Joyce v. Gentsch [44-1 USTC ¶9277], 141 F.2d 891, 895 (6th Cir. 1944).

Additionally, accord and satisfaction cannot be utilized as a method to show compromise in a tax case. Bowling v. United States [75-1 USTC ¶9333], 510 F.2d 112, 113 (5th Cir. 1975). The manner and form in which a compromise or settlement may be offered or accepted are strictly construed. Laurins v. Commissioner [89-2 USTC ¶9636], 889 F.2d 910, 912 (9th Cir. 1989). Therefore, Plaintiff's motion to exclude Defendants' affirmative defense of accord and satisfaction is granted.

CONCLUSION

For the foregoing reasons, Plaintiff's motion to dismiss Defendants' counterclaim is denied. Plaintiff's motion to strike Defendants' affirmative defense of accord and satisfaction is granted.

IT IS SO ORDERED.

JUDGMENT ENTRY

For the reasons stated in the Memorandum Opinion filed contemporaneously with this Judgment Entry, IT IS HEREBY ORDERED, ADJUDGED and DECREED that Plaintiff's motion to dismiss Defendants' counterclaim is denied. Plaintiff's motion to strike Defendants' affirmative defense of accord and satisfaction is granted (Doc. No. 26).

 

87-1 USTC ¶9177] Pierre Boulez, Appellant v. Commissioner of Internal Revenue, Appellee

(CA-DC), U.S. Court of Appeals, D.C. Circuit, 82-1048, 2/13/87, 810 F2d 209, Affirming the Tax Court, 76 TC 209, Dec. 37,661

[Code Sec. 7122 . Result unchanged by the Tax Reform Act of 1986 ]

Compromises: Authority to accept offers: Oral agreement.--
The Director of the Office of International Operations lacked authority to conclude an oral agreement purporting to compromise a disputed income tax liability with the taxpayer, a citizen of France and a world-renowned music director and conductor. Under Reg. §301.7122-1(d) , binding compromises must be in writing. The taxpayer, a nonresident alien for purposes of U.S. income taxes, had contracted with a United Kingdom corporation to serve as director and conductor for musical organizations selected by the U.K. corporation, had received monies flowing through the corporation and paid to him for his performances in the United States, and did not include these amounts in his gross income. Although Code Sec. 7122(a) does not specify that compromise agreements must be in writing, nor does it explicitly sanction oral settlements, the court was persuaded that Congress left to the Secretary of the Treasury the task of promulgating regulations addressing the requisite manner of offer and acceptance of compromises. Reg. §301.7122-1(d) simply defined the form that compromise agreements must take, and the court found the requirement of a writing entirely reasonable, and a wholly permissible interpretation of Code Sec. 7122 . The taxpayer's assertion that Delegation Order No. 11 empowered the Director to waive application of the writing requirement--either because the order lacked restricting language or by virtue of some authority inherent in its terms--misconceived the nature of the delegation here. The discretion the delegation order conferred upon the Director was discretion to compromise claims of tax liability, not the procedure by which compromise agreements were formalized.

Lawrence D. Bernfeld, Alfred R. McCauley, Allen Greenberg, for appellant. Glen L. Archer, Jr., Assistant Attorney General, Terry L. Fredericks, Michael L. Paup, Department of Justice, Washington, D.C. 20530, for appellee.

Before WALD, Chief Judge, ROBINSON, Circuit Judge, and WRIGHT, Senior Circuit Judge.

ROBINSON, Circuit Judge:

This appeal summons us to adjudge the validity of an oral agreement between a taxpayer and an official of the Internal Revenue Service ( IRS ) purporting to compromise a disputed income tax liability. The United States Tax Court held the agreement ineffective on the ground that the official lacked authority to enter into it. ¹ We affirm.

I

The taxpayer, Pierre Boulez, is a citizen of France and a world-renowned music director and conductor. ² In 1971, Boulez contracted with Beacon Concerts, Ltd., a United Kingdom corporation, ³ to serve as director and conductor for musical organizations selected by Beacon. ⁴ The latter in turn contracted to provide Boulez's services to the New York Philharmonic Symphony and the Cleveland Orchestra, both United States corporations. ⁵

For tax years 1971 and 1972, Boulez was a nonresident alien for purposes of United States income taxes. ⁶ During those years, Beacon received $207,473 for Boulez's performances in the United States ⁷ and, after deducting its expenses and commissions, paid Boulez $188,495. ⁸ Boulez filed United States nonresident alien income tax returns for 1971 and 1972, but did not include in his gross income any of the monies Beacon received or paid to him for his services. ⁹ Boulez continued to perform in the United States for the New York Philharmonic Symphony during 1973, 1974 and 1975. He filed nonresident alien returns for the 1973 and 1974 tax years, and again failed to report any amount received by or from Beacon. ¹⁰

In 1975, IRS launched an investigation of Boulez's tax obligations respecting the monies flowing through Beacon. ¹¹ Boulez obtained counsel, ¹² who engaged in a protracted series of negotiations with IRS on Boulez's potential tax liability and assertedly reached an oral compromise ¹³ with IRS 's Director of International Operations. ¹⁴ Boulez claims that he was to file amended returns for 1973 and 1974 including in gross income the amounts paid to Beacon for his services in the United States; and that, in exchange, no adjustments were to be made by IRS , no payments for years prior to 1973 would be required, and no penalties for late filing or payment would be assessed. ¹⁵

Boulez then filed amended 1973 and 1974 returns conforming to the compromise and remitted $53,841 in additional taxes. ¹⁶ Appended to the amended returns was a letter form Boulez's counsel stating that these returns were "in accordance with [counsel's] conversation with" the Director. ¹⁷

Thereafter, Boulez did not oppose inclusion in his gross income for 1973 and years following of the amounts paid to Beacon for his performances in the United States. ¹⁸ He did not resist the applicability of any income tax convention to Beacon's receipts for or payments to him, nor did he seek any refund of taxes paid in consequence of the compromise. Ultimately, he terminated his arrangement with Beacon and personally assumed the obligations imposed on Beacon by the contract with the Philharmonic. ¹⁹

