Davis v. United States

A breach of a closing agreement by the Internal Revenue Service does not remove the statutory obligation of an individual to pay taxes.

Al Davis, former majority owner of the Oakland Raiders, a California limited partnership, signed a settlement agreement with the Internal Revenue Service (“IRS”) where the IRS would make “computational adjustments” to determine the tax liability of each partner. The agreement also stated each partner was permitted 60 days to review the IRS adjustments prior to the IRS assessing the amount and a Closing Agreement was signed. Adjustments were sent in June of 2007, and Davis responded timely. Revised calculations were sent to Davis in August of 2007, and had no time to wait 60 days as the settlement agreement stipulated. In September 2007, more assessments were issued. Davis argued that the assessments were invalid because the IRS breached the agreement by not allowing 60 days of review. The district court agreed with Davis and granted his motion for summary judgment, stating that the IRS had breached, and thus invalidated the assessments. On appeal, the Ninth Circuit found that the obligation to pay taxes validly and accurately comes from the Internal Revenue Code, and not any agreements, and that just because the IRS failed to uphold its contractual agreement, does not invalidate Davis’s obligation to pay taxes. The panel held that the IRS’s breach did not invalidate the taxes. The panel reasoned that Davis was entitled to a remedy for the breach but only in contract, and further noted that Davis had the chance to challenge the assessments even with the IRS breaching. REVERSED and REMANDED.