Rev. Rul. 73-514

The purpose of this Revenue Ruling is to update and restate under the current statute and regulations the position set forth in G.C.M. 9552, X-1 C.B. 183 (1931).

The question presented is whether an offer by a taxpayer to enter into a closing agreement under section 7121 of the Internal Revenue Code of 1954 may be revoked by the taxpayer under the circumstances described below.

In the examination of a corporation's Federal income tax return, an adjustment was made disallowing certain insurance premium expenses. The taxpayer signed a closing agreement, Form 866, Agreement as to Final Determination of Tax Liability, based on the disallowance of the insurance premium expenses and paid the amount of the deficiency.

Execution and submission of the closing agreement by the taxpayer represents an offer by the taxpayer to enter into the agreement on the terms stated therein. Subsequent to the signing of the closing agreement by the taxpayer and before approval by the Secretary or his delegate, the taxpayer sent a letter to the Commissioner of Internal Revenue pointing out that the adjustment had been made on the assumption that life insurance premiums had been deducted as an expense; that a subsequent examination disclosed that the premiums had not in fact been deducted; and stated that the disclosure had been called to the attention of the revenue agent, who had agreed that his adjustment was erroneous. The Commissioner's office, in acknowledging receipt thereof, by a form letter informed the taxpayer that careful consideration would be given to his communication and that he would be further advised regarding it at the earliest practicable date.

The taxpayer also filed a claim for refund based on the amount of the deficiency resulting from the adjustment prior to the Commissioner's approval of the closing agreement. The reason given in support of the claim for refund was in substance a restatement of the contents of the above-mentioned letter, a copy of which was attached to the claim for refund.

The Commissioner, on approving the closing agreement, was not aware of either of the foregoing actions by the taxpayer. Neither the taxpayer's letter nor the claim for refund expressly stated that the offer to enter into the closing agreement was revoked or withdrawn.

In the absence of an expressed revocation, the question arises whether there was an implied revocation of the offer to enter into the closing agreement. The fact that the Commissioner was not personally aware of either the letter or the claim for refund at the time the closing agreement was approved is immaterial. Both had been received by his agents before the offer was accepted and, therefore, constructively received by the Commissioner prior to acceptance of the offer.

Under section 7121 of the Code, a closing agreement is not final and conclusive until it is approved by the Secretary or his delegate. An offer to enter into a closing agreement can be revoked at any time prior to its approval. What constitutes a revocation is dependent on the facts and circumstances of each case.

The filing of a claim for credit or refund subsequent to the signing of the agreement by the taxpayer was not, of itself, a revocation. The claim for credit or refund is a formal document which may be filed for one of several reasons. It may be filed, for example, to extend the period of limitations for refunds. Therefore, when a closing agreement is considered in connection with a refund, the filing of a claim is entirely consistent with the closing agreement since it extends the time during which a refund may be made. Similarly, the claim may be designed to keep open, pending final determination, one or more theories advanced by the taxpayer, and the filing of such a claim may be entirely consistent with the closing agreement. A claim filed subsequent to the submission of a closing agreement will not be considered as constituting an implied revocation of the offer to enter into the agreement when it is reasonable to attribute a purpose to the claim which is consistent with the pending agreement.

Since the purpose of the claim as expressed by the language contained therein was not consistent with the agreement, the claim constituted an implied revocation of the offer to enter into the closing agreement. For the same reason as noted above, the letter also constituted an implied revocation of the offer to enter into the closing agreement.

G.C.M. 9552 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, 1967-1 C.B. 576.