In 1977, IRS commenced an unrelated audit of Boulez's 1975 return, and later expanded it to an examination of his 1971 and 1972 returns. ²⁰ In 1978, IRS issued a notice of deficiency informing Boulez that he owed additional taxes for 1971 and 1972. Underlying the notice was a determination that Boulez should have included in his gross income for those years amounts paid to Beacon for his performances in the United States. ²¹

Boulez challenged this ruling in the Tax Court ²² and moved for summary judgment on two grounds. He claimed that the 1976 oral agreement, which purported to settle any tax liability for 1971 and 1972, constituted a binding compromise. ²³ Alternatively, Boulez asserted that if the agreement was not a bar, IRS was equitably estopped from assessing the deficiency because Boulez had relied upon the agreement and changed his position to his detriment. ²⁴ The Tax Court held in favor of the Commissioner, reasoning that the Director of International Operations lacked authority to bind IRS by means of an oral agreement, because Treasury Regulation §301.7122-1(d) requires offers and acceptances of compromise to be in writing. ²⁵ From this decision, Boulez now appeals.

II

Boulez presses two arguments in an effort to demonstrate that the Tax Court erred in refusing to grant summary judgment in his favor. He first contends that the Treasury Regulation §301.7122-1(d) is invalid for inconsistency with Section 7122(a) of the Internal Revenue Code ²⁶ which, he says, sanctions oral compromises. He further contends that even if the regulation imposes a valid limitation on statutory authority to compromise, it is merely directory, and that a delegation order empowered the Director of International Operations, as the Commissioner's delegate at the time of the agreement, to accept Boulez's oral offer of compromise and thus to bind the agency. We agree with Boulez that the statute does not of its own accord forbid oral compromise agreements, but conclude that the regulation, which requires that all compromises be reduced to writing, ²⁷ has the force and effect of law, and that the Director lacked authority to waive it.

The Commissioner argues that Section 7122(a) of the Code manifests the intent of Congress to outlaw oral compromise agreements. The Commissioner concedes, as he must, that the section does not expressly call for a writing, but he maintains that when viewed against the backdrop of its legislative history, it should be read to incorporate that requirement. The question thus posed appears to be one of first impression. ²⁸

Undeniably, Section 7122(a) is facially ambiguous. It does not specify that compromise agreements must be in writing, nor does it explicitly sanction oral settlements. The legislative history, although cited by the Commissioner in support of his position, does not plainly settle the question either. When, more than a century ago, the provision authorizing compromise agreements was first drafted, ²⁹ the bill made the written opinion of the Solicitor of Internal Revenue prerequisite to a valid compromise agreement. ³⁰ This particular requirement appears to be the only precondition Congress considered incorporating into the statute. It was deleted from the final version, however, and has not reappeared in any successor statute. ³¹ We can find no suggestion that Congress, in the course of its deliberations, otherwise considered the form that compromise agreements should take. We thus are persuaded that Congress left to the Secretary of the Treasury the task of promulgating regulations addressing the requisite manner of offer and acceptance of compromises. ³²

III

The Secretary has issued Treasury Regulation §301.7122-1(d) , which specifically requires a written offer and acceptance. ³³ Boulez acknowledges that the compromise upon which he relies did not satisfy this demand, but claims that the regulation conflicts with the statute. Boulez further claims that breach of the regulation should not affect the validity of the compromise agreement because the regulation is merely directory in character and because in any event the Director, as the Secretary's delegate, had authority to waive it in his instance. We find each of these arguments unpersuasive.

We address first the contention that the regulation contravenes the intent of Congress. ³⁴ To prevail on this argument, Boulez must overcome the strong presumption of validity to which Treasury regulations are entitled. ³⁵ The Supreme Court has consistently declared that a Treasury regulation must be complied with unless the taxpayer can demonstrate that it is " 'unreasonable and plainly inconsistent with the revenue statutes.' " ³⁶

It is evident that Boulez has not discharged this burden. The crux of his argument is that Section 7122 sanctions oral compromises and that the Secretary cannot by regulation impose additional requirements that undermine the congressional purpose. ³⁷ To be sure, courts will not hesitate to invalidate Treasury regulations that do not reasonably adhere to statutory dictates or which frustrate legislative objectives, ³⁸ but this case presents neither situation. Congress, in enacting Section 7122 , empowered the Secretary to compromise disputed tax liabilities, but left to the Secretary the mechanics of effecting settlements. ³⁹ In turn, the Secretary in specifying in Treasury Regulation §301.7122-1(d) ⁴⁰ that all offers of compromise be submitted and accepted in writing, ⁴¹ simply defined the form that compromise agreements must take. We find the requirement of a writing entirely reasonable, and a wholly permissible interpretation of Section 7122 .

When, therefore, the parties negotiated the compromise of Boulez's 1971-74 tax liability, they did so subject to the terms of the regulation, one of which is that the compromise agreement be in writing. Moreover, the regulation provides that "offers in compromise shall be submitted on forms prescribed by the Internal Revenue Service . . .," ⁴² and warns that "[a]n offer in compromise shall be considered accepted only when the proponent thereof is so notified in writing." ⁴³ In the face of so unambiguous a mandate, we must adjudge the oral compromise devoid of binding effect unless for some reason it did not obtain in this case.

Acknowledging the compromise in issue was never reduced to writing in accordance with the strictures of the regulation, Boulez contends the oversight was inconsequential. The regulation, he asserts, is merely a procedural specification, directory and not mandatory in nature, whose breach should not affect the enforcement of the compromise agreement. ⁴⁴ To demand full compliance with its terms, he says, is to adhere to a "technical procedural approach" that " 'would [. . .] sacrifice the principle of compromise to [the] mere form of procedure.' " ⁴⁵

We emphatically reject Boulez's characterization of the regulation, as well as his estimate of the significance of its breach. The authority on which Boulez relies in labeling the regulation directory concerns, not Part 301, but Part 601 of the Treasury regulations, otherwise known as the "Statement of Procedural Rules." ⁴⁶ Part 601 rules differ significantly from the regulations here in question. Issued by the Commissioner, without need for approval by the Secretary, they serve merely as guidelines for conducting the internal affairs of the agency. The authority of the Commissioner to issue such rules derives from a statute empowering him to promulgate rules "for the government of his department, the conduct of its employees, the distribution and performance of its business, and the custody, use and preservation of the records, papers, and property." ⁴⁷ As such, the Statement of Procedural Rules is held to be directory, not mandatory in nature. ⁴⁸

