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regulations contain an example illustrating, as well as providing
a justification for including, this exception. Section 1.6015-
1(c)(3), Example (2), Income Tax Regs., provides:
H and W file a joint return for taxable year 2002,
on which they claim $25,000 in losses attributable to
H’s general partnership interest in Partnership B. In
November 2003, the Service proposes a deficiency in tax
relating to H’s and W’s 2002 joint return arising from
omitted taxable interest income in the amount of $2,000
that is attributable to H. In July 2005, the Internal
Revenue Service commences a TEFRA partnership
proceeding regarding Partnership B’s 2002 and 2003
taxable years, and sends H and W a notice under section
6223(a)(1). In March 2006, H and W enter into a
closing agreement with the Service. The closing
agreement provides for the disallowance of the claimed
losses from Partnership B in excess of H’s and W’s out-
of-pocket expenditures relating to Partnership B for
taxable year 2002 and any subsequent year(s) in which H
and W claimed losses from Partnership B. In addition,
H and W agree to the imposition of the accuracy-related
penalty under section 6662 with respect to the
disallowed losses attributable to partnership B. In
the closing agreement, H and W also agree to the
deficiency resulting from the omitted interest income
for taxable year 2002. W may not later claim relief
from joint and several liability under section 6015 as
to the deficiency in tax attributable to the omitted
15(...continued)
otherwise provided in such agreement) be binding
on all parties to such agreement with respect to
the determination of partnership items for such
partnership taxable year. * * *
The standard that sec. 6224(c) prescribes for setting aside a
settlement agreement is the same standard prescribed by sec.
7121(b) for setting aside a closing agreement; i.e., such an
agreement is binding absent a showing of fraud, malfeasance, or
misrepresentation of fact. H Graphics/Access, Ltd. Pship. v.
Commissioner, T.C. Memo. 1992-345. This no doubt accounts for
including this provision in the final regulations as an exception
to the general rule in sec. 1.6015-1(c)(1), Income Tax Regs.,
regarding the finality of sec. 7121 closing agreements.
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