United States Tax Court

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159 T.C. No. 3

CORY H. SMITH,

Petitioner

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 5191-20.

Filed August 25, 2022.

—————

P entered into a closing agreement with R under

I.R.C. § 7121 waiving his right to elect to exclude foreign

earned income under I.R.C. § 911(a) for the taxable years

2016–18. After filing his 2016 and 2017 returns without

making the election, P filed amended returns making the

election for those years, and R issued refunds in due course.

P then made the election on his 2018 return.

Consistent with the closing agreement, R issued a

notice of deficiency to P for the taxable years 2016–18

disallowing the elections under I.R.C. § 911(a). P petitioned

this Court for redetermination of the deficiencies.

On competing Motions for Partial Summary

Judgment, the parties dispute the validity of P’s closing

agreement. R asks this Court to hold that the agreement

is valid under I.R.C. § 7121 and must be enforced. P, on

the other hand, claims the agreement is invalid because the

IRS official who executed it — the Director, Treaty

Administration, in the IRS Large Business and

International Division — did not have the authority to do

so. In the alternative, P argues the closing agreement

should be set aside under I.R.C. § 7121(b) because R

committed malfeasance by disclosing confidential taxpayer

information under I.R.C. § 6103 and because R

Served 08/25/22

misrepresented material facts in the terms of the closing

agreement.

Held:

enforceable.

The

closing

agreement

valid

and

Held, further, the Director, Treaty Administration,

had authority to execute the closing agreement on behalf of

the Secretary.

Held, further, the closing agreement may not be set

aside under I.R.C. § 7121(b) because P has failed to show

malfeasance or misrepresentation of fact.

Held, further, R is entitled to partial summary

judgment.

—————

Tiffany Michelle Hunt, for petitioner.

Hannah Kate Comfort, for respondent.

OPINION

TORO, Judge: Petitioner, Cory H. Smith, entered into a closing

agreement with the Commissioner pursuant to section 7121. 1 There,

Mr. Smith agreed to “irrevocably waive[ ] and forego[ ] any right that he

. . . may have to make any election under Code section 911(a) with

respect to income paid or provided to [him] as consideration for services

performed for [his] employer at [the Joint Defense Facility at Pine Gap]

in Australia” for the taxable years 2016, 2017, and 2018. But, despite

this undertaking and even though closing agreements are “final and

conclusive” as to the matters agreed upon, I.R.C. § 7121(b), in an effort

to avoid paying tax on this income either in the United States or in

Australia, Mr. Smith filed federal income tax returns claiming the very

benefits he had “irrevocably” waived and forgone. Seeking to hold

1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, all

regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in

effect at all relevant times, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

Mr. Smith to the terms of the closing agreement, the Commissioner

issued a notice of deficiency.

Mr. Smith challenges the notice of deficiency and asks us to

ignore the closing agreement on two separate grounds. First, he claims

that the agreement is invalid because the Director, Treaty

Administration, at the IRS Large Business and International Division

(LB&I), who signed it on behalf of the Commissioner, lacked the

authority to do so. Second, he claims that, even if properly signed, the

agreement should be set aside as contemplated by section 7121(b)

because of malfeasance or misrepresentation of material fact by the

Commissioner. The Commissioner resists Mr. Smith’s claims and asks

that we enforce the closing agreement. Both parties have moved for

partial summary judgment.

After addressing some issues of first impression raised by

Mr. Smith’s claims, we conclude that his arguments lack merit and that

the closing agreement must be enforced. Accordingly, we will grant the

Commissioner’s Motion for Partial Summary Judgment and deny

Mr. Smith’s competing Motion.

Background

To provide context for the issues before us, we begin with a brief

introduction to the location where the controversy arose and an overview

of the tax rules governing U.S. citizens working at that location.

Pine Gap Facility

Seeking to expand their military intelligence capabilities during

the Cold War, in 1966, the United States and Australia jointly

established a surveillance facility located “where the scrubs and plains

are wide,” Henry Lawson, “Out Back,” in In the Days When the World

Was Wide and Other Verses 47 (1896) — that is, in the middle of the

Australian Outback. The Joint Defense Facility at Pine Gap, Alice

Springs, Northern Territory, Australia, as the facility is known today, is

commonly referred to as “Pine Gap,” and we will follow that convention.

Pine Gap’s technical objectives are varied and complex and have

evolved over time. For purposes of this Opinion, it suffices to note that

the activities carried on there include the control of geosynchronous

satellites to observe, collect, and process electronic signals data.

See generally Anna Hood & Monique Cormier, Can Australia Join the

Nuclear Ban Treaty Without Undermining ANZUS?, 44 Melb. U. L. Rev.

132, 138–41 (2020) (describing Pine Gap and collecting resources).

Staffing Pine Gap requires that a substantial number of U.S.

citizens move to Australia.

The facility was maintained by

approximately 400 personnel when it was first established, a number

that was expected to increase over time. See Evidence to Joint Standing

Committee on Treaties, Parliament of Australia, Canberra, Aug. 9,

1999, at 1 (Desmond John Ball).

II.

U.S. Taxation of Pine Gap Employees

General Principles

Complex issues of international taxation arise whenever a U.S.

citizen lives and works abroad. 2 Unlike most countries, the United

States taxes the worldwide income of its nonresident citizens. See, e.g.,

Cook v. Tait, 265 U.S. 47, 56 (1924); Huff v. Commissioner, 135 T.C. 222,

230 (2010). And this policy creates the potential for double taxation —

that is, the taxation of the same income by both the United States and

another country. See AptarGroup Inc. v. Commissioner, No. 7218-20,

158 T.C., slip op. at 3 (Mar. 16, 2022).

Domestic law provides some relief from double taxation for U.S.

citizens working abroad, for example by providing a credit for taxes paid

abroad. See I.R.C. § 901. Of particular relevance to this case is another

domestic law provision, section 911(a). It permits qualified individuals

to elect to exclude foreign earned income from their gross incomes and

treats that income as exempt from U.S. federal income taxation. 3

In addition to providing relief through domestic law, the United

States often addresses potential issues of double taxation through

agreements with other countries. For example, acknowledging that

issues of double taxation arise in the ordinary course of exchanges

between the two countries, the governments of the United States and

Australia entered into a treaty governing the general avoidance of

2 Because Mr. Smith is a U.S. citizen, our discussion focuses on the rules that

apply to U.S. citizens. The Code and the treaties discussed below also provide relief

for U.S. residents who are not citizens, but we do not address those rules further. See,

e.g., I.R.C. § 911(d)(1)(B) (describing requirements for U.S. residents who are not U.S.

citizens).

3 The terms “qualified individual” and “foreign earned income” are defined in

section 911(d)(1) and (b)(1), respectively.

double taxation a little more than a decade before Pine Gap was

established. See Convention for the Avoidance of Double Taxation and

the Prevention of Fiscal Evasion with Respect to Taxes on Income,

Austl.-U.S., May 14, 1953, 4 U.S.T. 2274 (1953 Treaty).

Pine Gap Agreements

Despite the existence of the 1953 Treaty, concerns about double

taxation received attention from the U.S. and Australian negotiators

involved in establishing Pine Gap. The United States and Australia

entered into two agreements governing the general operation of Pine

Gap (Pine Gap Agreements), one in 1966 and another in 1969. 4

As relevant to the issue of double taxation, the Pine Gap

Agreements generally provide that the income U.S. citizens earn at Pine

Gap will be deemed not earned in Australia, so long as it is actually

taxed by the United States. Specifically, Article 9(1) of Pine Gap I

provides that

[i]ncome derived wholly and exclusively from performance

in Australia of any contract with the United States

Government in connection with the [Pine Gap facility or

station] by any person . . . , who is in . . . Australia solely

for the purpose of such performance, shall be deemed not

to have been derived in Australia, provided that it is not

exempt, and is brought to tax, under the taxation laws of

the United States.

4 The two agreements are called the Agreement Relating to the Establishment

of a Joint Defence Space Research Facility, Austl.-U.S., Dec. 9, 1966, 17 U.S.T. 2235

(Pine Gap I), and the Agreement Relating to the Establishment of a Joint Defense

Space Communications Station in Australia, Austl.-U.S., Nov. 10, 1969, 20 U.S.T. 3097

(Pine Gap II).

As their recitals indicate, these agreements were made pursuant to Article II

of the Security Treaty Between Australia, New Zealand, and the United States of

America, Sept. 1, 1951, 3 U.S.T. 3420, 3422, but are not treaties themselves. Instead,

they are executive agreements made pursuant to a treaty. See generally Restatement

(Second) Foreign Rel. § 119 (stating that, in general, executive agreements made

pursuant to a treaty of the United States “may be coextensive with the treaty with

regard to [their] scope and subject-matter” and have “the same effect and validity as

the treaty”).

17 U.S.T. at 2238. Pine Gap II contains a substantially identical

provision. See Pine Gap II, art. X(1), 20 U.S.T. at 3100. 5 The

undertakings reflected in the Pine Gap Agreements were incorporated

into Australian domestic law. 6

1982 Treaty and Competent Authority Process

In 1982, the United States and Australia entered into a new

income tax treaty that superseded the 1953 Treaty. Convention for the

Avoidance of Double Taxation and the Prevention of Fiscal Evasion with

Respect to Taxes on Income, Austl.-U.S., Aug. 6, 1982, 35 U.S.T. 1999

(1982 Treaty). 7

As relevant here, Article 4 of the 1982 Treaty provides rules for

determining an individual’s residency, id. at 2008–11; see also 2001

Protocol, art. 3, T.I.A.S. No. 13,164, and Article 15 sets out rules for the

5 A similar provision appears in Article 6(1) of the Agreement Concerning the

Status of United States Forces in Australia, Austl.-U.S., May 9, 1963, 14 U.S.T. 506, 511,

and in Article 9(1) of the Agreement Relating to the Establishment of a United States

Naval Communication Station in Australia, Austl.-U.S., May 9, 1963, 14 U.S.T. 908, 910.

6 As relevant here, section 23AA(5) of the Australian Income Tax Assessment

Act 1936 provides:

Where:

(a) a foreign contractor or a foreign employee has derived

income wholly and exclusively from, or from employment in connexion

with, the performance in Australia of a prescribed contract;

(b) the income is not exempt from income tax imposed by

Chapter One of Subtitle A of the Internal Revenue Code of 1986 of the

United States of America; and

the income was derived, in Australia, or carrying on business in

Australia, solely for prescribed purposes;

the income shall, for the purposes of this Act, be deemed to have been

derived from sources out of Australia.

Income Tax Assessment Act 1936 (Cth) s 23AA(5) (Austl.). The term “prescribed

contract” includes the activities that take place at Pine Gap. Id. s 23AA(1).

7 Unlike the Pine Gap Agreements, the 1982 Treaty is a treaty of the United

States. 1982 Treaty, 35 U.S.T. at 2001. The 1982 Treaty was amended by protocol

in 2001. See Protocol Amending the Convention for the Avoidance of Double Taxation

and the Prevention of Fiscal Evasion with Respect to Taxes on Income, Austl.-U.S.,

Sept. 27, 2001, T.I.A.S. No. 13,164 (2001 Protocol).

taxation of employees, 8 35 U.S.T at 2037–38. Article 15(1) states that,

in general,

salaries, wages and other similar remuneration derived by

an individual who is a resident of one of the Contracting

States in respect of an employment . . . shall be taxable

only in that State unless the employment is exercised . . .

in the other Contracting State. If the employment is so

exercised . . . such remuneration as is derived from that

exercise . . . may be taxed in that other State.

35 U.S.T. at 2037. Article 15(2) limits the reach of Article 15(1) in

certain circumstances that are not relevant here. In turn, Article 1(3)

provides that, with exceptions that are not relevant here, “a Contracting

State . . . may tax its citizens . . . as if this Convention had not entered

into force.” Id. at 2002.

