Boulez v. C.I.R., 82-1048

• Decision Date: 13 February 1987
• Docket Number: No. 82-1048,82-1048
• Citation: 810 F.2d 209
• Parties: , 59 A.F.T.R.2d 87-608, 55 USLW 2477, 87-1 USTC P 9177 Pierre BOULEZ, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 209

810 F.2d 209

258 U.S.App.D.C. 90, 59 A.F.T.R.2d 87-608,

55 USLW 2477,

87-1 USTC P 9177

Pierre BOULEZ, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

No. 82-1048.

United States Court of Appeals District of Columbia Circuit.

Argued Sept. 10, 1982.

Decided Feb. 13, 1987.

Appeal from Decision of the United States Tax Court.

Lawrence D. Bernfeld, New York City, with whom Alfred R. McCauley, Washington, D.C., and Allen Greenberg, New York City, were on brief, for appellant.

Terry L. Fredericks, Atty., Dept. of Justice, with whom Glenn L. Archer, Jr., Asst. Atty. Gen., and Michael L. Paup, Atty., Dept. of Justice, Washington, D.C., were on brief, for appellee.

Before WALD, Chief Judge, ROBINSON, Circuit Judge, and WRIGHT, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge ROBINSON.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

This appeal summons us to adjudge the validity of an oral agreement between a taxpayer and an official of the Internal Revenue Service (IRS) purporting to compromise a disputed income tax liability. The United States Tax Court held the agreement ineffective on the ground that the official lacked authority to enter into it. ¹ We affirm.

I

The taxpayer, Pierre Boulez, is a citizen of France and a world-renowned music director and conductor. ² In 1971, Boulez contracted with Beacon Concerts, Ltd., a United Kingdom corporation, ³ to serve as director and conductor for musical organizations selected by Beacon. ⁴ The latter in turn contracted to provide Boulez's services to the New York Philharmonic Symphony and the Cleveland Orchestra, both United States corporations. ⁵

For tax years 1971 and 1972, Boulez was a nonresident alien for purposes of United States income taxes. ⁶ During those years, Beacon received $207,473 for Boulez's performances in the United States ⁷ and, after deducting its expenses and commissions, paid Boulez $188,495. ⁸ Boulez filed United States nonresident alien income tax returns for 1971 and 1972, but did not include in his gross income any of the monies Beacon received or paid to him for his services. ⁹ Boulez continued to perform in the United States for the New York Philharmonic Symphony during 1973, 1974 and 1975. He filed nonresident alien returns for the 1973 and 1974 tax years, and again failed to report any amount received by or from Beacon. ¹⁰

In 1975, IRS launched an investigation of Boulez's tax obligations respecting the monies flowing through Beacon. ¹¹ Boulez obtained counsel, ¹² who engaged in a protracted series of negotiations with IRS on Boulez's potential tax liability and assertedly reached an oral compromise ¹³ with IRS's Director of International Operations. ¹⁴ Boulez claims that he was to file amended returns for 1973 and 1974 including in gross income the amounts paid to Beacon for his services in the United States; and that, in exchange, no adjustments were to be made by IRS, no payments for years prior to 1973 would be required, and no penalties for late filing or payment would be assessed. ¹⁵

Boulez then filed amended 1973 and 1974 returns conforming to the compromise and remitted $53,841 in additional taxes. ¹⁶ Appended to the amended returns was a letter from Boulez's counsel stating that these returns were "in accordance with [counsel's] conversation with" the Director. ¹⁷

Thereafter, Boulez did not oppose inclusion in his gross income for 1973 and years following of the amounts paid to Beacon for his performances in the United States. ¹⁸ He did not resist the applicability of any income tax convention to Beacon's receipts for or payments to him, nor did he seek any refund of taxes paid in consequence of the compromise. Ultimately, he terminated his arrangement with Beacon and personally assumed the obligations imposed on Beacon by the contract with the Philharmonic. ¹⁹

In 1977, IRS commenced an unrelated audit of Boulez's 1975 return, and later expanded it to an examination of his 1971 and 1972 returns. ²⁰ In 1978, IRS issued a notice of deficiency informing Boulez that he owed additional taxes for 1971 and 1972. Underlying the notice was a determination that Boulez should have included in his gross income for those years amounts paid to Beacon for his performances in the United States. ²¹

Boulez challenged this ruling in the Tax Court ²² and moved for summary judgment on two grounds. He claimed that the 1976 oral agreement, which purported to settle any tax liability for 1971 and 1972, constituted a binding compromise. ²³ Alternatively, Boulez asserted that if the agreement was not a bar, IRS was equitably estopped from assessing the deficiency because Boulez had relied upon the agreement and changed his position to his detriment. ²⁴ The Tax Court held in favor of the Commissioner, reasoning that the Director of International Operations lacked authority to bind IRS by means of an oral agreement, because Treasury Regulation Sec. 301.7122-1(d) requires offers and acceptances of compromise to be in writing. ²⁵ From this decision, Boulez now appeals.

