FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ALLEN DAVIS; CAROL DAVIS,

Plaintiffs-Appellees,

v.

UNITED STATES OF AMERICA,

Defendant-Appellant.

No. 13-16458

D.C. No.

3:11-cv-04316-

EDL

OPINION

Appeal from the United States District Court

for the Northern District of California

Elizabeth D. Laporte, Magistrate Judge, Presiding

Argued and Submitted

November 17, 2015—San Francisco, California

Filed January 25, 2016

Before: Sidney R. Thomas, Chief Judge and Sandra S.

Ikuta and Andrew D. Hurwitz, Circuit Judges.

Opinion by Judge Hurwitz
2 DAVIS V. UNITED STATES

SUMMARY*

Tax

Reversing a judgment of the district court in an income

tax refund action brought by Al Davis, former principal

owner of the Oakland (and Los Angeles) Raiders, and his

wife Carol Davis, the panel held that a breach of a Closing

Agreement between the Internal Revenue Service (IRS) and

the partnership that formally owned the Raiders did not

invalidate the tax assessments, which were properly assessed

within the statute of limitations.

Davis and his wife were partners in a partnership that

entered into a settlement with the IRS in which the partners

had a designated amount of time to review and comment on

the IRS’s proposed tax liability calculations before any

assessments were made. The IRS admittedly breached the

Closing Agreement by making certain assessments without

giving Davis a second opportunity to review its calculations.

The panel held that the IRS’s breach of contract entitled

Davis to a contractual remedy but did not invalidate the

assessments. The panel noted that the breach did not prevent

Davis from challenging the assessed amounts and seeking

consequential damages in an administrative refund claim or

a refund action, which he did not do.

The panel also held that the assessments were timely.

Applying the plain language of I.R.C. § 6231(b)(1)(C), the

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
DAVIS V. UNITED STATES 3

panel held that the IRS does not “enter into a settlement

agreement with the partner” when it enters into a settlement

agreement with the tax matters partner, and the individual

partner is bound merely by operation of the tax court’s

decision to which the partner is a party. Because the Closing

Agreement and stipulations were not a “settlement agreement

with” Davis within the scope of I.R.C. § 6231(b), the panel

held that the tax assessments were timely, as they occurred

within one year after the Tax Court decision became final.

COUNSEL

Kathryn Keneally, Assistant Attorney General, Richard

Farber, Andrew M. Weiner (argued), Attorneys, Tax

Division, Department of Justice, Washington, D.C., for

Defendant-Appellant.

Steven L. Mayer (argued), Kenneth G. Hausman, Stuart S.

Lipton, Julian Y. Waldo, Arnold & Porter LLP, San

Francisco, California, for Plaintiffs-Appellees.
4 DAVIS V. UNITED STATES

OPINION

HURWITZ, Circuit Judge:

The late Al Davis is a gridiron icon, deservedly inducted

into the Pro Football Hall of Fame in 1992. He served as

coach, then general manager, and finally as the “principal

owner” of the Oakland (and Los Angeles) Raiders over some

fifty years. During the Davis years, the Raiders appeared in

five Super Bowls, winning three.

The case before us arises from a complaint filed in 2011

by Davis and his wife, Carol, against the United States,

seeking a refund of income taxes.1 Davis2argues that the

1 By 2011, Davis and the Raiders were hardly strangers to the courts. In

1978, the Los Angeles Coliseum, with the Raiders as cross-claimants,

successfully sued the National Football League (NFL) for violation of the

antitrust laws for the NFL’s refusal to allow the Raiders to move to Los

Angeles. L.A. Mem’l Coliseum Comm’n v. Nat’l Football League,

791 F.2d 1356 (9th Cir. 1986); L.A. Mem’l Coliseum Comm’n v. Nat’l

Football League, 726 F.2d 1381 (9th Cir. 1984). In 1980, after the

Raiders announced their intention to move to Los Angeles, the City of

Oakland brought an action to acquire the Raiders’ property by eminent

domain; the Raiders prevailed after five appeals and eight years of

litigation. City of Oakland v. Oakland Raiders, 646 P.2d 835 (Cal. 1982)

(in bank); City of Oakland v. Oakland Raiders, 249 Cal. Rptr. 606 (Ct.

App. 1988); City of Oakland v. Oakland Raiders, 220 Cal. Rptr. 153 (Ct.

App. 1985); City of Oakland v. Superior Court, 197 Cal. Rptr. 729 (Ct.