To put this in plain English and simplify a bit, under the 1982

Treaty, only the United States has the right to tax the compensation of

an employee who is a U.S. resident and does not spend any time working

in Australia. But, if the same employee spends some of his time working

in Australia and the limitations of Article 15(2) do not apply, he may be

taxed by both the United States and Australia with respect to the

compensation earned from working in Australia. Applying these

principles to U.S. citizens who earn income from working at Pine Gap

without taking the Pine Gap Agreements into account, the 1982 Treaty

would allow Australia to tax that income. 9

However, the 1982 Treaty appears to have taken the Pine Gap

Agreements into account. Specifically, Article 1(2)(b) of the 1982 Treaty

provides that “[t]his Convention shall not restrict in any manner any

exclusion, exemption, deduction, rebate, credit or other allowance

accorded from time to time . . . by any other agreement between the

Contracting States.” Id. at 2001–02. Thus, to the extent the Pine Gap

Agreements are read as giving U.S. citizens working at Pine Gap more

favorable treatment, the 1982 Treaty would seem to have left those

arrangements intact.

8 In the technical terms of the 1982 Treaty, the article governs the taxation of

“Dependent Personal Services.”

9 U.S. citizens like Mr. Smith are treated as U.S. residents for purposes of the

1982 Treaty. See 2001 Protocol, art. 3, T.I.A.S. No. 13,164.

One more 1982 Treaty provision is important here, Article 24.

Article 24(1), 35 U.S.T. at 2051, gives taxpayers the right to seek

competent authority assistance when they believe they are being taxed

in a manner inconsistent with the treaty. 10 Article 24(2), in turn,

authorizes the competent authorities of the United States and Australia

to collaborate in resolving questions regarding the treaty’s application.

Id. at 2052. The provision states that

[t]he competent authorities of the [United States and

Australia] shall seek to resolve by agreement any

difficulties or doubts arising as to the application or

interpretation of this Convention. In particular the

competent authorities . . . may agree:

....

particular items of income; [and]

(d) to the same meaning of any term used in this

Convention . . . .

Id. The Treasury Department elaborated on the agreement process in

its technical explanation of the 1982 Treaty: 11

[Article 24] provides for cooperation between the

competent authorities to resolve problems of double

taxation.

....

“In recognition of the difficulties that may be encountered in [the]

interpretation and application [of tax treaties], most tax treaties authorize a

designated tax official from each nation, referred to as the ‘competent authority,’ to

work together toward resolution of treaty disputes.” Nancy H. Kaufman, Dispute

Resolution Under Tax Treaties: The Developing Role of the Competent Authority, 3 Wis.

Int’l L.J. 101, 112 (1984); see also 1982 Treaty, art. 3(1)(e)(i), 35 U.S.T. at 2005

(defining “competent authority” as “in the case of the United States: the Secretary of

the Treasury or [her] delegate”).

11 We have found the Treasury Department’s technical explanations of income

tax treaties helpful in interpreting treaty provisions. See Adams Challenge (UK) Ltd.

v. Commissioner, 154 T.C. 37, 66 (2020); Garcia v. Commissioner, 140 T.C. 141, 160

(2013).

. . . [T]he competent authorities shall endeavor by

mutual agreement to resolve any difficulties or doubts

which may arise in the interpretation or application of the

Treaty. For example, the competent authorities may agree

. . . to the same determination of the source of particular

items of income; [or] on a common meaning of a term . . . .

. . . [The] competent authorities may communicate

with each other directly for the purpose of reaching

agreements in accordance with [Article 24].

Treasury Department Technical Explanation of the Convention

Between the Government of the United States of America and the

Government of Australia for the Avoidance of Double Taxation and the

Prevention of Fiscal Evasion With Respect to Taxes on Income, 1986-2

C.B. 246, 257.

Need for Coordination on the Application of Section 911 to

Pine Gap Employees

For the United States and Australia, the relief provided under

section 911 presented a particular problem in resolving issues of

potential double taxation for U.S. citizens working at Pine Gap. As

discussed, section 911 provides that certain qualified individuals may

elect to exclude from gross income and exempt from U.S. federal income

taxation certain foreign earned income. 12 But the Pine Gap Agreements

provided that U.S. citizens could avoid Australian taxation on their Pine

Gap income only if that income “is not exempt, and is brought to tax,

under the taxation laws of the United States.” See Pine Gap I, art. 9(1),

17 U.S.T. at 2238; Pine Gap II, art. X(1), 20 U.S.T. at 3100. And

Australian domestic law similarly required that the relevant income not

be “exempt from income tax imposed” in the United States for its

sourcing recharacterization rule to apply. Income Tax Assessment Act

1936 (Cth) s 23AA(5)(b) (Austl.). Moreover, the 1982 Treaty would

appear to preserve the benefits of the Pine Gap Agreements only if those

12 At the time Australia and the United States entered into the Pine Gap

Agreements, section 911 provided for a mandatory exemption regime so long as its

terms were satisfied. I.R.C. § 911(a) (1954) (“The following items shall not be included

in gross income and shall be exempt from taxation . . . .” (Emphasis added.)). In 1981,

Congress amended section 911, making its provisions elective for eligible taxpayers,

Economic Recovery Tax Act of 1981, Pub. L. No. 97-34, § 111, 95 Stat. 172, 190. This

change presented novel issues for Australia and the United States in applying the 1982

Treaty, the Pine Gap Agreements, and Australian domestic law.

benefits are viewed as “any exclusion, exemption, deduction, rebate,

credit or other allowance.” 1982 Treaty, art. 1(2)(b), 35 U.S.T. at 2001–02.

To give effect to the terms of the 1982 Treaty, the Pine Gap

Agreements, and Australian and U.S. domestic law, the United States

and Australia needed a mechanism to ensure that income earned by U.S.

citizens at Pine Gap would be “brought to tax” and “not exempt” in the

United States and that the term “exempt” was applied consistently by

both countries. A letter from an IRS official to an official at the U.S.

Department of Defense, submitted by Mr. Smith in support of his

Motion, described the efforts of the two countries to resolve the issue as

follows:

During 1983 and 1984, the United States and Australian

competent authorities worked together to develop a

procedure to apply the provisions of the Pine Gap

Agreement to U.S. citizens working in [Pine Gap]. As a

result of those joint consultations, the Australian Tax

Office (“ATO”) agreed that if an employee executes a

closing agreement with the [IRS] stating that he or she will

not claim the income exclusion available under

section 911(a) of the [IRC], then he or she will not be liable

to tax in Australia.

The procedure ensures that income does not

inappropriately escape taxation or become subject to

double taxation. It further provides clarity, choice, and

assurance for the employee as to where they want to be

taxed — either (1) solely in the United States with a waiver

of the IRC section 911(a) income exclusion, or (2) in both

Australia and the United States, with double taxation

being relieved by the United States through the IRC

section 911(a) income exclusion or a foreign tax credit.

Letter from Nicole L. Welch, Program Manager, Treaty Assistance and

Interpretation Team, IRS, U.S. Dep’t of the Treasury, to John Turnicky,

Hous. Program Manager, U.S. Dep’t of Def. (Jan. 26, 2018) (Decl. of

George Brown in Support of Pet’r’s Reply to Response to Mot. for Partial

Summ. J., Ex. C at 6–8) (Welch Letter).

In short, the two countries concluded that U.S. citizens working

at Pine Gap would need to give up their election under section 911 to

avoid being taxed in Australia, and they further agreed that an

employee who desired this result could achieve it by entering into a

closing agreement with the IRS. 13

For decades these procedures were followed by taxpayers and the

tax authorities alike. As far as the interested parties were concerned,

the closing agreements waiving U.S. taxpayers’ right to elect under

section 911(a) were sufficient to preempt potential issues of double

taxation for U.S. citizens working at Pine Gap. But a few years ago,

some U.S. citizens who worked at Pine Gap and had entered into closing

agreements began ignoring the agreements and making the

section 911(a) election on their tax returns or on amended returns they

filed for earlier tax years. 14 Predictably, the Commissioner bristled at

receiving these returns and issued notices of deficiency in respect of the

section 911(a) elections. 15 This case is based upon one of these notices. 16

III.

Mr. Smith’s Case

Having provided the preceding overview, we turn to the facts of

this case. The facts below are derived from the pleadings, the parties’

motion papers, their stipulation of facts as twice supplemented, and the

declarations and exhibits attached thereto. These facts are stated solely

for the purpose of ruling on the motions before us and not as findings of

fact in this case. See Whistleblower 769-16W v. Commissioner, 152 T.C.

172, 173 (2019).

We make no determination here whether a taxpayer in Mr. Smith’s

circumstances would or would not have been entitled to make an election under section

911 with respect to his income earned at Pine Gap absent a waiver.

14 A recent decision from the U.S. Court of Appeals for the Federal Circuit

addressed claims for refund filed by a taxpayer unrelated to Mr. Smith who also

worked at Pine Gap and sought to avoid his obligations under a closing agreement

waiving the section 911(a) election. See Brown v. United States, 22 F.4th 1008 (Fed.

Cir. 2022). The decision did not reach the merits of the taxpayer’s claim because the

Federal Circuit concluded the claims for refund were not “duly filed” pursuant to

section 7422(a). Id. at 1013.

15 Counsel for the Commissioner advises the Court that at least 19 other cases

pending in our Court involve the same issue as the one presented here.

16 This is not the first time our Court has been called upon to address issues

involving taxpayers working at Pine Gap. See, e.g., Middleton v. Commissioner, T.C.

Memo. 2008-150 (holding that the value of housing provided to Pine Gap employees by

the United States Air Force must be included in the recipient’s gross income); Hargrove

v. Commissioner, T.C. Memo. 2006-159 (same).

Personal History and Employment With Raytheon

Mr. Smith is an Air Force veteran and engineer who, in

September 2009, received an offer of employment from the Raytheon

Company, a private defense contractor, to work as an engineer at Pine

Gap. After describing various contingencies that applied to the offer,

the offer letter stated: “If you are currently employed, we recommend

you wait until we advise you of the results of the physical, medical, and

psychological screening, background check and visa processing before

notifying your current employer of your decision to terminate your

employment.” The letter further stated:

Please note that there are income tax implications

associated with this overseas position . . . . You should

consult with your personal tax preparer or advisor

regarding these tax implications, and, upon your request,

we will supply you information necessary for obtaining tax

advice. Raytheon is not making any representations

regarding the tax implications of this position.

After receiving Raytheon’s offer, Mr. Smith temporarily moved to

Dallas, Texas, to complete pre-employment orientation and onboarding

processes. He ultimately accepted the offer.

While waiting to move to Australia, Mr. Smith received a copy of

Raytheon’s Australian Operations Overseas Handbook. The handbook

informed Mr. Smith of certain tax implications of his new position,

including that the Australian government would not assess income tax

on Pine Gap employees provided that they waived their ability to elect

the foreign earned income exclusion under section 911(a) in a closing

agreement. The handbook stated that Raytheon employees had the

option to choose not to sign a closing agreement. The handbook further

explained that, if an employee decided not to sign a closing agreement,

the Raytheon Payroll Center would be directed to withhold income tax

at the Australian rate and forward the amounts withheld to the

Australian Taxation Office. The handbook cautioned, though, that “tax

laws change regularly and this information is provided as guidance only,

[and] Raytheon strongly encourages you to contact a tax advisor with

regard to your specific circumstances.” 17

17 The handbook states as follows on the issue under our consideration:

Mr. Smith’s onboarding took approximately one year. Once that

process was complete, he moved to Pine Gap. On his first day of work

there, Raytheon presented Mr. Smith with a form closing agreement

between him and the Commissioner entitled “U.S. Treasury

Department – Internal Revenue Service / Closing Agreement as to Final

Determination Covering Specific Matters.” The form closing agreement

stated, in relevant part:

Whereas, prior to the execution of this closing agreement,

the said taxpayer voluntarily agrees to waive his . . . right

13.4 AUSTRALIAN TAX WAIVER POLICY

The Government of Australia has agreed, by treaty, not to render

income tax assessments on U.S. contractor employees at JDFPG—

provided they pay income tax to the U.S. Government and do not use

the foreign earned income exclusion. Raytheon employees are strongly

encouraged to sign a Closing Agreement with the IRS for each tax year

they are assigned to JDFPG. The purpose of the Closing Agreement is

an acknowledgment by the employee that the employee and the

employee’s spouse, if applicable, will continue to pay U.S. federal

income tax for the period of his or her assignment and will not claim

any exclusion under Internal Revenue Code Section 911 with respect

to income derived from services performed for Raytheon at JDFPG.

