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the Pine Gap agreements only if those
benefits are viewed as “any exclusion, Smith maintained that the IRS committed
exemption, deduction, rebate, credit or malfeasance by disclosing confidential return
other allowance.”
To resolve these potential problems, information in violation of Sec. 6103.
the United States and Australia de-
termined that U.S. citizens working at
Pine Gap would need to forgo making closing agreement. According to Smith, him a refund. For 2018, he filed an
a Sec. 911 election to avoid Australian despite what was stated in the company original return on which he claimed the
taxation. The countries also determined handbook, Raytheon staff informed foreign earned income exclusion for his
Pine Gap employees could forgo the him that signing the agreement was Pine Gap income.
election by entering into a closing not optional and that his employ- After realizing that the elections on
agreement with the IRS. ment was contingent on his signing Smith’s 2016 and 2017 amended returns
For decades, both U.S. citizen em- the agreement. Smith claimed that he and his 2018 return were not in line
ployees at Pine Gap and the U.S. and signed the agreement, which covered with the 2016–2018 closing agreement,
Australian tax authorities abided by the years 2010 through 2012, because the IRS issued him a notice of deficien-
this framework. As far as the interested he was afraid of losing the job that he cy for 2016, 2017, and 2018, disallowing
parties were concerned, the closing had prepared for over a year to take. No the claimed Sec. 911(a) elections and as-
agreements waiving U.S. taxpayers’ one from the IRS was present during serting that the previously issued refunds
right to elect under Sec. 911(a) were Smith’s discussions with Raytheon staff were in error.
sufficient to preempt potential issues about the agreement, and Smith did Smith petitioned the Tax Court for
of double taxation for U.S. citizens not communicate with the IRS before a redetermination of the deficiencies.
working at Pine Gap. But a few years executing the agreement. During the He claimed the agreement was invalid
ago, some U.S. citizens who worked at following years while Smith was em- because the IRS official who executed it
Pine Gap and had entered into closing ployed at Pine Gap, he signed an identi- did not have the authority to do so. In
agreements, including Smith, decided cal closing agreement (except for the tax the alternative, he argued that the clos-
to ignore the agreements and made the years covered by the initial agreement) ing agreement should be set aside under
Sec. 911(a) election on their original at least two more times. This included Sec. 7121(b) because the IRS committed
tax returns or on amended returns for signing the agreement at issue in the malfeasance by disclosing confidential
earlier tax years. case, which covered the years 2016, taxpayer information under Sec. 6103
Smith, a former Air Force engineer, 2017, and 2018. and it misrepresented material facts in
received an offer in 2009 from Ray- For all the agreements, after he ex- the terms of the closing agreement. In
theon Corp. to work at Pine Gap. The ecuted them, Smith gave them back to Tax Court, Smith and the IRS filed
onboarding process for the job was ex- Raytheon staff and Raytheon sent them competing motions for partial summary
tensive, and it was approximately a year to the IRS. Deborah Palacheck, director, judgment on these issues.
before Smith went to Pine Gap and Treaty Administration, in the IRS Large
began work. Business and International Division Sec. 7121 and
During the onboarding process, (LB&I), executed the 2016–2018 clos- closing agreements
Smith was given a copy of Raytheon’s ing agreement in her official capacity. Sec. 7121(a) authorizes the secretary of the
Australian Operations Overseas Hand- The IRS sent a fully executed copy of Treasury (or, under Sec. 7701(a)(11)(B),
book. The handbook included a general the agreement to Raytheon, which gave the Treasury secretary’s delegate) to “enter
discussion of U.S.–Australian taxation a copy to Smith. into an agreement in writing with any per-
of employees working at the facility, Smith timely filed income tax returns son relating to the liability of such person
including the effect of signing or not for 2016 and 2017, on which, consistent ... in respect of any internal revenue tax for
signing a closing agreement waiving with the terms of the 2016–2018 clos- any taxable period.” These are called “clos-
their right to elect the Sec. 911(a) ing agreement, he did not make the Sec. ing agreements.”
foreign earned income exclusion. The 911(a) election. Later, he filed amended Sec. 7121(b) prescribes the effects of
handbook indicated that signing this returns for both years on which he an agreement made under Sec. 7121(a).
waiver was optional. claimed the foreign earned income If “approved by the Secretary,” that agree-
On his first day of work at Pine Gap, exclusion for his Pine Gap income. The ment “shall be final and conclusive.”
Raytheon gave Smith a blank form IRS processed those returns and issued Except upon a showing of “fraud or

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