Court Opinion

ID: 9926126
Source: CourtListenerOpinion
Date Created: 2024-01-23 20:02:54.803606+00
Date Added: 2024-06-11T09:22:05.298270
License: Public Domain

United States Tax Court

                           T.C. Memo. 2024-9

           MICHAEL W. AUBIN AND KERRY A. AUBIN,
                        Petitioners

                                    v.

            COMMISSIONER OF INTERNAL REVENUE,
                        Respondent

                               __________

Docket No. 1814-20.                               Filed January 23, 2024.

                               __________

             During 2015, 2016, and 2017, P–H was employed by
      NG at a defense facility in Australia (Pine Gap). The
      parties stipulated that, in January 2015, he signed an
      agreement, included in the record, in which he waived any
      right to elect under I.R.C. § 911(a) to exclude income he
      earned at Pine Gap during 2015, 2016, and 2017. DP
      signed the closing agreement on behalf of TS, then the
      Acting Assistant Deputy Commissioner (International) of
      the Internal Revenue Service. TS’s duties, as set forth in
      the description of his position, included the administration
      of tax treaties and the supervision of subordinates. By file
      memo and an email exchange with DP, TS authorized DP
      to act on his behalf during a period that included the date
      on which DP signed P–H’s closing agreement. R has moved
      for partial summary judgment that P–H’s closing
      agreement is valid. While R’s Motion was pending, Ps
      submitted a Motion in Limine to exclude the closing
      agreement from evidence, claiming that allegations of
      forgery in another case involving a Pine Gap employee
      called into question the reliability of the document which
      Ps and R stipulated.

             Held: An allegation of forgery in another case does
      not, by itself, provide sufficient grounds to justify relieving
      a taxpayer of a stipulation that he signed a document

                            Served 01/23/24
                                    2

[*2]   material to the taxpayer’s case. Ps are thus bound by their
       stipulation that P–H signed the closing agreement. See
       Rule 91(e).

              Held, further, I.R.C. § 7121 governs the
       enforceability of a closing agreement whether the taxable
       years it covers end before or after the agreement becomes
       effective. Statement of Procedural Rules, 26 C.F.R.
       § 601.202(a)(2).

             Held, further, because P–H’s closing agreement
       implements a procedure developed by the competent
       authorities of the United States and Australia acting under
       the color of Article 24 of the income tax treaty between
       those countries, the closing agreement had a sufficient
       nexus to the treaty that the description of TS’s position
       gave him the authority to sign the agreement on R’s behalf.

              Held, further, TS validly designated DP to act on his
       behalf during a period that included the date on which DP
       signed P–H’s closing agreement. TS’s position description
       establishes that he was a “supervisory official,” within the
       meaning of Delegation Order 1-2, Internal Revenue
       Manual 1.2.40.3 (Aug. 29, 1996), authorized to designate
       others to act on his behalf. TS’s file memo and email
       exchange with DP were sufficient to effect the designation
       of DP to act in TS’s position.

              Held, further, P–H’s closing agreement cannot be set
       aside under I.R.C. § 7121(b) because of a misrepresentation
       of material fact. Ps’ misrepresentation arguments simply
       repeat those considered and rejected in Smith v.
       Commissioner, 159 T.C. 33 (2022).

                               __________

Michael W. Aubin and Kerry A. Aubin, pro sese.

Anne M. Craig and Melinda K. Fisher, for respondent.
                                            3

[*3]                       MEMORANDUM OPINION

       HALPERN, Judge: This case is before us on respondent’s Motion
for Partial Summary Judgment. In his Motion, respondent asks that we
uphold a closing agreement in which petitioner Michael Aubin waived
his right to elect under section 911(a) 1 to exclude from his gross income
for the taxable years ended December 31, 2015, 2016, and 2017,
amounts he earned from his employment by Northrop Grumman
International, Inc. (Northrop Grumman), at the Joint Defense Facility
Pine Gap (Pine Gap) in Australia. For the reasons explained below, we
will grant respondent’s Motion.

                                     Background

       In April 2021, the parties submitted a First Stipulation of Facts.
One of the attachments to the Stipulation is a document labeled Exhibit
3-J, which the parties described as “a copy of a document titled ‘U.S.
Treasury Department – Internal Revenue Service: Closing Agreement
as to Final Determination Covering Specific Matters’ . . . signed by
petitioner Michael W. Aubin and Deborah Palacheck.” The Stipulation
states: “[A]ll exhibits referred to herein and attached hereto may be
accepted as authentic.” Each party reserved “the right to object to the
admission of . . . exhibits in evidence on the grounds of relevancy and
materiality, but not on other grounds unless expressly reserved herein.”
Petitioners reserved no additional rights to object to Exhibit 3-J.

