Opinion
17526-19
11-05-2021
Ronald W. Howland, Jr. & Marilee R. Howland, Petitioners v. Commissioner of Internal Revenue, Respondent
ORDER
Christian N. Weiler, Judge
This case is currently set for trial at the Court's Jacksonville, Florida virtual trial session beginning on December 13, 2021. This case is before the Court on petitioners' motion for entry of decision filed on August 16, 2021. Pursuant to this Court's order, respondent filed an objection to petitioners' motion for entry of decision on September 17, 2021. Based on the following reasoning, the Court will deny petitioners' August 16, 202, 1 motion for entry of decision.
Background
The following facts are derived from petitioners' motion for entry of decision filed on August 16, 2021, including exhibits, and respondent's objection. However, the facts set forth in this order are not to be considered as formal findings of fact by the Court.
This case was originally scheduled for trial at the Court's Jacksonville, Florida virtual trial session beginning on October 26, 2020. On September 25, 2020, the parties filed a joint motion for continuance advising the Court that a continuance was needed so that there would be adequate time for respondent's Appeal Division to consider this case. The parties' joint motion for continuance was granted by the Court on October 6, 2020, jurisdiction over the case was retained by Judge Travis Greaves, and a status report was ordered for November 16, 2020. In the parties' joint status report, the Court was advised that "petitioners and respondent's Office of Appeals are presently working diligently to reach a settlement of this case." A second status report was then ordered by Judge Greaves, and the parties filed a joint status report on January 25, 2021, advising the Court that "the parties are continuing to discuss settlement." The time period between the November and January joint status reports to the Court is when petitioners contend a settlement between the parties was reached.
On February 19, 2021, Judge Greaves issued an order releasing jurisdiction over this case and returning it to the general docket.
Respondent referred petitioners' case to the IRS's Office of Appeals (Appeals) for possible settlement. Appeals Officer Joel Yaninas subsequently issued Letter 3808-A, dated August 10, 2020, informing petitioners that he had been assigned their case. From August 11 through November 10, 2020, petitioners, through their counsel, and Mr. Yaninas participated in settlement discussions regarding the case.
On July 1, 2019, Congress renamed the IRS Office of Appeals the IRS's Independent Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, sec. 1001(a), 133 Stat. at 983 (2019). The events in this case largely predate that change, so we use the name in effect at the times relevant to this case, i.e., the Office of Appeals.
Mr. Yaninas mailed a Letter 5534 on December 4, 2020 (the "December Letter"), containing a proposed decision and the statement "based on our tentative agreement to settle your Tax Court case." The proposed decision documents from Mr. Yaninas listed an income tax deficiency of $875.00, no additions to tax, and interest of $159.53, for a total tax liability of $1,034.53. Mr. Yaninas' letter stated how the "proposed decision document is subject to review, signature, and filing with the Tax Court by the Area Counsel. You should not consider your case settled until the Area Counsel attorney assigned to your case countersigns the decision and forwards it to the Tax Court for entry." The letter included the language "[i]f you agree that the proposed decision document reflects our tentative agreement to settle your case, please sign and date the original * * * and return * * * to Area Counsel in the enclosed envelope as soon as possible." The letter also includes the statement: "[i]f Area Counsel doesn't receive your signed decision documents within 10 days from the date of this letter, the assigned attorney will begin preparing your case for trial and our settlement negotiations will end."
On December 14, 2020, petitioners' counsel sent an email to Miriam C. Dillard, counsel for respondent, confirming receipt of the proposed decision documents from Mr. Yaninas. The email also stated that petitioners' counsel left a message for petitioners, and while petitioners have not yet accepted the settlement, petitioners' counsel is "confident they will agree" and would scan and email the signed decision upon their acceptance. That same evening, a few hours after the email to Ms. Dillard, petitioners made a payment of $1,040.00 to the IRS's Direct Pay system in the amount indicated in the proposed decision documents.
On December 21, 2021, counsel for petitioners again emailed Ms. Dillard, attaching to the email a copy of the Appeals December Letter, an unsigned copy of the proposed stipulated decision document prepared by Mr. Yaninas, along with a signed decision document, which now reflected a prepayment credit of $1,040.00. On January 25, 2021, emails between counsel for petitioners and respondent were exchanged and ultimately the January joint status report was filed with the Court on this same date.
Discussion
The law applicable to administrative settlements involving Federal income taxes is well established. Regulations establish the procedure for closing agreements and compromises under sections 7121 and 7122. 301.7121-1, 301.7122-1, Proced. & Admin. Regs. These procedures are exclusive and must be satisfied in order to effect an administrative compromise or settlement binding upon both a taxpayer and IRS. Urbano v. Commissioner, 122 T.C. 384, 393 (2004)
Once a case is docketed with this Court, a different framework applies. That framework comprises of contract principles of offer and acceptance to determine whether a settlement agreement has been reached and is final and binding on the parties. See Dorchester Indus. Inc. v. Commissioner, 108 T.C. 320, 330 (1997), aff'd without published opinion, 208 F.3d 205 (3d Cir. 2000).
It is not necessary that the parties execute a closing agreement in order to settle a case pending before this Court; rather a settlement agreement may be reached through an offer and mutual acceptance by letter or even in the absence of a writing. Dorchester Indus. Inc. v. Commissioner, 108 T.C. at 330. (quoting Manko v. Commissioner, T.C. Memo. 1995-10). A necessary prerequisite to the formation of a contract is mutual assent to its essential terms, arrived at by offer and acceptance between the parties. Dorchester Indus. Inc. v. Commissioner, 108 T.C. at 330.
Was there a Settlement Reached Between the Parties?
Respondent first argues that Appeals' December Letter to petitioner was not an offer to settle or compromise. Respondent contents, like the facts in Heil v. Commissioner, T.C. Memo 1994-417, the letter cannot be construed as a settlement offer, and cites to Revenue Procedure 2016-22 in support of the argument.
Petitioners argue Appeals possessed exclusive jurisdiction to settle the case at the time of the December Letter, and Area Counsel's substantive review and subsequent rejection of the settlement offer is contrary to the authority contained in Rev. Proc. 2016-22 and section 601.106(d)(3)(iii)(a), Proced. & Admin. Regs.
Respondent, in the alternative, contends that if the December Letter were to be deemed an offer, petitioners did not comply with its terms as to when and how it could be accepted. Respondent notes that since the decision document was not received within 10 days by Area Counsel there was no mutual assent between the parties.
By signing the proposed stipulated decision document and returning the document to the IRS, it is the taxpayer who makes an offer to settle the case. (See 3.15 of Rev. Proc. 2016-22). This offer by the taxpayer is subject to review by Area Counsel for respondent, and this fact was conveyed to petitioners by Appeals in the December Letter. Furthermore, the January joint status report by the parties reflects how settlement negotiations between the parties were ongoing and not completed.
Considering the issues before the Court and the arguments of the parties, we find that the Appeals' December Letter was not an offer to settle. Furthermore, even if the December Letter is construed to be an offer, we find that there was no mutual assent between the parties.
Upon due consideration, it is
ORDERED that petitioners' motion for entry of decision, filed August 16, 2021, is denied.