By contrast, it is the Secretary who possesses the authority to "prescribe all needful rules and regulations for the enforcement" of the internal revenue laws. ⁴⁹ These regulations, when consistent with and reasonably adapted to enforcement of those statutes, have the force of law. ⁵⁰ Treasury Regulation §301.7122-1(d) , promulgated by the Secretary pursuant to this statutory grant, announces the prerequisites to binding compromises under Section 7122 . Its terms are mandatory, not directory in character. ⁵¹

Boulez's claim that exacting compliance with the writing requirement of Treasury Regulation §301.7122-1(d) reflects a "technical procedural approach" to the Treasury regulations is simply untenable. We are not dealing with a mere housekeeping provision, but with a fundamental tenet of formalizing agreements. Unlike procedures governing the internal affairs of IRS , ⁵² the writing requirement of Treasury Regulation §301.7122-1(d) confers rights and imposes liabilities on third parties--as Boulez would be the first to insist if tables were turned and IRS invoked an oral compromise agreement against him. Conditioning the enforceability of Section 7122 compromise agreements on compliance with the writing requirement of Treasury Regulation §301.7122-1(d) hardly evinces a hypertechnical approach to application of the rules. ⁵³

IV

Boulez nonetheless maintains that even if the regulation is not precatory in nature, the Director of International Operations had authority to waive it in his instance. ⁵⁴ He asserts that Delegation Order No. 11, ⁵⁵ which empowered the Director to accept offers to compromise under Section 7122 , does not confine itself to instances of full compliance with applicable regulations, and thus enabled the Director to enter into the oral agreement with Boulez's counsel. ⁵⁶ Put another way, Boulez insists that the Director's authorization was not limited by Treasury Regulation §301.7122-1(d) . ⁵⁷

This argument is flawed in two respects. First, the power conferred by Delegation Order No. 11 to enter into compromise agreements is sharply circumscribed by Revenue Procedure 64-44 :

This is a "limited" delegation to the extent that the delegated authority must be exercised in accordance with the limitations prescribed by section 301.7122-1 of the Regulations on Procedure and Administration and with procedures established by the National Office. ⁵⁸

Since the regulation calls for compromise agreements in writing, it is clear that the Commissioner, in delegating to the Director authority to compromise disputed tax claims, could not have intended that it could be exercised in contravention of the regulation.

To circumvent the limiting language of Revenue Procedure 64-44 , Boulez points out that it specifically referred to Delegation Order No. 11 (Rev. 3), ⁵⁹ and argues that it was "rendered obsolete" by Delegation Order No. 11 (Rev. 4), ⁶⁰ the order in effect at the time of the compromise agreement in suit. ⁶¹ Boulez contends that because Revision 4 did not contain the phrase "subject to limitations contained in applicable regulations and procedures," the authority of the Director of International Operations was not curtailed by Treasury Regulation §301.7122-1(d) .

We may easily reject this argument. We are in complete accord with the Tax Court's conclusion that "in light of the clear reference to the limitations prescribed by sec. 301.7122-1 , Proced. & Admin. Regs., set forth in Rev. Proc. 64-44 , repetition of that language in subsequent revisions of Delegation Order No. 11 would have been superfluous." ⁶² Revenue Procedure 64-44 continued in force at all times relevant to this case and was not superseded until 1980 when Revenue Procedure 80-6 ⁶³ was issued. Significantly, Revenue Procedure 80-6 contains virtually identical language, requiring the delegated authority to be exercised in accordance with the strictures of Treasury Regulation §301.7122-1 . ⁶⁴

More deeply, Boulez's assertion that the delegation order empowered the Director to waive application of the writing requirement--either because the order lacked restricting language or by virtue of some authority inherent in its terms--misconceives the nature of the delegation here. Whatever discretion the delegation order conferred upon the Director was discretion to compromise claims of tax liability, not the procedure by which compromise agreements were to be formalized. ⁶⁵ Acting in contravention of a regulation governing execution of compromise agreements, the Director was as much without authority to join in the oral arrangement with Boulez's counsel as he would have been had power to compromise never been delegated to him. ⁶⁶

On this appeal, Boulez has abandoned the estoppel arguments he urged upon the Tax Court, ⁶⁷ and so relieves us of the necessity of addressing them here. ⁶⁸ He does, however, renew his equitable arguments in the form of a policy argument to the effect that taxpayer confidence in the revenue system is best served by enforcement of oral agreements of the character at issue. ⁶⁹ We think, to the contrary, that confidence in the system is promoted by even-handed application of publicly-accessible regulations, especially where, as here, their purpose is to minimize disputes over the existence and terms of agreements between taxpayers and the Government of the type giving rise to the instant litigation. Indeed, when a compromise of tax liability is at issue, the need for rigorous compliance with pertinent regulations may be at its greatest, for not only the integrity of the public fisc but also public faith in the equitable enforcement of the tax laws hangs in the balance. The writing requirement of Treasury Regulation §301.7122-1(d) is a legally reasonable and an administratively sound condition to attach to exercises of delegated authority to compromise disputed tax liabilities, and justice is plainly served by consistent adherence to it.

The judgment of the Tax Court is accordingly

... Affirmed.

¹ Boulez v. Commissioner [CCH Dec. 37,661 ], 76 T.C. 209 (1981).

² Joint Appendix (J. App.) 43-44.

³ J. App. 44.

⁴ J. App. 44. The contract was a "loan-out" agreement--one in which an artist contracts with a management company to arrange his bookings and consents to render services at the company's direction. See J. App. 101-105 (agreement between Boulez and Beacon).

⁵ J. App. 43-44, 106-132.

⁶ J. App. 43.

⁷ See Brief for Appellee at 3 & n.1.

⁸ J. App. 47. Boulez expended $85,515 in performing in the United States in 1971 and 1972. Id.

⁹ J. App. 50-62; Brief for Appellee at 3. See Rev. Rul. 74-330 , 1974-2 C.B. 278; Rev. Rul. 74-331 , 1974-2 C.B. 282.