Note that the Closing Agreement applies only to income derived from

services performed for Raytheon at JDFPG and not income derived

from other Australian sources.

An employee may choose whether to submit an annual Closing

Agreement for each tax year or to complete a Closing Agreement

covering multiple tax years. If the agreement is submitted for multiple

tax years, it cannot be altered during this time frame. The completed

Closing Agreement is forwarded to the Internal Revenue Service for

verification and acknowledgement. The IRS retains one copy of this

form and returns the remaining forms to the Site Administration Office

to be distributed as follows: employee, Australian Taxation Office and

Raytheon.

If the employee elects not to sign a Closing Agreement, the Raytheon

Payroll Center will be directed to withhold income tax at the

Australian rate and forward those withholdings to the Australian

Taxation Office. Australian tax rates are considerably higher than

current U.S. tax rates. In addition to Australian taxes, U.S. social

security taxes will be withheld and, in accordance with U.S. tax law,

the employee’s income will continue to be reported to the IRS and will

be subject to U.S. income taxes (in addition to Australian income taxes)

should the employee’s income exceed the Section 911 exclusion limit.

Once again, tax laws change regularly and this information is provided

as guidance only, Raytheon strongly encourages you to contact a tax

advisor with regard to your specific circumstances.

to any election under Code section 911(a) for the . . .

[relevant] taxable period(s); and

Whereas, such waiver is pursuant to an agreement with

and a determination by the Competent Authority for the

United States after consultation with the Competent

Authority for Australia in accordance with Article 24 of the

[1982 Treaty] between the United States and Australia;

....

Now it is Hereby Determined and Agreed for Federal

income tax purposes that:

(a)(1) the said taxpayer shall not at any time during or after

his . . . presence in Australia make any election under Code

section 911(a) with respect to income paid or provided to

said taxpayer as consideration for services performed for

[the employer] in Australia; and

(2) the said taxpayer irrevocably waives and foregoes any

right that he . . . may have to make any election under Code

section 911(a) with respect to income paid or provided to

[him] as consideration for services performed for [the

employer] in Australia . . . .

The form closing agreement concluded by stating, in relevant part:

[T]he said taxpayer and [the Commissioner] 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 of the Code . . . .

Despite the statements in the Raytheon handbook, Mr. Smith

maintains that Raytheon staff told him once he was in Australia that

his employment with Raytheon was contingent on his execution of the

agreement. For purposes of ruling on the Motions before us, we will

assume this assertion to be true. Mr. Smith also maintains that he did

not want to lose the job that he had been preparing to take for more than

a year, so he executed the first closing agreement, which covered taxable

years 2010, 2011, and 2012, on his first day of work. No IRS officials

were present during Mr. Smith’s discussions with Raytheon staff, and

Mr. Smith did not communicate with any IRS officials before executing

the agreement.

During his subsequent employment with Raytheon, Mr. Smith

was presented with an identical closing agreement (except for the

taxable years covered by the agreement) and asked to sign at least two

more times. He signed each time, including in 2016, when he signed a

closing agreement covering the taxable years 2016, 2017, and 2018

(2016–18 Closing Agreement).

As relevant here, the usual procedure for the execution of closing

agreements by Raytheon employees was as follows. First, the IRS would

send a blank form closing agreement via email to a program

administrator Raytheon employed at Pine Gap. Next, the program

administrator would provide the blank form closing agreement for

completion and execution to each relevant Raytheon employee for the

relevant taxable years. After the Raytheon employees completed and

executed the agreements, the program administrator would transmit

them back to the IRS via email. Once received by the IRS, the

agreements would be reviewed and signed by an IRS official. 18 Finally,

after the closing agreements were fully executed, the IRS would send

copies directly to Raytheon for its own recordkeeping and for

distribution to the individual employees and the Australian Taxation

Office.

The usual process was followed with respect to the 2016–18

Closing Agreement. Mr. Smith signed that agreement on April 21, 2016.

After Mr. Smith signed the agreement, he handed it back to his

employer, and Raytheon transmitted the executed agreement back to

the IRS. Deborah Palacheck signed the 2016–18 Closing Agreement on

behalf of the Commissioner on May 12, 2017, in her official capacity as

18 The particular official who would sign the closing agreements on behalf of

the Commissioner varied from time to time. For instance, the closing agreement

Mr. Smith signed covering the taxable years 2013–15 was signed by the Assistant

Deputy Commissioner, International, while his 2016–18 Closing Agreement was

signed by the Director, Treaty Administration.

Director, Treaty Administration. 19 The IRS then sent the fully executed

agreement back to Raytheon, which gave a copy to Mr. Smith.

Tax Returns and Tax Court Proceedings

Mr. Smith prepared his own Forms 1040, U.S. Individual Income

Tax Return, for the taxable years 2016 and 2017. He timely filed those

returns reporting $122,051 and $116,381 in wages for services

performed for Raytheon at Pine Gap. Consistent with the terms of the

2016–18 Closing Agreement, Mr. Smith did not make an election under

section 911(a) on his 2016 or 2017 return.

The Commissioner later received Forms 1040X, Amended U.S.

Individual Income Tax Return, for Mr. Smith’s taxable years 2016

and 2017. In these amended returns, which were filed by a preparer

located in the United States, 20 Mr. Smith claimed the section 911 foreign

earned income exclusion with respect to the income earned while

working for Raytheon at Pine Gap. The IRS processed the Forms 1040X

and issued refunds to Mr. Smith.

Mr. Smith’s U.S. federal income tax return for the taxable

year 2018 was filed by the preparer who filed his amended returns for

2016 and 2017. In the 2018 return, Mr. Smith again claimed the section

911 foreign earned income exclusion with respect to the $141,810 he

earned while working for Raytheon at Pine Gap.

After realizing that the elections on Mr. Smith’s 2016 and 2017

amended returns and his 2018 return did not follow the undertakings

19 Director, Treaty Administration, is a position within LB&I.

The Director’s

role is to assist the Director, Treaty and Transfer Pricing Operations Practice Area, in

coordinating treaty administration across the IRS. As relevant here, at the time the

2016–18 Closing Agreement was signed, the Director, Treaty Administration, reported

to the Director, Treaty and Transfer Pricing Operations, who reported to the

Commissioner, LB&I, who reported to the Deputy Commissioner for Services and

Enforcement, who reported to the Commissioner of Internal Revenue.

20 Mr. Smith did not sign the amended returns, which were prepared by John

Anthony Castro. Rather, Mr. Smith’s counsel, Tiffany Michelle Hunt, who also

represents Mr. Smith in this case, signed the returns on the lines designated for the

taxpayer’s signature. The returns were not accompanied by a Form 2848, Power of

Attorney and Declaration of Representative, as required by Treasury Regulation

§ 1.6012-1(a)(5) and Statement of Procedural Rules, 26 C.F.R. § 601.504(a)(6). The IRS

rejected them on that basis, and Mr. Smith then ratified the amended returns and

refiled them. The case mentioned at note 14 above, Brown, 22 F.4th 1008, also involved

returns prepared by Mr. Castro, as do the cases mentioned at note 15 above.

made in the 2016–18 Closing Agreement, the Commissioner issued a

notice of deficiency to Mr. Smith for the taxable years 2016, 2017,

and 2018, disallowing the claimed section 911(a) elections and asserting

that the previously issued refunds were in error. Mr. Smith timely

petitioned this Court for redetermination of the deficiencies. At the time

he filed his Petition, Mr. Smith lived in Australia.

In due course, the parties filed competing Motions for Partial

Summary Judgment regarding the validity of the 2016–18 Closing

Agreement. On May 24, 2022, the Court held a hearing on the Motions.

Discussion

Summary Judgment

The purpose of summary judgment is to expedite litigation and

avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp.

v. Commissioner, 90 T.C. 678, 681 (1988). The Court may grant

summary judgment when there is no genuine dispute as to any material

fact and a decision may be rendered as a matter of law. Rule 121(b);

Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17

F.3d 965 (7th Cir. 1994). In deciding whether to grant summary

judgment, we construe factual materials and inferences drawn from

them in the light most favorable to the adverse party. Sundstrand

Corp., 98 T.C. at 520. However, the nonmoving party may not rest upon

mere allegations or denials in his pleadings, but instead must set forth

specific facts showing that there is a genuine dispute for trial.

Rule 121(d); see also Sundstrand Corp., 98 T.C. at 520.

II.

Closing Agreements

Section 7121(a) authorizes the Secretary to “enter into an

agreement in writing with any person relating to the liability of such

person . . . in respect of any internal revenue tax for any taxable period.”

The Code calls these agreements “closing agreements.”

Section 7121(b) prescribes the effects of an agreement made

pursuant to section 7121(a). If “approved by the Secretary,” that

agreement “shall be final and conclusive.” I.R.C. § 7121(b). Lest there

be any doubt as to the type of finality intended, as relevant to us,

section 7121(b) goes on to provide that the agreement “shall not be

annulled, modified, set aside, or disregarded” “in any suit, action, or

proceeding.” I.R.C. § 7121(b)(2). And to make doubly sure its meaning

is not lost on the reader, the Code provides that this treatment extends

not just to the agreement itself, but also to “any determination,

assessment, collection, payment, abatement, refund, or credit made in

accordance” with the agreement. Id. As we have said: “Closing

agreements are meant to insure the finality of liability for both the

taxpayer and the IRS. This is why courts have strictly enforced closing

agreements, finding them binding and conclusive on the parties . . . .”

Hopkins v. Commissioner, 120 T.C. 451, 457 (2003) (quoting Hopkins v.

United States (In re Hopkins), 146 F.3d 729, 733 (9th Cir. 1998)).

As a general matter, a closing agreement is “approved by the

Secretary” (and therefore “final and conclusive”) once it is signed by the

taxpayer and executed on behalf of the Secretary. 21 As described further

in Discussion Part III.A below, the Secretary has delegated her authority

to act in this regard to the Commissioner. The Commissioner’s usual

procedure is to accept (i.e., execute) a closing agreement only after a

taxpayer or his representative has signed it. See Rev. Proc. 68-16, § 6.07,

1968-1 C.B. 770, 780. The Commissioner construes a taxpayer’s prior

signature as an offer to agree to the closing agreement and the

Commissioner’s subsequent execution as an acceptance of the taxpayer’s

offer to agree. 22 Id.

Section 7121(b) provides that the finality accorded a closing

agreement can be avoided only “upon a showing of fraud or malfeasance,

or misrepresentation of a material fact.” And while closing agreements

are similar in some respects to traditional contracts, our cases have

made clear that the validity and enforceability of closing agreements are

governed by the Code. See Rink v. Commissioner, 100 T.C. 319, 325 n.4

(1993) (stating that the determination of the validity or enforceability of

a closing agreement is “subject solely to [section] 7121”), aff’d, 47 F.3d

168 (6th Cir. 1995); see also Urbano v. Commissioner, 122 T.C. 384, 393

(2004) (stating that section 7121 sets forth the exclusive means by which

a closing agreement between the Commissioner and a taxpayer may be

accorded finality) (citing Hudock v. Commissioner, 65 T.C. 351, 362

(1975)); Marathon Oil Co. v. United States, 42 Fed. Cl. 267, 274 (1998),

aff’d, 215 F.3d 1343 (Fed. Cir. 1999).

