CCA 200851095: One Form 866 per period, but a series of Form 906 agreements is allowed

Plain-English summary

A clean explanation of a distinction that decides whether a taxpayer who has already signed a closing agreement can sign another one for the same year.

Section 7121 lets the Service enter into a written agreement with a taxpayer about any tax matter, and such an agreement is final. It cannot be reopened except on a showing of fraud, malfeasance or misrepresentation of a material fact. That finality is the point of the device, and it is also the source of the question put here, because finality sounds like it should leave no room for a second agreement.

The answer is that there are two different types, and they close different things.

The first type, usually on Form 866, resolves with finality the taxpayer's total tax liability for a specific period. It closes the year. As the release puts it, obviously, if one of these is entered into, another cannot be. There is nothing left for a second agreement to determine, because the liability itself has been fixed.

The second type, usually reflected on Form 906, is narrower. It resolves with finality the tax treatment of one or more specific issues affecting the taxpayer's liability without fixing the liability as a whole. Because a taxpayer can have several different issues arise for the same tax period, a taxpayer can enter into several Form 906 agreements covering that one period, each settling its own issue. The release quotes the regulation for the proposition: "There may be a series of closing agreements relating to the tax liability for a single period." Treas. Reg. section 301.7121-1(b).

The practical upshot is that the existence of a prior closing agreement does not by itself block a new one. What matters is which form was used and what it covered. A prior Form 906 on an unrelated issue leaves the door open. A prior Form 866 for the period closes it.

The subject line refers to a voluntary closing agreement with a federal agency, which places the question in the context of an entity approaching the Service to resolve a problem on its own initiative, typically over employment tax or information reporting. That context explains why the question came up, since an agency that has settled one issue voluntarily may well need to settle another for the same period. The release addresses only the general rule and says nothing about the particular agency or issue.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: "merely resolves with finality the tax treatment of one of more specific issues," where "of" stands where "or" is expected; the missing space in the send date, "September 17,2008"; and "Reg. Section 301.7121-1(b)" with a capitalized "Section."

Ruling snapshot

• Question: Can a taxpayer enter into more than one closing agreement covering the same tax period?
• Outcome: Advice given. It depends on the type. A Form 866 agreement resolves total liability for the period with finality, so a second one cannot be entered into. A Form 906 agreement resolves only specific issues, and because several issues can arise for one period, a taxpayer may enter into several such agreements for that period.
• Key authorities: IRC section 7121; Treas. Reg. section 301.7121-1(b); Forms 866 and 906.

Full text (IRS public release)

ID: CCA-917853-08 Number: 200851095
Office: -------------- Release Date: 12/19/2008

UILC: 17.09.00-00

From: -----------------------
Sent: Wednesday, September 17,2008 8:53 AM
To: ---------------------------------------------------------------------------------------------------------- Cc: Subject: RE: Voluntary Closing Agreement – federal agency

-------- has asked that I respond to your e-mail. There are two different types of closing agreements. One type of closing agreement, usually on Form 866, resolves with finality the tax liability for a specific time period. Obviously, if one of these closing agreements is entered into, another cannot be. The other type of closing agreement is more limited and merely resolves with finality the tax treatment of one of more specific issues affecting the tax liability of the taxpayer. These are usually reflected on Forms 906. Since a taxpayer can have several different issues arise with regard to the same tax period, a taxpayer can enter into several different closing agreements with regard to the same tax period. "There may be a series of closing agreements relating to the tax liability for a single period." Reg. Section 301.7121-1(b).