Rev. Proc. 68-16

                            SUMMARY Page

The purpose of this Revenue Procedure is to explain procedures applicable to the processing of closing agreements by the Internal Revenue Service under section 7121 of the Internal Revenue Code of 1954 and to present guidelines and illustrations useful in the preparation of closing agreements. This Procedure does not, however, discuss procedures with respect to closing agreements entered into and approved in connection with rulings prepared by the office of the Assistant Commissioner (Technical) (discussed in Revenue Procedure 67-1, C.B. 1967-1, 544).

SEC. 2. BACKGROUND.

.01 Effective July 1, 1966, Commissioner's Delegation Order No. 97 (Rev. 2), C.B. 1966-2, 1189, while continuing prior delegations of closing agreement authority to the Assistant Commissioners (Compliance) and (Technical) and to district directors in Revenue Procedure 64-24, C.B. 1964-1 (Part 1), 693, cases and conveying certain authority to the Director of International Operations, authorized Regional Commissioners, Assistant Regional Commissioners (Appellate), and Chiefs and Associate Chiefs of regional Appellate Division office to enter into certain closing agreements. This decentralization of authority covered closing agreements in cases under district or regional office jurisdiction pertaining to tax liability for any taxable period ended prior to the date of the agreement (except in cases docketed in the Tax Court of the United States and except as noted in section 2.02) and those pertaining to specific items related to taxable periods under the jurisdiction of district or regional offices and affecting other taxable periods (except as noted in section 2.02). A practical effect of the foregoing delegation is that most closing agreements are signed by Chiefs and Associate Chiefs or regional Appellate Division offices. Those officials sign closing agreements in cases under their jurisdiction as well as those recommended by district directors in cases under the jurisdiction of the latter.

.02 Under Delegation Order No. 97 (Rev. 4) the following categories of closing agreements will be signed in the National Office:

1 Those arising out of and pertaining to cases where Regional Counsel or Chief Counsel has jurisdiction, such as certain bankruptcy cases, Tax Court cases in session status, and Tax Court cases in pre-session status if in such latter cases the closing agreements cover issues subject to final decision by Chief Counsel under paragraph 1(a)(3) of Delegation Order No. 60, C.B. 1958-1, 681;

2 Those arising out of and pertaining to cases in litigation under the jurisdiction of the Department of Justice;

3 Those entered into and approved by the Director of International Operations: (a) as competent authority in the administration of the operating provisions of the tax conventions of the United States, (b) providing for the mitigation of economic double taxation under section 3 of Revenue Procedure 64-54, C.B. 1964-2, 1008, and (c) providing for both such mitigation and relief under Revenue Procedure 65-17, C.B. 1965-1, 833;

4 Those pertaining to prospective transactions and some of those pertaining to completed transactions affecting returns to be filed (including those agreements entered into in connection with the issuance of rulings as noted in section 1); and

5 Those partaining to specific items related to taxable periods docketed in the Tax Court but not affecting other taxable periods.

.03 As a result of the foregoing changes, it became necessary to institute new procedures for the routing and processing of closing agreements. In connection with an explanation of the procedural changes effected, it also appears desirable to discuss the general guidelines followed by the Service in the preparation and review of closing agreements and to make available some illustrative examples upon which closing agreements may be patterned. The Procedure has been prepared to better acquaint interested taxpayers and practitioners with the foregoing procedures and guidelines and to provide them with some examples reflecting format and content for closing agreements in typical circumstances.

SEC. 3. GENERAL.

.01 A closing agreement under section 7121 of the Code is, as the name implies, an agreement pursuant to statute. Section 7121 of the Code states that such an agreement may be entered into with `any person.' There need be no tax liability with respect to the period to which the closing agreement relates. Section 301.7121-1(a) of the Administrative Regulations provides that `A closing agreement may be entered into in any case in which there appears to be an advantage in having the case permanently and conclusively closed, or if good and sufficient reasons are shown by the taxpayer for desiring a closing agreement and it is determined by the Commissioner that the United States will sustain no disadvantage through consummation of such an agreement.' Subject to the guidelines provided by the regulations, whether or not an agreement will be entered into is a matter within the Commissioner's discretion and, therefore, within the discretion of those to whom he has delegated his authority to enter into and approve such agreements. In practice if the taxpayer shows good reasons for requesting the agreement and furnishes necessary facts and documentation, and the Government will suffer no disadvantage therefrom, a closing agreement will ordinarily be entered into provided the content of the agreement can be satisfactorily agreed upon. No request to enter into a closing agreement will be denied solely because granting the request would result in no apparent advantage to the Government.

.02 Agreements with respect to taxable periods ended prior to the date of the agreement may determine either the total tax liability of the taxpayer with respect to a specified type of tax for such periods or one or more separate items affecting such liability or both. Agreements may be entered into with respect to specific matters related to such periods and affecting those or other periods. To the extent provided in section 2, agreements having the foregoing characteristics are the types that may be entered into by field office officials under Delegation Order No. 97 (Rev. 4). There may be more than one closing agreement relating to the tax liability for a single period, although no such agreement may modify any matter previously determined by closing agreement except as provided by statute. A closing agreement with respect to a taxable period ending subsequent to the date of the agreement is subject to any change in or modification of law enacted subsequent to the date of the agreement and applicable to such taxable period and each such closing agreement should so recite.

.03 A closing agreement determining tax liability may be entered into at any time before such liability determination becomes a matter within the province of a court of competent jurisdiction and may thereafter be entered into in appropriate circumstances when authorized by the court (e.g., in certain bankruptcy situations). For example, a closing agreement must not determine the amount of tax liability (or deficiency or overpayment) for any taxable periods over which the Tax Court has jurisdiction since the liability for such docketed years is fixed by the Tax Court. During the litigation of a case a specific matter closing agreement can be entered into with respect to a specific item related to the taxable period in litigation (in such agreements entered into by regional officials pertaining to taxable periods docketed in the Tax Court the specific item must affect other taxable periods). Where a closing agreement is secured in a case in litigation it is ordinarily necessary to secure stipulations, which are held in escrow while the agreement is being processed.

.04 Section 301.7121-1(d)(2) of the regulations provides that any tax or deficiency or overpayment in tax determined pursuant to a closing agreement shall be assessed and collected or credited and refunded in accordance with the applicable provisions of the law.

SEC. 4. EXAMPLES OF USE OF CLOSING AGREEMENTS.

.01 A determination of tax liability by closing agreement may be entered into for good reasons shown by the taxpayer where there is no disadvantage to the Government or where desired by the Government. Representative of acceptable reasons for entering into such agreements are the following circumstances:

1 The taxpayer wishes to definitely establish its tax liability in order that a transaction may be facilitated, such as the sale of its stock.

2 The fiduciary of an estate desires a closing agreement in order that he may be discharged by the court.

3 The fiduciary of a trust or receivership desires a final determination before distribution is made.

4 A corporation in the process of liquidation or dissolution desires a closing agreement in order to wind up its affairs.

5 A taxpayer wishes to fulfill creditors' demands for authentic evidence of the status of its tax liability.

6 Where proposed assessments are contested on the theory that the years are barred and the parties wish to agree, with finality, to some portion or all of the assessments.

7 A taxpayer wishes to assure itself that a controversy between it and the Service is conclusively disposed of.

8 To determine personal holding company tax in order to permit deficiency dividends under section 547 of the Code.

.02 A determination of one or more specific matters may be accomplished by closing agreement for good reasons shown by the taxpayer where there is no disadvantage to the Government or where desired by the Government. A few examples of circumstances that may merit entering into such closing agreements are as follows:

1 To determine cost, fair market value, or adjusted basis as at a given past date. It may be desirable to have both an estate and its legatees or devisees (or both donors and donees) sign such agreements.

2 To dispose of cases pursuant to Revenue Procedure 65-17, C.B. 1965-1, 833, and Amendment I, C.B. 1966-2, 1211. See sections 2.023, 5.06 and 11.013 of this Procedure and Exhibit C.

3 To dispose of cases pursuant to Revenue Procedure 64-54, C.B. 1964-2, 1008, and Revenue Procedure 66-33, C.B. 1966-2, 1231. See sections 2.023 and 5.06 of this Procedure.