¹⁰ J. App. 46-47.

¹¹ J. App. 47. In the course of its probe, IRS requested the Philharmonic to withhold for income tax purposes 30% of the gross amount paid to Beacon for Boulez's services. See J. App. 45.

¹² J. App. 45.

¹³ The Commissioner of Internal Revenue stipulated to the existence of the oral agreement, see J. App. 144-147, for the limited purpose of enabling the Tax Court to dispose of his motion for summary judgment. Boulez v. Commissioner, supra note 1, 76 T.C. at 215 n.9. Consequently, we make the same assumption for purposes of our review.

¹⁴ J. App. 46. This official is now known as the Director, Foreign Operations District, but his duties are unchanged. The Director administers the internal revenue laws on behalf of IRS as they relate to "foreign taxpayers deriving income from sources within the United States." Treas. Reg. §601.101(a) (1986).

¹⁵ See Affidavit of Irving Moskovitz at 2, J. App. 141.

¹⁶ Boulez v. Commissioner, supra note 1, 76 T.C. at 209-211. J. App. 134.

¹⁷ Letter from Irving Moskovitz to Warren Josephs (Feb. 1, 1977), J. App. 134. IRS accepted the amended returns and imposed no penalties. J. App. 48.

¹⁸ Nor did Boulez contest the applicability to him of Rev. Ruls. 74-330 , 1974-2 C.B. 278 or 74-331, 1974-2 C.B. 282, in which the Commissioner explained his position regarding foreign entertainers and loan-out arrangements. See Boulez v. Commissioner, supra note 1, 76 T.C. at 210.

¹⁹ Id. at 210-211.

²⁰ J. App. 47.

²¹ J. App. 47.

²² Boulez v. Commissioner, supra note 1. Boulez chose to litigate only the legitimacy of the oral agreement; he did not claim entitlement to a refund of any part of the taxes he had paid. 76 T.C. at 211.

²³ Id.

²⁴ Id. at 211, 214.

²⁵ Id. at 212-213. See Treas. Reg. §301.7122-1(d) (1986) (quoted in relevant part infra note 33).

²⁶ 26 U.S.C. §7122(a) (1982), providing:

The Secretary or his delegate may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.

²⁷ See Treas. Reg. §301.7122-1(d) (1986) (quoted in relevant part infra note 33).

²⁸ In Botany Mills v. United States [1 USTC ¶348 ], 278 U.S. 282, 289, 49 S.Ct. 129, 132, 73 L.Ed. 379, 385 (1929), the Court held that an "informal" or "gentlemen's" agreement made by subordinate agency officials without securing the consent of the Secretary did not constitute a binding agreement under the predecessor of §7122 , Act of July 20, 19 68, ch. 186, §102 , 15 Stat. 166, Rev. Stat. §3229. The Court did not address, however, the validity of oral compromise agreements per se. In McIlhenny v. Commissioner [1930 CCH ¶9197], 39 F.2d 356, 358 (3d Cir. 1930), the court, also construing Rev. Stat. §3229, alluded to the fact that "there was no agreement in writing," but added "or otherwise." Country Gas Serv., Inc. v. United States [69-1 USTC ¶9178 ], 405 F.2d 147, 149-150 (1st Cir. 1969), involved the validity of an oral compromise agreement under §7122 , but the court based its rejection of the agreement on the agent's lack of authority and did not discuss the need for a writing.

²⁹ The precursor of 26 U.S.C. §7122(a) (1982) may be found in the Act of July 20, 18 68, ch. 186, §102 , 15 Stat. 124, 166, and was carried forward into the Internal Revenue Code of 1939 as §3761.

³⁰ Senator Sherman, the proponent of this requirement, explained that its purpose was to ensure "that the Commissioner of Internal Revenue shall never make a compromise until after a full and fair investigation." Cong. Globe, 40th Cong., 2d Sess. 3773 (1868) (statement of Sen. Sherman). The object of the provision was "to see that the Commissioner has all the facts before him, prepared by an officer who is supposed to be a lawyer." Id. (statement of Sen. Sherman). In the course of the floor debate that ensued over this proposal, the Senator never addressed the question whether compromise agreements had to be reduced to writing before they were binding. As he understood his amendment, it served only as a check on the power of the Commissioner to enter into settlements:

Now we provide that no compromise can be made except with the written assent of the Secretary of the Treasury; and further than that, in order to show that it cannot be done upon insufficient information, we require another officer to file his opinion in writing, setting out certain facts, the basis of the opinion by the Secretary of the Treasury.

Id. at 3775 (statement of Sen. Sherman).

³¹ The Commissioner relies heavily upon a recently-excised section of a related statute concerning compromises reached after entry of a judgment. 31 U.S.C. §194 (1976) provided:

Upon a report by a United States attorney, or any special attorney or agent having charge of any claim in favor of the United States, showing in detail the condition of such claim, and the terms upon which the same may be compromised, and recommending that it be compromised upon the terms so offered, and upon the recommendation of the General Counsel for the Department of the Treasury, the Secretary of the Treasury is hereby authorized to compromise such claim accordingly. . . .

But this section did not in terms require the Secretary to reduce compromises to writing. Moreover, §§194 and 7122 were not enacted contemporaneously, neither provision referred to the other, and §194 was finally repealed in 1978. Act of Nov. 6, 1978, Pub. L. No. 95-598, §322(c), 92 Stat. 2549, 2679. We cannot see how this defunct provision, which contained no explicit or implicit requirement of a writing and which dealt only with post-judgment compromises, sheds any light on the legislative intentions animating §7122(a) .

³² The Commissioner attempts to minimize the omission of a writing requirement in §7122(a) by emphasizing instead the written-record requirement of §7122(b) :

(b) Record.--Whenever a compromise is made by the Secretary or his delegate in any case, there shall be placed on file in the office of the Secretary or his delegate the opinion of the General Counsel for the Department of the Treasury or his delegate, with his reasons therefor, with a statement of--

(1) The amount of tax assessed,

(2) The amount of interest, additional amount, addition to the tax, or assessable penalty, imposed by law on the person against whom the tax is assessed, and

(3) The amount actually paid in accordance with the terms of the compromise. . . .

