# Opposition Brief — Boulez v. Commissioner > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_0642%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1987 - **Citation:** 484 U.S. 896 ## Text No. 87-103 | SEP 14 2287 < i”. In the Supreme Court of the United-States-—— OCTOBER TERM, 1987 PIERRE BOULEZ, PETITIONER ¥. COMMISSIONER OF INTERNAL REVENUE ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT BRIEF FOR THE RESPONDENT IN OPPOSITION CHARLES FRIED Solicitor General MICHAEL C. DURNEY Acting Assistant Attorney General WILLIAM S. ESTABROOK DOUGLAS G. COULTER Altorneys Department of Justice Washington, D.C. 20530 202) 633-2217 QUESTION PRESENTED Whether an informal oral agreement between an IRS of- ficial and petitioner was enforceable as a binding com- promise despite Treas. Reg. § 301.7122-1(d), which pro- vides that a compromise agreement must be in writing 1n order to be effective. (1) TABLE OF CONTENTS Page ERA Ae nn l re ee eee S28 Ee ed a eae | rR ce iy a ate ny l SE Ee a ee ee ere. eee 4 ES A ge a 10 TABLE OF AUTHORITIES Cases: Botany Worsted Mills v. United States, 278 U.S. 282 Ne Oke sabe a bale ee 6 Cleveland Trust Co. v. United States, 421 F.2d 475 (6th Cir.), cert. denied, 400 U.S. 819 (1970) .......... 8-9 Commissioner s. Portland Cement Co., 450 U.S. 156 ne eae Gk y wihenieecaa's 5 General Electric Co. v. Southern Construction Co., 383 F.2d 135 (Sth Cir. 1967), cert. denied, 390 U.S. 955 ER eo ee oa uaéaumen 7 National Muffler Dealers Ass’n v. United States, 440 U.S. Ra ay CO SL tli a 5 United States v. Memphis Cotton Oil Co., 288 U.S. 62 eS en ee s rae Ba et Ee ea Oe S Statute and regulation: Internal Revenue Code (26 U.S.C.): to ha a 6, 7 Ne RE ns Se ah o Kibla@awan 4, 5,6, 7 re a ebacbabee 5 Treas. Reg. § 301.7122-I(d) ...... 3+ 435,229 Miscellaneous: Cong. Globe, 37th Cong., 3d Sess. 906 (1863) ... 6 Cong. Globe, 40th Cong., 2d Sess. 3775 (1868) 6 Rev. Proc. 64-44, 1964-2 C.B. 974 ..... ere met ae Ae Rev. Proc. 80-6, 1980-1 C.B. 586 ........ Pees rere J. Seidman, Setdman’s Leeislative History of Fkederal Income Tax Laws 1938-186] (1938) ...... 6 (III) Jn the Supreme Court of the United States OCTOBER TERM, 1987 No. 87-103 PIERRE BOULEZ, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT BRIEF FOR THE RESPONDENT IN OPPOSITION OPINIONS BELOW The opinion of the court of appeals (Pet. App. la-21a) is reported at 810 F.2d 209. The opinion of the Tax Court (Pet. App. 22a-34a) is reported at 76 T.C. 209. JURISDICTION The judgment of the court of appeals was entered on February 13, 1987. A petition for rehearing was denied on April 14, 1987 (Pet. App. 38a). The petition for a writ of certiorari was filed on July 13, 1987. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATEMENT 1. Petitioner, a French citizen, is a world-renowned conductor and music director who performed services in the United States during 1971-1974. In 1971, petitioner contracted with Beacon Concerts, Ltd., a British corpora- tion, to serve as that organization’s director and as a con- ductor for other musical organizations selected by Beacon. (1) > Beacon in turn contracted with the New York Philhar- monic Orchestra and the Cleveland Orchestra to provide petitioner’s services. During 1971 and 1972, Beacon re- ceived $207,473 for petitioner’s services and, after de- ducting its expenses and commissions, paid petitioner $188,495. Pet. App. 2a-3a. Petitioner filed nonresident alien income tax returns for 1971-1974, but he failed to report on those returns any of the income earned as a result of the services contracted for by Beacon. Subsequently, the Internal Revenue Service (IRS) launched an investigation into petitioner’s tax obligations, and it directed the New York Philharmonic Orchestra to withhold 30% of future payments made for petitioner’s services. Petitioner then retained Irving Moskovitz as counsel. Pet. App. 3a-4a. Moskovitz negotiated with the IRS concerning peti- tioner’s Outstanding tax liabilities and reached an oral agreement with Joseph McGowan, the IRS Director of In- ternational Operations.' According to the agreement, peti- tioner would file amended returns for 1973 and 1974 reporting his earnings from the performance of services for Beacon. In exchange, McGowan stated that the IRS would not assess any penalties for late filing or late pay- ment for 1973 and 1974, and that the IRS would not re- quire petitioner to pay $44,459 in income taxes at- tributable to the income that he received for performing services for Beacon during 1971 and 1972 (taxes that peti- tioner later conceded were legally due and owing). Peti- tioner filed amended returns for 1973 and 1974 and paid $53,841 in additional taxes for those years. He appended to these returns a letter from his counsel stating that these returns were “in accordance with [counsel’s] conversation with” the Director. The IRS accepted the amended returns and imposed no penalties for 1973 or 1974. Pet. App. 4a. ' The government stipulated to the existence of this oral agreement only for the purpose of enabling the Tax Court to dispose of peti tioner’s motion for summary judgment. 