Define: Closing Agreement

A closing agreement is a legally binding document that resolves a tax dispute between the taxpayer and the Internal Revenue Service (IRS). It is typically used to settle disagreements regarding tax liabilities, penalties, or other tax-related issues.

A closing agreement should be used when both the taxpayer and the IRS agree to settle a tax dispute outside of the normal administrative or judicial process. It can be initiated by either party to resolve the issue in a mutually acceptable manner.

A closing agreement is reached through negotiations between the taxpayer and the IRS. Both parties discuss the disputed issues, present evidence, and negotiate the terms of the agreement. Once both parties reach a consensus, the closing agreement is drafted and signed.

Entering into a closing agreement can provide certainty and finality to both the taxpayer and the IRS. It allows the taxpayer to resolve the tax dispute without going through a lengthy and costly litigation process. Additionally, it may provide the taxpayer with favourable terms, such as reduced penalties or interest.

In general, a closing agreement cannot be modified or revoked unless there is evidence of fraud, misrepresentation, or other exceptional circumstances. Once signed, it is considered a final resolution of the tax dispute and is binding on both parties.

Closing agreements are generally available for most types of tax disputes. However, there may be certain limitations or restrictions, depending on the specific tax laws and regulations applicable to the case. It is advisable to consult with a tax attorney or professional for guidance on the availability and suitability of a closing agreement in a particular situation.

Failure to comply with the terms of a closing agreement can have serious consequences. The IRS may take enforcement actions, such as imposing additional penalties, initiating collection proceedings, or pursuing legal remedies. It is crucial for the taxpayer to fulfil their obligations as outlined in the agreement.

Closing agreements are primarily used for tax-related disputes. However, in certain circumstances, they may be used to settle non-tax disputes if both parties agree to do so. It is important to consult with legal counsel to determine the appropriateness and enforceability of a closing agreement in a non-tax context.

The time required to reach a closing agreement can vary depending on the complexity of the tax dispute, the willingness of both parties to negotiate, and other factors. It can range from a few weeks to several months, or even longer. It is advisable to start the process as early as possible to allow sufficient time for negotiations and the finalisation of the agreement.