4 To dispose of certain interest income cases pursuant to Revenue Procedure 64-24, C.B. 1964-1 (Part 1), 693. See sections 2.01 and 5.05 of this Procedure, and Revenue Procedure 66-27, C.B. 1966-1, 655.

5 To determine the amount of a net operating loss.

6 To provide determinations for disposition of cases involving sections 1311 to 1315 of the Code.

7 To determine an alternative method of adjusting basis under section 1.1017-2 of the Income Tax Regulations as a result of receipt of income from cancellation of indebtedness under section 108(a) of the Code. See section 11.012 of this Procedure and Exhibit B.

8 To prevent inconsistencies in `whipsaw' situations such as those that could result where a related taxpayer concedes an issue (with the result that the other related party obtains a benefit) and then subsequently, after the statutory period of limitations has expired against the other related party, contests the issue by filing a claim. A typical example would be a `widow payment' case where the corporation is allowed the deduction and the widow assents to the inclusion of the payments in income, subject to the $5,000.00 exclusion under section 101(b) of the Code.

9 To determine the consequences of deferred intercompany transactions of domestic public utilities (see section 1.1502-13(j) of the regulations).

10 To determine the amount of income from a transaction, the amounts of deductions or the year of includibility or deductibility.

11 To enable a taxpayer to comply with section 963(e)(2) of the Code and section 1.963-6 of the regulations by payment of deficiency dividends in certain cases involving controlled foreign corporations.

SEC. 5. AUTHORITY AND JURISDICTION.

.01 Section 7121 of the Code empowers the Secretary of the Treasury or his delegate to enter into closing agreements. Treasury Department Order No. 150-32, dated November 18, 1953, transferred all of the Secretary's closing agreement functions to the Commissioner of Internal Revenue. Treasury Department Order No. 150-36, dated August 17, 1954 C.B. 1954-2, 733, continued that delegation under the 1954 Code. Section 4 of Public Law 86-368 C.B. 1959-2, 705 (September 22, 1959) continued the effectiveness of the foregoing delegations. Pursuant to the aforementioned authority, the Commissioner has redelegated authority to enter into and approve closing agreements. The redelegation is presently embodies in Delegation Order No. 97 (Rev. 4), effective March 13, 1967, C.B. 1967-1, 528. The redelegation does not, however, delegate the Commissioner's authority to set aside closing agreements.

.02 Paragraph 1 of Delegation Order No. 97 (Rev. 4) confers upon the Assistant Commissioner (Compliance) with regard to alcohol, tobacco, and certain firearms taxes the authority to enter into closing agreements with respect to prospective transactions and completed transactions affecting returns to be filed for such taxes. After conveying similar authority to the Assistant Commissioner (Technical) with respect to all other categories of taxes, the Order, in paragraph 3, confers upon the Assistant Commissioner (Compliance) the authority to enter into closing agreements relating to tax liability for periods ended prior to the date of the agreement and agreements covering specific items related to such periods and affecting other taxable periods. Agreements under paragraph 3 of the Order may relate to any class of tax administered under the authority of the Commissioner of Internal Revenue. As previously noted, authority similar to part of that contained in said paragraph 3 has also been delegated by the Order (Rev. 4), to certain field officials. Those agreements which field officials cannot sign, which are agreements not within the provisions of paragraphs 4, 5, and 7 of the revised Order, are ordinarily signed by the Assistant Commissioner (Compliance) except as provided in paragraphs 2 and 6 of the revised Order.

.03 Paragraph 4 of Delegation Order No. 97 (Rev. 4) confers upon Regional Commissioners, in cases under their jurisdiction, the authority to enter into and approve closing agreements with respect to taxable periods ended prior to the dates of such agreements (other than Tax Court cases) and with respect to related specific items affecting other taxable periods. Paragraph 5 of the Order authorizes Regional Commissioners, in docketed Tax Court cases under their jurisdiction, to enter into closing agreements with respect to related specific items affecting other taxable periods. It will be noted that there are two general limitations on the closing agreement authority of Regional Commissioners. The first is that the agreements must be with respect to cases under their jurisdiction. The second is that such agreements must pertain to taxable periods ended before the dates of such agreements or to specific items related to such periods and affecting other taxable periods. Regional Commissioners are not authorized to sign closing agreements pertaining to prospective transactions. Such agreements are handled by the offices of the Assistant Commissioners (Technical) and (Compliance) as explained in section 5.02. Regional Commissioners have not been delegated authority to sign those closing agreements which must be forwarded to the National Office for signature as explained in section 2.02. In practice it is contemplated that closing agreements will not ordinarily be signed by the Regional Commissioners but by Chiefs and Associate Chiefs of Appellate Branch Offices in most cases. The Regional Commissioner will execute agreements within his signing authority that Appellate officials and District Directors are not authorized to sign.

.04 Regional Appellate Divisions .

1 Paragraph 4 of Delegation Order No. 97 (Rev. 4) confers upon Assistant Regional Commissioners (Appellate) and Chiefs and Associate Chiefs of Appellate Branch Offices, in cases under their jurisdiction and in cases in which closing agreements have been recommended by offices of District Directors, the authority to enter into and approve closing agreements with respect to taxable periods ended prior to the dates of such agreements (except taxable periods docketed in the Tax Court) and with respect to related specific items affecting other taxable periods. Paragraph 5 of the revised Order authorizes the foregoing officials, in Tax Court cases under their jurisdiction, to enter into closing agreements with respect to related specific items affecting other taxable periods. It will be noted that there are two general limitations on the closing agreement authority of the foregoing officials. The first is that the agreements must be with respect to cases under their jurisdiction or under the jurisdiction of a District Director. The second is that such agreements must pertain to taxable periods ended before the dates of such agreements or to specific items related to such periods and affecting other taxable periods. Appellate officials are not authorized to sign closing agreements pertaining to prospective transactions. Such agreements are handled by the offices of the Assistant Commissioners (Technical) and (Compliance) as explained in section 5.02. Appellate officials have not been delegated authority to sign those closing agreements which must be forwarded to the National Office for signature as explained in section 2.02. In practice, it is intended that closing agreements coming within Appellate authority will be signed by Chiefs and Associate Chiefs of Appellate Branch Offices, rather than by Assistant Regional Commissioners (Appellate).

2 Section 601.202(b) of the Statement of Procedural Rules provides `A request for a closing agreement which determines tax liability may be submitted at any time before the determination of such liability becomes a matter within the province of a court of competent jurisdiction.' Where the case is docketed in the Tax Court and is still under the joint jurisdiction of the regional Appellate Division and the Regional Counsel (i.e., has not reached session status), an agreement may be entered into by a Chief or Associate Chief (with the prior concurrence of Regional Counsel) with respect to a specific matter related to the docketed taxable period and affecting other taxable periods. Execution for the Commissioner is ordinarily deferred until necessary stipulations are secured and placed in escrow. If the case is in session status, such an agreement is obtained by Regional Counsel or Chief Counsel, reviewed in the office of the Director, Appellate Division, and sent to the Assistant Commissioner (Compliance) for approval and signature (or reviewed, entered into and approved by the Director of International Operations if he has signing authority-see section 2.023). Consistent with the foregoing, other closing agreements pertaining to taxable periods coming within the jurisdiction of the Chief Counsel will also be reviewed and signed in the National Office, as indicated in section 2.021. If a case is in litigation under the jurisdiction of the Department of Justice, a closing agreement requested by that Department to give effect to an agreed upon disposition of part of the matters in issue in the taxable period in litigation (even though it may directly apply only to taxable periods not in litigation) is forwarded to the office of the Assistant Commissioner (Compliance), through the Director. Appellate Division, for signature (or directly to the Director of International Operations if he has signing authority, see section 2.023). Where closing agreements are obtained in session settlements of Tax Court cases or in cases under the jurisdiction of the Department of Justice, the Chief Counsel's recommendation for acceptance of such agreement and the basis therefor are contained in a memorandum from the Chief Counsel to the Assistant Commissioner (Compliance), through the Director, Appellate Division (or to the Director of International Operations where applicable).