See, e.g., Steffler v. Commissioner, T.C. Memo. 1995-271; Smith v.

Commissioner, T.C. Memo. 1991-412.

22 This construction aligns with section 7121, which contemplates a closing

agreement becoming “final and conclusive” after it is “approved by the Secretary.”

I.R.C. § 7121(b).

Accordingly, courts have consistently held that once an

agreement under section 7121(a) is “approved by the Secretary,” it is

“final and conclusive” unless a party can show that it should be set aside

on one of the statutory grounds. See I.R.C. § 7121(b); see also, e.g.,

Wolverine Petrol. Corp. v. Commissioner, 75 F.2d 593, 596 (8th

Cir. 1935) (“Full consideration dictates that matters affecting the

taxpayer’s liability once concluded by a closing agreement should be

respected in every particular, and subject to attack only upon the

grounds enumerated in the statute.”), aff’g 29 B.T.A. 1236 (1934). The

effect of a closing agreement

is regulated by statute and takes on legal consequences by

virtue of the statute, and not under the law of contracts,

but under well-settled principles of law which permit a

sovereign state to control and designate when and under

what conditions it may be sued.

The legislative

determination of these conditions is final, and is not

dependent upon a consideration as in case of release of

claims under the law of contracts.

Perry v. Page, 67 F.2d 635, 636 (1st Cir. 1933) (first citing Aetna Life Ins.

Co v. Eaton¸ 43 F.2d 711, 714 (2d Cir. 1930); and then citing Bankers’

Reserve Life Co. v. United States, 42 F.2d 313, 316 (Ct. Cl. 1930)).

Conditions not listed in the statute are not grounds for setting aside a

closing agreement. See, e.g., Cramp Shipbuilding Co. v. Commissioner,

14 T.C. 33, 37 (1950) (collecting cases); see also Marathon Oil Co., 42

Fed. Cl. at 274 (stating that if section 7121 conflicts with the federal

“common law” of contracts, the Code’s provisions control).

III.

Validity of the 2016–18 Closing Agreement

There is no dispute that, under the 2016–18 Closing Agreement,

Mr. Smith “irrevocably waives and foregoes any right he . . . may have

to make any election under Code section 911(a) with respect to income

paid or provided to [him] as consideration for services performed for [his]

employer at [Pine Gap]” for the taxable years 2016, 2017, and 2018. And

if the 2016–18 Closing Agreement is valid and the statutory exceptions

do not apply, section 7121(b)(2) requires us not to “annul[ ], modif[y], set

aside, or disregard[ ]” the agreement or any “determination . . . made in

accordance therewith.” Moreover, Mr. Smith does not dispute that the

determinations reflected in the notice of deficiency with respect to the

application of section 911(a) were “made in accordance” with the 2016–

18 Closing Agreement. See I.R.C. § 7121(b)(2).

Rather, Mr. Smith offers a two-pronged attack on the 2016–18

Closing Agreement. He contends first that the 2016–18 Closing

Agreement was not properly “approved by the Secretary” and second

that, even if it was properly approved, it must nevertheless be set aside

because of “malfeasance” or “misrepresentation.” We take each

contention in turn. 23

Proper Approval of the 2016–18 Closing Agreement

As to the approval point, Mr. Smith contends that the IRS official

who signed the 2016–18 Closing Agreement — Ms. Palacheck, the

Director, Treaty Administration — lacked the requisite signature

authority. For the reasons described below, we resolve this issue of first

impression in favor of the Commissioner.

Applicable Rules

The Code confers upon the Secretary the authority to enter into

closing agreements. I.R.C. § 7121. Section 7701(a)(11)(B) defines the

term “Secretary” to mean “the Secretary of the Treasury or [her]

delegate.”

Section 7701(a)(12)(A)(i) defines the term “or [her]

delegate” — when used with reference to the Secretary of the Treasury —

to mean “any officer, employee, or agency of the Treasury Department

duly authorized by the Secretary of the Treasury directly, or indirectly

by one or more redelegations of authority, to perform the function

mentioned or described in the context.” (Emphasis added.)

Exercising the authority that sections 7121 and 7701(a)(11)(B)

provide, the Secretary has delegated her authority to enter into closing

agreements to the Commissioner. Treas. Reg. §§ 301.7121-1(a),

301.7701-9(b); see also Treas. Order 150-07 (Nov. 18, 1953) (transferring

the Secretary’s closing agreement functions to the Commissioner),

modified and superseded by Treas. Order No. 150-10 (Apr. 22, 1982).

The Commissioner, in turn, has further delegated his authority through

regulations and delegation orders. Statement of Procedural Rules, 26

C.F.R. § 601.202(a)(1). 24

In his Petition, Mr. Smith argues that the 2016–18 Closing Agreement

should be set aside because he signed it under duress. As explained in Discussion

Part III.B.3 below, he has forfeited any duress arguments by not fully briefing them.

24 Referring to section 7121, the rule states that “any officer or employee of the

[IRS] authorized in writing by the Commissioner, may enter into and approve a written

As relevant here, Delegation Order 4-12 addresses the “Authority

to Act as ‘Competent Authority’ or ‘Taxation Authority’ Under Certain

International Agreements, Authorize the Disclosure of Tax Information

Under Mutual Legal Assistance Treaties, and Disclose Certain Tax

Convention Information.” Delegation Order 4-12 (Rev. 3), Internal

Revenue Manual (IRM) 1.2.43.12 (Sept. 7, 2016). 25 It delegates to the

Commissioner, LB&I, the authority “[t]o act as ‘competent or taxation

authority’ . . . for all matters encompassed by the tax treaties . . . of the

United States . . . and to apply and to interpret such treaties . . . , but in

matters of interpretation to act only with the concurrence of the

Associate Chief Counsel (International).” IRM 1.2.43.12(2) and (3)

(Sept. 7, 2016) (emphasis added). The delegation order requires that

this authority “not be redelegated.” Id. at (4).

Although the Commissioner, LB&I, may not redelegate the

authority provided to him under Delegation Order 4-12, the delegation

order itself delegates a portion of the authority provided to the

Commissioner, LB&I, to other IRS employees, including the Director,

Treaty Administration. Thus, the order reads as follows:

Authority: To act as “competent authority” . . . under the

tax treaties . . . of the United States with respect to specific

applications of such treaties . . . , including signing mutual

and other agreements on behalf of the Commissioner, LB&I,

except as otherwise specifically delegated in this delegation

order.

. . . Delegated to: Director, Advance Pricing and

Mutual Agreement and Director, Treaty Administration,

for cases and issues under their jurisdiction.

IRM 1.2.43.12(14) and (15) (Sept. 7, 2016) (emphasis added).

The Commissioner maintains that the paragraphs of Delegation

Order 4-12 set out above authorized Ms. Palacheck, as Director, Treaty

agreement with a person relating to the liability of such person . . . in respect of any

internal revenue tax for any taxable period.” Statement of Procedural Rules, 26 C.F.R.

§ 601.202(a)(1).

25 Delegation Order 4-12 has since been revised. See Delegation Order 4-12

(Rev. 4), IRM 1.2.2.5.11 (June 9, 2021), superseding Delegation Order 4-12 (Rev. 3),

IRM 1.2.43.12 (Sept. 7, 2016).

Administration, to execute the 2016–18 Closing Agreement with

Mr. Smith. As explained further below, we agree.

Analysis

Whether Delegation Order 4-12 authorized the Director, Treaty

Administration, to enter into the 2016–18 Closing Agreement on behalf

of the Commissioner is a question of law appropriate for summary

adjudication. See Rule 121(b); Sundstrand Corp., 98 T.C. at 520.

The Director, Treaty Administration, is an official within LB&I

who assists the Director, Treaty and Transfer Pricing Operations

Practice Area, in coordinating treaty administration across the IRS. See

discussion accompanying note 19 above. Consistent with that role,

Delegation Order 4-12 granted the Director, Treaty Administration, the

authority to act as “competent authority” under the tax treaties with

respect to specific applications of such treaties, including the authority

to sign “other agreements” on behalf of the Commissioner, LB&I. In our

view, Ms. Palacheck, as Director, Treaty Administration, acted within

her delegated authority when she signed the 2016–18 Closing

Agreement because she was acting as competent authority with respect

to a specific application of the 1982 Treaty.

Ms. Palacheck’s Actions

To begin with, the 1982 Treaty provides general rules that apply

to U.S. residents 26 who earn income while working in Australia and

generally permits Australia to tax such individuals. See 1982 Treaty,

arts. 4, 15, 35 U.S.T. at 2008–11, 2037–38. But the Pine Gap

Agreements and Australian law implementing the Pine Gap

Agreements would appear to provide for a different outcome. See Pine

Gap I, art. 9(1), 17 U.S.T. at 2238 (providing that income earned by U.S.

residents at Pine Gap is exempt from Australian taxation); Pine Gap II,

art. X(1), 20 U.S.T. at 3100 (same); Income Tax Assessment Act 1936

(Cth) s 23AA (Austl.) (same).

Determining the appropriate result for a taxpayer in Mr. Smith’s

position, therefore, required an analysis of how the 1982 Treaty

interacts with the Pine Gap Agreements and Australian law —

including, for example, whether the 1982 Treaty might be viewed as

overruling the Pine Gap Agreements, see Owner-Operator Indep. Drivers

26 As we have stated, U.S. citizens (such as Mr. Smith) are U.S. residents for

purposes of the 1982 Treaty. 2001 Protocol, art. 3, T.I.A.S. No. 13,164.

Ass’n, Inc. v. U.S. Dept. of Transp., 724 F.3d 230, 233 (D.C. Cir. 2013)

(stating that when two treaties conflict, the more recent pronouncement

controls), and, if not, how the terms “exempt” or “exemption” as used in

section 911, the Pine Gap Agreements, Australian domestic law, and the

1982 Treaty should be applied. Put another way, the relevant legal

authorities — the Pine Gap Agreements, U.S. and Australian domestic

law, and the 1982 Treaty — gave rise to questions of proper application.

In these circumstances, Article 24(2) of the 1982 Treaty expressly

authorized — indeed, it directed — the competent authorities of the two

countries “to resolve by agreement any difficulties or doubts arising as

to the application” of the 1982 Treaty. (Emphasis added.) They did so,

as the Welch Letter explains, see Welch Letter at 2, Background

Part II.D above, and as the parties do not dispute. 27 Specifically, the

two competent authorities agreed to resolve the “difficulties or doubts”

encountered in applying the 1982 Treaty by establishing a process under

which (1) the IRS would enter into closing agreements with U.S. citizens

who worked at Pine Gap providing for the relinquishment of the right to

make an election under section 911 and (2) the Australian Taxation

Office would in effect relinquish Australia’s right to tax income earned

in its territory once the closing agreements were in place. Additionally,

receipt of a closing agreement would relieve the relevant Pine Gap

employer from any obligation to withhold tax under Australian law. Cf.

Rev. Proc. 2015-40, § 2.01(2), 2015-35 I.R.B. 236, 240 (recognizing that

the mutual agreement procedure articles of U.S. tax treaties may be

triggered by “foreign-initiated actions (such as withholding of tax by a

withholding agent)”).