2. In 1977, the IRS commenced an unrelated audit of petitioner’s 1975 return, which later was expanded to an examination of his 1971 and 1972 returns. The IRS subse- quently issued a notice of deficiency with respect to peti- tioner’s 1971 and 1972 tax years, asserting that he had im- properly excluded from income the amounts received for the services that he performed in the United States. Peti- tioner sought redetermination of the deficiencies in the Tax Court and moved for summary judgment on two grounds: (1) that the oral agreement with Director McGowan constituted a binding compromise that pre- cluded the imposition of any tax liability for 1971 and 1972; and (2) in any event, that the IRS was equitably estopped from asserting any tax liability with respect to those years, because petitioner had supposedly relied upon the agreement to his detriment. Pet. App. Sa. Petitioner conceded that the deficiency notices were correct and that decision should be entered against him in the event that he did not prevail on his “binding compromise” or “estoppel” theories (id. at 25a). The Tax Court denied petitioner’s motion for summary judgment and entered a decision in favor of the Commis- sioner (Pet. App. 22a-34a). The court pointed out that Treas. Reg. § 301.7122-I(d) requires that compromise agreements be in writing, and that Rev. Proc. 64-44, 1964-2 C.B. 974, establishes compliance with this regula- tion as a limitation on the delegation of authority to subordinate officials to enter into compromise agree- ments. The court accordingly held that Director McGowan did not have either actual or apparent authority to enter into a binding oral compromise agreement (Pet. App. 28a-30a). The court also concluded that the Commissioner was not equitably estopped from asserting the deficiencies at issue here, finding that petitioner had not suffered any substantial detriment in reliance on the alleged agreement. In this connection, the court noted that petitioner had the opportunity to file refund claims for 1973 and 1974 after 4 the IRS allegedly had breached the oral compromise by asserting a tax liability for 1971 and 1972, but that peti- tioner had not exercised that option. /d. at 3la-33a. The court of appeals unanimously affirmed (Pet. App. la-2la). Although petitioner abandoned his “estoppel” argument On appeal (see id. at 26a), he reiterated his con- tention that the applicable regulation was invalid on the theory that Section 7122 of the Code? contemplates the ex- istence of a binding oral compromise. The court of ap- peals rejected this contention, pointing out that Section 7122 itself neither sanctions oral compromises nor specifies that compromise agreements must be in wriiing. Rather, Congress left to the Secretary of the Treasury the task of promulgating regulations concerning the “requisite manner of offer and acceptance of compromises” (Pet. App. 8a (footnote omitted)). The court of appeals found that the regulation requiring that such compromises be in writing was a reasonable and permissible exercise of the Secretary’s authority. /d. at 9a-l6a. The court of appeals also rejected petitioner’s contention that the Director had authority to waive the requirements of the regulation in this case (id. at 16a-19a). ARGUMENT Petitioner does not deny that the oral agreement here failed to satisfy the requirements of Treas. Reg. § 301.7122-1(d), which requires that compromise agree- ments must be in writ'ng.’ He contends, however, that the regulation is invalid and, alternatively, that its require- > Unless otherwise noted, all statutory references are to the Internal Revenue Code (26 U.S.C.), as amended (the Code or I.R.C.). * Section 301.7122-1 provides in relevant part: (d) Procedure with respect to offers in compromise —(1) Sub- mission Of offers. Otters in compromise shail be submitted on ments effectively were waived by Director McGowan. The court Of appeals correctly rejected both of these conten- tions, and its decision does not conflict with any decision of this Court or of another court of appeals. Indeed, peti- tioner concedes (Pet. 7) that this is a case of “first impres- sion.” Accordingly, there is no basis for review by this Court. 