       Before its operative provisions, the closing agreement sets forth
ten recitals. The second recital refers to the taxation of Mr. Aubin’s
wages from Northrop Grumman under Australian internal law. It
states that “any wages, allowances, benefits and other emoluments paid
or provided to [Mr. Aubin] as consideration for services performed for
[Northrop Grumman] in Australia, hereinafter referred to as income,
are subject to taxation by the Government of the Commonwealth of
Australia.”

      The third recital describes agreements entered into between the
United States and Australia regarding the Pine Gap facilities. It states:

        1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26, U.S.C. (Code), in effect for the years in issue, regulation references are
to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect for those years, and
Rule references are to the Tax Court Rules of Practice and Procedure in effect at the
relevant times.
                                          4

[*4]   Article 9 and Article X of the Agreements between the
       Government of the United States of America and the
       Government of the Commonwealth of Australia relating to
       the establishment of a Joint Defense Space Research
       Facility and a Joint Defense Space Communications
       Station, effective December 9, 1966, and November 10,
       1969, respectively, provide that such income shall be
       deemed not to have been derived in Australia, provided it
       is not exempt, and is brought to tax, under the taxation
       laws of the United States . . . .

       The fourth recital states that the agreement covers the taxable
years ended December 31, 2015, 2016, and 2017. The sixth recital states
that Mr. Aubin’s waiver of his right to elect under section 911(a) “is
pursuant to an agreement with and a determination by the Competent
Authority for the United States after consultation with the Competent
Authority for Australia in accordance with Article 24 of the Income Tax
Convention between the United States and Australia.”

        Turning to the agreement’s operative provisions, section (a)(1)
provides that Mr. Aubin “shall not at any time during or after his . . .
presence in Australia make any election under code section 911(a)[2]
with respect to income paid or provided to [him] as consideration for
services performed for [Northrop Grumman] at [Pine Gap].” Section
(a)(2) of the agreement provides that Mr. Aubin “irrevocably waives and
foregoes any right that he . . . may have to make any election under Code
section 911(a) with respect to income paid or provided to [him] as
consideration for services performed for [Northrop Grumman] at [Pine
Gap].”

       With their response to respondent’s Motion for Partial Summary
Judgment, petitioners, who resided in Colorado when they filed their
Petition, submitted an affidavit of Australian tax lawyer Terry Dwyer.
The attachments to Dr. Dwyer’s affidavit include a document titled
“Instructions and Explanation for U.S. Citizens Employed at the Joint
Defense Space Communications Station and the Joint Defense Space
Research Facility to Claim an Exemption From Australian Income Tax.”
Dr. Dwyer describes the document as having been “issued by the
Commissioner of Taxation and agreed with the US Internal Revenue
Service.” The Instructions state that the described procedures were

       2 Section 911(a) allows a “qualified individual” to elect to exclude from gross

income the individual’s “foreign earned income.”
                                    5

[*5] developed by “representatives from the U.S. Internal Revenue
Service and the Australian Taxation Office” “[p]ursuant to the authority
vested in Article 24 of the Income Tax Convention between the United
States and Australia.”

      Mr. Aubin’s closing agreement includes a signature dated
January 6, 2015, over the line “Your signature.” The signature “Deborah
Palacheck for Theodore Setzer” appears beneath “Commissioner of
Internal Revenue.” Beneath that signature is the title “Acting Assistant
Deputy Commissioner International,” which was Mr. Setzer’s title on
September 28, 2015, the date on which Ms. Palacheck signed the
agreement.

       The position description for the Assistant Deputy Commissioner
(International) adopted in December 2011 states that the holder of that
position is “responsible for planning, developing, directing, and
implementing a comprehensive, Servicewide, tax treaty administration
program that enhances compliance with international tax laws and tax
treaties.”   The holder’s “Major Duties” include “[f]unctionally
manag[ing] and assist[ing] in directing the development of the design
and execution of international tax administration programs and
advisory tax administration services to foreign governments.” Those
Major Duties also include “[a]ssisting the DCI [Deputy Commissioner
(International)] in providing executive leadership and direction to a
nationwide international staff through subordinate executives and
managers that [sic] are geographically dispersed throughout the
country.” The holder of that position “[d]elegates sufficient authority to
subordinates to effectively manage their resources and to provide a
supportive environment for creativity and innovation within the
parameters of the law.”

       Mr. Setzer’s position description also states: “The incumbent
performs the functions of the Competent or Taxation Authority in
administering the operating provisions of tax conventions of the United
States.” It adds that “[t]he incumbent is delegated broad authority to
execute responsibilities within legal, regulatory, and budgetary
limitations.”

