Bernhard F. and Cynthia G. Manko - Page 14

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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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