App. 1983); City of Oakland v. Superior Court, 186 Cal. Rptr. 326 (Ct.

App. 1982). In 1984, the Oakland Coliseumsuccessfully sued the Raiders

and Davis for unpaid rent. Oakland-Alameda Cty. Coliseum, Inc. v.

Oakland Raiders, Ltd., 243 Cal. Rptr. 300 (Ct. App. 1988). In 1997, the

Raiders unsuccessfully sued the Oakland Coliseum for negligently

misrepresenting the success of advance season ticket sales to induce the

team to move back to Oakland. Oakland Raiders v. Oakland-Alameda

Cty. Coliseum, Inc., 51 Cal. Rptr. 3d 144 (Ct. App. 2006). In 1999, the
DAVIS V. UNITED STATES 5

Internal Revenue Service (IRS) assessed the taxes outside the

statute of limitations and in breach of a Closing Agreement

between the IRS and the partnership that formally owned the

Raiders. The district court held that the breach of contract

invalidated the assessments and entered judgment for Davis. 

We reverse, finding the assessments valid.

I. Background

Davis had the largest interest in the Oakland Raiders, a

California limited partnership (the “Partnership”), which

owned and operated the professional football team. Davis

was also the president of A.D. Football, Inc., the sole general

partner and tax matters partner (“TMP”) of the Partnership. 

See 26 U.S.C. (“I.R.C.”) § 6231(a)(7).

The Partnership and the IRS were involved in longrunning Tax Court litigation. See Milenbach v. Comm’r,

318 F.3d 924 (9th Cir. 2003). In 2005, the Partnership and

the IRS reached a settlement over tax years 1988 through

1994. The Closing Agreement, which concluded the

litigation, was signed by Davis, as President of the TMP. 

Raiders unsuccessfully sued the NFL, seeking (1) compensation for the

“opportunity” the Raiders gave the NFL by moving back to Oakland and

thereby opening up a spot for a team in Los Angeles, and (2) damages for

the NFL’s failure to offer the Raiders more support to develop a stadium

in Southern California. Oakland Raiders v. Nat’l Football League,

161 P.3d 151 (Cal. 2007).

2 Al Davis died on October 8, 2011, a few months after this case was

filed. Carol Davis is the executrix of his estate and the sole trustee of the

Allen and Carol Davis Revocable Trust, which succeeded to Al’s interest

in this litigation. For convenience, we refer to the plaintiffs collectively

as “Davis.”
6 DAVIS V. UNITED STATES

Under the Agreement, the IRS was required to make

“computational adjustments” to determine the effect of the

settlement on each partner’s tax liability. I.R.C. § 6231(a)(6). 

Paragraph Q of the Closing Agreement gave the partners the

following procedural rights related to those computations:

[E]ach partner of the [Raiders] will be

permitted at least 90 days to review and

comment on computational adjustments

proposed by the IRS with respect to the

implementation of this settlement (and at least

60 days to review any revised computational

adjustments) prior to the IRS assessing such

amounts.

The Closing Agreement was implemented through three

stipulations filed in the Tax Court, one each for tax years

1990, 1991, and 1992. Each stipulation included a Form

4605-A, showing the agreed-upon adjustments to the

Partnership’s informational tax return; a Form 886-Z,

showing each partner’s share of the corrected income for that

tax year; and a corresponding decision to be entered by the

Tax Court. The stipulations recited that they were in

agreement with and subject to the Closing Agreement. They

were signed by Stuart Lipton, identified as counsel for

“Petitioner”—the Partnership and its TMP, A.D. Football. 

On June 6, 2006, the Tax Court approved and entered the

stipulated decisions.

The IRS did not distribute its calculations of each

partner’s computational adjustments until June 2007. Davis

responded a few weeks later, but by the time the IRS sent

revised calculations on August 27, 2007, it had no time to

wait 60 days for Davis to review these calculations (as
DAVIS V. UNITED STATES 7

provided for by Paragraph Q of the Closing Agreement)

because the statute of limitations to make assessments was

about to expire. On September 4, 2007, the IRS issued

assessments against Davis in the amounts of $501,661 for

1990, $1,820,400 for 1992, and $159,287 for 1995.3 The IRS

applied a portion of refunds otherwise due to Davis for earlier

years to satisfy those assessments.