      The parties submitted a declaration of Mr. Setzer as part of their
Second Stipulation of Facts. In his declaration, Mr. Setzer states: “I
authorized Deborah Palacheck to act for me as Assistant Deputy
Commissioner (International) on September 28, 2015.” Mr. Setzer’s
declaration is accompanied by two exhibits. Exhibit A to the declaration
                                    6

[*6] is a file memorandum dated September 17, 2015, in which Mr.
Setzer delegated to Ms. Palacheck and another official the authority to
act as Assistant Deputy Commissioner (International) during specified
periods. Mr. Setzer delegated to Ms. Palacheck the authority to act in
his stead “from Monday, September 21 through Friday, September 25,
2015.” Exhibit B to Mr. Setzer’s declaration is an email exchange
between him and Ms. Palacheck. On September 23, 2015, Mr. Setzer
asked Ms. Palacheck: “[W]ould you be willing to continue to serve as an
actor for me when I am in Rome next week?” Minutes later,
Ms. Palacheck responded that she would.

       On December 15, 2023, petitioners submitted a Motion in Limine,
asking that we “exclude the Closing Agreement from evidence for the
time being.” Petitioners appeared to argue that the closing agreement
was not subject to the business records exception to the hearsay rule,
Rule 803(6) of the Federal Rules of Evidence, because “the source of the
Closing Agreement and circumstances surrounding it lack
trustworthiness.” In support of that argument, petitioners referred to
testimony in another case before the Court that, by their description,
raised the possibility of forgery of signatures of Pine Gap employees on
closing agreements such as Mr. Aubin’s. “Based on these circumstances
suggesting fraud and criminality regarding signatures on the purported
Closing Agreements,” petitioners advised us, Mr. Aubin “no longer
stipulates that he signed the purported Closing Agreement.”
Petitioners’ Motion in Limine made no mention of Rule 91(e), which
provides:

      A stipulation will be treated, to the extent of its terms, as
      a conclusive admission by the parties to the stipulation,
      unless otherwise permitted by the Court or as agreed by
      those parties. The Court will not permit a party to a
      stipulation to qualify, change, or contradict a stipulation in
      whole or in part, except that it may do so if justice requires.

       In asking that we exclude the closing agreement from evidence
because of questions about the authenticity of Mr. Aubin’s signature on
that agreement, petitioners’ Motion in Limine, in effect, asked that we
allow them to contradict express stipulations that Mr. Aubin had signed
the agreement. But the Motion in Limine offered us no reason why
“justice require[d]” that we do so. Consequently, on the basis of Rule
91(e), we denied petitioners’ Motion in Limine in an Order dated
December 18, 2023 (December 18 Order). We also “caution[ed]
                                    7

[*7] petitioners that taking frivolous positions may result in the
imposition of sanctions” under section 6673(a)(1).

      In response to the December 18 Order, petitioners promptly
submitted a document they styled “Objection to Suggestion of Frivolity.”
We styled the document an Objection to our denial of petitioners’ Motion
in Limine.

                               Discussion

I.    Inclusion of Closing Agreement in Record; Authenticity of
      Mr. Aubin’s Signature

        In their Objection to our denial of their Motion in Limine,
petitioners acknowledge—as they neglected to do in their Motion—that
“Rule 91(e) permits a court to [allow a party to] qualify, change, or
contradict a stipulation ‘if justice requires.’” They cite two opinions in
which “appellate courts provid[ed] guidance on relief from stipulations.”
In each of those opinions, Vallejos v. C.E. Glass Co., 583 F.2d 507 (10th
Cir. 1978), and Bail Bonds by Marvin Nelson, Inc. v. Commissioner, 820
F.2d 1543 (9th Cir. 1987), aff’g T.C. Memo. 1986-23, the appellate court
upheld a trial court’s decision to enforce a challenged stipulation. In
Vallejos, 583 F.2d at 511, however, the Court of Appeals for the Tenth
Circuit offered “a change of conditions” as an example of the type of
“special circumstances” that might “justify[] relief from [a] stipulation
to prevent manifest injustice.” Petitioners’ argument, as we understand
it, is that an allegation of forgery they claim to have been made in
another case constitutes a “change in conditions” that justifies relieving
them of their stipulation that Mr. Aubin signed Exhibit 3-J.

      The December 18 Order did not address petitioners’ Rule 91(e)
argument because they did not make an argument under that Rule (or
even acknowledge the Rule’s relevance) until they submitted their
Objection to our denial of their Motion in Limine. Therefore, before
turning to the merits of respondent’s Motion for Partial Summary
Judgment, we will address petitioners’ belated Rule 91(e) argument.
For the reasons explained below, we reject that argument and will thus
continue to treat the closing agreement as part of the record.