26 U.S.C. §7122(b) (1982). Insisting that creation of a written record is a statutory prerequisite to settlement of a tax dispute, the Commissioner argues that the absence of such a record in this case renders the oral compromise without legal effect. Brief for Appellee at 16.

The Tax Court found it unnecessary to resolve this question, Boulez v. Commissioner, supra note 1, 76 T.C. at 214 n.8. We likewise reserve decision on the question whether §7122(b) 's call for a written record is directory or mandatory. We note, however, that the Commissioner does not distinguish between the authority to utilize compromise agreements conferred by §7122(a) , which surely cannot be doubted when the agreements are in writing, and the responsibility for maintaining records of such compromise agreements imposed upon the Department of the Treasury by §7122(b) . To the extent that the Commissioner suggests that the taxpayer's failure to produce a §7122(b) record invalidates a compromise authorized by §7122(a) , the argument may carry little weight, for noncompliance with §7122(b) can hardly be reasonably charged to the taxpayer, who is powerless to effect it.

³³ Treas. Reg. §301.7122-1(d) (1986) in relevant part provides:

Procedure with respect to offers in compromise--

(1) Submission of offers. Offers in compromise shall be submitted on forms prescribed by the Internal Revenue Service which may be obtained from district directors of internal revenue, and should generally be accompanied by a remittance representing the amount of the compromise offer or a deposit if the offer provides for future installment payments. . . .

(3) Acceptance. An offer in compromise shall be considered accepted only when the proponent thereof is so notified in writing. . . .

³⁴ See Reply Brief for Appellant at 19-20.

³⁵ E.g., Poirier & McLane Corp. v. Commissioner [76-2 USTC ¶9793 ], 547 F.2d 161, 167 (2d Cir. 1976), cert. denied, 431 U.S. 967, 97 S.Ct. 2925, 53 L.Ed.2d 1063 (1977); Beal Foundation v. United States [77-2 USTC ¶9642 ], 559 F.2d 359, 361 (5th Cir. 1977); United Telecommunications, Inc. v. Commissioner [79-1 USTC ¶9129 ], 589 F.2d 1383, 1387 (10th Cir. 1978), cert. denied, 442 U.S. 917, 99 S.Ct. 2839, 61 L.Ed.2d 284 (1979).

³⁶ Commissioner v. Portland Cement Co., 450 U.S. 156, 169, 101 S.Ct. 1037, 1045, 67 L.Ed.2d 140, 151 (1981) (quoting Commissioner v. South Texas Lumber Co. [48-1 USTC ¶5922 ], 333 U.S. 496, 501, 68 S.Ct. 695, 698, 92 L.Ed. 831, 836 (1948)); accord Thor Power Tool Co. v. Commissioner [79-1 USTC ¶9139 ], 439 U.S. 522, 533 n.11, 99 S.Ct. 773, 781 n.11, 58 L.Ed.2d 785, 796 n.11 (1979); Fawcus Mach. Co. v. United States [5 USTC ¶1518 and 2 USTC ¶635], 282 U.S. 375, 378, 51 S.Ct. 144, 145, 75 L.Ed. 397, 399 (1931).

³⁷ See Reply Brief for Appellant at 19-20.

³⁸ See, e.g., United States v. Vogel Fertilizer Co. [82-1 USTC ¶9134 ], 455 U.S. 16, 102 S.Ct. 821, 70 L.Ed.2d 792 (1982); Rowan Cos. v. United States [81-1 USTC ¶9479 ], 452 U.S. 247, 101 S.Ct. 2288, 68 L.Ed.2d 814 (1981).

³⁹ See text supra at notes 29-32.

⁴⁰ The Secretary has not himself designated officers who may negotiate and accept compromises, but instead has chosen to delegate the task of designation to the Commissioner. See Treas. Dep't Order No. 150-25, 18 Fed. Reg. 3238 (1953), as amended by Order No. 150-36, 1954-2 C.B. 733.

⁴¹ See Treas. Reg. §301.7122-1(d) (1986) (quoted in relevant part supra note 33).

⁴² Treas. Reg. §301.7122-1(d)(1) (1986) (quoted in relevant part supra note 33).

⁴³ Id. §301.7122-1(d)(3) (quoted in relevant part supra note 33).

⁴⁴ Brief for Appellant at 36-38.

⁴⁵ Brief for Appellant at 39 (quoting United States v. Wainer [57-1 USTC ¶9280 ], 240 F.2d 595, 598 (7th Cir.), cert. denied, 355 U.S. 815, 78 S.Ct. 15, 2 L.Ed.2d 32 (1957)).

⁴⁶ Treas. Reg. pt. 601 (1986). See Brief for Appellant at 36-38 (citing Luhring v. Glotzbach [62-2 USTC ¶9548 ], 304 F.2d 560 (4th Cir. 1962); Hamilton v. United States [63-2 USTC ¶9829 ], 324 F.2d 960, 963 (Ct. Cl. 1963); Bonacci v. Commissioner [CCH Dec. 34,447(M) ], 46 T.C.M. 714, 718 (1977)).

⁴⁷ 5 U.S.C. §301 (1982); see 26 C.F.R. §601.101 -.109 (1986); see also Rosenberg v. Commissioner [71-2 USTC ¶9727 ], 450 F.2d 529, 531 (10th Cir. 1971) (procedural rules of Part 601 "are not Treasury Decisions or Regulations").

⁴⁸ Luhring v. Glotzbach, supra note 48, 304 F.2d at 565; Einhorn v. DeWitt [80-2 USTC ¶9486 ], 618 F.2d 347, 348-349 (5th Cir. 1980); Smith v. United States [73-1 USTC ¶9401 ], 478 F.2d 398, 400 (5th Cir. 1973) ("the provisions of the Statement of Procedural Rules are merely directory, and not mandatory"); Rosenberg v. Commissioner, supra note 47, 450 F.2d at 532-533. Cf. United States v. Horne [83-2 USTC ¶9548 ], 714 F.2d 206, 207 (1st Cir. 1983) (provisions of Internal Revenue Manual, like Statement of Procedural Rules, are not mandatory and lack force of law); United States v. Will [82-1 USTC ¶9216 ], 671 F.2d 963, 967 (6th Cir. 1982) (Internal Revenue Manual "adopted solely for the internal administration of the IRS , rather than for the protection of the taxpayer, does not confer any rights upon the taxpayer"); Cleveland Trust Co. v. United States [70-1 USTC ¶12,649 ], 421 F.2d 475, 481-482 (6th Cir.), cert. denied, 400 U.S. 819, 91 S.Ct. 35, 27 L.Ed.2d 46 (1970) (revenue procedure held to be directory, not mandatory).