II

Boulez presses two arguments in an effort to demonstrate that the Tax Court erred in refusing to grant summary judgment in his favor. He first contends that the Treasury Regulation Sec. 301.7122-1(d) is invalid for inconsistency with Section 7122(a) of the Internal Revenue Code ²⁶ which, he says, sanctions oral compromises. He further contends that even if the regulation imposes a valid limitation on statutory authority to compromise, it is merely directory, and that a delegation order empowered the Director of International Operations, as the Commissioner's delegate at the time of the agreement, to accept Boulez's oral offer of compromise and thus to bind the agency. We agree with Boulez that the statute does not of its own accord forbid oral compromise agreements, but conclude that the regulation, which requires that all compromises be reduced to writing, ²⁷ has the force and effect of law, and that the Director lacked authority to waive it.

The Commissioner argues that Section 7122(a) of the Code manifests the intent of Congress to outlaw oral compromise agreements. The Commissioner concedes, as he must, that the section does not expressly call for a writing, but he maintains that when viewed against the backdrop of its legislative history, it should be read to incorporate that requirement. The question thus posed appears to be one of first impression. ²⁸

Undeniably, Section 7122(a) is facially ambiguous. It does not specify that compromise agreements must be in writing, nor does it explicitly sanction oral settlements. The legislative history, although cited by the Commissioner in support of his position, does not plainly settle the question either. When, more than a century ago, the provision authorizing compromise agreements was first drafted, ²⁹ the bill made the written opinion of the Solicitor of Internal Revenue prerequisite to a valid compromise agreement. ³⁰ This particular requirement appears to be the only precondition Congress considered incorporating into the statute. It was deleted from the final version, however, and has not reappeared in any successor statute. ³¹ We can find no suggestion that Congress, in the course of its deliberations, otherwise considered the form that compromise agreements should take. We thus are persuaded that Congress left to the Secretary of the Treasury the task of promulgating regulations addressing the requisite manner of offer and acceptance of compromises. ³²

III

The Secretary has issued Treasury Regulation Sec. 301.7122-1(d), which specifically requires a written offer and acceptance. ³³ Boulez acknowledges that the compromise upon which he relies did not satisfy this demand, but claims that the regulation conflicts with the statute. Boulez further claims that breach of the regulation should not affect the validity of the compromise agreement because the regulation is merely directory in character and because in any event the Director, as the Secretary's delegate, had authority to waive it in his instance. We find each of these arguments unpersuasive.

We address first the contention that the regulation contravenes the intent of Congress. ³⁴ To prevail on this argument, Boulez must overcome the strong presumption of validity to which Treasury regulations are entitled. ³⁵ The Supreme Court has consistently declared that a Treasury regulation must be complied with unless the taxpayer can demonstrate that it is " 'unreasonable and plainly inconsistent with the revenue statutes.' " ³⁶

It is evident that Boulez has not discharged this burden. The crux of his argument is that Section 7122 sanctions oral compromises and that the Secretary cannot by regulation impose additional requirements that undermine the congressional purpose. ³⁷ To be sure, courts will not hesitate to invalidate treasury regulations that do not reasonably adhere to statutory dictates or which frustrate legislative objectives, ³⁸ but this case presents neither situation. Congress, in enacting Section 7122, empowered the Secretary to compromise disputed tax liabilities, but left to the Secretary the mechanics of effecting settlements. ³⁹ In turn, the Secretary in specifying in Treasury Regulation Sec. 301.7122-1(d) ⁴⁰ that all offers of compromise be submitted and accepted in writing, ⁴¹ simply defined the form that compromise agreements must take. We find the requirement of a writing entirely reasonable, and a wholly permissible interpretation of Section 7122.

When, therefore, the parties negotiated the compromise of Boulez's 1971-74 tax liability, they did so subject to the terms of the regulation, one of which is that the compromise agreement be in writing. Moreover, the regulation provides that "offers in compromise shall be submitted on forms prescribed by the Internal Revenue Service ...," ⁴² and warns that "[a]n offer in compromise shall be considered accepted only when the proponent thereof is so notified in...