In November 2007, Davis filed an administrative refund

claim for tax years 1990 and 1992, arguing that the

September 2007 assessments were invalid because the IRS

had breached Paragraph Q of the Closing Agreement. The

IRS never responded to this claim. In February 2009, Davis

filed an administrative refund claim for tax year 1995,

claiming that the IRS had breached Paragraph Q, made the

September 2007 assessments outside the statute of

limitations, and miscalculated interest. The IRS disallowed

the claim in large part, adjusting only the calculation of

interest.

In 2011, Davis brought this action in the United States

District Court for the Northern District of California, seeking

refunds for tax years 1990, 1992, and 1995, based on the

IRS’s breach of Paragraph Q. Before the district court, the

IRS argued that it did not breach the Closing Agreement, and

that even if it did, the breach did not invalidate the

assessments. The district court granted Davis’s motion for

summary judgment, holding that the IRS’s breach of the

Closing Agreement invalidated the assessments. The

government timely appealed.

3 The IRS issued an assessment for tax year 1995 because, although the

Closing Agreement did not expressly govern that tax year, it changed the

Net Operating Loss Carryover applicable to that year. 
8 DAVIS V. UNITED STATES

II. Discussion

A. Breach of the Closing Agreement

The IRS now admits that it breached Paragraph Q of the

Closing Agreement by making the September 2007

assessments without giving Davis a second opportunity to

review its calculations. The issue is whether, as the district

court concluded, that breach of contract invalidates the

subsequent assessments.

Closing agreements are contracts, States S.S. Co. v.

Comm’r, 683 F.2d 1282, 1284 (9th Cir. 1982), governed by

federal common law, United States v. Nat’l Steel Corp.,

75 F.3d 1146, 1150 (7th Cir. 1996). “[F]or most purposes

closing agreements are just like other contracts.” Id. And,

“damages are always the default remedy for breach of

contract.” United States v. Winstar Corp., 518 U.S. 839, 885

(1996) (plurality opinion) (citing Restatement (Second) of

Contracts § 346, cmt. a (Am. Law. Inst. 1981)).

But Davis does not seek damages; instead, he argues that

any assessments made in breach of the Closing Agreement

are invalid.4 Davis relies primarily on I.R.C. § 7121(b)(2),

which provides that closing agreements are “final and

conclusive.” He notes that the Tax Court incorporated the

Closing Agreement into its decision, making it enforceable as

a court order. But, the “final and conclusive” nature of

closing agreements simply means that they “settle an existing

dispute with finality,” Nat’l Steel, 75 F.3d at 1150, and may

not be modified or disregarded “except upon a showing of

fraud or malfeasance, or misrepresentation of a material fact,”

 

4

 Davis does not seek rescission of the Closing Agreement.
DAVIS V. UNITED STATES 9

I.R.C. § 7121(b); see also In re Hopkins, 146 F.3d 729, 732

(9th Cir. 1998) (“In applying § 7121, courts unanimously

have held that closing agreements are meant to determine

finally and conclusively a taxpayer’s liability for a particular

tax year or years.”). That a contract is “final” does not dictate

the remedy for its breach. Cf. Jeff D. v. Andrus, 899 F.2d

753, 759 (9th Cir. 1989) (noting that even after court

approval, “[a]n agreement to settle a legal dispute is a

contract and its enforceability is governed by familiar

principles of contract law”). And, Davis offers no support for

the unlikely proposition that, because a settlement with the

IRS is “final” and court-approved, the remedy for any breach,

however small, is to free the taxpayer from his pre-existing

obligation to pay taxes. If this were the case, the IRS

justifiably would be reluctant to enter into closing

agreements, for fear that a minor error could have major

consequences.

Davis argues that Philadelphia & Reading Corp. v.

United States, 944 F.2d 1063 (3d Cir. 1991), establishes that

the remedy for the breach of a closing agreement is

invalidation of subsequent assessments. In that case, a

settlement waived the statutory requirement that the IRS mail

a notice of deficiency prior to making assessments. Id. at

1066–67. The settlement agreement expressly conditioned

that waiver on the IRS delaying the assessments until after it

had approved a schedule of overpayments, so that the

taxpayer, which had overpaid taxes in certain years and

underpaid in others, could pay only the net balance owed. Id.

at 1067. The IRS, however, assessed taxes before the

overpayments had been approved and, more importantly,

without sending the statutorilymandated notice of deficiency. 

Id. at 1068. The Third Circuit held that the assessments were

invalid. Id. at 1072.
10 DAVIS V. UNITED STATES

However, Philadelphia & Reading is of no aid to Davis. 