⁴⁹ 26 U.S.C. §7805(a) (1982).

⁵⁰ See note 36 supra and accompanying text; see also United States v. Correll [68-1 USTC ¶9101 ], 389 U.S. 299, 305-306, 88 S.Ct. 445, 449, 19 L.Ed.2d 537, 542-543 (1967) (invoking "the settled principle that 'Treasury regulations and interpretations long continued without substantial change, applying to unamended or substantially reenacted statutes, are deemed to have received congressional approval and have the effect of law' ") (quoting Helvering v. Winmill [38-2 USTC ¶9550 ], 305 U.S. 79, 83, 59 S.Ct. 45, 46, 83 L.Ed. 52, 55 (1938)).

⁵¹ See Shumaker v. Commissioner of Internal Revenue [81-2 USTC ¶9508 ], 648 F.2d 1198, 1199-1200 (9th Cir. 1981) (" IRS regulations establish[ing] the procedures for closing agreements and compromises pursuant to 26 U.S.C. §7121 , 7122 . . . are exclusive") (citations omitted) (neither IRS ' informal acceptance of taxpayer's amended returns nor adjustments to his tax crediting him with amount in controversy constitute a binding agreement under the tax laws).

Boulez argues that the regulatory scheme itself suggests that the Secretary intended to permit his delegate to waive the express writing requirement of Treas. Reg. §301.7122-1(d) . Noting that subsection (d)(1) of the regulation provides that offers in compromise must be submitted on forms prescribed by IRS , see note 33 supra, and that Treas. Reg. §601.203(b) (1986) identifies Form 656 as the form appropriate for §301.7122-1(d) submissions, Boulez observes that Form 656 pertains to cash-tender compromises, and so could not have served to record the compromise agreement stipulated in the instant case. Since the authority of the Secretary to compromise pursuant to 26 U.S.C. §7122(a) is not limited to receipt of a cash tender, Boulez contends that residual discretionary authority over compromise procedure is retained by the Secretary despite the specific language of §301.7122-1(d) . From this he concludes that the Secretary or his delegate may dispense with the writing requirement without affecting the validity of the compromise. See Reply Brief for Appellant at 17-18.

We are unmoved by this argument. We are asked to infer from the fact that the Treasury regulations do not specify the full array of forms appropriate for §301.7122-1(d) submissions an intent to invest the Secretary's delegates with discretion to waive the requirement of a written submission, and this, we think, defies common sense. Incomplete identification of the relevant forms for submissions may indicate latitude with respect to the form on which the submission is recorded, but not with respect to the recording requirement generally. The terms of Treas. Reg. §301.7122-1(d) bear out this reading. While subsection (d)(1), pertaining to the submission of offers in compromise, refers to submissions on prescribed forms, subsection (d)(3), pertaining to acceptances of offers in compromise, states in broad terms that "[a]n offer in compromise shall be considered accepted only when the proponent thereof is so notified in writing." Treas. Reg. §301.7122-1(d)(3) (1986). Clearly, incomplete identification of forms for §301.7122-1(d) submissions in no way alters the requirement of the regulation that such submissions be rendered in writing.

⁵² Cf. Smith v. United States, supra note 48, 478 F.2d at 400 ( IRS claims valid despite breach of directory rules providing for mailing of notice of disallowance to taxpayer's "recognized representative" and for mailing taxpayer 30-day letter prior to issuance of statutory notice of disallowance); Rosenberg v. Commissioner, supra note 47, 450 F.2d at 532-533 ( IRS claims valid despite breach of directory rules providing for prelitigation conference with taxpayer, where taxpayer provided full hearing and determination de novo in Tax Court).

⁵³ Our holding in this case is thus consistent with the ruling in United States v. Memphis Cotton Oil Co. [3 USTC ¶1025 ], 288 U.S. 62, 53 S.Ct. 278, 77 L.Ed. 619 (1933), where the Supreme Court held the IRS obliged to countenance amendment of a taxpayer's filing to conform to a Treasury regulation ordering the grounds for a refund suit to be described in the initial claim. As the purpose of the provision was to ensure notice to the Commissioner of the various claims the taxpayer was seeking to assert, and the taxpayer's belated attempt to amend his refund claim would afford the requisite notice, the Court concluded flexible application of the regulation to be appropriate. Id. at 69-73, 53 S.Ct. at 281-282, 77 L.Ed. 623-626.

Boulez's attempt to read Memphis Cotton as broadly sanctioning waiver of Treasury regulations, see Reply Brief for Appellant at 17, is unavailing. First, the Court in Memphis Cotton explicitly rested its holding on the general trend toward liberalizing pleading requirements, see id. at 72, 53 S.Ct. at 282, 77 L.Ed. at 625, a concern of little relevance here. Second, unlike the situation in Memphis Cotton--involving a taxpayer's attempt to satisfy regulatory requirements by amending a filing in a manner which posed no disruption to the orderly disposition of his claim--the so-called "waiver" here sought is intended to nullify a regulatory requirement precisely to enable Boulez to foreclose IRS from exploring his 1971-72 tax liability. By requiring documentation of the terms of compromise agreements, Treas. Reg. §301.7122-1(d) seeks to protect both the taxpayer and the Commissioner from disputes such as the one before us. The flexibility counseled by Memphis Cotton in no respect compels us to tolerate breach of so fundamental and sensible a rule as the documentation requirement imposed by §301.7122-1(d) .

⁵⁴ Brief for Appellant at 26-35.

⁵⁵ Delegation Order No. 11 (Rev. 6), 1971-1 C.B. 653, in relevant part provides:

Delegation of Authority to Accept or Reject Offers of Compromise.

