In re Crowell

• Decision Date: 18 September 2002
• Docket Number: No. 01-5374.,01-5374.
• Citation: 305 F.3d 474
• Parties: In re Larry CROWELL and Mary S. Crowell, Debtors. Larry Crowell, Mary S. Crowell, Duane C. Olcsvary, and Patricia C. Olcsvary, Appellants, v. United States of America and Internal Revenue Service, Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

305 F.3d 474

In re Larry CROWELL and Mary S. Crowell, Debtors.

Larry Crowell, Mary S. Crowell, Duane C. Olcsvary, and Patricia C. Olcsvary, Appellants, v. United States of America and Internal Revenue Service, Appellees.

No. 01-5374.

United States Court of Appeals, Sixth Circuit.

Argued: July 16, 2002.

Decided and Filed: September 18, 2002.

Kyle R. Weems (argued and briefed), Weems & Associates, Chattanooga, TN, for Appellants.

Jason S. Zarin, U.S. Dept. of Justice Tax Div., Washington, DC, Kenneth L. Greene (briefed), Karen D. Utiger (argued and briefed), U.S. Dept. of Justice, Appellate Section Tax Div., Washington, DC, for Appellees.

Before SUHRHEINRICH, SILER, and GILMAN, Circuit Judges.

OPINION

SILER, Circuit Judge.

Debtors Larry and Mary Crowell and Duane and Patricia Olcsvary appeal the ruling of the bankruptcy and district courts that Internal Revenue Service ("IRS") Delegation Order ("DO") 209 applies to their agreements with the IRS settling the tax treatment of certain partnership items. Because DO 209 deals specifically with delegated authority to enter into written settlement agreements in partnership cases, as opposed to the more general DO 97, we AFFIRM.

BACKGROUND

Debtors Larry and Mary Crowell and Duane and Patricia Olcsvary were partners in various cattle-breeding tax shelter partnerships owned and operated by W.J. Hoyt III ("the Hoyt partnerships"). To settle their tax liabilities arising out of these partnerships, debtors entered into written agreements with the IRS. R.M. Spooner, associate chief of appeals, signed the agreements on behalf of the IRS. These agreements, each prepared using a "Form 906 Closing Agreement," purportedly resolved disputes between debtors and the IRS regarding tax treatment of certain partnership items. After the agreements were signed, the IRS adjusted debtors' tax deficiencies to reflect the terms of the agreements.

Subsequently, the Crowells and the Olcsvarys filed for Chapter 13 bankruptcy. The IRS filed proofs of claim in each bankruptcy for tax deficiencies calculated in accordance with the terms of the agreements. The Crowells and the Olcsvarys then filed adversary proceedings against the IRS seeking to have its claims denied. As grounds, debtors asserted that the agreements are invalid because Spooner lacked authority to execute them under DO 97. At the time Spooner executed the agreements, proceedings involving the Hoyt partnerships were pending before the tax court. DO 97 bars an IRS official in Spooner's position from executing a closing agreement in a case docketed in the tax court. The IRS responded that another, more specific delegation order, DO 209, authorized Spooner to execute the agreements. DO 209, which delegates authority in partnership matters, authorizes associate chiefs of appeals to enter into and approve written settlement agreements with one or more partners, without any limitation on cases pending in the tax court.

Considering the rule of construction that "the specific governs the general," the bankruptcy court determined that DO 209 is the more specific of the two delegation orders because its area of operation is limited to partnerships and subchapter S-corporations. According to the bankruptcy court, the IRS's internal guidelines and procedures confirm that DO 209 governs the execution of written settlement agreements between the IRS and partners in a partnership and contemplate that such agreements will be executed by IRS officials of Spooner's rank, regardless of whether the partnership has a case before the tax court. In conclusion, the bankruptcy court held that DO 209 authorized Spooner to execute the agreements and that the agreements are therefore valid and binding on both parties. The district court affirmed the bankruptcy court's judgment.

STANDARD OF REVIEW

Applying the same standards of review as the district court, we review the bankruptcy court's legal conclusions de novo and uphold its factual findings unless clearly erroneous. In re 255 Park Plaza Assocs. Ltd. P'ship, 100 F.3d 1214, 1216 (6th Cir.1996).

DISCUSSION

Under 26 U.S.C. § 7121, entitled "Closing Agreements," the Secretary of the Treasury ("the Secretary") "is authorized to enter into an agreement in writing with any person relating to the liability of such person ... in respect of any internal revenue tax for any taxable period." 26 U.S.C. § 7121(a). An agreement approved by the Secretary is "final and conclusive, ... except upon a showing of fraud or malfeasance, or misrepresentation of a material fact." Id. § 7121(b). The Secretary has delegated the authority to administer and enforce the Internal Revenue Code ("the Code") to the Commissioner of Internal Revenue ("the Commissioner"). Treas. Order No. 150-10 (Apr. 22, 1982) (J.A. at 193). Treasury regulations authorize the Commissioner to enter into written closing agreements relating to a person's tax liability and give these agreements final and conclusive effect. 26 C.F.R. § 301.7121-1(a), (c).