Reflecting this history, one of the recitals of the 2016–18 Closing

Agreement explains that waiver of Mr. Smith’s rights under section 911

“is pursuant to an agreement with and a determination by the

Competent Authority for the United States after consultation with the

Competent Authority for Australia in accordance with Article 24 of the

[1982 Treaty].” We agree with the recital and find it beyond question

that implementing the arrangement described above required

Ms. Palacheck to “act as ‘competent authority’ . . . under the tax treaties

. . . of the United States with respect to specific applications of such

27 While we do not rely on this point, we note that the IRS’s website states that

the IRS drafted its public guidance for Pine Gap employees in coordination with the

Australian Taxation Office. Foreign Earned Income Exclusion and the Pine Gap

Facility,

https://www.irs.gov/individuals/international-taxpayers/foreign-earnedincome-exclusion-and-the-pine-gap-facility (last updated Feb. 15, 2022).

treaties” under Delegation Order 4-12.

Moreover, because the

arrangement called for the signing of a closing agreement on behalf of

the United States in appropriate circumstances, that action was also

covered by the delegation order as an act required with respect to a

specific application of the 1982 Treaty.

In view of the foregoing, we conclude that (1) Ms. Palacheck

signed the 2016–18 Closing Agreement while acting as the competent

authority under the 1982 Treaty with respect to a specific application of

that treaty and (2) that action is well within the scope of the authority

delegated to her as Director, Treaty Administration.

Mr. Smith’s Arguments

Mr. Smith advances three principal arguments to resist our

conclusion. We find them unavailing.

First, Mr. Smith questions whether a closing agreement is

contemplated by the phrase “other agreements” in paragraph 14 of

Delegation Order 4-12. See IRM 1.2.43.12(14). Pointing to the definition

of “competent authority resolution” in IRM Exhibit 4.60.2-1 (Aug. 9,

2021), he argues that “other agreements” must extend only so far as to

encompass certain types of “mutual agreements.” But we disagree.

To begin, we note that the IRM exhibit Mr. Smith cites did not

exist at the time Ms. Palacheck signed the 2016–18 Closing Agreement.

Thus, we do not see how a definition included in that exhibit sheds any

light on the proper interpretation of Delegation Order 4-12 as in effect

at the time relevant here.

Moreover, although delegation orders do not carry the force of

law, they are interpreted using principles of statutory construction. See

Crowell v. United States (In re Crowell), 305 F.3d 474, 478 (6th Cir.

2002). Those principles require us to interpret undefined terms in the

delegation order “in their ordinary, everyday sense.” See Fort Howard

& Subs. v. Commissioner, 103 T.C. 345, 351–52 (1994) (citing

Commissioner v. Soliman, 506 U.S. 168, 174 (1993)), supplemented by

107 T.C. 187 (1996); see also Food Mktg. Inst. v. Argus Leader Media,

139 S. Ct. 2356, 2362 (2019). As relevant here, the term “other” means

“[d]ifferent from that or those implied or specified.” Other, The

American Heritage Dictionary of the English Language (5th ed. 2016);

see also Other, Webster’s New World College Dictionary (5th ed. 2016).

Accordingly, we read the delegation order’s reference to “other

agreements” as referring to agreements different from mutual

agreements. 28 And consistent with this interpretation, we conclude that

Delegation Order 4-12 is sufficiently broad to encompass the execution

of an agreement — mutual or otherwise — that arises directly from the

application of a “tax treat[y] . . . of the United States.” The 2016–18

Closing Agreement falls within that description. 29

Second, Mr. Smith objects to this conclusion by suggesting that

the Director, Treaty Administration, has the authority to execute closing

agreements, but only when a taxpayer makes a formal competent

authority request pursuant to Article 24 of the 1982 Treaty and

section 2.01 of Revenue Procedure 2015-40. Pet’r’s Mot. for Partial

Summ. J. 24. This point misses the mark. There is no textual

foundation in Delegation Order 4-12 for the distinction Mr. Smith

draws. Rather, all closing agreements signed by the Director, Treaty

Administration, when acting as competent authority with respect to a

specific application of a treaty, whether made in the course of a formal

competent authority request or otherwise, fall within the ambit of “other

agreements.” IRM 1.2.43.12(14). Or, put another way, if the Director,

Treaty Administration, has the authority to execute closing agreements

in some circumstances involving a specific application of a treaty, she

has the authority to execute closing agreements in any circumstance

relating to specific applications of a tax treaty of the United States. 30

28 This reading is supported by the canon against superfluity. See TRW Inc. v.

Andrews, 534 U.S. 19, 31 (2001) (“It is ‘a cardinal principle of statutory construction’

that ‘a statute ought, upon the whole, to be so construed that, if it can be prevented,

no clause, sentence, or word shall be superfluous, void, or insignificant.’ ” (quoting

Duncan v. Walker, 533 U.S. 167, 174 (2001))). While Mr. Smith’s interpretation would

relegate the phrase “other agreements” to a subset of “mutual agreements” with no

independent significance, our reading gives meaning to both phrases.

29 The absence of the qualifier “closing” before the word “agreement” in the

delegation order is of no moment. After all, the text of section 7121(a) itself refers only

to “an agreement,” and section 7121(b) refers to “such agreement” or “the agreement.”

Only the heading of that provision refers to a “closing” agreement. See I.R.C. § 7806(b)

(stating that no “descriptive matter relating to the contents of [the Code] [shall] be

given any legal effect”); see also Rowen v. Commissioner, 156 T.C. 101, 112 n.9 (2021)

(first citing United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S.

213, 222–23 (1996); and then citing N.Y. & Presby. Hosp. v. United States, 881 F.3d

877, 886 n.13 (Fed. Cir. 2018) (“[T]itles [in the Code] have no legal effect . . . .”)). The

reference to “other agreements” in Delegation Order 4-12 is more than sufficient to

cover the circumstances here.

30 Perhaps having recognized the tenuousness of her argument, Mr. Smith’s

counsel appeared to reverse her initial position, arguing at the hearing that the

Third, Mr. Smith further objects to our reading of Delegation

Order 4-12 on the ground that, as he sees it, delegations of authority to

enter into closing agreements are contained exclusively within

Delegation Order 8-3, IRM 1.2.2.9.3 (July 27, 2022), 31 as described in

part 8 of the Internal Revenue Manual. See Pet’r’s Resp. to Mot. for

Partial Summ. J. 5 (citing IRM 8.13.1.2.4.1 (May 25, 2018) (discussing

certain delegations of authority to enter into closing agreements)). “It

would not be practical,” he urges, “for the IRS to . . . authorize . . . [the]

Director, Treaty Administration, to also execute closing agreements

through a different [d]elegation [o]rder” contained in another section of

the Internal Revenue Manual. Pet’r’s Mot. for Partial Summ. J. 25. Of

course, the Commissioner is not required to make his internal rules and

procedures practical (although that may be advisable). 32 Nevertheless,

we reject Mr. Smith’s contention on the basis that mutual delegations of

authority are not only permissible, but occur regularly. For example,

section 7701(a)(12)(A)(i) provides for the possibility of “one or more”

delegations of authority and, as the Commissioner points out, citing

IRM 8.13.1.2.4.1(3) as an example, multiple officials often are authorized

to execute closing agreements. Moreover, concurrent delegations of

authority need not be express. See Winslow v. Commissioner, 139 T.C.

270, 274 (2012) (stating that higher grade IRS personnel hold the same

delegated authority as lower grade IRS personnel); see also Muncy v.

Commissioner, 890 F.3d 724, 726 (8th Cir. 2018) (same), aff’g T.C.

Memo. 2017-83.

Director, Treaty Administration, may not execute a closing agreement under any

circumstances.

31 The parties generally cite to Delegation Order 8-3 at IRM 1.2.2.9.3, where it

appeared when the parties filed their motions. But when Ms. Palacheck signed the

2016–18 Closing Agreement in 2017, Delegation Order 8-3 appeared at IRM 1.2.47.4

(Oct. 14, 2014).

32 In 1974, the IRS Chief Counsel considered a similar issue concerning the

authority of certain revenue agents to make determinations and computations under

section 446(b) (regarding the Secretary’s authority to change a taxpayer’s method of

accounting to recompute taxable income in a manner that clearly reflects income).

Citing an indirect delegation order, parol evidence, the revenue agents’ job

descriptions, and principles of administrative law, the Chief Counsel determined that

the revenue agents had an implied authority to make section 446(b) determinations

and computations even though the Internal Revenue Manual did not contain a specific

delegation order delegating that authority. The Chief Counsel concluded his

memorandum by recommending that the delegation order at issue be “redrafted in

broader language” to “avoid the problem” in the future. IRS Gen. Couns. Mem. 35,814

(May 10, 1974). That advice might be helpfully followed here as well.

Other Considerations

Our analysis above is further supported by the presumption of

official regularity. See, e.g., Mecom v. Commissioner, 101 T.C. 374, 388

(1993) (concluding that an official had authority to sign a consent to

extend the limitations period when officials with the same title regularly

executed such agreements and noting that “public officials are presumed

to have properly discharged their official duties”), aff’d, 40 F.3d 385 (5th

Cir. 1994); Perlmutter v. Commissioner, 44 T.C. 382, 399 (1965) (“[W]e

must start with the premise that ‘Acts done by a public officer “which

presuppose the existence of other acts to make them legally operative,

are presumptive proofs of the latter.” ’ ” (quoting R.H. Stearns Co. of Bos.,

Mass. v. United States, 291 U.S. 54, 63 (1934))), aff’d, 373 F.2d 45 (10th

Cir. 1967); see also, e.g., Riggs Nat’l Corp. & Subs. v. Commissioner, 295

F.3d 16, 20 (D.C. Cir. 2002) (“The presumption [of official regularity] . . .

applies to the actions of tax officials and in applying United States tax

law. Most pertinently, it [also] applies to the actions and records of

foreign public officials.” (citations omitted)), rev’g and remanding T.C.

Memo. 2001-12. Here, U.S. officials charged with applying the 1982

Treaty determined that difficulties or doubts existed concerning its

application to Pine Gap employees, and they coordinated with their

Australian counterparts to resolve those difficulties or doubts. We are

not inclined to question their judgment in this regard in the absence of

any indication that they acted inappropriately. See Pietanza v.

Commissioner, 92 T.C. 729, 739 (1989) (citing United States v. Chem.

Found., Inc., 272 U.S. 1, 14–15 (1926)), aff’d without published opinion,

935 F.2d 1282 (3d Cir. 1991). And Mr. Smith has presented no evidence

here to rebut the presumption. 33 See, e.g., Riggs Nat’l Corp. v.

Commissioner, 295 F.3d at 21 (“While not irrebuttable, [the]

presumption [of regularity] may only be rebutted through clear or

specific evidence.”).

Finally, comity considerations support the conclusion we reach

here. Mr. Smith and the IRS are not the only stakeholders in this case.

Invalidating this closing agreement for lack of proper approval would

33 In upholding a decision denying a taxpayer’s claim for refund, the Supreme

Court observed that “the presumption of official regularity was sufficient to sustain

the inference that the Commissioner on his side had done whatever was appropriate

to give support to his own act.” R.H. Stearns Co., 291 U.S. at 63; see also United States

v. Ahrens, 530 F.2d 781, 785, 787 (8th Cir. 1976) (applying the presumption of official

regularity to hold valid a notice of deficiency, reversing the judgment of the lower court

and remanding with instructions to enter summary judgment in favor of the

government).

upset the settled expectations of a treaty partner of the United States.