1. Petitioner contends (Pet. 9-11) that the requirement of Treas. Reg. § 301.7122-1(d) that compromise agree- ments be in writing is invalid because Section 7122 of the Code requires that oral agreements be accorded binding effect. This contention is mistaken for reasons well stated by the court of appeals (Pet. App. 9a-16a). The regulation involved here was promulgated pursuant to the broad authority to issue regulations conferred upon the Secretary by Section 7805 of the Code. Such regula- tions are valid unless they are found to be unreasonable or plainly inconsistent with the statute. See, e.g., Comunis- sioner v. Portland Cement Co., 450 U.S. 156, 169 (1981); National Muffler Dealers Ass’n vy. United States, 440 U.S. 472, 476 (1979). Section 7122 provides simply that the Secretary “may compromise” any tax case prior to reference to the Justice Department and that a written record of the compromise generally must be placed in the Secretary’s files. Thus, while the statute itself does not ad- dress whether or not a compromise agreement must be in Writing, the writing requirement set forth in the regulation plainly is not inconsistent with Section 7122. forms prescribed by the Internal Revenue Service which may be obtained trom district directors of internal revenue, and should generally be accompanied by a remittance representing the amount of the compromise offer or a deposit if the offer provides for future installment payments. * * * 7 * (3) Acceptance. An otter in compromise shall be considered aceepted only when the proponent thereot is so notified in writing. * * * 6 Indeed, the regulatory requirement that there be a writ- ten agreement is fully in accord with the congressional in- tent that underlies Section 7122. There is a longstanding congressional policy in favor of formal procedures for set- tling tax disputes. This Court has recognized that an infor- mal agreement between a subordinate official and a tax- payer is not a binding settlement without the formal and statutorily-required approval of the Secretary of the Treasury, noting that Congress “did not intend to intrust the final settlement of such matters to the informal action of subordinate officials.” Botany Worsted Mills v. United States, 278 U.S. 282, 288-289 (1929). In fact, the legislative history of the earliest predecessors of Section 7122 indicates that Congress contemplated that com- promise agreements would have to be made in writing. See Cong. Globe, 40th Cong., 2d Sess. 3775 (1868) (“no com- promise can be made except with the written assent of the Secretary of the Treasury”) (remarks of Sen. Sherman) and Cong. Globe, 37th Cong., 3d Sess. 906 (1863) (“Where every agreement of that sort is made in writing, * * * it strikes me that there is no great danger about it.”) (remarks of Sen. Fessenden), reprinted in J. Seidman, Seidman’s Legislative History of Federal Income Tax Laws 1938-1861, at 1059, 1060 (1938). Thus, there is evidence that Congress intended that compromise agree- ments should be made in writing in order to have binding effect. In any event, there is no basis for concluding that the regulatory requirement of a written agreement is in- consistent with congressional intent. Petitioner rests his contrary assertion entirely on a com- parison of Section 7122 with Section 7121 of the Code. Because Section 7121, which concerns closing agreements, specifically refers to an “agreement in writing,” petitioner maintains that the failure to make a specific reference to written agreements in Section 7122 necessarily shows that Congress intended that oral agreements would be effective under the latter section. This conclusion simply does not follow. At most, the comparison with Section 7121 in- dicates that Congress did not itse/f impose a writing re- quirement for compromise agreements; rather, it “left to the Secretary of the Treasury the task of promulgating regulations addressing the requisite manner of offer and acceptance of compromises” (Pet. App. 8a). The regula- tion applicable here is a reasonable implementation of the general congressional authorization in Section 7122, and there is no basis for holding it invalid. Because the infor- mal oral agreement invoked by petitioner concededly did not meet the standards set forth in the regulation for a binding agreement, the court of appeals correctly rejected petitioner’s attempt to rely on that agreement.? 2. Petitioner’s contention (Pet. 11-15) that Director McGowan should be held to have “waived” the regulation’s writing requirement is similarly without merit. It is clear that the requirement that a compromise agree- ment be made in writing in order to be binding is not one that can be waived by a subordinate official. The delega- tion of authority to subordinate IRS officials to com- promise tax controversies is quite explicit on this point. Rev. Proc. 64-44, 1964-2 C.B. 974, provides: This is a “limited” delegation to the extent that the delegated authority must be exercised in accordance with the limitations prescribed by section 301.7122-1 * Petitioner contends (Pet. 10-11) that, because the court of appeals failed to accept the inference that petitioner seeks to draw from Sec- tion 7121, the decision below conflicts with General Electric Co. v. Southern Construction Co., 383 F.2d 135, 138 n.4 (Sth Cir. 1967), cert. denied, 390 U.S. 955 (1968). This contention is fanciful. General Electric involved a completely different statute, and, in