3 Regional Appellate Division jurisdiction with respect to closing agreements recommended by District Directors relates only to the acceptability or nonacceptability of the closing agreements. Therefore, Appellate offices are only responsible for the review of those facets of the cases having a bearing on the acceptability of such agreements. Where, for example, a closing agreement as to total income tax liability is recommended, this will necessitate a review of the whole income tax case for that taxable period. Where only specific matters are covered by the closing agreement, only such review will be made as will satisfy the Appellate office as to the acceptability of the agreement covering such matters. The Appellate review encompasses an independent judgmental evaluation and the adequacy of the supporting record and the legal effect of the agreement.

.05 Paragraph 7 of Delegation Order No. 97 (Rev. 4) authorizes District Directors in cases under their jurisdiction to enter into and approve closing agreements with respect to the taxability of earnings from deposits or accounts of the types described in Revenue Procedure 64-24, C.B. 1964-1 (Part 1), 693. (See also Rev. Proc. 66-27, C.B. 1966-1, 655.) Such agreements provide that if such accounts or deposits were opened prior to November 15, 1962, earnings thereon are not includible in gross income until the account either matures or terminates, whichever is earlier. Such agreements also provide that the full amount of such earnings will constitute gross income in the year the account or deposit matures, is assigned, or is terminated, whichever occurs first. Therefore, District Directors will ordinarily execute such closing agreements, rather than forward them to Appellate offices with recommendations for approval. If, however, a closing agreement covering such a specific matter also covers other matters or determines tax liability, such agreement will be forwarded to the Appellate office for review and execution. Except as previously stated in this paragraph and in section 2.02, in a case under district jurisdiction where a closing agreement is recommended, that agreement and the file are forwarded for signature to the regional Appellate office customarily handling protested cases from that district.

.06 Paragraph 6 of Delegation Order No. 97 (Rev. 4) authorizes the Director of International Operations to enter into and approve closing agreements as competent authority in the administration of the operating provisions of the tax conventions of the United States and closing agreements providing for the mitigation of economic double taxation under Section 3 of Revenue Procedure 64-54, C.B. 1964-2, 1008. To facilitate the handling of cases involving relief under both Revenue Procedure 64-54 and Revenue Procedure 65-17, C.B. 1965-1, 833, the revised Order also authorizes the Director of International Operations to enter into and approve closing agreements providing combined relief under both Revenue Procedures. To avoid coordination problems, such closing agreements ordinarily will not contain determinations with respect to matters other than those essential to determinations affording relief under the two Revenue .procedures. If such other determinations are included in a closing agreement of this type (and do not come within the provisions of section 2.02), the other determinations must be cleared with and approved by the Appellate branch office having jurisdiction in the case (or having review jurisdiction with respect to closing agreements from the district having jurisdiction in the case) before approval and execution of the agreement by the Director of International Operations. Where there is lack of district or regional Appellate Division jurisdiction, such as in an agreement arising out of and pertaining to a case in litigation under Department of Justice jurisdiction or a session settlement of a Tax Court case, such agreements need not be cleared through a regional Appellate Division office (except to effect coordination where desirable).

SEC. 6. MATTERS OF FORM.

.01 Form 866, Agreement As To Final Determination of Tax Liability .

1 Final determinations of tax liability pursuant to section 7121 of the Code are ordinarily reflected on Form 866. See section 6.09 as to the number of copies required. In those few cases where space on the form is insufficient for the content, the entire agreement should be typed out on plain bond paper. Typed out agreements should ordinarily contain all the printed provisions reflected on Form 866.

2 A determination of tax liability must reflect the total corrected tax liability (specifying type of tax and period covered, date of death etc.) after giving effect to all applicable credits which reduce the liability imposed but not taking into account those credits which represent payment of the liability. Exhibit D illustrates such an agreement. In such agreements the amounts of deficiencies, overassessments, or overpayments are not ordinarily reflected. Where any matter in addition to tax liabilities is to be finally determined by the agreement, a combination agreement should be used, as explained in Section 6.03.

.02 Form 906, Closing Agreement As To Final Determination Covering Specific Matters . Final determinations of specific matters pursuant to section 7121 of the Code are ordinarily reflected on Form 906. Where the space provided on the form is insufficient, after utilizing the first page of the form the content may be continued on additional pages (adequately identified) inserted between the pages of the form or the entire agreement may be typed on plain bond paper. See Section 6.09 as to the number of copies required. Completely typed agreements should ordinarily contain all the printed provisions reflected on Form 906.

.03 Combined Agreements . Neither Form 866 nor Form 906 is specifically designed for closing agreements which determine both tax liability and specific matters. Instead, a typed combined agreement should be used employing the format and beginning and ending standard language reflected in Exhibit F. However, the last page of Form 906 may be used as the last page for such an agreement since the concluding provisions of a combined agreement should ordinarily be identical with those of Form 906.

.04 Identification of Parties .

1 The names of all taxpayer parties to the closing agreement should be accurately set forth at the beginning of the agreement and in the signature thereto. Where one or more tax returns involved do not reflect the correct name, this should be briefly noted in the introductory portion of the agreement. The taxpayer identifying number should ordinarily be shown at the beginning of the agreement.

2 Where the taxpayer's name has been changed since the beginning of the first taxable period affected by the closing agreement, this should be briefly explained in one of the introductory clauses of the agreement. Similarly, important relationships should be explained. For example, if a common parent corporation is entering into the agreement on behalf of all the members of the consolidated group, it is generally preferable to so state, giving the names of the affiliates (but see section 6.072).

3 On a completely typed agreement, if the taxpayer party to the agreement is referred to in the body of the agreement as the `taxpayer,' that party should be so identified at the beginning of the agreement by placing the word `taxpayer' as an appositive immediately following the name. An additional taxpayer party can be designated as an `other party' and subsequently so referred to in the agreement. If shortened versions of proper names are to be used in referring to parties, or others, the introductory portion of the agreement should explain this.

4 Where the closing agreement (exclusive of attachments) consists of more than one page, each page after the first should be identified as a closing agreement, stating the taxpayer's name, in a manner equivalent to: `Closing Agreement With (name of taxpayer).' Where there are several parties to the agreement, the name of the first named party in the agreement plus `et al.' may be used in the foregoing illustration to identify the second and succeeding pages.

.05 Arrangement of Content .

1 As reflected in the exhibits to this Procedure, closing agreements follows a standard logical format. They should begin with the standard caption at the top which states the nature of the document. Thereafter, the parties to the agreement should be identified (see section 6.04). In agreements determining tax liability only, the format of Form 866 should ordinarily be followed throughout. In agreements determining both tax liability and specific matters, the format reflected in Exhibit F should be followed. Provisions of an agreement should not be reflected on the reverse side of a page. The following guidelines, except as otherwise noted, apply primarily to closing agreements determining specific matters.

2 The identification of the parties is followed by one or more WHEREAS clauses which serve to introduce the subject matter of the agreement and state premises upon which it is based. These clauses should ordinarily be brief as demonstrated in Exhibits A through C.

3 It is important to distinguish between matters which are merely informative and explanatory and matters which are being agreed upon. The former should be segregated from the latter and should ordinarily be reflected in the introductory recitals contained in the WHEREAS clauses mentioned in section 6.052. To emphasize the transition from recitals to matters being determined and agreed upon, the latter should be separate from and follow the WHEREAS clauses and should ordinarily be preceded by the caption `NOW IT IS HEREBY DETERMINED AND AGREED,' usually followed by the qualification `for Federal ( type of tax ) purposes that:.' For clarity, the matters being agreed upon should generally be logically grouped in separate numbered determination clauses. Each such clause should ordinarily be drafted with the view that it is a continuation of the statement `NOW IT IS HEREBY DETERMINED AND AGREED for Federal ( type of tax ) tax purposes that:.'

4 An agreement determining only tax liability should ordinarily end with provisions identical to those printed in the concluding portion of Form 866. Combined agreements (see section 6.03) or agreements determining specific matters only should ordinarily end with provisions identical to those printed in the concluding portion of Form 906. These provisions should be followed by the dated signatures of the parties (see section 6.07 with regard to execution). See section 6.11 with respect to attachments. Where agreements are more than one page in length, it is preferable to number pages as `Page 1 of 4,' `Page 2 of 4,' etc.