Pursuant to that authority, the Commissioner has issued DO 97, a general delegation of authority to certain IRS officials and employees to execute closing agreements. It provides in relevant part:

The Assistant Commissioner (International); Regional Commissioners; Regional Counsel; Regional Chief Compliance Officers; Service Center Directors; Director, Austin Compliance Center, District Directors; Regional Directors of Appeals; Assistant Regional Directors of Appeals; Chiefs and Associate Chiefs of Appeals Offices; and Appeals Team Chiefs with respect to his/her team cases, are hereby authorized in cases under their jurisdiction (but excluding cases docketed before the United States Tax Court) to enter into and approve a written agreement with any person relating to the Internal Revenue tax liability of such person (or of the person or estate for whom he/she acts) for a taxable period or periods ended prior to the date of agreement and related specific items affecting other taxable periods.

DO 97(4) (emphasis added).¹ Some of the Hoyt partnerships in which the Crowells and the Olcsvarys had invested had proceedings pertaining to certain years docketed before the tax court at the time the agreements were executed. Consequently, if DO 97 applies, then Spooner, an associate chief of appeals, lacked authority to execute the agreements with respect to those cases and years. See In re Klee, 216 B.R. 42, 44-45 (Bkrtcy.D.Or.1997) (holding that Spooner did not have authority to execute closing agreement under DO 97 and therefore agreement was invalid).

The IRS argues, and the bankruptcy and district courts agreed, that a different delegation order, DO 209, applies under the circumstances of this case and vests authority in Spooner to execute the closing agreements with the Crowells and the Olcsvarys. DO 209, entitled "Delegation of Authority in Partnership and S-Corporation Matters," provides in relevant part:

Authority to enter into and approve a written settlement agreement with one or more partners or shareholders with respect to the determination of partnership or subchapter S items and any items affected by such items for such partnership or S corporation taxable year is delegated to:

a. chiefs and associate chiefs of appeals offices;

b. appeals team chiefs as to their respective cases;

c. appeals officers in service centers and the Austin Compliance Center but not as to their respective cases;

d. revenue agents (reviewers), (grade GS-11 and higher), in Examination Division or Office of Taxpayer Service and Compliance, Assistant Commissioner (International); and

e. revenue agents (grade GS-11 and higher) in service centers and the Austin Compliance Center.

DO 209(3).

As the district court noted, DO 209 differs from DO 97 in three key ways. First, DO 209 involves a more limited subject matter. As opposed to DO 97's general delegation of authority over closing agreements, DO 209 deals solely with agreements related to partnerships and S-corporations. Second, DO 209 authorizes a wider range of IRS employees to execute settlement agreements in partnership cases. Third, DO 209 does not limit signatory authority with respect to cases docketed in the tax court. Given these distinctions, if DO 209 applies, rather than DO 97, then Spooner had authority to enter into the closing agreements, regardless of whether the Hoyt partnerships had matters docketed in the tax court, and thus those agreements are valid and binding on the parties.

Although administrative orders delegating authority to agency officials and employees do not carry the full weight of statutes, such orders warrant the use of similar rules of construction to aid in their interpretation. A basic rule of statutory construction is that "a specific statutory provision governs a general one." Sprague v. Gen. Motors Corp., 133 F.3d 388, 405 (6th Cir.1998); see also Edmond v. United States, 520 U.S. 651, 657, 117 S.Ct. 1573, 137 L.Ed.2d 917 (1997) ("Ordinarily, where a specific provision conflicts with a general one, the specific governs."). Consequently, DO 209, as the more specific delegation, governs the closing agreements here.

DO 97 was issued pursuant to the regulation authorizing the Commissioner to enter into closing agreements, 26 C.F.R. § 301.7121-1. Although neither the regulation nor the delegation order expressly cites 26 U.S.C. § 7121, that section, which authorizes the Secretary to enter into closing agreements, clearly is the legislative source for the Commissioner's authority to settle tax cases. As the district court noted, "DO 97 does not apply to any particular area of taxation or type of agreement. Instead, DO 97 serves as the general authority for the named IRS officials to execute closing agreements."

In contrast, DO 209 was issued "[p]ursuant to the authority vested in the Commissioner of Internal Revenue by IRC 6223, 6224, 6228, 6229, 6231(a)(7), 6232, 6243, and 6244." The listed sections fall within the Code's...