       We are unpersuaded that, if allegations of forgery have been
made in another case, “manifest injustice” would result from holding
petitioners to their stipulation that Mr. Aubin signed Exhibit 3-J.
Forgery sometimes occurs. That prospect is not new information. But
Mr. Aubin knows—or certainly should know—whether he signed
                                          8

[*8] Exhibit 3-J. Petitioners stipulated that he did. Tellingly, in
seeking to withdraw that stipulation, petitioners do not deny that Mr.
Aubin signed the agreement. They seem to want to use the allegations
of forgery in another case as an excuse to place on respondent the burden
of establishing Exhibit 3-J’s authenticity. 3 Requiring respondent to
prove facts within petitioners’ knowledge would be contrary to
Rule 91(a)’s mandate that parties stipulate relevant matters “to the
fullest extent to which complete or qualified agreement can or fairly
should be reached.” Justice thus does not require putting respondent to
the task of establishing what petitioners have already stipulated—
particularly when they make no claim that the stipulation is incorrect.
Simply put, that forgery may have occurred in another case does not
justify relieving petitioners of their stipulation that it did not occur in
this case.

       We therefore stand by our denial of petitioners’ Motion in Limine
to exclude the closing agreement from evidence. We will consider that
agreement, submitted as Exhibit 3-J to the First Stipulation of Facts, as
part of the record in determining whether respondent is entitled to
partial summary judgment that the agreement is valid.

II.    Applicability of Section 7121

       Section 7121 authorizes the Secretary 4 to enter into written
agreements “relating to the liability of [a] person . . . in respect of any
internal revenue tax for any taxable period.” Once a closing agreement
is approved by the Secretary or his delegate, the agreement is “final and
conclusive . . . except upon a showing of fraud or malfeasance, or
misrepresentation of a material fact.” § 7121(b).

        3 Again, petitioners’ Motion in Limine sought only “to exclude the Closing

Agreement from evidence for the time being.” They accept that respondent could
eventually have the document admitted under what they call “the traditional method,”
that is, based on “personal testimony from individuals with first-hand knowledge.”
Admission of Exhibit 3-J on the basis of testimony, however, would be impossible if
Mr. Aubin’s signature on the document truly was forged. Therefore, petitioners’
objective seems limited to causing inconvenience and delay.
        4 Section 7701(a) defines “Secretary” to mean “the Secretary of the Treasury or

his delegate.” The term “delegate,” “when used with reference to the Secretary of the
Treasury, means any officer, employee, or agency of the Treasury Department duly
authorized by the Secretary of the Treasury directly, or indirectly by one or more
redelegations of authority, to perform the function mentioned or described in the
context.” § 7701(a)(12)(A)(i).
                                           9

[*9] For an agreement to be covered by section 7121, it must relate to
a taxpayer’s tax liability. Petitioners take that statutory requirement
to mean that an agreement to which section 7121 applies must address
“an actual liability.” Petitioners apparently reason that, if Mr. Aubin’s
agreement is not entitled to the protections afforded by section 7121, it
could be set aside on grounds other than those listed in section 7121(b),
such as a failure of consideration.

       We can readily reject petitioners’ argument that section 7121 does
not apply to Mr. Aubin’s agreement. True, when Mr. Aubin signed the
agreement, none of the tax years to which the agreement related had
ended, and two of those years had not yet begun. Under section 7121(a),
however, a closing agreement can address a taxpayer’s liability for “any
taxable period.” The Statement of Procedural Rules, 26 C.F.R.
§ 601.202(a)(2), confirms that “[c]losing agreements under section 7121
of the Code may relate to any taxable period ending prior or subsequent
to the date of the agreement.” 5 We therefore conclude that, under
section 7121, if the agreement Mr. Aubin signed was “approved by the
Secretary,” the agreement is “final and conclusive” and can be set aside
only “upon a showing of fraud or malfeasance, or misrepresentation of a
material fact.”

III.   Approval by the Secretary

       We now turn to the question of whether the closing agreement in
issue was approved by the Secretary. Given the statutory definition of
“Secretary,” an agreement is approved by the Secretary if it is approved
by an authorized delegate. By regulation, the Secretary has delegated
to the Commissioner the authority to sign closing agreements. See
Treas. Reg. §§ 301.7121-1(a), 301.7701-9(b). Whether Mr. Aubin’s
closing agreement was validly approved on the Commissioner’s behalf
turns on two questions. First, did Mr. Setzer have the authority to sign
the agreement on the Commissioner’s behalf on September 28, 2015?
Second, if so, did Mr. Setzer validly delegate his authority to
Ms. Palacheck?

