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TAX TRENDS

commissioner. The commissioner, in was also covered by the delegation order
The United States and turn, has further delegated his author- as an act required with respect to a
Australia determined ity through regulations and delega- specific application of the 1982 treaty.
tion orders.
Thus, Palacheck’s execution of Smith’s
that US citizens In the case of Smith’s closing closing agreement was appropriate.
working at Pine Gap agreement, the authority to sign the Absence of malfeasance
would need to forgo agreement was delegated in Delegation In essence, Smith maintained that the
Order 4-12. This order delegates to the
making a Sec. 911 IRS commissioner, LB&I, the author- IRS committed malfeasance by disclos-
election to avoid ity to act as “competent or taxation ing confidential return information in
authority” for all matters encompassed
violation of Sec. 6103 by each of three
Australian taxation. by U.S. tax treaties. It further delegates actions: (1) providing blank form closing
to certain IRS employees other than the agreements to Raytheon; (2) receiving the
commissioner, LB&I, (including the di- half-executed 2016–2018 closing agree-
malfeasance, or misrepresentation of rector, Treaty Administration, of LB&I) ment through Raytheon; and (3) trans-
a material fact,” Sec. 7121(b)(1) states a portion of this authority, delegating mitting the fully executed 2016–2018
a case will not be reopened as to the to those employees the power to act as closing agreement back to Smith through
matters agreed upon in the agreement, “competent authority” under U.S. tax Raytheon. Whether these actions consti-
and the agreement will not be modified treaties with respect to specific applica- tuted a disclosure of return information
by any officer, employee, or agent of the tions of such treaties, including signing were questions of first impression for the
United States. Sec. 7121(b)(2) further mutual and other agreements on behalf Tax Court.
provides that the agreement “shall not of the commissioner, LB&I, except as Subject to exceptions, Sec. 6103
be annulled, modified, set aside, or otherwise specifically delegated in the prohibits an “officer or employee of the
disregarded” “in any suit, action, or pro- delegation order. Thus, the IRS asserted, United States” from “disclos[ing] any
ceeding” or “any determination, assess- Palacheck was authorized to execute the return or return information obtained by
ment, collection, payment, abatement, closing agreement. him in any manner in connection with his
refund, or credit made in accordance” After reviewing the 1982 treaty, the service as such an officer or an employee
with the agreement. As a general mat- Pine Gap agreements, and the language or otherwise.” A “disclosure” is defined
ter, a closing agreement is “approved by of Smith’s 2016–2018 closing agree- as the “making known to any person in
the Secretary” once it is signed by the ment, the Tax Court found that it was any manner whatever a return or return
taxpayer and executed on behalf of the proper for Palacheck to execute the information” (Sec. 6103(b)(8)). Return
secretary by an IRS official. agreement. It noted that the closing information includes, among other
agreement itself stated that the waiver things, “any agreement under section
The Tax Court’s decision of Smith’s rights under Sec. 911 was 7121, and any similar agreement, and
The Tax Court held that the closing “pursuant to an agreement with and any background information related to
agreement was valid and could not be a determination by the Competent such an agreement or request for such
set aside. It concluded that Palacheck, Authority for the United States after an agreement” (Sec. 6103(b)(2)(D)). But
in her capacity as director, Treaty Ad- consultation with the Competent Au- return information “does not include
ministration, had authority to execute thority for Australia in accordance with data in a form [that] cannot be associ-
the agreement for the IRS, and Smith Article 24 of the [1982 treaty].” Further, ated with, or otherwise identify, directly
had failed to show that the IRS had according to the court, under the overall or indirectly, a particular taxpayer” (Sec.
committed malfeasance or misrepre- arrangement agreed upon by Australia 6103(b)(2) (flush text)).
sented the facts under Sec. 7121(b) with and the United States for the Pine Gap Blank forms: The Tax Court de-
respect to the agreement. employees, Palacheck was required to termined that sending the blank form
act as competent authority “with respect was not malfeasance because, for three
Authority to execute to specific applications” of the 1982 reasons, it was not return information
the agreement treaty under Delegation Order 4-12. under Sec. 6103. First, to be return
Through regulations and Treasury In addition, because the arrangement information, the blank form would have
Order 150-07, the Treasury secre- called for the signing of a closing agree- to be an agreement under Sec. 7121, a
tary has delegated the authority to ment on behalf of the United States in similar agreement, or background infor-
sign closing agreements to the IRS appropriate circumstances, that action mation for the agreement or a request

62 November 2022 The Tax Adviser