Opinion
1814-20
12-11-2023
MICHAEL W. AUBIN AND KERRY A. AUBIN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
James S. Halpern Judge.
This case is before us on respondent's motion for partial summary judgment. Respondent previously moved for partial summary judgment that petitioner Michael Aubin had waived his right, by means of a valid closing agreement, to elect under section 911(a) to exclude from his gross income for the taxable years ended December 31, 2015, 2016, and 2017, amounts he earned from his employment by Northrop Grumman International, Inc. (Northrop Grumman) at the Joint Defense Facility Pine Gap (Pine Gap) in Australia. Petitioners also moved for partial summary judgment, asking that we hold Mr. Aubin's closing agreement invalid. In an Order served June 8, 2023 (June 8 Order), we denied both parties' motions. As we explained in that Order, respondent had not convinced us that the Internal Revenue Service (IRS) official who signed the closing agreement on behalf of the Secretary of the Treasury had the authority to do so. On the other hand, petitioners had not convinced us that the official had not been delegated the authority to sign the agreement. Nor had petitioners convinced us that other grounds existed that would justify setting the closing agreement aside. Under section 7121(b)(1), once a closing agreement is approved by the Secretary or her delegate the agreement is "final and conclusive . . . except upon a showing of fraud or malfeasance or misrepresentation of a material fact." In the June 8 Order, we rejected petitioners' arguments that Mr. Aubin's closing agreement should be set aside because of malfeasance, or a misrepresentation of a material fact.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26, U.S.C., in effect for the years in issue, and regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.) in effect for those years.
Section 7701(a)(11) defines "Secretary" to mean "the Secretary of the Treasury or his delegate." The term "delegate," "when used with reference to the Secretary of the Treasury, means 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." § 7701(a)(12)(A)(i).
Deborah Palacheck signed Mr. Aubin's closing agreement on September 28, 2015, on behalf of Theodore Setzer, then the IRS's Acting Assistant Deputy Commissioner (International). In his prior Motion, respondent contended that Mr. Setzer had the authority to sign Mr. Aubin's closing agreement under Delegation Order 8-3, Internal Revenue Manual (IRM) 1.2.47.4 (Aug. 18, 1997) and that Ms. Palacheck signed the agreement at a time when Mr. Setzer was out of the office and had authorized her to act on his behalf. Respondent acknowledged that the position in which Mr. Setzer served (in an acting capacity) on September 28, 2015, is not among those to which Delegation Order 8-3 delegates the authority to sign closing agreements that involve specific applications of an income tax treaty. Respondent nonetheless argued that Mr. Setzer had the authority under Delegation Order 8-3 to sign Mr. Aubin's closing agreement because Mr. Setzer's position was "substantially similar" to positions listed in the relevant paragraphs of the delegation order. For the reasons explained in the June 8 Order, we rejected that argument.
But we also raised the possibility that the position description for the Assistant Deputy Commissioner (International) may have provided Mr. Setzer the authority to sign Mr. Aubin's closing agreement. While "[t]he development of a delegation order" is the "preferred method" for effecting a delegation of authority, other forms of delegation may be permissible. See IRM 1.11.4.3 (Oct. 10, 2008). In particular "[p]osition descriptions and other documents that describe an official's duties with sufficient particularity are sufficient to provide the official with the authority necessary to carry out such duties." Id. at 1.11.4.3. (4).
IRM 1.11.4.3(2) (Oct. 10, 2008) provides that "[t]he development of a delegation order . . . is mandatory when litigation over the activity reasonably can be expected."
As we noted in the June 8 Order, the position description for the Assistant Deputy Commissioner (International) states that "[t]he incumbent performs the functions of the Competent or Taxation Authority in administering the operating provisions of tax conventions of the United States." The position description also describes the incumbent as "responsible for planning, developing, directing, and implementing a comprehensive, Servicewide, tax treaty administration program that enhances compliance with international tax laws and tax treaties." And it states that "[t]he incumbent is delegated broad authority to execute responsibilities within legal, regulatory, and budgetary limitations."
In Smith v. Commissioner, 159 T.C. 33, 53 (2022), we concluded that a closing agreement in which a Pine Gap employee waives his or her right to make an election under section 911(a) effects a "specific application[]" of the 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). We thus accepted in the June 8 Order that "an IRS official signing such an agreement [might] be administering one or more of the operating provisions of the 1982 Treaty." And we allowed that "[t]he 'broad authority' given to the Assistant Deputy Commissioner (International) to execute his responsibilities would arguably include the signing of such a closing agreement." In his prior motion, however, respondent had not argued that the position description of the Assistant Deputy Commissioner (International), by itself, gave Mr. Setzer the authority to sign Mr. Aubin's closing agreement.
Now he has. In his latest Motion for Partial Summary Judgment, respondent argues that "[t]he Position Description of the Assistant Deputy Commissioner (International) was sufficient to give an official acting in that role the authority to have signed [Mr. Aubin's] closing agreement."
But Mr. Setzer did not sign Mr. Aubin's closing agreement. Ms. Palacheck did.
Respondent argues that Mr. Setzer validly designated Ms. Palacheck to act in his stead. He relies on Delegation Order 1-2, IRM 1.2.40.3 (Aug. 29, 1996), which grants to "[a]ll supervisory officials" the authority "[t]o designate acting supervisory officials in the Internal Revenue Service." Respondent argues that Mr. Setzer, "[i]n his position as Assistant Deputy Commissioner (International) . . . was a supervisory official."
Even if we were to accept that Mr. Setzer was a supervisory official, he could not have delegated to Ms. Palacheck the authority to exercise the responsibilities of his position if he had received his own authority as Acting Assistant Deputy Commissioner (International) by delegation from another supervisory official under Delegation Order 1-2. The authority granted by Delegation Order 1-2 cannot be redelegated. IRM 1.2.40.3(4) (Aug. 29, 1996). And respondent's motion does not address the question of how Mr. Setzer received the authority to act as the Assistant Deputy Commissioner (International).
Accordingly, it is hereby
ORDERED that respondent shall, on or before December 21, 2023, file a supplement to his motion for partial summary judgment that explains how Theodore Setzer was designated the Acting Assistant Deputy Commissioner (International). It is further
ORDERED that petitioners shall have 10 days from the date of respondent's supplement to provide a response to the specific question addressed in the supplement.