         5 Because Mr. Aubin’s closing agreement covers taxable years ending after the

date it became effective, the agreement provides that “it is subject to any change in or
modification of the law enacted subsequent to” that date, as required by Treasury
Regulation § 301.7121-1(c). Petitioners point to no change or modification in the law
enacted after September 28, 2015, that bears on the agreement’s operative provisions.
                                          10

[*10] A.        Mr. Setzer’s Authority

       In support of a prior Motion for Partial Summary Judgment
upholding the closing agreement’s validity, respondent contended that
Mr. Setzer had the authority to sign Mr. Aubin’s closing agreement
under Delegation Order 8-3, Internal Revenue Manual (IRM) 1.2.47.4.
(Aug. 18, 1997). Respondent acknowledged that the position in which
Mr. Setzer served (in an acting capacity) on September 28, 2015, is not
among those to which Delegation Order 8-3 delegates the authority to
sign closing agreements that involve specific applications of an income
tax treaty. Respondent nonetheless argued that Mr. Setzer had the
authority under Delegation Order 8-3 to sign Mr. Aubin’s closing
agreement because Mr. Setzer’s position was “substantially similar” to
the positions listed in the relevant paragraphs of the delegation order.
For the reasons explained in an Order dated June 8, 2023 (June 8
Order), we rejected that argument and denied respondent’s prior
Motion.

       In the Motion now before us, respondent does not renew his
argument that Delegation Order 8-3 gave Mr. Setzer the authority to
sign Mr. Aubin’s closing agreement. Instead, following a suggestion in
the June 8 Order, respondent now argues that the position description
for the Assistant Deputy Commissioner (International) gave Mr. Setzer
the requisite authority.

       While “[t]he development of a delegation order” is the “preferred”
method for effecting a delegation of authority, other forms of delegation
may be permissible. See IRM 1.11.4.3 (Oct. 10, 2008). 6 In particular,
“[p]osition descriptions and other documents that describe an official’s
duties with particularity are sufficient to provide the official with the
authority necessary to carry out such duties.” Id. 1.11.4.3(4).

       Petitioners do not address respondent’s argument that
Mr. Setzer’s position description gave him the authority to sign
Mr. Aubin’s closing agreement. Instead, they assert: “Not a single
Delegation Order authorizes the Directory [sic], Treaty Administration
to execute a Closing Agreement.” Leaving aside that Mr. Setzer was the
Acting Assistant Deputy Commissioner (International), not the

        6 IRM 1.11.4.3(2) provides that “[t]he development of a delegation order . . . is

mandatory when litigation over the activity reasonably can be expected.” Petitioners
make no argument that litigation over the authority granted to the Assistant Deputy
Commissioner (International) could reasonably have been expected when the
description of that position was adopted.
                                       11

[*11] Director, Treaty Administration, respondent no longer relies on
any delegation order for Mr. Setzer’s authority.

       Mr. Setzer’s position description gave him the authority to sign
Mr. Aubin’s closing agreement if that agreement related to the
administration of the Convention for Avoidance of Double Taxation and
the Prevention of Fiscal Evasion With Respect to Taxes on Income,
Austl.-U.S., Aug. 6, 1982, 35 U.S.T. 1999 (1982 Treaty). Petitioners
contend that Mr. Aubin’s closing agreement “does not stem from the
application of the U.S.-Australia income tax treaty and does not discuss
specific applications of the tax treaty.” We accept that it may be difficult
to identify a specific provision of the 1982 Treaty that Mr. Aubin’s
closing agreement interprets or applies. Even so, we conclude that the
agreement has a sufficient nexus to the treaty for Mr. Setzer to have
been an appropriate official to sign the agreement.

       In Smith v. Commissioner, 159 T.C. 33 (2022), we addressed the
validity of a closing agreement signed by Ms. Palacheck in her own right
as the Director, Treaty Administration. In the closing agreement at
issue in Smith, as with the one now before us, a Pine Gap employee
waived his right to make an election under section 911(a). We concluded
in Smith, 159 T.C. at 53, that Ms. Palacheck acted within the authority
delegated to her because, in signing the agreement, “she was acting as
competent authority with respect to a specific application of the 1982
Treaty.”

       We did not single out in Smith a specific provision of the 1982
Treaty whose application raised an interpretive question resolved by the
taxpayer’s waiver of his right to elect under section 911(a). Instead, we
simply noted that the 1982 Treaty was among the authorities that had
to be consulted in “[d]etermining the appropriate result.” Smith, 159
T.C. at 53. We did not identify any provision of the 1982 Treaty that
mandated a result different from the result that would have obtained in
the treaty’s absence.