Because the IRS had failed to approve the schedule of

overpayments, the Third Circuit found that the taxpayer’s

contractual waiver of its statutory right to receive a notice of

deficiency never came into effect. Id. The assessments were

therefore not authorized by statute. Id. at 1072–73. Here, by

contrast, the IRS violated no law in making the assessments.

At bottom, the problem with Davis’s argument is that his

obligation to pay taxes validly and accurately assessed comes

from the Internal Revenue Code, not the Closing Agreement,

which only specified the treatment of certain Partnership

income as inputs to the calculation of his taxes. The IRS’s

failure to perform its contract with the Partnership cannot

relieve Davis of his statutory obligation to pay taxes; nothing

in the Closing Agreement provided that any taxes assessed on

the partners pursuant to statute would be rendered invalid if

the government failed to perform.

The IRS breached its contract. That entitled Davis to a

remedy, but only one in contract.5 Moreover, although the

breach denied Davis an opportunity to comment on the

amounts of the assessments before they were made, it did not

prevent him from challenging the assessed amounts; Davis

could have sought to challenge those amounts in an

administrative refund claim or a refund action. See I.R.C.

§ 6230(c)(1)(A). He did not. And, had he done so, Davis

5 Contrary to Davis’s argument, the government preserved this argument

in its motion for summary judgment, which argued that “A ‘Breach’ Does

Not Entitle Plaintiffs to a Tax Refund.” Because the government does not

contest Davis’s ability to raise a contractual claim, we assume for present

purposes that although not personally a party to the Closing Agreement,

Davis was a third-party beneficiary of that contract.
DAVIS V. UNITED STATES 11

might have sought consequential damages resulting from his

having to challenge the assessments in a more expensive

manner than that provided for by Paragraph Q. Again, he did

not. Instead, he threw a Hail Mary and sought a full refund. 

That pass falls incomplete. We hold that the IRS’s breach of

Paragraph Q did not invalidate the assessments.6

B. Statute of Limitations

Because we find that the district court erred in holding

that the breach of the Closing Agreement invalidated the

assessments, we must address an issue that the court

pretermitted—whether the assessments were untimely.

We begin with general principles of partnership tax law. 

A partnership is not liable as an entity for income taxes. 

I.R.C. § 701. Rather, income is allocated among the partners. 

Id. § 702. Until tax year 1982, partnership tax disputes were

conducted at the individual partner level. See Crnkovich v.

United States, 202 F.3d 1325, 1328 (Fed. Cir. 2000) (per

curiam). The IRS was therefore required to conduct separate

investigations for each partner, and enter into “separate

settlement agreements with each.” Id. Congress responded

to this situation in the Tax Equity and Fiscal Responsibility

Act (TEFRA), I.R.C. §§ 6221–6233, which provided for the

6 We express no opinion as to what contractual remedies remain

available to Davis, if any, or the appropriate forum in which to pursue

them.
12 DAVIS V. UNITED STATES

resolution of partnership tax disputes at the partnership level.7

Id. § 6221; Crnkovich, 202 F.3d at 1328.

TEFRA requires each partnership to designate a TMP

with primary responsibility over tax disputes. See, e.g.,

I.R.C. §§ 6223(g) (TMP must keep partners informed of

proceedings), 6224(c)(3) (TMP may bind certain other

partners), 6226(a)–(b) (TMP has first opportunity to

challenge administrative partnership tax rulings in court, and

may intervene in a challenge brought by another partner),

6231(a)(7) (defining TMP); see also Comput. Programs

Lambda, Ltd. v. Comm’r, 89 T.C. 198, 205 (1987). Other

partners retain the right to participate in tax disputes, and any

partner whose taxes may be affected by a partnership tax case

in district or tax court is statutorily a party to that case, bound

by the judgment. I.R.C. §§ 6224(a), 6226(c); Crnkovich,

202 F.3d at 1328.

Although TEFRA generally provides that the tax

treatment of partnership items will be determined at the

partnership level, the IRS still can enter into settlement

agreements with individual partners. I.R.C. § 6224. The

settling partner’s partnership items then convert to

“nonpartnership items,” id. § 6231(b)(1), and the partner can

be dismissed from the partnership-level proceeding, id.

