Tag: Settlement Agreement

Taxpayer Attempts To Claim A Unilateral Settlement With IRS

In his letter enclosing his $1,396 check, taxpayer asserted unilaterally that “we are now concluded on this tax return issue” and that he would not “have any more issues with IRS” regarding 2006. But there can be no settlement unless there is mutual assent to its terms, which taxpayer has not shown. To demonstrate assent by the IRS, taxpayer must do more than show that the IRS cashed his check. No compromise was implied by “the government’s acceptance and cashing” of taxpayer’s check.

Once assessed, a disputed tax liability may be compromised by the IRS under Code section 7122. Taxpayer was free to propose an offer-in-compromise during the proceeding by submitting Form 656, Offer in Compromise, together with supporting financial information. But he declined to request a collection alternative of any sort, insisting instead that he had no liability for 2006 whatsoever.

Taxpayer’s argument is meritless. A disputed tax liability may be settled by agreement between taxpayer and the IRS. A settlement of a case pending in Court is a contract that “may be reached through offer and acceptance made by letter, or even in the absence of” a written instrument. Taxpayer did not settle his 2006 tax liability with IRS counsel. Rather, his case was tried in Court and he lost.

Even if the IRS employee were thought to have made a settlement offer, no settlement of any kind is binding on the IRS unless it is duly authorized and properly memorialized, as “This Court has repeatedly declined to enforce a settlement agreement when the person entering into the agreement on behalf of the Commissioner lacked the authority to bind the” IRS. Taxpayer has supplied no reason to believe that his IRS correspondent had the requisite settlement authority.

Taxpayer relied solely on its unilateral statement that the issues were all resolved. It did not follow any of the procedures available to it. In short, taxpayer had proffered no plausible evidence of a settlement. Thus, the court held for the IRS.

Morris R. Saunders, msaunders@lgattorneys.com.

Employee Bound by Handwritten Note Settling Employment Discrimination Case

People are often encouraged to “put it in writing”.  Generally, that is an excellent idea.  But occasionally it may be a disadvantage, especially if what was thought to be an informed memorandum turns out to be a definitive settlement agreement.

Martina Beverly sued her former employer, Abbott Laboratories, for employment discrimination.  The parties agreed to mediation.

The Mediation session lasted fourteen hours with each party being represented by an attorney.  Toward the end of the mediation, Beverly, as well as an Abbott representative and both parties’ attorneys signed a handwritten memo that read as follows:

I Jon Klinghoffer will commit that my client will communicate to its internal business client the fact that Abbott/AbbVie has offered $200,000 + Abbott/AbbVie pays cost of mediation to resolve this matter and that Martina Beverly has demanded $210,000 + Abbott/AbbVie pays cost of mediation to resolve this matter. Both parties commit [sic] that their offer and demand will remain open until Tuesday, July 22, 2014, 3:00 PM central.

The next day, Abbott’s attorney sent an email to Beverly’s attorney agreeing to accept Abbott’s $210,000 offer and attaching a formal settlement agreement for review.  Almost immediately, Beverly’s attorney emailed an enthusiastic response and, concurrently, sent the settlement agreement to Beverly for her review.

Beverly ultimately refused to sign the formal settlement agreement and Abbott went to court to enforce the hand written agreement.

Abbott asserted the handwritten agreement contained an offer, Abbott’s acceptance and a meeting of the minds.  Beverly claimed the handwritten agreement was simply a preliminary memorandum that a contemplated the drafting and execution of a formal settlement agreement.

The court ruled that Beverly was bound by the handwritten document because it set forth all of the essential terms of the settlement and because both parties and their respective attorneys had signed it.

Although Beverly argued the handwritten agreement omitted a number of material provisions such as identification, future cooperation between the parties, Beverly’s future employment options with Abbott, the allocation of the $210,000 between back pay (which is taxable) and damages, (which was not) and any language regarding waiver and release, that made it unenforceable, the court ruled a contract may be enforced even if some contract terms are missing or are left to be agreed upon at a future date.

This case demonstrates that when parties are engaged in efforts to resolve a disputed matter they should approach with great caution a rush to produce an informal memorandum of understanding.  It may have a legal significance that transcends their expectations when they signed it.

If you have any questions in this area, please contact:

Michael L. Weissman at:

mweissman@lgattorneys.com or 312-368-0100.

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