To relinquish Australia’s right to require Pine Gap employers to

withhold tax, the Australian competent authority sought — and the

United States competent authority agreed to provide — closing

agreements like the one at issue here. According to the record, the

Australian Taxation Office permitted Raytheon not to withhold tax from

Mr. Smith because it (reasonably) believed that the Commissioner had

validly executed a closing agreement and Mr. Smith had irrevocably

given up his section 911 exemption and would be taxed by the United

States. Australia is entitled to rely on the deal it struck with the U.S.

competent authority, as reflected in the closing agreement. Australia’s

detrimental reliance was fully justified. There would be no reason for

the Australian competent authority to question Ms. Palacheck’s

authority to sign the closing agreement here in light of the treaty-related

issues that the overall arrangement resolved and her role as the

Director, Treaty Administration. In that role, she was one of the U.S.

officials with whom the Australian Taxation Office regularly negotiated

to resolve 1982 Treaty issues. It would be untenable for us to now

invalidate the closing agreement on the novel theory that the IRS official

with whom the Australian tax authorities regularly negotiate could not

sign the agreement. We do not read either the 1982 Treaty or Delegation

Order 4-12 to produce such a nonsensical result.

In summary, we are unpersuaded by Mr. Smith’s arguments

regarding Ms. Palacheck’s purported lack of authority as Director,

Treaty Administration, to execute the 2016–18 Closing Agreement, and

Mr. Smith advances no other arguments regarding the validity of the

execution of the 2016–18 Closing Agreement. We therefore conclude

that the agreement was validly executed.

Absence of Malfeasance or Misrepresentation of Fact

We consider next whether the 2016–18 Closing Agreement can be

set aside because of “a showing of fraud or malfeasance, or

misrepresentation of a material fact.” See I.R.C. § 7121(b). Mr. Smith

alleges both malfeasance and misrepresentation. We conclude neither

ground supports setting aside the agreement.

Malfeasance

Mr. Smith’s malfeasance arguments primarily concern the

procedures that the IRS, Raytheon, and Raytheon employees used to

execute closing agreements. In essence, Mr. Smith maintains that the

IRS committed malfeasance by disclosing confidential return

information in violation of section 6103 during each of the following

three phases: (1) when providing blank form closing agreements to

Raytheon, (2) when receiving the half-executed 2016–18 Closing

Agreement through Raytheon, and (3) when transmitting the fully

executed 2016–18 Closing Agreement back to Mr. Smith through

Raytheon. Each argument implicates questions of first impression.

Malfeasance, Generally

We begin with some background on the type of malfeasance that

counts for setting aside a closing agreement. The predecessor to our

Court declined to set aside a closing agreement absent malfeasance “in

the making of the agreement.” Ingram v. Commissioner, 32 B.T.A. 1063,

1065 (1935), aff’d per curiam, 87 F.2d 915 (3d Cir. 1937). Memorandum

opinions of our Court have acknowledged the same rule. See, e.g.,

Halpern v. Commissioner, T.C. Memo. 2000-151, 2000 Tax Ct. Memo

LEXIS 180, at *8–9 (noting that the Court had previously denied the

Commissioner’s motion for summary judgment because there was a

factual dispute as to whether the Commissioner “committed

malfeasance . . . in obtaining the closing agreement”), aff’d, 33 F. App’x

550 (2d Cir. 2002); Bennett v. Commissioner, T.C. Memo. 1988-557, 1988

Tax Ct. Memo LEXIS 586, at *6, *9 (stating that a closing agreement

may be set aside if the parties “were induced to sign” or the agreement

was “obtained through” fraud or misrepresentation and leaving for trial

the question of whether the relevant standard was met on the facts

there). 34

Malfeasance is not defined in the Code or the Treasury

Regulations. According to Black’s Law Dictionary, it is a “wrongful,

unlawful, or dishonest act; esp., wrongdoing or misconduct by a public

official.” Malfeasance, Black’s Law Dictionary 1145 (11th ed. 2019). 35

34 See also Tree-Tech, Inc. v. Commissioner, T.C. Memo. 2011-162, 2011 Tax Ct.

Memo LEXIS 161, at *12–13 (describing when closing agreements may be set aside

and holding that the taxpayer had “not set forth any specific facts that would create a

genuine issue for trial as to fraud, malfeasance, or misrepresentation of a material

fact”).

35 In H Graphics/Access, Ltd. P’ship v. Commissioner, T.C. Memo. 1992-345,

1992 Tax Ct. Memo LEXIS 367, the Court was called upon to interpret section 6224(c)

as in effect in 1987. That section, which was repealed in 2015, “provide[d] that

settlement agreements in unified partnership proceedings are binding absent a

Disclosure of Confidential Return Information

Subject to exceptions set out in the Code, section 6103(a)(1)

prohibits an “officer or employee of the United States” from “disclos[ing]

any return or return information obtained by him in any manner in

connection with his service as such an officer or an employee or

otherwise.” See Mescalero Apache Tribe v. Commissioner, 148 T.C. 291,

294 (2017). A “disclosure” is defined as the “making known to any

person in any manner whatever a return or return information.” I.R.C.

§ 6103(b)(8). Return information includes, among other things, “[1] any

agreement under section 7121, and [2] any similar agreement, and

[3] any background information related to such an agreement or request

for such an agreement.” I.R.C. § 6103(b)(2)(D). 36

The definition of “return information” is “ ‘deliberately sweeping’

. . . in order to effectuate the statute’s core purpose of protecting

taxpayer privacy,” Sea Shepherd Conserv. Soc’y v. IRS, 208 F. Supp. 3d

58, 86 (D.D.C. 2016) (first quoting Landmark Legal Found. v. IRS, 267

F.3d 1132, 1135–36 (D.C. Cir. 2001); and then quoting Tax Analysts v.

IRS, 117 F.3d 607, 615 (D.C. Cir. 1997)), and “to encourage . . .

taxpayers’ free and open disclosure to the [IRS],” Estate of Yaeger v.

Commissioner, 92 T.C. 180, 184 (1989) (citing Lampert v. United States,

854 F.2d 335, 336 (9th Cir. 1988)). But return information “does not

include data in a form [that] cannot be associated with, or otherwise

showing of ‘fraud, malfeasance, or misrepresentation of fact.’ ” Id. at *17 (quoting

section 6224(c)). The Court observed that “[t]he standard that section 6224(c)

prescribe[d] for setting aside a settlement agreement [was] the same standard

prescribed by section 7121(b) for setting aside a closing agreement.” Id. at *18. After

reviewing dictionary “definitions, case law, and perceived congressional intent,” the

Court held “that the terms ‘malfeasance’ and ‘misrepresentation’ [as used in

section 6224(c)] require a deliberate intent to deceive or mislead similar to that

required to prove fraud.” Id. at *22 (footnotes omitted).

The more expansive portion of the “return information” definition is

contained in section 6103(b)(2)(A). It includes:

a taxpayer’s identity, the nature, source, or amount of his income,

payments, receipts, deductions, exemptions, credits, assets, liabilities,

net worth, tax liability, tax withheld, deficiencies, overassessments, or

tax payments, whether the taxpayer’s return was, is being, or will be

examined or subject to other investigation or processing, or any other

data, received by, recorded by, prepared by, furnished to, or collected

by the Secretary with respect to a return or with respect to the

determination of the existence, or possible existence, of liability (or the

amount thereof) of any person under this title for any tax, penalty,

interest, fine, forfeiture, or other imposition, or offense . . . .

identify, directly or indirectly, a particular taxpayer.” I.R.C. § 6103(b)(2)

(flush text).

Congress has established criminal penalties and civil causes of

action for violations of section 6103. 37 For purposes of our Opinion, we

assume without deciding that willful disclosure of confidential return

information in violation of section 6103 is an act of malfeasance for

purposes of section 7121(b). But even with that assumption, as

discussed below, we find no malfeasance “in the making of” the 2016–18

Closing Agreement either because no return information was disclosed

in contravention of section 6103 or because any inappropriate disclosure

did not affect the making of the agreement.

Phase One: Whether There Was Malfeasance

in Providing a Blank Closing Agreement to

Raytheon

We can easily dispense with Mr. Smith’s first argument — that

malfeasance occurred when “[t]he IRS sent the [form] [c]losing

[a]greement to Raytheon” because the blank, form closing agreement

(form agreement) was return information under section 6103(b)(2)(D).

Pet’r’s Mot. for Partial Summ. J. 26. The argument fails for at least

three reasons.

Not Covered by 6103(b)(2)(D)

First, the form agreement does not come within the definition of

“return information” set out in section 6103(b)(2)(D). That provision

covers three categories of information: (1) “any agreement under

section 7121,” (2) “any similar agreement,” and (3) “any background

information related to such an agreement or request for such an agreement.”

37 In particular, section 7213(a)(1) makes it “unlawful for any officer or

employee of the United States . . . , or any former officer or employee, willfully to

disclose to any person, except as authorized in this title, any return or return

information (as defined in section 6103(b)).” A violation of section 7213(a)(1) is “a

felony punishable upon conviction by a fine in any amount not exceeding $5,000, or

imprisonment of not more than 5 years, or both.” See also I.R.C. § 7213A (making it

unlawful for any officer or employee of the United States willfully to inspect, except as

authorized in the Code, any return or return information and making any violation

punishable “by a fine in any amount not exceeding $1,000, or imprisonment of not more

than 1 year, or both”); I.R.C. § 7431(a)(1) (permitting taxpayers to bring a civil action

for damages against the United States for violations of section 6103).

With respect to the first two categories, an unsigned, blank

agreement is not an “agreement under section 7121” because it has not

been adopted by any party. Nor is it a “similar agreement.” Indeed, it

is not an agreement at all. Petitioner’s argument therefore fails to the

extent that it depends on the first two categories.

With respect to the third category, it should go without saying

that an officer or employee of the United States does not violate

section 6103 if the information disclosed is not a “return” or “return

information” at the time of the disclosure. As applicable here, at the

time the IRS sent the form agreement to Raytheon, no closing

agreement was in effect with Mr. Smith for the tax years 2016–18, and

Mr. Smith had not requested a closing agreement for those years. (In

fact, Mr. Smith maintains he never requested a closing agreement

before Raytheon presented one to him.) Accordingly, at the time the IRS

“disclosed” the form agreement to Raytheon, it was not “background

information” related to the 2016–18 Closing Agreement or to a request

by Mr. Smith for such an agreement.

Mr. Smith appears to argue that the form agreement was either

a request by the IRS that Mr. Smith enter into a closing agreement for

the relevant years or at least “background information” related to such

a request. Given the overall focus of section 6103 on information

provided by taxpayers to the IRS, see, e.g., I.R.C. § 6103(a) (flush text),

we are skeptical that section 6103(b)(2)(D) covers information flowing in

the opposite direction. 38 But even if we were to assume for the sake of

analysis that section 6103(b)(2)(D) encompasses a request by the IRS for

a closing agreement, the record here shows that the IRS did not make

such a request. Rather, the creation of the form agreement simply

reflected an IRS determination (after consultation with the Australian

Taxation Office) that taxpayers interested in entering into a closing

agreement would have the option to do so. And when the IRS

transmitted the form agreement to Raytheon, it was simply outlining

one form taxpayer offers can take to be considered by the IRS.

To summarize, the IRS did not ask Mr. Smith (or any other

taxpayer) to enter into a closing agreement when it transmitted the form

agreement to Raytheon. The form agreement, therefore, was not an IRS

38 Stated differently, it is not readily apparent that section 6103(b)(2)(D) covers

either requests to enter into a closing agreement made by the IRS or any background

information relating to such a request (provided the request does not otherwise contain

return information, such as that described in section 6103(b)(2)(A)).

request for a closing agreement, nor was it background information

related to such a request. 39 As a result, Mr. Smith’s argument fails to

the extent it depends on the third enumerated category in

section 6103(b)(2)(D).

ii.

Not Associated with Any Taxpayer

In addition to not falling within the definition of “return

information” in section 6103(b)(2)(D), the form agreement appears to be

specifically excluded from the definition of “return information” by the

flush text of section 6103(b)(2). That text provides that the term “return

information” “does not include data in a form which cannot be associated

with, or otherwise identify, directly or indirectly, a particular taxpayer.”