§ 6226(d)(1)(A); Mathia v. Comm’r, 669 F.3d 1080, 1085–86

(10th Cir. 2012) (Section 6231(b) recognizes that “individual

partners may opt out of a partnership-level proceeding by

entering into a settlement agreement with the IRS with

respect to the determination of their individual partnership

7 The Bipartisan Budget Act of 2015, Pub. L. No. 114-74, § 1101, 129

Stat 584, 625–638, repealed TEFRA, effective for partnership tax years

beginning after December 31, 2017.
DAVIS V. UNITED STATES 13

items.”); Olson v. United States, 37 Fed. Cl. 727, 733 (1997)

aff’d, 172 F.3d 1311 (Fed. Cir. 1999) (“[T]he settling partner

essentially has become a free agent to whom the collective

approach of TEFRA no longer applies.”).

If the IRS “enters into a settlement agreement with the

partner” under I.R.C. § 6231(b)(1)(c), the partner’s

partnership items convert to nonpartnership items, id.

§ 6231(b)(1), which triggers a one-year statute of limitations

under I.R.C. § 6229(f)(1). If the IRS does not enter “into a

settlement agreement with the partner,” then the one-year

statute of limitations under I.R.C. § 6229(d) begins to run

when the tax court decision becomes final, which occurred

here 90 days after the tax court entered the decision

documents. See 26 U.S.C. § 7481(a)(1); Tax Ct. R. 190(a).

The Tax Court approved the stipulated decision

documents in this case on June 6, 2006. Davis argues that

these documents were each a “settlement agreement with the

partner,” I.R.C. § 6231(b)(1)(C), so that the statute of

limitations expired on June 6, 2007, one year after their entry. 

Davis relies on the prefatory language of the stipulated

decisions, which provide that the adjustment to the

Partnership’s returns is made “[p]ursuant to the agreement of

the parties in this case.” Davis argues that, under I.R.C.

§ 6226, all partners were parties to the Tax Court proceeding,

so each stipulation was “a settlement agreement with the

partner” under I.R.C. § 6231(b)(1)(c). Because the one-year

statute of limitations under I.R.C. § 6229(f) ended on June 6,

2007, Davis claims that the government’s September 4, 2007

assessments were too late.

The government argues that the individual partners did

not enter into a settlement agreement with the government on
14 DAVIS V. UNITED STATES

June 6, 2006. Rather, they were bound by force of law when

the tax court entered the stipulated decision documents,

because the individual partners were parties to the tax court

proceeding under I.R.C. § 6226(c), and a decision by the tax

court in a partnership action is binding on all parties, Tax Ct.

R. 251. Because the individual partners did not “enter into a

settlement agreement with” the IRS for purposes of

§ 6231(b)(1)(C), the applicable statute of limitations, see

I.R.C. § 6229(d), expired on September 4, 2007, one year and

90 days after the stipulated decisions were entered. 

Accordingly, the government argues, its September 4, 2007

assessments were timely.

Under the plain language of I.R.C. § 6231(b)(1)(C), we

conclude that the IRS does not “enter into a settlement

agreement with the partner” when it enters into a settlement

agreement with the TMP and the individual partner is bound

merely by operation of the tax court’s decision to which the

partner is a party. Here, the stipulations were not agreements

with Davis individually. He did not sign them, nor did

anyone purporting to represent him in his individual capacity. 

Instead, each stipulation was signed only by an attorney for

the IRS and Stuart Lipton, in his capacity as “Counsel for

Petitioner.”8 The “Petitioner” in the Tax Court proceeding

was the Partnership and its TMP, A.D. Football. Thus, the

stipulations, like the Closing Agreement, were agreements

only between the IRS and the Partnership. To be sure, these

documents had consequences for Davis, but they were not

agreements “with” him under I.R.C. § 6231(b). Nothing in

TEFRA indicates that Congress meant the word “partner” in

§ 6231(b) to mean “tax matters partner;” to the contrary,

8 Davis does not argue that Lipton signed in his capacity as Davis’s

personal lawyer.
DAVIS V. UNITED STATES 15

Congress appears to have chosen its wording carefully

throughout the statute, differentiating between partners in

general and the tax matters partner repeatedly. See, e.g.,

I.R.C. §§ 6223, 6224(c), 6226(a)-(b), 6226(g), 6227, 6228(a),

6229(b).

Because the Closing Agreement and stipulations were not

a “settlement agreement with” Davis within the scope of

I.R.C. § 6231(b), the assessments made on September 4, 2007

were timely, as they occurred within one year after the Tax

Court decision became final. I.R.C. § 6229(d).

III. Conclusion

We reverse the judgment of the district court and remand

for further proceedings consistent with this opinion.