.06 Dating . The official signing on behalf of the Commissioner reflects the date of his signature since that is the day the agreement becomes effective. The date of the taxpayer's signature should also be shown (see section 6.071(a)).

.07 Execution by the Taxpayer .

1 GENERAL.

(a) Closing agreements are always signed by or on behalf of the taxpayer before they are signed for the Commissioner. The former signature ordinarily constitutes an offer to agree (or is a constituent part thereof) and the latter an acceptance and approval. proval. All copies should be signed by or for all parties, except as provided in sections 6.0710 and 6.102.

(b) Signatures should be reflected at the end of the agreement or, where there are attachments (see section 6.11), at the end of the main body of the agreement. The signatures should not be on a page by themselves. Ordinarily, in completely typed agreements, the page bearing the signatures should contain at least two lines of the clause immediately preceding the execution clause. Attachments and pages other than the signature page should not be signed and ordinarily need not be initialed (but see section 6.12 with respect to erasures or alterations), but there is no objection to the initialing of such pages by the taxpayer if he so desires.

(c) The signature of a corporate officer on behalf of a corporation should be preceded by the name of the corporation and followed by the officer's title. Signatures of trustees and executors should similarly reflect the name of the taxpayer, the signature and the fiduciary capacity of the signer. See also section 6.13 with respect to joint returns.

2 CONSOLIDATED RETURNS.

Sections 1.1502-16A and 1.1502-77 of the Income Tax Regulations provide, in general, that the common partent may act as agent for other members of the affiliated group. This general rule does not apply in all situations (for example, in some post disaffiliation circumstances), however, and the regulations should be carefully read before concluding that the parent may sign for and bind its affiliates in the particular case involved. See also section 6.042.

3 POWER OF ATTORNEY HOLDER.

General instructions with respect to powers of attorney are contained in sections 601.501 to 509, inclusive, of the Statement of Procedural Rules. Such instructions authorize the execution of closing agreements by power of attorney holders where expressly so authorized in the powers. Form 2848, Power of Attorney, contains provisions to that effect. If counsel of record in a case being litigated signs the closing agreement for the litigant, he must submit a power of attorney authorizing him to do so.

4 DECEDENTS AND THEIR ESTATES.

The agreement should be executed by the executor or administrator if one has been appointed and is acting and responsible for disposition of the matter. An attested copy of the letters testamentary or the order of the court vesting such person with authority so to act, and a recent certificate to the effect that such authority remains in full force and effect, should be submitted with the agreement under such circumstances. In the event that a trustee under the will is acting with respect to the matter agreed upon, the agreement should be executed by the trustee. If both the executor and trustee are functioning and the matter affects both, the agreement should be signed by both. The file should include appropriate evidence of the authority of the trustee to act. If no executor, administrator, or trustee under the will is currently responsible for disposition of the matter and the estate has been distributed to the residuary legatees, the agreement should be executed by the residuary legatee or legatees. Where feasible under the jurisdiction and the circumstances, there should be submitted a statement from the court certifying that no executor, administrator, or trustee under the will is acting or responsible for disposition of the matter, naming the residuary legatees and indicating the proper share to which each is entitled. Alternatively, copies of court orders containing such evidence may suffice. In the event that a decedent died intestate and the administrator has been discharged and is not responsible for disposition of the matter, or none was ever appointed, the agreement must be executed by the distributees. Where applicable, evidence should be submitted of the discharge of the administrator (if one had been appointed) and evidence that the administrator is not responsible for disposition of the matter. Such submission should also include statements made under the penalties of perjury with other appropriate available evidence tending to show the relationship to the deceased of the signatories to the agreement and the right of each of them to the respective shares claimed under the applicable law. If appointment of a fiduciary is imminent, it may be preferable to defer execution of the agreement until the appointment is made. Where there are coexecutors or coadministrators all should sign the closing agreement unless it is shown that less than all have the authority to act.

5 TRUSTS.

(a) A closing agreement in which a trust is a party should be signed by the trustee or trustees. In cases where there is more than one trustee appointed, all should join unless it is shown that less than all have authority to act. Adequate documentary evidence of the authority of the signing trustees to act should be submitted. Evidence of trustees' authority should include either a copy of the trust instrument (possibly a will), properly certified, or a certified copy of pertinent extracts from the trust instrument (or will), and should establish:

(1) The date of the instrument,

(2) That it is or is not of record in any court,

(3) The beneficiaries,

(4) The appointment of the trustee, the authority granted, and such other information as may be necessary to show that such authority extends to Federal tax matters, and

(5) That the trust has not been terminated, and that the trustee appointed therein is still acting.

(b) A self-serving affidavit by the trustee in this connection will not be considered appropriate evidence. In the event that the trustee appointed in the original trust instrument is no longer acting and has been replaced by another trustee, adequate documentary evidence of the appointment of the new trustee should be submitted.

6 DISSOLVED CORPORATIONS.

If a liquidating trustee or trustee under dissolution is appointed, or if a trustee derives authority over the corporation under a state statute, the agreement should be executed by such trustee. If there is more than one trustee, all must join unless it is established that less than all have authority to act in the matter. There should be submitted a copy of the instrument under which the trustee derives his authority, properly authenticated, and evidence that such authority remains in full force and effect. If the authority is derived under a state statute, citation or quotation from such statute should be submitted as well as a statement made under the penalties of perjury setting forth the facts required by the statute as a condition precedent to the vesting of the authority in said trustee and stating that the trustee's authority has not been terminated. If the trustee's entering into the agreement is approved by a court, evidence of such approval must be submitted.

7 PARTNERSHIPS.

(a) While closing agreements determining the effect of partnership operations on the taxable income of individual partners are ordinarily entered into with the partners (and usually their spouses) as individual taxpayers, closing agreements may be entered into with partnerships relating to the taxable treatment of partnership transactions. In such cases, the partnership should be named as a party to the agreement and the signatures of the partners should be preceded by the name of the partnership and followed by a reflection of the legal capacity in which they sign, ordinarily as a `Partner.'

(b) If the agreement is not signed by all partners, the signer or signers must confirm and explain their authority to bind the partnership. Appropriate evidence to that effect will be required.

(c) A closing agreement with a dissolved partnership should be signed by each of the former partners. In case some of the partners are dead, their legal representatives should sign instead. If, however, under the laws of the particular state, surviving partners at the time of the execution of the agreement have exclusive right to the control and possession of the firm's assets for the purpose of winding up its affairs, their signatures alone may be sufficient. If only the surviving partners sign the agreement, they should submit a citation to and extract from the pertinent provisions of the state law under which they claim authority exclusive of the legal representatives of any deceased partners.

8 INSOLVENT TAXPAYER.

There should be submitted a certificate from the court having jurisdiction over the insolvent showing the appointment and authority of the trustee or receiver and that his authority has not been terminated. In cases pending before a district court of the United States, an authent cated copy of the order approving the bond of the trustee or receiver may meet this requirement. If an attorney has been appointed under authority of the court for the trustee or receiver, a copy of the court order appointing such attorney (where he is to represent the trustee or receiver) should be submitted. If no attorney has been appointed, the trustee or receiver should execute the agreement and the above-described evidence should be submitted showing the appointment of the trustee or receiver. If the trustee or receiver does not wish to appoint an attorney, he will be recognized upon establishing his authority in the manner described above. A copy of the pertinent court order or other adequate evidence of court authorization to enter into the closing agreement, or evidence of court approval of the proposed closing agreement, will ordinarily be required. Where an insolvency action is before a State court only, the authority to agree to a determination of Federal tax liability may be subject to the State court's authority. In such circumstances, adequate evidence of authority to enter into the agreement must be submitted.

9 GUARDIANS AND OTHER FIDUCIARIES APPOINTED BY COURT OF RECORD.

The agreement should be executed by the fiduciary in the name of and on behalf of the person (or entity) to whom he stands in a fiduciary relationship, and there should be submitted a copy of the court certificate or court order showing that such fiduciary has been appointed and that his appointment has not been terminated.

