Boulez v. Comm'r of Internal Revenue , Docket No. 8902-78.

CourtUnited States Tax Court
Citation76 T.C. 209
Docket NumberDocket No. 8902-78.
PartiesPIERRE BOULEZ, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
Decision Date04 February 1981

OPINION TEXT STARTS HERE

Respondent issued a deficiency notice in contravention of an assumed oral agreement between petitioner and respondent's Director of International Operations. Petitioner performed his obligations in reliance on said agreement. Held, the assumed oral agreement is not binding upon respondent, because (a) respondent's Director of International Operations did not have authority to enter into such agreement under sec. 7122, I.R.C. 1954, and the applicable regulations, revenue procedure, and delegation orders, and (b) respondent is not estopped from issuing the deficiency notice because of the actions taken by petitioner in reliance upon said agreement. Allen Greenberg, for the petitioner.

Theodore J. Kletnick and Anne Hintermeister, for the respondent.

OPINION

TANNENWALD , Judge:

Respondent determined deficiencies in petitioner's income tax in the amounts of $25,247.68 for the taxable year ended December 31, 1971, and $19,212 for the taxable year ended December 31, 1972. The case is before us on petitioner's motion for summary judgment but, as will subsequently appear, its posture is such that the Court may be in a position to enter a qualified decision for respondent (see note 2 infra).

Petitioner Pierre Boulez (Boulez), a French citizen, is a world-renowned conductor, composer, and music director. During 1971 and 1972, Boulez, then a resident of Germany, pursuant to a contract entered into with Beacon Concerts, Ltd. (Beacon), a United Kingdom corporation, performed services in the United States for the New York Philharmonic Orchestra (Philharmonic) and the Cleveland Orchestra under separate contracts entered into by each with Beacon.

Boulez continued to perform services in the United States for the Philharmonic in 1973, 1974, and 1975. Boulez filed timely United States Nonresident Alien Income Tax Returns with the Internal Revenue Service for each of the years 1971 through 1975. In July 1975, the Internal Revenue Service requested that the Philharmonic withhold U.S. income tax at the rate of 30 percent on the gross income paid for Boulez' services. In March 1976, Boulez engaged the services of Graubard, Moskovitz, McGoldrick, Dannett & Horowitz to represent him before the Internal Revenue Service. In this connection, Irving Moskovitz (Moskovitz) appeared for Boulez before, and negotiated on behalf of Boulez with, the Director of International Operations, Joseph McGowan (McGowan).

On May 3, 1976, Moskovitz conferred with McGowan in the latter's office in Washington, D.C. Although there is a genuine issue of material fact as to whether they reached an agreement at that meeting, respondent has conceded that, for the limited purpose of disposing of petitioner's motion, the Court may assume that an oral agreement of compromise did exist, which included the following:

Moskovitz, on behalf of Boulez, agreed that Boulez would file amended United States Nonresident Alien Income Tax Returns for the years 1973 and 1974 so as to treat the amounts paid to Beacon for the furnishing of Boulez' artistic services in the United States as if they had been paid directly to Boulez and as constituting gross income of Boulez. McGowan agreed in return that past years (i.e., 1971 and 1972) would remain as filed and no further action or payments on Boulez' part would be required, or adjustments made, with respect to any years prior to 1973, and further agreed that no penalties would be asserted with respect to the late filing of tax returns and late payment of additional income tax for the years 1973 and 1974.

In reliance upon said promises of McGowan, Boulez fulfilled the promises made on his behalf as follows:

(a) On May 4, 1976, he terminated his agreement with Beacon as of July 1, 1975, personally assumed the obligations imposed on Beacon by its contract with the Philharmonic, and rendered himself personally liable to the Philharmonic for any breach of such obligations;

(b) He did not challenge the Internal Revenue Service with respect to, or contest the inclusion in his gross income for the year 1973 and subsequent thereto of, the amounts paid to Beacon for the furnishing of his artistic services in the United States;

(c) He did not challenge the Internal Revenue Service with respect to, or contest the applicability to him of, Rev. Rul. 74-330, 1974-2 C.B. 278, and Rev. Rul. 74-331, 1974-2 C.B. 282, in which the respondent set forth his position regarding foreign entertainers and loan-out arrangements;

(d) He did not, with regard to the payments to Beacon, challenge the respondent with respect to, or contest the applicability to him of, the provisions of the United States-United Kingdom Income Tax Convention or any other income tax convention;

(e) He filed amended 1973 and 1974 United States Nonresident Alien Income Tax Returns on February 2, 1977, reporting as his gross income the amounts paid to Beacon or to him for the furnishing of his artistic services in the United States to the Philharmonic and paid the additional income tax due thereon; and

(f) He refrained from filing any claims for refund of tax paid in accordance with the agreement.