       Our opinion in Smith thus makes clear that we need not identify
a specific treaty provision in issue for Mr. Setzer to have had the
authority to sign Mr. Aubin’s closing agreement. That agreement had a
sufficient nexus to the 1982 Treaty because it implemented a procedure
established by the authorities designated by Article 24(2) of the treaty
to “resolve . . . difficulties or doubts arising as to the [treaty’s] application
or interpretation.” 35 U.S.T. at 2052. Petitioners dismiss the invocation
of Article 24 in the closing agreement’s fifth recital as a “false reference”
                                   12

[*12] because, they contend, the agreement “does not resolve any
application of the treaty.” The Instructions Dr. Dwyer submitted with
his affidavit, however, confirm that those who developed the closing
agreement procedure understood themselves as having been acting
under Article 24.

       Moreover, Mr. Setzer’s responsibilities as Acting Assistant
Deputy Commissioner (International) went beyond treaty matters. His
duties extended to “international tax administration programs” more
broadly. Mr. Aubin’s closing agreement involved the administration of
a provision governing the U.S. tax treatment of foreign earned income.
The agreement can thus readily be viewed as part of an “international
tax administration program.” Mr. Setzer would have had the authority
to sign Mr. Aubin’s closing agreement even if petitioners were correct
that the agreement had nothing to do with the 1982 Treaty.

       We therefore conclude that Mr. Setzer had the authority, on
September 28, 2015, to sign the closing agreement in which Mr. Aubin
waived his right to make an election under section 911(a) for the taxable
years ended December 31, 2015, 2016, and 2017. The authority granted
to Mr. Setzer by the description of the position in which he served
encompassed the administration of tax treaties and, more generally,
international tax administration. Mr. Aubin’s agreement was related to
the administration of the 1982 Treaty in that it implemented a
procedure developed by the relevant authorities under the color of
Article 24 of the treaty. And more generally, the agreement involved
the implementation of one of the international provisions of the Code.

      B.     Delegation by Mr. Setzer to Ms. Palacheck

        Accepting that Mr. Setzer had the authority to sign Mr. Aubin’s
closing agreement, we now consider whether Mr. Setzer validly
delegated his authority to Ms. Palacheck, the official who actually
signed the agreement on the Commissioner’s behalf. Delegation Order
1-2, IRM 1.2.40.3, grants to “[a]ll supervisory officials” the authority
“[t]o designate acting supervisory officials in the Internal Revenue
Service.” Respondent argues that Mr. Setzer, “[i]n his position as
Assistant Deputy Commissioner (International) . . . was a supervisory
official.” In support of that claim, respondent cites the file memorandum
in which Mr. Setzer purported to delegate to Ms. Palacheck and another
                                           13

[*13] official the authority to act, during specified periods, as Assistant
Deputy Commissioner (International). 7

        Mr. Setzer’s file memorandum does not establish that he was a
“supervisory official” within the meaning of Delegation Order 1-2. That
Mr. Setzer purported to designate Ms. Palacheck and the other official
to act in his stead does not mean he had the authority to do so.

        Nonetheless, we accept that Mr. Setzer was a “supervisory
official” given the authority, under Delegation Order 1-2, to designate
others to act on his behalf. The IRM does not adopt a specialized
definition of “supervisory official.” We therefore interpret the term in
accordance with its ordinary meaning as one who supervises others. The
position description for the Assistant Deputy Commissioner
(International) makes clear that the responsibilities of the person
serving in that position include the supervision of subordinates. As a
supervisory official, Mr. Setzer had the authority under Delegation
Order 1-2 to designate Ms. Palacheck to act in his stead. 8

      We next turn to the question of whether Mr. Setzer did delegate
to Ms. Palacheck the authority he had by virtue of his position. In the

        7 Mr. Setzer’s file memorandum was attached as an Exhibit to a Declaration of

his that the parties submitted as part of their Second Stipulation of Facts. The parties
agreed that the Exhibits attached to their Second Stipulation, like those submitted
with their First Stipulation, “may be accepted as authentic.” And the Second
Stipulation (like the First) further stated: “[E]ither party has the right to object to the
admission of . . . exhibits in evidence on the grounds of relevancy and materiality, but
not on other grounds unless expressly reserved herein.” Petitioners did not reserve
any objection to Mr. Setzer’s file memorandum. They did, however, move to strike
from the record Mr. Setzer’s “out-of-court statements regarding his absence from his
office at the Internal Revenue Service” on the ground that those statements were
“inadmissible hearsay.” Although petitioners’ Motion to Strike did not refer to specific
statements, we understood petitioners to have been referring to Mr. Setzer’s
Declaration and its attached Exhibits. In denying petitioners’ Motion, we observed
that petitioners had not reserved a hearsay exception to Mr. Setzer’s declaration and
that they were bound by that stipulation. Petitioners later made another Motion to
Strike that we viewed as “similar” to their prior Motion. We thus denied the
duplicative Motion. Petitioners have thus three times moved to exclude from the
record documents which they had previously stipulated.
        8 Mr. Setzer could not have designated Ms. Palacheck to act in his stead if he