10 MULTIPLE PARTY AGREEMENTS.

Where the number of taxpayer parties to the agreement (perhaps coupled with geographic location problems) makes signature by each on all copies of the agreement impracticable or inconvenient, two alternative methods of signing are available. The parties may by power of attorney (see section 6.073) authorize one or a small number of individuals to sign the agreement in their behalf. At the same time, or alternatively, the parties or their representative may sign the agreement in triplicate and photocopies may then be made for furnishing copies to the taxpayers and association with their affected filed returns. The duplicate copy, constituting a duplicate original, is ordinarily furnished to the key taxpayer, if there is one. See section 6.09 as to the number of required copies and section 6.10 as to the preparation of copies.

.08 Execution for the Commissioner . A Service official executing a closing agreement pursuant to authority delegated to him by the Commissioner of Internal Revenue signs his own name and shows his own title and the date thereafter. Individuals officially designated in writing to act in the capacity of such officials may sign closing agreements in their own names in the performance of duties in such acting capacity.

.09 Number of Copies .

1 REVENUE PROCEDURE 64-24 CASES.

Closing agreements executed by District Directors in Revenue Procedure 64-24 cases (see section 5.05) should be prepared in duplicate except in those cases where the account or deposit is held jointly by taxpayers other than husband and wife (or where a triplicate is needed for other purposes). In all cases where more than one taxpayer is a party to the agreement (except for the husband and wife joint return situation), there must be two additional copies of the agreement for each additional taxpayer.

2 ONE TAXPAYER AGREEMENTS.

Where only one taxpayer (or a husband and wife who elected joint return benefits) is a party to a closing agreement, the agreement will ordinarily be prepared and executed in triplicate, except as provided in section 6.091 (Revenue Procedure 64-24 (cases). In the husband and wife joint return situation the taxpayers may request that each spouse be furnished a copy of the agreement. Such request will be complied with. However, an understanding should be reached as to whether the additional copy will be a reproduced copy of the executed agreement or whether an additional duplicate original is desired. In the latter circumstance the agreement must be executed in quadruplicate.

3 MULTIPLE PARTY AGREEMENTS.

Where more than one taxpayer party enters into and signs the closing agreement, two additional copies of the agreement are required for each additional party. One of the additional copies will be furnished the additional party and the other will be attached to an affected return of the additional party. See section 6.092 with regard to joint returns and section 6.091 with regard to Revenue Procedure 64-24 agreements. For alternative methods of executing closing agreements where the execution of numerous copies by all parties becomes impracticable or inconvenient, see section 6.0710. If circumstances so warrant, copies may be certified under section 7622 of the Code. See section 6.102 in regard to use of photocopies.

.10 Preparation of Copies .

1 Form 866, Agreement As To Final Determination Of Tax Liability, and Form 906, Closing Agreement As To Final Determination Covering Specific Matters, and combined agreements (see section 6.03) will ordinarily be prepared in triplicate (but see section 6.091 as to Revenue Procedure 64-24 cases). The duplicate and triplicate copies will constitute duplicate originals for evidence purposes. Where closing agreements are completely typed, the duplicate original concept should be utilized if feasible. In addition, typed agreements to be executed in triplicate should employ plain bond paper for the carbon copies of a weight equal to the original and approximately equal to that of the printed form. The foregoing will apply to most agreements since most involve only one taxpayer party (or a husband and wife) and are prepared in triplicate. In the event of two or more taxpayer parties to the agreement, the carbon copies can be made on thinner stock in order that each may have a legible carbon copy that will serve as a deplicate original.

2 The use of photocopies may be desirable where there will be several parties to the agreement and a sufficient number of legible carbon copies cannot be made at one typing. Ordinarily, the original and each photocopy will be executed by all parties to the agreement. Alternatively, the agreement could be executed in triplicate (or some greater number as long as the agreement accurately so states) and additional copies of the executed agreement reproduced for use of the parties and the Service. In any event, the Service retains the original for its files. See also section 6.0710 for procedure where the number of taxpayer parties to the agreement (possibly coupled with geographic location problems) makes signing by all impracticable or inconvenient.

.11 Attachments . Where feasible the matters determined in a closing agreement should be contained in the body of the agreement, rather than in an attachment. Attachments may cause problems if they become unattached or inadvertent substitutions are made, or if they conflict with or render ambiguous the determinations made. Attachments are advantageous for reflecting voluminous data, generally as part of the premises upon which the determinations are based. When used, attachments should be adequately referred to and identified in the appropriate portion of the agreement. The location of the reference will depend upon whether an attachment is part of a determination or part of the recitals and premises preceding the determination. The top of each page of the attachment should include a statement thereon that it is an attachment to a closing agreement with the named taxpayer and the pages of the attachment numbered as `Page 1 of 4,' `Page 2 of 4,' etc. For example, `Page 2 of 4, Attachment I of Closing Agreement With John Doe Corporation' is acceptable. Where there are several parties to the agreement, the name of the first named party in the agreement plus `et al.' may be used to identify pages of the attachment. See section 6.12 as to effecting changes in an agreement signed and submitted by the taxpayer.

.12 Erasures and Alterations .

1 The agreement should not contain material erasures of significant matter. Erasures, when not critically located in key words or amounts, do not preclude acceptance of an agreement. The nature and extent of the erasures will be considered in determining whether they preclude acceptance of the agreement.

2 If after receipt of a signed closing agreement from a taxpayer and addition or correction is necessary, a change may be made in handwriting (legible script or printing by pen) by the taypayer (or authorized representative signing the closing agreement), who should date and initial the changed page adjacent to the change. If a new page must be substituted in an agreement of more than one page already signed by or for the taxpayer, he (or his authorized representative signing the agreement) should reflect his dated initials at the bottom of the new page, unless it is the page containing the signatures of the parties. In the latter case, his dated initials should be entered at the bottom of all other pages.

.13 Required Signatories . All signatories to the agreement should be named as parties as the beginning of the agreement. Conversely, all parties named as such (whether described as taxpayers, other parties, etc.) at the beginning of the agreement should be signatories to the agreement. An agreement as to liability with respect to a year for which a joint income tax return was filed by a husband and wife must be signed by both spouses, except that one spouse may sign as agent for the other if a photocopy or an authenticated copy of the power of attorney or other document specifically authorizing such agent to act in that capacity has been submitted. However, where an agreement as to specific matters pertains only to the tax affairs of one spouse, it may not be necessary that the agreement be signed by both spouses.

.14 Contingencies . Contingencies that would preclude a closing agreement from taking effect or remaining in effect are avoided. The condition that another closing agreement from a related taxpayer be accepted simultaneously would be an exception if such other agreement is submitted and concurrently determined to be acceptable.

.15 Penalties . In the event penalties are determined on Form 866 or a combined agreement, the words `any penalty or' should be deleted from the standard provisions. The amount of each type of penalty for each taxable period should be shown on a separate line on the agreement as reflected in Exhibit E.

.16 Interest .

1 Unless there is some issue with respect to interest liability, the closing agreement will not ordinarily determine such liability or make any provision therefor. Interest applicable to tax liabilities determined by closing agreement may be assessed and collected pursuant to section 301.7121-1(d)(2) of the regulations and section 6601(h) of the Code.

2 Where a closing agreement as to tax liability is entered into, the provisions of section 6601(d) of the Code, relating to the suspension of interest for a period beginning 30 days after a waiver of restrictions under section 6213(d) of the Code is received (or accepted where an Appellate Division waiver such as Form 870-AD is involved), are not applicable unless such waiver is: 1. received (or accepted where acceptance is necessary) before the closing agreement is entered into, and 2. not qualified to take effect at or after the date of execution of the closing agreement. See section 8.03 as to waivers and interest.

