CCA explains when later law can affect a closing agreement

Plain-English summary

Chief Counsel Advice addressed the effect of later changes in law on a closing agreement. It explained that a closing agreement is generally final under Treasury Regulation section 301.7121(c). However, an agreement covering a taxable period that ends after the agreement date is subject to later changes or modifications in law that apply to that period, when the agreement so provides. If later regulations change the law on an issue covered by the agreement, the agreement no longer binds the taxpayer on that issue, and a section 481(a) adjustment may be calculated in the normal manner.

Ruling snapshot

• Question: Can later applicable regulations change the treatment of an issue covered by a closing agreement?
• Outcome: Advice given
• Key authorities: IRC §§ 7121 and 481(a); Treas. Reg. § 301.7121(c)

Full text (IRS public release)

ID: CCA_2012080209560943 Number: 201240021
Release Date: 10/5/2012
Office: ----------
UILC: 7121.02-00

From: ----------------------
Sent: Thursday, August 02, 2012 9:56:29 AM
To: -------------------------------------------
Cc:
Subject: RE: 481 adjustment after a closing agreement--IMPORTANT

I agree with -----that the key is determining what the closing agreement addresses.

The key controlling authority is Reg. § 301.7121(c), which provides that, in general, a closing agreement is final. 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 such closing agreement shall so recite, as your agreement does).

If subsequently effective regulations changed or modified the law regarding an issue covered in the closing agreement, the closing agreement would no longer be binding with regard to that issue. A change could be imposed to bring the taxpayer into compliance with the changed or modified law, and a § 481(a) adjustment would be calculated in the normal manner, which would take into account a taxpayer's prior position with regard to the issue in earlier years.

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