Cf. Sklar v. Commissioner, 282 F.3d 610, 617 (9th Cir. 2002) (suggesting

that even a final closing agreement may be subject to disclosure if it

“affect[s] not just one taxpayer or a discrete group of taxpayers, but a

broad and indeterminate class of taxpayers with a large and constantly

changing membership”).

In this respect, the form agreement is similar to guidance the IRS

has issued regarding closing agreements in other contexts where

taxpayers share common fact patterns. See, e.g., IRM 7.2.3.1–4 (Jan. 7,

2020) (describing the Tax Exempt Bonds Voluntary Closing Agreement

Program); 40 IRM 4.23.25.1 (Aug. 3, 2018) (describing a voluntary closing

agreement process for employment tax matters). These programs

provide options for taxpayers who wish to resolve potential compliance

issues proactively. They do not identify individual taxpayers or

otherwise convey sensitive information. And taxpayers are not required

to participate in them.

Mr. Smith admits that such programs are permissible and

attempts to distinguish this case because of the Commissioner’s

provision of form closing agreements to Raytheon (a third party) rather

than posting them on its website. But if disclosure to the whole world

39 We need not decide for purposes of this discussion whether the provision

covers only “background information related to such . . . request[s] for such . . .

agreement[s],” as the text appears to suggest, or whether “requests” for closing

agreements constitute a separate category under section 6103(b)(2)(D), as Mr. Smith

appears to argue, because the result here would be the same under either reading.

40 Model closing agreements for the Tax Exempt Bonds Voluntary Closing

Agreement Program are posted on the IRS’s website. See Model Closing Agreements

for VCAP and Examinations, https://www.irs.gov/tax-exempt-bonds/model-closingagreements-for-vcap-and-examinations (last updated Aug. 6, 2022).

is permissible, we see nothing in section 6103 prohibiting disclosure to

a single third party. And we find some of Mr. Smith’s contentions on

this score rather strained. 41

In short, the form agreement — like other model closing

agreements posted on the IRS’s website — contained no identifying data

or other sensitive information at all. 42 Instead, it merely contained

interpretive legal statements regarding the generalized application of

tax treaties, international agreements, and domestic tax laws. The IRS

did not require Raytheon employees to sign the agreements, and there

was no guarantee that the IRS would countersign even if an employee

did sign. Therefore, the form agreement “[did] not include data in a form

which [could] be associated with, or otherwise identify, directly or

indirectly, a particular taxpayer.” See I.R.C. § 6103(b)(2).

iii.

Not Obtained by the IRS

Finally, our conclusions are confirmed by the text of

section 6103(a). That provision prohibits the disclosure of return

information that was “obtained by [an IRS official] in any manner in

connection with his service.” The form agreement was not return

information “obtained” by any IRS officials; it was a document created

by IRS officials in the ordinary course of their duties and did not include,

nor was it premised upon, any particularized underlying information

obtained from any specific taxpayer.

In these circumstances,

section 6103 simply is not implicated. Nor does finding section 6103

inapplicable here in any way hinder “effectuat[ing] the statute’s ‘core

purpose’ of ‘protecting taxpayer privacy,’ ” Sea Shepherd Conserv. Soc’y,

208 F. Supp. 3d at 86 (quoting Tax Analysts, 117 F.3d at 615), or

41 At the hearing, for example, Mr. Smith’s counsel appeared to endorse the

view that section 7431(a) would authorize every Pine Gap employee whose employer

had received the form agreement to bring a civil action for damages against the United

States for violations of section 6103, even if that employee never entered into a closing

agreement.

42 We note that the U.S. Supreme Court in Church of Scientology of Cal. v. IRS,

484 U.S. 9, 14 (1987), held that even though the direct or indirect identifiers may be

removed from documents constituting return information, the documents still retain

their protected character under section 6103. However, Church of Scientology does not

apply to a document that was never return information in the first place, such as a

blank form closing agreement or any other blank tax form. Here, no identifiers were

removed from the form agreement because none were ever in the form agreement.

discourage “taxpayers’ free and open disclosure to the [IRS],” Estate of

Yaeger, 92 T.C. at 184 (citing Lampert, 854 F.2d at 336).

Based on the foregoing, we conclude that the provision of the form

agreement to Raytheon did not violate section 6103 as alleged, nor did

it constitute malfeasance.

Phase Two: Whether There Was Malfeasance

in Obtaining the 2016–18 Closing Agreement

Through Raytheon

Next, Mr. Smith argues that “the IRS . . . violated [section] 6103(a)

when [it] obtained the [2016–18] Closing Agreement through

[Raytheon].” Pet’r’s Mot. for Partial Summ. J. 29.

After completing and signing the 2016–18 Closing Agreement,

Mr. Smith provided the executed document to Raytheon, which in turn

provided it to the IRS. But any disclosure that resulted from that

action — for example, of the information Mr. Smith himself printed on

the agreement (including his name, address, and Social Security

number) — was attributable to Mr. Smith and not to the IRS. As

Mr. Smith’s counsel conceded at the hearing, “[a] taxpayer may disclose

his own tax information.” United States v. Richey, 924 F.2d 857, 863

(9th Cir. 1991) (citing United States ex rel. Carthan v. Sheriff, City of

New York, 330 F.2d 100, 101 (2d Cir. 1964)); see also Carthan, 330 F.2d

at 101 (“Disclosure by the taxpayer himself of his copies of returns is not

an unauthorized disclosure . . . .”); Bancroft Global Dev. v. United States,

330 F. Supp. 3d 82, 97–99 (D.D.C. 2018) (taxpayers’ sharing of own

return information not a disclosure under section 6103).

We fail to see how an action taken by Mr. Smith himself, in the

absence of any affirmative action whatsoever by the IRS, could violate

section 6103. The IRS did not disclose anything when Mr. Smith

submitted the half-signed agreement; it merely received the document

from Raytheon, which had received it from Mr. Smith. 43 We therefore

43 Mr. Smith does not allege that the 2016–18 Closing Agreement should be set

aside because of malfeasance on the part of Raytheon in disclosing return information.

Therefore, we will not consider the effect on the enforceability of the 2016–18 Closing

Agreement, if any, of Raytheon’s transmission of the 2016–18 Closing Agreement to

and from the IRS. See Rowen, 156 T.C. at 115–16 (legal argument not raised in motion

for summary judgment considered forfeit). But we note that some courts have held

that third-party transmissions of return information are not “disclosures” within the

meaning of section 6103(a). See Shell Petrol., Inc. v. United States, 46 Fed. Cl. 719,

conclude that the IRS’s receipt of the half-signed 2016–18 Closing

Agreement from Raytheon did not violate section 6103 and does not

constitute malfeasance.

Phase Three: Whether There Was Malfeasance

in Transmitting the 2016–18 Closing

Agreement to Mr. Smith via Raytheon

The final portion of Mr. Smith’s argument — that malfeasance

occurred when the IRS sent the fully executed 2016–18 Closing

Agreement back to Raytheon — is preempted by the execution of the

agreement itself. Mr. Smith cannot be said to have been induced into

executing the 2016–18 Closing Agreement by an action taken after the

agreement had become “final and conclusive” under section 7121. Any

malfeasance occurring after the validity (and finality) of a closing

agreement is established is no ground to set it aside. See Ingram, 32

B.T.A. at 1065 (stating that a closing agreement may be set aside

because of malfeasance occurring in the making of the agreement).

In short, whether the IRS’s disclosure of the fully executed

agreement to Raytheon violated section 6103 is immaterial because it

occurred after the 2016–18 Closing Agreement became final and

conclusive. Therefore, we express no view as to whether this disclosure

would or would not be prohibited under section 6103. 44

722 (2000) (“Section 6103 does not prohibit the disclosure of tax return information

that comes from a source other than the IRS.” (citing Baskin v. United States, 135 F.3d

338, 342 (5th Cir. 1998))); see also Stokwitz v. United States, 831 F.2d 893, 895 (9th

Cir. 1987) (“Section 6103 establishes a comprehensive scheme for controlling the

release by the IRS of information received from taxpayers . . . .”); Jade Trading, LLC

v. United States, 65 Fed. Cl. 188, 194–95 (2005) (stating that the legislative history of

section 6103 “further indicates that [s]ection 6103 only prohibits disclosure by IRS

personnel”); cf. Lomont v. O’Neill, 285 F.3d 9, 15 (D.C. Cir. 2002) (holding that an

individual’s provision of his own information to state and local officials before filing a

return was not a disclosure of return information for purposes of section 6103).

44 For example, we need not consider whether one of the myriad exceptions to

section 6103 would apply in this situation.

Misrepresentation of Material Fact

Mr. Smith also argues that the 2016–18 Closing Agreement

should be set aside because it contained material misrepresentations in

its recitals. 45 The recitals state, in relevant part, as follows:

Whereas, any wages, allowances, benefits and other

emoluments paid or provided to [Mr. Smith] as

consideration for services performed for [Raytheon] in

Australia, hereinafter referred to as income, are subject to

taxation by the Government of the Commonwealth of

Australia; and

Whereas, Article 9 and Article X of [Pine Gap I and Pine

Gap II, respectively] . . . provide that such income shall be

deemed not to have been derived in Australia, provided it

is not exempt, and is brought to tax, under the taxation

laws of the United States.

Mr. Smith asserts that the first recital is a “material misstatement”

because, he argues, regardless of whether he elects under section 911(a),

Australian domestic tax law provides an independent exemption for

income earned by U.S. citizens employed at Pine Gap. Mr. Smith

further asserts that the second recital is a misrepresentation because

the Pine Gap Agreements “do[ ] not govern tax liability in Australia.”

Pet’r’s Mot. for Partial Summ. J. 34. He urges this Court to set aside

the 2016–18 Closing Agreement because, in his view, these two recitals,

taken together, induced his execution of the agreement by representing

that “the execution of the [2016–18] Closing Agreement and foregoing a

domestic U.S. tax right is required to avoid Australian taxation.” 46 Id.

45 We note that, although recitals in a closing agreement are not binding, they

are nevertheless explanatory and give insight into the intent of the parties. Analog

Devices, Inc. & Subs. v. Commissioner, 147 T.C. 429, 446 (2016); Estate of Magarian v.

Commissioner, 97 T.C. 1, 5 (1991); Rev. Proc. 68-16, § 6.05(2) and (3), 1968-1 C.B. at 779.

46 Mr. Smith also asserts that a third recital contains a misrepresentation.

That recital states:

Whereas, such waiver is pursuant to an agreement with and a

determination by the Competent Authority for the United States after

consultation with the Competent Authority for Australia in accordance

with Article 24 of the [1982 Treaty].

Legal Background

Section 7121 provides that a closing agreement may be set aside

upon a showing of fraud or a misrepresentation of material fact. I.R.C.

§ 7121(b). 47 Mr. Smith has not alleged fraud. 48

In general, “a misrepresentation is an assertion that is not in

accord with the facts,” and is “material if it would be likely to induce a

reasonable person to manifest his assent, or if the maker knows that it

would be likely to induce the recipient to do so.” 49 Restatement (Second)

In Mr. Smith’s view, the recital is inaccurate because he did not initiate any

competent authority proceedings under Article 24 of the 1982 Treaty and the United

States and Australian competent authorities did not conduct any such proceedings

with respect to him. But Mr. Smith misreads the recital. The recital does not state

that formal competent authority proceedings involving negotiations between the two

countries were conducted with respect to him. The recital simply notes that the waiver

of Mr. Smith’s rights under section 911(a) is being made pursuant to “an agreement

with . . . the Competent Authority for the United States.” That statement is entirely

true given that the IRS official who reviewed and signed the agreement, Ms. Palacheck,

served as the U.S. Competent Authority with respect to the relevant issues. Moreover,

the statement that the waiver is “pursuant to . . . a determination by the Competent

Authority for the United States” is also true for the same reason. Finally, as the Welch

Letter explains, the procedure the IRS follows when entering into closing agreements

with Pine Gap employees was developed in consultation with the Australian competent

authority following the process Article 24 of the 1982 Treaty provides. So that

statement in the recital is also true. In short, Mr. Smith attributes to the recital what

the recital does not say. Accordingly, we find no misrepresentation of any sort in this

recital.