.17 Transferee Cases . In a closing agreement with a transferee, the name of the taxpayer party to the agreement should be reflected in a manner equivalent to the following to clearly designate that the agreement refers to the transferee liability of the taxpayer and not to tax liability on his own income (gift, estate, etc.): `THIS CLOSING AGREEMENT, made in triplicate under and in pursuance of Section 7121 of the Internal Revenue Code of 1954, by and between John Doe, (address and taxpayer identification number), as transferee of assets of Richard Roe, (address and taxpayer identification number), and the Commissioner of Internal Revenue:.' The applicable taxable periods (or date of death, etc.) and type of tax of the transferor should be specified in the agreement as well as the amount of transferee liability agreed to with respect to such periods and type of tax. A closing agreement with a transferee should be signed in a manner equivalent to the following:

John Doe (signature)

Transferee of Richard Roe

or

John Doe Corporation

Transferee of Richard Roe Corporation

By: John Doe (signature) President

SEC. 7. MATTERS OF CONTENT.

.01 General . Section 7121 of the Code provides that closing agreements may not, in the absence of fraud, malfeasance, or misrepresentation of material fact, be reopened as to matters agreed upon or modified by any officer, employee, or agent of the United States. Additionally, that section provides that, with the foregoing exceptions, such agreements shall not be annulled, modified, set aside, or disregarded in any suit, action, or proceeding. Because of the finality with which such agreements are imbued, it is extremely important that they be carefully drafted. The guidelines in this section are intended to cover the more frequently encountered problems with respect to the content of closing agreements.

.02 Unambiguous Determinations Required . Determined matters should be stated with such clarity as to lead reasonably to only one interpretation. Although related documents, files and testimony may be utilized in an attempt to explain the intent of the agreement, the agreement itself will be the primary basis for future action.

.03 Matters Not Properly Determinable . Determinations should not attempt to fix tax treatment for future years where correct treatment will depend primarily on circumstances that will arise subsequent to the agreement, such as the application of capital gains treatment to future sales of real estate or the treatment of farm losses for future years.

.04 Essentials to Determinations . Essentials must not be overlooked. For example, the agreement should state to whom the income partains, and specify the years involved. Affected property should be adequately identified. In those cases where specific matters are being determined the applicable dollar amounts, dates, and types of taxable income should be set forth wherever possible. To avoid ambiguity in descriptive terms it is usually preferable to use statutory terms where applicable. If an amount is to be includible in gross income as a long-term capital gain, the agreement should so specify.

.05 Related Cases and Years . The direct or indirect impact of the determination of a specific matter upon other years or related cases particularly those within the jurisdiction of another office, should be given careful consideration. Necessary coordination with other offices on related cases or years should be effected at the earliest practicable date when submitting closing agreements.

.06 Dependence On Executory Provisions . The Service avoids agreements depending upon executory provisions, i.e., that the taxpayer agrees to do something. To avoid the difficulties that may ensue if taxpayer does not perform as agreed upon, the agreement should state the tax treatment to be accorded the transaction or amount. For example, in lieu of a statement that `the taxpayer will report as income in the year received,' a statement to the effect that `such amount shall be includible in the taxpayer's taxable income in the year of receipt' is ordinarily preferable. In appropriate cases it is feasible to state what the tax consequences will be if a certain event happens and what it will be if it does not happen.

SEC. 8. DISTRICT PROCEDURES.

.01 General . Except as explained in sections 2.01 and 5.05, the authority and responsibility of district officials with respect to closing agreements recommended by them partaining to cases under their jurisdiction have not been changed by Delegation Order No. 97 (Rev. 4). As long as the case is under his jurisdiction, the District Director may decline to recommend a closing agreement for approval. In a case where the taxpayer has signed a waiver of restrictions (or other agreement, such as Form 870, etc.) covering the entire district office determination he cannot secure consideration by the Appellate branch office solely on the ground that the District Director refuses to recommend a closing agreement. However, if as a result of the District Director's refusal the taxpayer declines to sign a waiver of restrictions (or other agreement) indicating agreement with the findings of the district office the usual appeal procedures are applicable. A closing agreement may be accepted with respect to a taxpayer not under examination. However, the Service (ordinarily the District Director) must be furnished sufficient facts and documentation (and may make sufficient examination or inquiry) to warrant acceptance of the agreement. If for good reasons it is recommended that a specific matter closing agreement be entered into even though district action on the case cannot be concluded for reasons not related to and not precluding acceptance of the closing agreement, the district office may forward such agreement (with adequate documentation and explanation) to the Appellate branch office for review and acceptance. The District Director establishes controls necessary to ensure the Government against loss through failure to give effect to all the terms of closing agreements affecting tax liability for periods ending subsequent to the date of such agreements or subsequent to periods under examination.

.02 Preparation and Submission of Agreements . The actual process of preparing a closing agreement for the taxpayer's signature may differ considerably among cases. In some instances, the taxpayer's representative may prepare the entire agreement and submit it before or after execution for inspection by an Internal Revenue Agent examining his tax return. In some instances, the taxpayer or his representative will rely upon the examining officer to draft the agreement. In most situations, however, it would appear preferable for the examining officer and the taxpayer or his representative to collaborate in drafting the agreement.

.03 Waivers of Restrictions on Assessment .

1 Form 870 and other waivers of restrictions on assessment and collection which are ordinarily signed and submitted by taxpayers pursuant to the provisions of section 6213(d) of the Code will ordinarily be submitted with respect to a taxable period the tax liability for which is being determined by closing agreement (assuming there is a deficiency or overassessment), though a waiver is not legally required in order to assess a deficiency without issuance of a statutory notice of deficiency in such cases. If, in such circumstances, the waiver is received by the Service (or accepted, where certain Appellate Division waivers are used) before approval of the closing agreement without qualification delaying the effective date of the waiver until or beyond the effective date of the closing agreement, the interest suspension period provided by section 6601(d) of the Code will be effective even though the closing agreement is entered into less than 30 days after the signed waiver is received (or accepted, where certain Appellate Division waivers are used). See section 6.162. If the waiver contains a qualification that it will be effective upon the acceptance of a closing agreement determining the tax liability, the waiver has no effect as the closing agreement not only provides the necessary authority for making assessments but precludes application of the interest suspension provision previously referred to. See Revenue Ruling 57-305, C.B. 1957-2, 856, for further discussion of this point.

2 If the taxpayer wishes to submit a waiver conditioned upon the approval of a closing agreement (covering either tax liability, specific matters or both), a provision to that effect may be inserted on the waiver form.

.04 Forwarding to Appellate .

1 An adequate explanation of the closing agreement is prepared by the district examining officer and associated with the examination report. After review of the proposed closing agreement and report by the district office, the agreement, report and file are forwarded to the regional Appellate Division office which normally considers the protested cases of that district unless the agreement must be signed in the National Office (see section 2.02).

2 When the statutory period of limitation for assessment of tax (if any) for a period involving a closing agreement will expire within a period of 120 days from the date such agreement will be submitted to the regional Appellate Divison office for approval, the taxpayer is advised that the closing agreement will not be submitted for approval unless a consent (Form 872 etc.) is signed extending the period of limitation for assessment to a date at least 180 days (at least one year in a case requiring review by the Joint Committee on Internal Revenue Taxation-see section 601.108 of the Statement of Procedural Rules) for the date such agreement is signed by the taxpayer or a date that will be at least 120 days after the date such agreement is submitted to Appellate, whichever is later. To comply with this requirement, consents may be secured to cover years for which overassessments are proposed.

3 When a case ready for submission to the Joint Committee involves a recommended closing agreement which must be forwarded to an Appellate branch office for review and approval, the entire file will be forwarded to the appropriate Appellate branch office by the district office. If the agreement is acceptable, the Appellate office will forward the entire file, indicating tentative approval of the closing agreement, to the National Office. After review without objection by the Staff of the Joint Committee, the National Office will forward the unexecuted closing agreement and file to the Appellate branch office for execution. The closing agreement and file will then be forwarded by the Appellate branch office to the district Collection Division or Service Center for processing the refund or credit.

SEC. 9. REGIONAL APPELLATE DIVISION PROCEDURES.