Pursuant to the authority vested in the Commissioner of Internal Revenue . . . it is hereby ordered:

1. District Director, Assistant District Director, the Director of International Operations and the Assistant Director of International Operations are delegated authority, under section 7122 of the Internal Revenue Code, to accept offers in compromise in cases in which the liability sought to be compromised (including any interest, additional amount, addition to the tax, or assessable penalty) is less than $100,000, to accept offers involving specific penalties, and to reject offers in compromise regardless of the amount of liability sought to be compromised.

⁵⁶ Brief for Appellant at 26-28.

⁵⁷ Brief for Appellant at 26-35.

⁵⁸ Rev. Proc. 64-44, 1964-2 C.B. 974.

⁵⁹ See 1963-2 C.B. 732.

⁶⁰ 1968-1 C.B. 735.

⁶¹ See Brief for Appellant at 32.

⁶² Boulez v. Commissioner, supra note 1, 76 T.C. at 213 & n.6. Moreover, Delegation Order No. 11 (Rev. 4) explicitly relies on Treas. Reg. §301.7122-1 as one of its sources of authority. 1968-1 C.B. 735, 736.

⁶³ 1980-1 C.B. 586, 589.

⁶⁴ See id. at 587.

⁶⁵ Indeed, we do not see how a delegation order, promulgated by the Commissioner without the specific approval of the Secretary could of its own accord override a Treasury regulation promulgated by the Secretary pursuant to his statutory authority.

⁶⁶ Cf. Botany Worsted Mills v. United States [1 USTC ¶348 ], 278 U.S. 282, 288, 49 S.Ct. 129, 131, 73 L.Ed. 379, 385 (1929) (compromise of tax liability lacked binding effect where executed by subordinate officials in IRS and approved by Commissioner but never ratified by Secretary as required by statute); Country Gas Serv., Inc. v. United States, supra note 28, 405 F.2d at 149-150 (no binding compromise of tax liability where agreement undertaken by official of IRS lacking explicit delegation of authority).

⁶⁷ See Boulez v. Commissioner, supra note 1, 76 T.C. at 214-217.

⁶⁸ Claims of estoppel arising from the behavior of governmental employees may be asserted only in a narrow category of circumstances. The Tax Court held that the circumstances stipulated in this case fell outside that category. See id. Though we are not called upon to address Boulez's estoppel claim on this appeal, we think his attempt to reiterate equitable arguments in the language of public policy, see text infra at note 69, warrants mention of the principles framing governmental estoppel. First, those who deal with the Government are charged with knowledge of applicable statutes and regulations. The Supreme Court delivered this warning in unequivocal terms in Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947):

Whatever the form in which the Government functions, anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority. The scope of this authority may be explicitly defined by Congress or through the rule-making power. . . . Just as everyone is charged with knowledge of the United States Statutes at Large, Congress has provided that the appearance of rules and regulations in the Federal Register gives legal notice of their contents.

Id. at 384-385, 68 S.Ct. at 3, 92 L.Ed. at 15 (citations omitted). Furthermore, courts called upon to recognize equitable claims emanating from the conduct of government employees who provide erroneous information or act in a manner inviting reliance cannot evaluate such claims as though the transaction were merely between private parties. "The oft-quoted observation . . . that 'Men must turn square corners when they deal with the Government,' does not reflect a callous outlook. It merely expresses the duty of all courts to observe the conditions defined by Congress for charging the public treasury." Id. (quoting Rock Island, A. & I. R.R. v. United States [1 USTC ¶38 ], 254 U.S. 141, 143, 41 S.Ct. 55, 56, 65 L.Ed. 188, 189 (1920)). The principle is no different where the requirement is promulgated by the agency charged by Congress with administering a statute. Id.; Schweiker v. Hansen, 450 U.S. 785, 101 S.Ct. 1468, 67 L.Ed. 2d 685 (1981) (per curiam). Finally, no distinction between substantive and procedural requirements suffices to mitigate the court's responsibility to ensure observance of regulations governing claims on the public fisc. Id. at 790, 101 S.Ct. at 1472, 67 L.Ed.2d at 690 ("[a] court is no more authorized to overlook the valid regulation requiring that applications be in writing than it is to overlook any other valid requirement for the receipt of benefits").

⁶⁹ Brief for Appellant at 41-42.

85-2 USTC ¶9793]Benjamin Scott and Doretha Scott, Plaintiffs v. United States of America, Defendant

U. S. District Court, Cen. Dist. Calif., No. CV 84-7786-JMI(JRx), 8/23/85

[Code Secs. 6503, 7121, 7122 and 7421]

Closing agreements: Compromises: Estoppel: Unauthorized agreements: Procedure: Suits enjoining assessment or collection: Anti-Injunction Act: Suspension of running of period.--A district court concluded that an oral compromise agreement reached between the taxpayers and an IRS agent concerning the deductibility of certain items of income was insufficient to bind the government without first having been reduced to a writing. Further, the court held that sovereign immunity and the Anti-Injunction Act prevented the taxpayers from prevailing on an estoppel theory, since the court stated that there existed no authority for the novel proposition that an assessment ought to be abated to punish the IRS for backing out of an agreement. Moreover, the court also rejected the taxpayers' contention that the 3-year statutory period on assessments had expired, since a deficiency notice had been issued which extended the period for an additional 150 days. .

Robert C. Bonner, United States Attorney, Charles H. Magnuson, Edward M. Robbins, Jr., Assistant United States Attorneys, Los Angeles, Calif. 90012, for defendant.

Statements of Uncontroverted Facts

IDEMAN, District Judge:

1. This is a civil action brought by plaintiffs Benjamin Scott and Doretha Scott ("taxpayers") to obtain a refund of federal income taxes paid for 1979 in the amount of $1,601.16, plus statutory interest.

2. Taxpayers timely filed their joint individual income tax return for the year 1979 with the Internal Revenue Service Center at Fresno, California.

3. On April 9, 1982, the Internal Revenue Service issued to taxpayers at their last known address a statutory notice of deficiency asserting a $1,337.00 deficiency against taxpayers for the year 1979.

