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reported on petitioners’ returns and then assessed the resulting
liabilities. Because respondent did not issue a deficiency
notice, petitioners were never afforded the opportunity to
litigate the amount of their tax liabilities before the
collection process began. See Commissioner v. Shapiro, supra at
616-617; cf. Marathon Oil Co. v. United States, supra at 280.
3. Our Holding Would Not Permit Petitioners To
Challenge the Terms of the Closing Agreement
Respondent also argues that he was not required to issue a
deficiency notice to petitioners because petitioners are not
allowed to challenge the terms of the closing agreement.
Respondent reasons that issuing petitioners a deficiency notice
and allowing them to file a petition with this Court would
frustrate the purpose of the closing agreement as a binding,
conclusive agreement that may be reopened only in exceptional
circumstances. We disagree.
The closing agreement remains binding on both parties.
There has been no fraud, malfeasance, or misrepresentation of a
material fact. See sec. 7121(b). A deficiency notice would have
allowed petitioners to challenge respondent’s determination of
petitioners’ tax liabilities for the years at issue, but it would
not have allowed petitioners to reopen or contest the treatment
of the Comco items. The parties agreed to the treatment of the
Comco items in the closing agreement. The parties did not agree,
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