.01 In addition to approving and executing closing agreements originating in regional Appellate Division cases, Chiefs and Associate Chiefs of regional Appellate Division offices review, approve, and execute closing agreements recommended by district offices (see section 5.04 for authority). Such action is performed on a high priority basis. Where Appellate Division review discloses that a district recommended agreement is unacceptable, the agreement is returned to the originating district with an explanation of the deficiencies noted. If a district recommended closing agreement, as originally submitted or as resubmitted, or such an agreement originating in an Appellate case, is deemed acceptable, it is executed on behalf of the Commissioner by the Chief or Associate Chief of the Appellate office. The original of the agreement is retained in the Appellate office. The duplicate copy (constituting a duplicate original) is ordinarily forwarded to the taxpayer (or representative) by certified mail. The triplicate copy (constituting a duplicate original) is associated with the most recently affected return in the file. All returns in the file covering years to which the agreement pertains are marked to indicate the existence of the agreement. See section 8.03 with respect to waivers and section 6.093 with respect to multiple party agreements.

.02 Since the district office has jurisdiction over the determination of tax liability in a case that is forwarded to the Appellate Division only for approval of the closing agreement, the taxpayer does not have a right to a conference with the Appellate office concerning the closing agreement. The Appellate office does not initiate conferences with the taxpayer in such a case. If conferences with respect to the closing agreement are necessary, they are initiated by the district office after receipt of the Appellate Division comments. In unusual cases, where deemed necessary by both offices, representatives from the Appellate office may participate in a district initiated conference to resolve closing agreement problems.

SEC. 10. SETTING ASIDE OF CLOSING AGREEMENTS.

.01 Closing agreements may be set aside upon a showing of fraud, malfeasance or misrepresentation of a material fact. Since the Commissioner of Internal Revenue has not delegated authority to set aside such agreements, recommendations for such action must be forwarded to his office in accordance with the following procedures.

.02 In a case not involving criminal prosecution considerations, if a district office or a regional Appellate Division office determines that a recommendation to set aside a closing agreement will be made, the taxpayer will be notified by letter of the contemplated action and the reason therefor and afforded an opportunity for a conference. If after fully considering the matter and the taxpayer's position, the district or Appellate office concludes that the recommendation to set aside the closing agreement should be made as contemplated, that office will prepare a memorandum containing the recommendation and fully explaining the circumstances. That memorandum and the administrative file will be forwarded (through the appropriate regional Appellate Division office, if originated by a district office) to the Director, Appellate Division, National Office, for review. If the latter official concurs, the recommendation will be forwarded to the office of the Commissioner for decision. If the Commissioner sets aside the closing agreement, the taxpayer will be so notified.

.03 In the event it is proposed to set aside a closing agreement entered into while the case to which it pertains was under the jurisdiction of a regional Appellate Division office, action to reopen the case or set aside the closing agreement is subject to approval by the Director, Appellate Division, National Office. If the closing agreement in question was not secured while the case to which it pertains was under such Appellate jurisdiction and if the taxpayer is not protesting a determination of tax liability he does not have the right to have a regional Appellate Division office consider the setting aside of the closing agreement.

SEC. 11. ILLUSTRATIVE PATTERN AGREEMENTS.

.01 The exhibits in this Procedure reflect current illustrative pattern agreements as described in this section. Agreements patterned after these illustrations are ordinarily acceptable in usual cases involving the circumstances the illustrations are designed for. However, in the judgment of the Service officials involved, circumstances in individual cases or subsequent developments (including revisions by the National Office) may necessitate modification of or departure from the illustrations furnished.

1 EXHIBIT A-PATTERN WIDOW PAYMENT AGREEMENT.

This agreement is designed for use in the usual case where a corporate employer has made payments to the widow (or, perhaps some other relative) of a deceased employee. The premises stated in the WHEREAS clause of this agreement identify the payments which will be the subject of the determination clause. The determination clause first establishes that all payments in excess of $5,000.00 made pursuant to the resolution will be includible in the taxpayer's gross income in the years received. Thus, the treatment to be accorded all past payments as well as all future payments to her pursuant to the identified corporate resolution is thereby established. The additional determination establishes the payments and period to which the $5,000.00 exclusion pertains and reflects what amounts are includible in those years for which the extent of payments has been ascertained (usually for all taxable periods ended prior to the date of the agreement).

2 EXHIBIT B-PATTERN SECTION 1017 AGREEMENT.

This agreement is designed for determining the amounts of reductions to bases of assets occasioned by complying with certain provisions of sections 108 and 1017 of the Code and regulations thereunder with respect to certain income from discharge of indebtedness. Taxpayers seek closing agreements in these cases in order to apply the basis reduction to one asset (or to a few selected assets) rather than going through the multitude of computations and changes to records that could be required to spread the reductions over all applicable assets. It is preferred that such agreements clearly identify the securities from which the income was derived as well as the assets the bases of which are being reduced.

3 EXHIBIT C-PATTERN REVENUE PROCEDURE 66-17 AGREEMENT.

This agreement is designed to serve as a guide in preparing closing agreements for cases which involve requests for relief under the provisions of Revenue Procedure 65-17, C.B. 1965-1, 833, and Amendment I, C.B. 1962-2, 1211. See also Revenue Procedure 65-31, C.B. 1965-2, 1024. The illustration generally contemplates circumstances involving a domestic parent corporation on the accrual method of accounting and its wholly owned foreign subsidiary. It is not contemplated that such controlled foreign corporations having no United States tax liabilities will be parties to such closing agreements. Domestic corporations involved in such reallocations will be parties to and sign appropriate closing agreements providing relief under Revenue Procedure 65-17.

4 EXHIBIT D-PATTERN TAX LIABILITY AGREEMENT.

For discussion of tax liability agreements, see section 6.01. See sections 6.16 and 8.03 with respect to interest. See section 11.015, following, with regard to penalties.

5 EXHIBIT E-PATTERN TAX LIABILITY AGREEMENT REFLECTING PENALTIES.

See section 11.014, preceding, for references to discussions of tax liability closing agreements in general. It is preferable to state the Code section authority in identifying each determined penalty. Since striking the words `any penalty or' on the form indicates that penalties are being determined, it promotes clarity to reflect that there are no penalties for the stated taxable years with respect to the specified type of tax where such is the case. In the usual agreement where the foregoing quoted words are not deleted and the penalties are not shown, a subsequent assessment of applicable penalties is not prohibited.

6 EXHIBIT F-EXAMPLE OF COMBINED AGREEMENT.

This example illustrates the usual format for determining both tax liability and a specific matter. Such agreements may be completely typed or the last page of Form 906 may ordinarily be used as the last page for the agreement.

SEC. 12. INQUIRIES.

Inquiries in regard to this Revenue Procedure should refer to its number and be addressed to the Assistant Commissioner (Compliance), Attention: CP:AP:P, Internal Revenue Service, Washington, D.C. 20224.

EXHIBIT A

Pattern Widow Payment Agreement (See section 11.011)

                      FORM 906 (Rev. Jan. 1967)

_____________________________________________________________________

NOW IT IS HEREBY DETERMINED AND AGREED for Federal income tax purposes that all payments pursuant to the above-referred to resolution in excess of the $5,000.00 exclusion allowed by section 101(b) of the Internal Revenue Code are includible in the gross income of said (name of widow) in the years received. The amounts received by her pursuant to such resolution during the calendar years 1965 and 1966 and includible in her gross income for such years are as follows:

                                     Amount      Amount      Amount

NOW, THIS CLOSING AGREEMENT WITNESSETH, that the said taxpayer and said Commissioner of Internal Revenue hereby mutually agree that the matter so determined shall be final and conclusive subject, however, to reopening in the event of fraud, malfeasance, or misrepresentation of material fact, and the required application of statutory provisions expressly providing that effect be given thereto as stated therein notwithstanding any law or rule of law other than section 7122, except that if this agreement relates to any taxable period ending subsequent to the date of this agreement, it is subject to any change in or modification of the law enacted subsequent to said date and applicable to such taxable period.

IN WITNESS WHEREOF, the above parties have subscribed their names to these presents in triplicate.

                                   Signed this 30th day of May, 1967.

Pattern Code Section 1017 Agreement (See section 11.012)

                      FORM 906 (Rev. Jan. 1967)

____________________________________________________________________

   Calendar       Maturity    Amount

NOW IT IS HEREBY DETERMINED AND AGREED for Federal income tax purposes that the reductions to bases pursuant to the above Regulations shall be made to the following specific properties in each of the amounts and for each of the years of gain, as of the beginning of each such year, as follows:

(1) LAND, Account Number 512, Willmus Tract approximately 200 acres in Sections 15, 16, 21, Willmus County.