had himself been designated under Delegation Order 1-2 to act as Assistant Deputy
Commissioner (International). Authority granted by Delegation Order 1-2 cannot be
redelegated. IRM 1.2.40.3(4). Mr. Setzer, however, was not “designated” to act as
Assistant Deputy Commissioner (International) under Delegation Order 1-2. He was
instead “detailed” to that position under 5 U.S.C. § 3341. His detail to that position
covered the period from July 12, 2015, to January 9, 2016.
                                   14

[*14] motion now before us, respondent asserts that Mr. Setzer “had
duly authorized Deborah Palacheck to act for him as Assistant Deputy
Commissioner (International).” In making that assertion, respondent
relies on Mr. Setzer’s Declaration and its accompanying Exhibits.

      A party’s motion for summary judgment may be accompanied by
supporting affidavits, declarations, or other materials. Rule 121(c).
Rule 121(d) provides:

      When a motion for summary judgment is made and
      supported as set forth in this Rule, the nonmovant may not
      rest on the allegations or denials in that party’s pleading.
      The nonmovant must respond, setting forth specific facts
      and supporting those facts as required by Rule 121(c), to
      show that there is a genuine dispute of fact for trial. If the
      nonmovant does not so respond, a decision may be entered
      against that party.

        Respondent has supported his Motion for Partial Summary
Judgment with Mr. Setzer’s Declaration, as contemplated by Rule 121.
It is thus incumbent upon petitioners “to show that there is a genuine
dispute,” Rule 121(d), as to whether Mr. Setzer designated
Ms. Palacheck to act on his behalf on September 28, 2015.

        Petitioners dismiss as “bogus” and “bordering on baseless
frivolity” respondent’s claim that Mr. Setzer’s email exchange with
Ms. Palacheck on September 23, 2015, extended her authority to act on
Mr. Setzer’s behalf from September 25 to October 2, 2015. “Even if
[Mr. Setzer] somehow had authority” to sign Mr. Aubin’s closing
agreement, petitioners contend, “an email was not a proper delegation
of the questionable and challenged alleged authority.” Petitioners cite
no authority, however, for that contention.

       We have already concluded that Mr. Setzer had the authority,
under Delegation Order 1-2, to designate others to act on his behalf.
Delegation Order 1-2 does not specify any particular means by which
those designations can be effected. We therefore conclude that, with his
file memorandum of September 17, 2015, Mr. Setzer designated
Ms. Palacheck to act on his behalf from September 21 to 25, 2015, and
that his email exchange with Ms. Palacheck extended that designation
through October 2, 2015.

      It follows from what we have said thus far that the closing
agreement in which Mr. Aubin waived his right to make an election
                                    15

[*15] under section 911(a) for the taxable years ended December 31,
2015, 2016, and 2017, was “approved by the Secretary” within the
meaning of section 7121(b). Consequently, under that section, we can
set the agreement aside only “upon a showing of fraud or malfeasance,
or misrepresentation of a material fact.”

IV.   Malfeasance; Misrepresentation

       Petitioners make no allegation of fraud. In their Response to
respondent’s pending Motion, however, they claim that “the purported
Closing Agreements [sic] contained material misrepresentations of
foreign law that are legally treated as material misrepresentations of
fact under prevailing contract law warranting recission, and the IRS
acquired the signatures through criminal violations of 26 U.S.C. § 6103,
which constitutes malfeasance mandating the recission of the Closing
Agreement.”

       The June 8 Order rejected petitioners’ arguments about
malfeasance due to violations of section 6103.        The arguments
petitioners advance in their Response to respondent’s pending Motion
simply repeat arguments we have already rejected. We thus reject them
again, for the reasons explained in the June 8 Order.