any event, the language cited by petitioner is dicta. Indeed, the court of appeals in General Electric: specitically stated that it was of relying upon the mode of statutory construction that petitioner seeks to invoke. of the Regulations on Procedure and Administration and with procedures established by the National Ot- hee, ? Thus, Director McGowan was not authorized to enter into a binding oral compromise agreement, in contravention of the plain terms of Treas. Reg. § 301.7122-1(d), and there was no basis for petitioner to believe that McGowan had such authority. Petitioner’s assertion (Pet. 11) that the writing require- ment is merely “directory,” and that it can be waived at will by the Commissioner’s delegate despite Rev. Proc. 64-44, is completely unsupportable. Petitioner is sug- gesting that a delegate is free to ignore the limitations im- posed upon a delegation of authority to him. If a chain of command is to retain any meaning, it is the superior of- ficer who decides what the authority of his delegate will be, not the other way around.° 5 For the reasons well stated by the court of appeals (Pet. App. 18a-19a), petitioner clearly errs in asserting (Pet. 14-15) that Rev. Proc. 64-44 was not applicable here because it was “rendered obsolete” by an intervening delegation order. Rev. Proc. 64-44, explicitly incor- porating the writing requirement as a limitation on its delegation of authority, remained in full force until ic was superseded in 1980 by Rev. Proc. 80-6, 1980-1 C.B. 586, which contained the same limita- tion, © The cases relied upon by petitioner to support his “waiver” theory (see Pet. 11-13) are completely inapposite. In United States v. Mem- phis Cotton Oil Co., 288 U.S. 62 (1933), this Court merely held that the Commissioner had to allow a taxpayer to amend a vague refund claim, rather than holding the claim until the time for filing had ex- pired and then denying the claim on the technical ground that is was not sufficiently definite. The Court found that the purpose of the ap- plicable regulation —giving adequate and timely notice to the Com- missioner —was satisfied there by the filing of a timely claim with the opportunity to amend if the Commissioner objected to the lack of specificity of the claim. This rationale plainly provides no support for petitioner’s effort to frustrate the purpose of the regulatory writing re- quirement involved in this case. See generally Pet. App. 16a 0.53. By the same token, in Cleveland Trust Co. v. United States, 421 F.2d 475, 9 3. Petitioner raises two other claims that require only brief discussion. He asserts (Pet. 18-20) that principles of retroactivity do not permit the court of appeals’ decision (o be applied in this particular case. But there is no ques- lion of retroactive application here. Both Treas. Reg. § 301.7122-1(d) and the limited delegation of Rev. Proc. 64-44 were in effect when all the events relevant to this case occurred. Thus, petitioner appears to be contending that a valid regulation can never be applied to a taxpayer until after its validity has been upheld by a court. We are aware of no authority that supports this extravagant prop- osition. Petitioner also asserts (Pet. 16-17) that he is entitled to prevail because the Commissioner failed to provide him with certain administrative files—files that petitioner asserts “would contain a written record confirming the oral compromise agreement” (/d. at 17). But the govern- ment conceded for purposes of the summary judgment motion that there was an oral compromise agreement; the discovery of a written record in IRS files confirming the existence of such an oral agreement would not add anything to petitioner’s case. Petitioner has never asserted, and does not assert here, that there was a written agree- ment between the parties that would satisfy the regulatory requirement; hence, he cannot prevail no matter what the IRS tiles would have revealed. 481-482 (6th Cir.), cert. denied, 400 U.S. 819 (1970), the court of ap- peals simply held that a Revenue Procedure permitting the Commis- sioner to set aside an “informal conference agreement” when the agreement was based upon a “clearly defined error” did not require the Commissioner to disclose the nature of the “clearly defined error” to the taxpayer. The case does not purport to hold that revenue pro- cedures are only “directory.” Moreover, unlike this case, Cleveland Trust did not concern limitations on a delegation of authority and did not involve an attempt by the taxpayer to avoid the effect of an unam- bizuous Treasury Regulation. 10 CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. CHARLES FRIED 4 Solicitor General } MICHAEL C. DURNEY 7 Acting Assistant Attorney General % WILLIAM S. ESTABROOK 4 DOUGLAS G. COULTER q Altorneys 4 SEPTEMBER 1987 4] 4 2 ERNMED FICE re) “ --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_0642%3A2. Public record. Not legal advice.