        Reductions in basis for:

        Reductions in basis for:

NOW, THIS CLOSING AGREEMENT WITNESSETH, that the said taxpayer and said Commissioner of Internal Revenue hereby mutually agree that the matter so determined shall be final and conclusive subject, however, to reopening in the event of fraud, malfeasance, or misrepresentation of material fact, and the required application of statutory provisions expressly providing that effect be given thereto as stated therein notwithstanding any law or rule of law other than section 7122, except that if this agreement relates to any taxable period ending subsequent to the date of this agreement, it is subject to any change in or modification of the law enacted subsequent to said date and applicable to such taxable period.

IN WITNESS WHEREOF, the above parties have subscribed their names to these presents in triplicate.

                          Signed this _________ day of _________ 19__

Pattern Rev. Proc. 65-17 Agreement (See section 11.013)

CLOSING AGREEMENT AS TO FINAL DETERMINATION

COVERING SPECIFIC MATTERS

THIS CLOSING AGREEMENT, made in (State number to be executed, as triplicate, etc.) under and in pursuance of section 7121 of the Internal Revenue Code of 1954 by and between (Name and address of taxpayer and taxpayer identification number) , Taxpayer ________________________________________________________, and (Other parties to agreement and address and taxpayer identification numbers), other parties, and the Commissioner of Internal Revenue:

[Use the clauses or portion of clauses and columns in the tabulation as applicable.]

WHEREAS, it has been agreed for Federal income tax purposes, that the above taxpayer's taxable income should be increased as a result of allocations under section 482 of the Internal Revenue Code between it and its controlled entity(s) and that relief should be granted in accordance with Revenue Procedure 65-17;

WHEREAS _______________________________________, a [foreign] corporation organized under the laws of _________________________, is involved in the allocation made under section 482 referred to herein, such corporation being hereinafter sometimes designated as the "other entity."

NOW IT IS HEREBY DETERMINED AND AGREED for Federal income tax purposes that:

(a)(1) The said taxpayer's taxable income for the year(s) for which section 482 allocation is made, is increased and the income of the other entity(s) is decreased [or here describe such other appropriate correlative adjustment under section 482 which is required] by the amount of the section 482 allocation(s) as shown in Schedule I which is attached hereto and made a part of this agreement.

(2) The earnings and profits of the said taxpayer and other entity(s) are adjusted as indicated in Schedule I.

(b)(1) The amount of dividends received by said taxpayer from [Name of corporation] , with which said taxpayer engaged in the arrangement giving rise to the section 482 allocation, and included in the gross income of the said taxpayer as a dividend (within the meaning of section 316 of the Code) for the year for which the allocation has been made, which said taxpayer elects to exclude from income under Section 4.01 of Revenue Procedure 65-17, [not being in excess of the amount of the increase in the taxable income of the said taxpayer resulting from the section 482 allocation from the other corporation], is $__________________, as shown in Schedule I.

(2) The amount of the dividends excluded from said taxpayer's income pursuant to paragraph (1) of this clause shall cease to qualify as a dividend under section 316 of the Code or a distribution under section 963 of the Code or as a dividend for any Federal income tax purpose;

(3) No foreign tax shall be deemed to have been paid with respect to such excluded dividends under section 902 of the Code for the purpose of the credit allowed under section 901 of the Code and no dividend received deduction shall be allowed with respect thereto under sections 241 through 247 of the Code;

(c) The said taxpayer elects to establish and record an account receivable from _________________________________, the other entity with which it engaged in the arrangement giving rise to the section 482 allocation, reflecting the following balances, such account receivable being deemed to have been created as of the last day of each of the taxpayer's taxable years for which allocation under section 482 has been made to the extent of the increase in such balance for each such year;

                                       Balance of Account Receivable

(2) The amounts of such interest includible in said taxpayer's taxable income for the taxable years ending prior to the date this agreement is executed by said taxpayer are as follows:

           Taxable

[use appropriate item(s)]

(i) __________________________________ [the other entity referred to above] shall pay the said taxpayer $___________________ in United States dollars in [partial] liquidation of the account receivable referred to in clause (c) preceding and shall pay in United States dollars the interest thereon computed as provided in clause (d) preceding;

(ii) _____________________________ [the other entity] as obligor shall issue to said taxpayer as obligee a promissory note, payable in United States dollars, in the amount of the account receivable specified in clause (c) preceding and interest thereon computed as provided in clause (d) preceding bearing interest at the annual rate of __________________________________ [Here specify the time when the promissory note must be paid. Payment should be at a fixed date(s) and within a reasonable time.]

(iii) ___________________ [the other entity] and the said taxpayer shall offset the amounts specified in clause (c) and (d) preceding against ______________________________ [clearly identify this item], a valid liability of said taxpayer due __________________________________________________ [the other entity];

[state amounts where feasible]

(2) Payment of the amount of the account receivable specified in clause (c) preceding and the amount of the interest computed as provided in clause (d) preceding, in the manner and within the time prescribed herein, shall not constitute taxable income to said taxpayer under Federal internal revenue laws.

(3) If the other entity fails to make payment of the account receivable and accrued interest thereon, or fails to make payment in full, within the agreed 90-day period, the unpaid account receivable and interest or the unpaid portion of such account receivable and interest, shall be cancelled by treating the amount thereof as a contribution to the capital of the other entity as of the expiration of the 90-day period specified in clause (e)(1) preceding;

(f) The amount of foreign tax deemed to have been paid for purposes of the credit referred to in clause (b)(3) preceding with respect to the year of the section 482 allocation, which has ceased to be allowable by reason of said taxpayer's election to exclude the amount of the dividends specified in clause (b)(1) preceding above from gross income is $______________________;

(g) The said taxpayer agrees to treat the difference between $_______________, the amount of the section 482 allocation, and $_______________, the amount of the dividend excluded shown in clause (b)(1) preceding, less $________________, the amount of the receivable established, leaving a balance of $______________________, as a contribution to the capital of _________________________________ [Name of affiliate]. [Clauses (c), (d) and (e) should be modified or omitted if this clause is used.]

(h) In the event said taxpayer is granted offset relief pursuant to Section 3 of Revenue Procedure 64-54 as a result of the section 482 allocation referred to in clause (a) preceding subsequent to the date this agreement is executed on behalf of the Commissioner, there shall be included in said taxpayer's gross income for the year payment is made pursuant to clause (e) preceding, a dividend, to the extent of earnings and profits available in the year the payment specified in said clause (e) is made, such dividend being in the amount of the excess of said payment over the maximum which said taxpayer could have received free of further Federal income tax consequences under Revenue Procedure 65-17, had such offset relief been finally determined prior to or concurrently with said taxpayer's execution of this closing agreement. If payment has been made pursuant to clause (e)(1)(ii) preceding, the amount of such dividend income shall be reduced to the extent of the unpaid balance on any outstanding promissory note specified in such clause (e)(1)(ii), such reduction not to exceed the amount of the dividend referred to in this clause, and such note shall then be decreased by the amount of such reduction.

(i) The determinations in clauses (a), (b) and (d) preceding shall be valid notwithstanding the failure of said other entity to make the payments prescribed in clause (e) preceding;

NOW, THIS CLOSING AGREEMENT WITNESSETH, that the said taxpayer (and other party) and said Commissioner of Internal Revenue hereby mutually agree that the matter so determined shall be final and conclusive subject, however, to reopening in the event of fraud, malfeasance, or misrepresentation of material fact, and the required application of statutory provisions expressly providing that effect be given thereto as stated therein notwithstanding any law or rule of law other than section 7122, except that if this agreement relates to any taxable period ending subsequent to the date of this agreement, it is subject to any change in or modification of the law enacted subsequent to said date and applicable to such taxable period.

IN WITNESS WHEREOF, the above parties have subscribed their names to these presents in [State number to be executed]

                         Signed this__________day of__________, 19___

IN WITNESS WHEREOF, the above parties have subscribed their names to these presents in triplicate.

                    Signed this ____________ day of __________, 19___