       Petitioners argue that Mr. Aubin’s closing agreement “contains
three different material misstatements of law.” Petitioners focus on the
agreement’s second, third, and sixth recitals. Petitioners describe the
second recital, addressing the taxation of Mr. Aubin’s wages from
Northrop Grumman under Australian internal law, as a “material
misstatement,” alleging that income earned by Pine Gap employees is
entitled to an exemption from Australian tax regardless of any election
under section 911(a) of the U.S. Code. Petitioners contend that the
agreements referred to in the third recital “do not govern tax liability in
Australia” because “treaties have no legislative force unless they are
enacted into law by Parliament.” “More importantly,” they argue, “the
Pine Gap Agreement[s] ha[ve] no legal power to alter U.S. domestic law.”
Petitioners apparently read the second and third recitals to indicate
“that the execution of the Closing Agreement and foregoing a domestic
U.S. tax right is required to avoid Australian taxation.” They
characterize that premise as “a material misrepresentation of U.S. law.”
Finally, they challenge the accuracy of the sixth recital, regarding the
agreement between the U.S. and Australian competent authorities,
contending that the United States and Australia “have not entered into
                                   16

[*16] a Competent Authority arrangement relating to income earned at
[Pine Gap].”

      The taxpayer in Smith made the same misrepresentation
arguments, and we rejected each of them. For that reason, as we noted
in the June 8 Order, petitioners seemed to have abandoned their
misrepresentation arguments after we issued our opinion in Smith.
Now, inexplicably, petitioners have renewed those arguments without
acknowledging our rejection of them in Smith. (Petitioners’ Response to
respondent’s Motion for Partial Summary Judgment makes no mention
of Smith, leading us to wonder whether it simply recycles material
prepared—for this or another case—before we issued our Smith
opinion.)

       We reject petitioners’ misrepresentation arguments for the same
reasons that we rejected them when made by the taxpayer in Smith. If
the second recital (regarding the taxation of Mr. Aubin’s wages under
Australian law) is incorrect, it is a misstatement of law. Under section
7121(b), a misrepresentation provides grounds to set aside a closing
agreement only if it is a “misrepresentation of a material fact.”
Petitioners argue that “material misrepresentations of foreign law . . .
are legally treated as material misrepresentations of fact under
prevailing contract law.” Closing agreements, however, are governed by
statute—not by “prevailing contract law.” Although we recognized in
Smith, 159 T.C. at 72, that the distinction between statements of fact
and statements of law “has, generally speaking, eroded over time in the
context of equitable rescission of contracts,” we declined to elide that
distinction in applying section 7121.         “[G]iven the longstanding
distinction between” statements of fact and statements of law, we
declined to assume “that Congress intended to include
misrepresentations of law when it specifically set forth only
misrepresentation of material fact as a ground for recission in section
7121(b).” Smith, 159 T.C. at 72.

       As we observed in Smith, 159 T.C. at 71, the third recital “is an
entirely accurate statement of the express terms” of the Pine Gap
agreements. And, regarding the sixth recital, we accepted as true that
“the procedure the [Internal Revenue Service] follows when entering
into closing agreements with Pine Gap employees was developed in
consultation with the Australian competent authority following the
process Article 24 of the 1982 Treaty provides.” Id. at 70 n.46. In short,
petitioners’ arguments that Mr. Aubin’s closing agreement can be set
aside because of misrepresentation are contrary to our opinion in Smith.
                                   17

[*17] We rejected those very arguments in Smith and we reject them
again here.

V.    Conclusion

        In sum, because the closing agreement in which Mr. Aubin
waived his right to make an election under section 911(a) for the
specified taxable years is part of the record and was “approved by the
Secretary,” within the meaning of section 7121(b), that agreement can
be set aside only “upon a showing of fraud or malfeasance, or
misrepresentation of a material fact.” Mr. Setzer had the authority to
sign the closing agreement by virtue of the description of the position of
Assistant Deputy Commissioner (International) because the agreement
related to international tax administration in general and
administration of the 1982 Treaty in particular. As a supervisory
official, Mr. Setzer had the authority under Delegation Order 1-2 to
designate Ms. Palacheck to act in his stead, which he did for the period
from September 21 to October 2, 2015. The date on which Ms. Palacheck
signed the agreement on Mr. Setzer’s behalf, September 28, 2015, was
within that period. Petitioners make no allegation of fraud. Their
allegations of malfeasance simply repeat arguments we considered and
rejected in the June 8 Order.             And their arguments about
misrepresentation repeat arguments we considered and rejected in
Smith. Petitioners have not established a genuine dispute of fact or that
respondent is not entitled to judgment as a matter of law on the question
of the validity of Mr. Aubin’s closing agreement. We therefore conclude
that the closing agreement entered into between Mr. Aubin and the
Internal Revenue Service covering petitioners’ 2015, 2016, and 2017
taxable years is valid. We will therefore grant respondent’s Motion for
Partial Summary Judgment.

      An appropriate order will be issued.