47 Cases, including memorandum opinions of this Court, have held that, in

determining whether a closing agreement will be set aside, the usual rules as to fraud

and misrepresentation apply. See, e.g., Bennett, 1988 Tax Ct. Memo LEXIS 586, at *9

(citing Basch v. Nauts, 4 U.S.T.C. para. 1,342 (N.D. Ohio 1934)); Estate of Mitchell v.

Commissioner, T.C. Memo. 1993-110, 1993 Tax Ct. Memo LEXIS 126, at *5 (citing

Bennett, 1988 Tax Ct. Memo LEXIS 586).

48 In general, fraud must be affirmatively alleged and the party alleging fraud

must state with particularity the circumstances giving rise to it. See Rule 1(b) (giving

particular weight to the Federal Rules of Civil Procedure absent an applicable

provision in the Tax Court Rules of Practice and Procedure); Fed. R. Civ. P. 8(c)(1), 9(b).

49 We note that, in addition to the materiality requirement, the predecessor to

our Court has held that “misrepresentation denotes something more deliberate or more

conscious than mere error or mistake.” See Ingram, 32 B.T.A. at 1066. We therefore

have required in certain contexts a showing that the alleged misrepresentation was

intentional and deliberate. See H Graphics/Access, Ltd. P’ship, 1992 Tax Ct. Memo

LEXIS 367, at *25 (noting in a case involving a settlement agreement under section

6224(c) that the Court has found “the deliberate intent to deceive or mislead” to be “a

of Conts. §§ 159, 162 (Am. L. Inst. 1981). However, by the plain

language of section 7121(b), we may set aside a closing agreement only

in the event of a misrepresentation of material fact. Neither mistake

nor misrepresentation of law provides a viable path to parties seeking

to set aside a closing agreement. See Zaentz v. Commissioner, 90 T.C.

753, 761–62 (1988) (stating that mistakes of fact and law are not

grounds for rescission of a closing agreement); 26 Richard A. Lord,

Williston on Contracts (Williston), § 69:10 (4th ed. 2022) (“It is well

settled that a claim of fraud in the making of a contract cannot generally

be supported by proof of misstatements as to matters of law.”).

Analysis

Taking in turn the two recitals to which Mr. Smith objects, the

first recital is a legal conclusion regarding the application of U.S. treaty

obligations and Australian domestic law to U.S. employees at Pine Gap,

while the second is an entirely accurate statement of the express terms

of Pine Gap I and Pine Gap II. Neither qualifies as a misrepresentation

of material fact as required by section 7121. 50

At the hearing, Mr. Smith’s counsel espoused the view that,

although the statements made in the recitals are of a legal nature, legal

conclusions and factual assertions are not mutually exclusive — i.e.,

they can be one and the same. She offered no authority to support this

contention.

necessary element of fraud, malfeasance, or misrepresentation within the meaning of

section 6224(c)”); see also Hopkins, 120 T.C. at 461 n.15 (stating that the standard

prescribed for setting aside a settlement agreement is the same standard prescribed

for setting aside a closing agreement (citing H Graphics/Access, Ltd. P’ship, 1992 Tax

Ct. Memo LEXIS 367)). But given our conclusions regarding the nature of the recitals

at issue, we need not address this potential additional requirement.

50 For purposes of analyzing the Commissioner’s Motion, we assume without

deciding that the first recital expresses an erroneous legal conclusion, as Mr. Smith

contends. We note, however, that in public guidance drafted in coordination with the

Australian Taxation Office, the Commissioner maintains the view that employees at

Pine Gap are subject to Australian Taxation. See Foreign Earned Income Exclusion

and the

Pine Gap Facility, https://www.irs.gov/individuals/internationaltaxpayers/foreign-earned-income-exclusion-and-the-pine-gap-facility (last updated

Feb. 15, 2022). And in its own published guidance, the Australian Taxation Office

appears to share the Commissioner’s understanding. See Australia-United States

Joint Space and Defence Projects, https://www.ato.gov.au/Business/International-taxfor-business/In-detail/Australian-income-of-foreign-residents/Australia-UnitedStates-Joint-Space-and-Defence-Projects/?page=1#Project_employment_income

(stating the same rule and linking to the IRS Q&A) (last modified June 10, 2022).

That there is a distinction between statements of law and

statements of fact is a longstanding principle of law generally, and of

contract law specifically. See, e.g., Kemp v. United States, 142

S. Ct. 1856, 1862 (2022) (stating that “[t]he difference between ‘mistake

of fact’ and ‘mistake of law’ was well known” in the 1930s and 1940s);

26 Williston § 69:10 (describing the distinction); 27 Williston § 70:125

(same); see also Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich

LPA, 559 U.S. 573, 608 (2010) (Scalia, J., concurring in part and

concurring in the judgment) (“[T]here is a long tradition in the common

law and in our construction of federal statutes distinguishing errors of

fact from errors of law.”).

Although this distinction has, generally speaking, eroded over

time in the context of equitable rescission of contracts, 27 Williston

§ 70:125 (“[M]odern contract law does not distinguish between mistakes

of fact and mistakes of law, but treats both alike for purposes of

equitable relief.”), this case is not governed by equitable principles, see

Discussion Part II. We cannot assume, given the longstanding

distinction between the two concepts, that Congress intended to include

misrepresentations of law when it specifically set forth only

misrepresentation of material fact as a ground for rescission in

section 7121(b). See Kemp, 142 S. Ct. at 1862 (attributing significance

to the “unqualified” use of the term “mistake” when “drafters had at

their disposal readily available language that could have connoted a

narrower understanding” of the term); see also Mississippi ex rel. Hood

v. AU Optronics Corp., 571 U.S. 161, 169 (2014) (“Had Congress

intended [an alternative meaning], it easily could have drafted language

to that effect.”).

Had Congress provided that a closing agreement could be set

aside in case of a material misrepresentation of fact or law, or in case of

a material misrepresentation (without qualification), Mr. Smith’s

position might be more plausible. But, perhaps unsurprisingly given

that a purpose of closing agreements is to provide finality in the face of

unsettled law, Congress did not write the statute that way. See Aetna

Life Ins. Co., 43 F.2d at 714 (citing the importance of finality and holding

that a closing agreement continued to be valid even when a provision of

the statute on which it was based was later found unconstitutional).

And we are unpersuaded by Mr. Smith’s arguments.

Duress

Finally, Mr. Smith argues in his Petition that the 2016–18

Closing Agreement should be set aside because he signed it under

duress. He briefly mentions this argument in his Cross Motion for

Partial Summary Judgment, stating that he “was presented with [an

earlier] [c]losing [a]greement on his first day at work . . . and was forced

to sign [it] on the spot.” Pet’r’s Mot. for Partial Summ. J. 27. And he

further argues in his Opposition to Respondent’s Motion for Partial

Summary Judgment that the IRS’s malfeasance placed Raytheon “in a

position of power to apply duress.” Pet’r’s Opp’n to Resp.’s Mot. for

Partial Summ. J. 9.

Given the cursory nature of these assertions, Mr. Smith forfeited

any duress arguments by not fully briefing them in his motion papers.

See Rowen, 156 T.C. at 115–16 (collecting authorities); see also

Rule 121(d); Schneider v. Kissinger, 412 F.3d 190, 200 n.1 (D.C. Cir.

2005) (“[A] litigant has an obligation to spell out its arguments squarely

and distinctly, or else forever hold its peace.” (quoting United States v.

Zannino, 895 F.2d 1, 17 (1st Cir. 1990))).

Nevertheless, on the basis of the undisputed facts and construing

factual materials and inferences drawn from them in Mr. Smith’s favor,

we note for completeness that the 2016–18 Closing Agreement was the

third closing agreement Mr. Smith signed, and he signed it long after he

first arrived in Australia, having had much time to reflect on whether

he should sign another one. And we doubt that even the circumstances

under which Mr. Smith signed his first closing agreement qualified as

duress.

In the context of signing returns, “[t]he standard [for duress], as

developed, involves two critical elements: (1) Whether the taxpayer was

unable to resist demands to sign the return; and (2) whether ‘[he] would

not have signed the returns except for the constraint applied to [his]

will.’ ” Brown v. Commissioner, 51 T.C. 116, 119 (1968) (quoting Stanley

v. Commissioner, 45 T.C. 555, 562 (1966)). Put another way, the

taxpayer “must show not only that [he] had no choice in [signing the

return] but also that [he] was ‘reluctant’ to do so.” Id.

Duress includes “actions by one party [that] deprive another of

his or her freedom of will to do or not to do a specific act.” Zapara v.

Commissioner, 124 T.C. 223, 229 (2005) (citing Diescher v. Commissioner,

18 B.T.A. 353, 358 (1929)), aff’d, 652 F.3d 1042 (9th Cir. 2011), and Price

v. Commissioner, T.C. Memo. 1981-693, aff’d without published opinion,

742 F.2d 1460 (7th Cir. 1984)).

[I]f there be compulsion, there is no actual consent, and

moral compulsion, such as that produced by threats to take

life or to inflict great bodily harm, as well as that produced

by imprisonment, is everywhere regarded as sufficient, in

law, to destroy free agency, without which there can be no

contract, because, in that state of the case, there is not

consent.

Duress, in its more extended sense, means that

degree of constraint or danger, either actually inflicted or

threatened and impending, which is sufficient, in severity

or in apprehension, to overcome the mind and will of a

person of ordinary firmness.

Furnish v. Commissioner, 262 F.2d 727, 733 n.6 (9th Cir. 1958) (quoting

Brown v. Pierce, 74 U.S. 205, 214 (1868)), aff’g in part, rev’g in part 29

T.C. 279 (1957). By contrast, legally authorized actions that limit

another to choosing between undesirable options do not constitute

duress. 51

Mr. Smith concedes that he had no interaction with any IRS

official prior to executing the 2016–18 Closing Agreement, so we find it

hard to see how the Commissioner might have placed him under duress.

For Raytheon’s part, requiring Mr. Smith to sign a closing agreement as

a condition of employment is its prerogative as the employer (and the

statements contained in its Australian Operations Overseas

Handbook — see Background Part III.A above — suggest that it may not

have been a condition of employment in any event). Moreover, Raytheon

warned Mr. Smith multiple times before he even moved to Australia

about potential tax complexities associated with its offer and advised

him to obtain tax advice. Raytheon’s later request that Mr. Smith

choose between the consequences of signing or not signing the 2016–18

Closing Agreement — i.e., between maintaining or losing his job at

Raytheon — at most required a choice between two undesirable options,

making it difficult to see how it constituted duress. In any event, we

51 See Hall v. Commissioner, T.C. Memo. 2013-93, at *12; see also Evert v.

Commissioner, T.C. Memo. 2022-48, at *7.

need not decide this issue, because, as already noted, Mr. Smith

forfeited any duress arguments by not fully briefing them.

IV.

Conclusion

We conclude that the 2016–18 Closing Agreement is valid and

enforceable because (1) it was signed by an official with the requisite

authority, (2) there was no malfeasance in the making of the agreement,

and (3) the recitals are not misrepresentations of material fact. We have

considered all of the arguments of the parties, and to the extent not

discussed herein, we find them moot, irrelevant, or without merit. We

will therefore grant the Commissioner’s Motion for Partial Summary

Judgment and deny Mr. Smith’s competing Motion.

To reflect the foregoing,

An appropriate order will be issued.

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