The issues presented for decision are whether (1) the assumed agreement constituted a binding compromise within the meaning of section 7122, 1 which respondent breached by issuing the notice of deficiencies involved herein, and (2) in any event, respondent is estopped from asserting those deficiencies against the petitioner. The parties are in agreement that if these questions are answered in the negative, the petitioner's motion should be denied and the Court may enter a decision for respondent in respect of the deficiencies set forth in the notice of deficiency.2 Otherwise, the parties have stipulated that if petitioner's motion should be granted, there should be a trial limited to the issue of whether an agreement was concluded between Moskovitz (on behalf of petitioner) and McGowan (on behalf of respondent), with decision entered in favor of petitioner or respondent depending upon the Court's resolution of that issue.

Initially, the parties lock horns as to whether section 7122 authorizes an oral agreement of compromise.3 Petitioner contends that it does, drawing support for that position from the fact that section 7121, dealing with closing agreements, specifically refers to “an agreement in writing,” while section 7122 contains no such qualifying language. Respondent contends that section 7122 requires a written agreement. The issue is one that has never been squarely faced by any court4 and, for reasons hereinafter set forth, we find it unnecessary to resolve it herein. We are constrained to note, however, that: (1) There is an indication—-albeit peripheral—-in the legislative history of an analogous provision dealing with compromises (Act of March 3, 1863, ch. 76, sec. 10, 12 Stat. 740, enacting Rev. Stat. sec. 3469) that a written agreement was contemplated by the Congress. See J. Seidman, Legislative History of Federal Income Tax Laws 1938-1861, at 1060 (1938); (2) it does not follow from the fact that section 7121 specifically refers to “an agreement in writing” that interpreting section 7122 to impose such a requirement would necessarily be invalid; and (3) respondent's regulations specifically require a written offer and acceptance, secs. 301.7122-1(d) and 601.203(a) and (b), Proced. & Admin. Regs., and we would hesitate to hold these regulations invalid.

Boske v. Comingore, 177 U.S. 459 (1900); see Commissioner v. South Texas Lumber Co., 333 U.S. 496 (1948); cf. Accardi v. Shaughnessy, 347 U.S. 260, 265-266 (1954).

As we see it, the real issue is whether, irrespective of the scope of section 7122 insofar as an oral agreement is concerned, McGowan (as Director of the Office of International Operations) had authority to enter into an oral compromise. Resolution of this question requires an analysis of the source and scope of his authority. Delegation Order No. 32 (Rev. 1), 1970-2 C.B. 487, gave the Director of International Operations the same authority as a District Director of Internal Revenue “under provisions of Treasury Regulations in administering and directing the functions of the Office of International Operations.5 Delegation Order No. 11 (Rev. 6), 1971-1 C.B. 653, delegated to the Director of International Operations, as well as District Directors and certain other officials, authority “under section 7122 of the Internal Revenue Code, to accept offers in compromise,” subject to monetary and other limitations not relevant herein. Rev. Proc. 64-44, 1964-2 C.B. 974, specifically refers to Delegation Order No. 11 (Rev. 3), 1963-2 C.B. 732, and states that “This is a ‘limited’ delegation to the extent that the delegated authority must be exercised in accordance with the limitations prescribed by section 301.7122-1 of the Regulations on Procedure and Administration.”6

As we have already pointed out (see p. 212 supra), section 301.7122-1(d), Proced. & Admin. Regs., specifically requires a written offer and acceptance.

Petitioner seeks to avoid the clear impact of the foregoing by asserting that his counsel “went to the one person in the Office of International Operations, its Director, whom he knew to be a solid, sound and reliable official of long-time service in the I.R.S. having authority to bind the Commissioner.” (Emphasis added.) We find it hard to understand how such counsel could have known that McGowan had authority to conclude an oral compromise agreement in light of the clear import of the above-mentioned delegation orders, revenue procedure, and regulations. At best, such counsel may have assumed that McGowan had such authority (see Baker v. Commissioner, 24 T.C. 1021, 1024 (1955)), but this is simply not enough to confer the necessary authority on McGowan. It has long been settled that ...

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