4. On May 9, 1983, the Internal Revenue Service assessed the identified deficiency against the taxpayers and collected the deficiency assessment, plus interest, in the amount of $1,601.16 from a deficiency prepayment made by taxpayers on April 29, 1982.

5. This suit for refund followed.

6. The first ground alleged by taxpayers in support of their claim is that the assessment and collection of the identified $1,601.16 was improper, because employees of the Internal Revenue Service orally agreed with the taxpayers that certain claimed deductions would be allowed. According to taxpayers, the IRS reneged on this agreement and the subject assessment and collection improperly followed.

7. The second ground alleged by taxpayers in support of their claim is that the May 9, 1983 , assessment at issue in this case was made outside the statutory assessment period and is, therefore, unlawful.

8. To the extent any Conclusion of Law is deemed a Finding of Fact, it is incorporated herein.

Conclusions of Law

1. This Court has subject matter jurisdiction over this action pursuant to 28 U. S. C. §1346(a)(1) (1976) and 26 U. S. C. §7422(a) (1967).

2. Venue lies in the Central District of California under 28 U. S. C. §1396.

3. The Government has established a prima facie case against taxpayers in support of the tax liability challenged in the complaint through the certified copy of assessments attached to the Robbins declaration. United States v. Molitor [64-2 USTC ¶9820], 337 F. 2d 917 (9th Cir. 1964); United States v. Pomponio [80-2 USTC ¶9820], 635 F. 2d 293, 296 (4th Cir. 1980); Psaty v. United States [71-1 USTC ¶9346], 442 F. 2d 1154 (3d Cir. 1971).

4. The Government is required to prove no more until the taxpayers come forward with evidence to establish that they were not responsible for the taxes. United States v. Molitor, supra at 923.

5. We are aware of no facts suggesting that taxpayers are not liable for the tax in this matter, and they have suggested none.

6. Assuming all of the allegations of the taxpayers' complaint are true, it is submitted that the government is not bound by the agreements reached between the taxpayers and agents of the IRS that certain deductions would be allowed, because the taxpayers did not enter into a formal agreement with the IRS and because the taxpayers cannot show the elements necessary to create an estoppel.

7. Congress has provided the exclusive means of settling a tax dispute with the IRS by way of the procedures established in 26 U. S. C. §§ 7121 and 7122. McIlnenny v. Commissioner, 39 F. 2d 356 (3rd Cir. 1930), affirming [ CCH Dec. 4316] 13 B. T. A. 288 ² H. M. Harrington, Jr. v. Commissioner [ CCH Dec. 28,618], 48 T. C. 939 (1967), aff'd [69-1 USTC ¶9102] 404 F. 2d 237 (5th Cir. 1968); Estate of Ella T. Meyer v. Commissioner [ CCH Dec. 31,336], 58 T. C. 69 (1972). As stated in Knapp-Monarch Co. v. Commissioner [44-1 USTC ¶9151], 139 F. 2d 863, 864 (8th Cir. 1944);

The very fact that Congress has provided a way in which the Internal Revenue Department may bind itself, precludes the possibility of its being bound by some other procedure. * * *

8. Both the closing agreement provided by §7121 and the compromise provided by §7122 must be in writing. See 26 U. S. C. §7121(a); Treas. Reg. §301.7122-1(d) and 601.203(a) and (b). The taxpayers' complaint makes it plain that the agreements identified by the taxpayers were oral. As a result, no agreement exists which can bind the IRS .

9. To the extent that the taxpayer is raising some sort of estoppel argument, it is submitted that such an argument is meritless. "In general, equitable estoppel is not available as a defense against the Government, especially when the government is acting in its sovereign, as opposed to its proprietary capacity." Johnson v. Williford [83-1 USTC ¶9120], 682 F. 2d 868, 871 (9th Cir. 1982).

10. In this Circuit, it has been held that, ". . . [a]t a minimum, estoppel requires an act by a Government agent, upon which the taxpayer relies to its detriment, under circumstances where it may reasonably rely." Northern Life Ins. Co. v. United States [82-2 USTC ¶9560], 685 F. 2d 277, 279 (9th Cir. 1982).

11. The actions of the IRS agents in this case occurred, if at all, during the audit of taxpayers' 1979 return. We fail to see how the taxpayers' liability was effected by subsequent settlement negotiations between the taxpayer and the IRS . Indeed, the taxpayers' theory seems to be that the entire 1979 deficiency assessment must be abated to punish the IRS for backing out of the agreements. We are aware of no support for such a novel argument and submit that the argument runs counter to the doctrine of sovereign immunity (see e.g. United States v. Mitchell, 445 U. S. 535, 538 (1980)) and the Anti-Injunction at (26 U. S. C. §7421).

12. Contrary to taxpayers' contentions, the subject assessment was timely under the law. Since the taxpayers timely filed their 1979 federal income tax return, it is deemed filed April 15, 1980. 26 U. S. C. §6501(b)(1). As the taxpayers correctly point out, the statute of limitations on assessments for the taxpayers 1979 year would normally expire three years later, or on April 15, 1983. 26 U. S. C. §6501(a). As a result, the taxpayers contend that the May 9, 1983 , assessment at issue in this case was late. We disagree.

13. The statute of limitations on assessment of taxpayers' 1979 income tax liabilities was extended for 150 days as a result of the April 9, 1982, deficiency notice. Accordingly, the subject assessment was timely.

14. 26 U. S. C. §6501(a) provides that the tax shall be assessed within three years after the relevant return was filed unless otherwise provided. One place where it is otherwise provided is 26 U. S. C. §6503(a)(1) which suspends the assessment period provided by section 6501(a) where, as here, a notice of deficiency is issued. The relevant period of suspension under 26 U. S. C. §6501(a)(1) is 150 days, calculated by adding the period the Internal Revenue Service is prohibited from making an assessment (90 days, 26 U. S. C. §6213(a)), plus 60 days.

15. As a result, the May 9, 1983, assessment is timely.

16. As a result, plaintiffs' complaint fails to state a claim upon which relief can be granted.

17. Because no material issues of fact remain, defendant's motion for summary judgment is granted.

18. To the extent any Finding of Fact is deemed a Conclusion of Law, it is incorporated herein.