[Code of Federal Regulations]
[Title 26, Volume 18]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR301.7121-1]

[Page 477-478]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents
 
                   Closing Agreements and Compromises
 
Sec. 301.7121-1  Closing agreements.


    (a) In general. The Commissioner may enter into a written agreement 
with any person relating to the liability of such person (or of the 
person or estate for whom he acts) in respect of any internal revenue 
tax for any taxable period ending prior or subsequent to the date of 
such agreement. A closing agreement may be entered into in any case in 
which there appears to be an advantage in having the case permanently 
and conclusively closed, or if good and sufficient reasons are shown by 
the taxpayer for desiring a closing agreement and it is determined by 
the Commissioner that the United States will sustain no disadvantage 
through consummation of such an agreement.
    (b) Scope of closing agreement--(1) In general. A closing agreement 
may be executed even though under the agreement the taxpayer is not 
liable for any tax for the period to which the agreement relates. There 
may be a series of closing agreements relating to the tax liability for 
a single period.
    (2) Taxable periods ended prior to date of closing agreement. 
Closing agreements with respect to taxable periods ended prior to the 
date of the agreement may relate to the total tax liability of the 
taxpayer or to one or more separate items affecting the tax liability of 
the taxpayer, as, for example, the amount of gross income, deduction for 
losses, depreciation, depletion, the year in which an item of income is 
to be included in gross income, the year in which an item of loss is to 
be deducted, or the value of property on a specific date. A closing 
agreement may also be entered into for the purpose of allowing a 
deficiency dividend deduction under section 547. In addition, a closing 
agreement constitutes a determination as defined by section 1313.
    (3) Taxable periods ending subsequent to date of closing agreement. 
Closing agreements with respect to taxable periods ending subsequent to 
the date of the agreement may relate to one or more separate items 
affecting the tax liability of the taxpayer.
    (4) Illustration. The provisions of this paragraph may be 
illustrated by the following example:

    Example. A owns 500 shares of stock in the XYZ Corporation which he 
purchased prior to March 1, 1913. A is considering selling 200 shares of 
such stock but is uncertain as to the basis of the stock for the purpose 
of computing gain. Either prior or subsequent to the sale, a closing 
agreement may be entered into determining the market value of such stock 
as of March 1, 1913, which represents the basis for determining gain if 
it exceeds the adjusted basis otherwise determined as of such date. Not 
only may the closing agreement determine the basis for computing gain on 
the sale of the 200 shares of stock, but such an agreement may also 
determine the basis (unless or until the law is changed to require the 
use of some other factor to determine basis) of the remaining 300 shares 
of stock upon which gain will be computed in a subsequent sale.


[[Page 478]]


    (c) Finality. A closing agreement which is approved within such time 
as may be stated in such agreement, or later agreed to, shall be final 
and conclusive, and, except upon a showing of fraud or malfeasance, or 
misrepresentation of a material fact:
    (1) The case shall not be reopened as to the matters agreed upon or 
the agreement modified by any officer, employee, or agent of the United 
States, and
    (2) In any suit, action, or proceeding, such agreement, or any 
determination, assessment, collection, payment, abatement, refund, or 
credit made in accordance therewith, shall not be annulled, modified, 
set aside, or disregarded.

However, a closing agreement with respect to a taxable period ending 
subsequent to the date of the agreement is subject to any change in, or 
modification of, the law enacted subsequent to the date of the agreement 
and made applicable to such taxable period, and each closing agreement 
shall so recite.
    (d) Procedure with respect to closing agreements--(1) Submission of 
request. A request for a closing agreement which relates to a prior 
taxable period may be submitted at any time before a case with respect 
to the tax liability involved is docketed in the Tax Court of the United 
States. All closing agreements shall be executed on forms prescribed by 
the Internal Revenue Service. The procedure with respect to requests for 
closing agreements shall be under such rules as may be prescribed from 
time to time by the Commissioner in accordance with the regulations 
under this section.
    (2) Collection, credit, or refund. Any tax or deficiency in tax 
determined pursuant to a closing agreement shall be assessed and 
collected, and any overpayment determined pursuant thereto shall be 
credited or refunded, in accordance with the applicable provisions of 
law.