Tax Court In Brief | Smith v. Comm'r | Closing Agreement And Malfeasance Of Fact

• Jurisdiction: United States,Federal
• Law Firm: Freeman Law
• Subject Matter: Tax, Tax Treaties, Tax Authorities
• Author: Freeman Law
• Published date: 07 January 2023

The Tax Court in Brief - December 26th - December 30th, 2022

Freeman Law's "The Tax Court in Brief" covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation: The Week of December 26th, 2022, through December 30th, 2022

• Intan N. Ismail & Mohd Razu Abd Rahim v. Comm'r, T.C. Memo 2022-113 November 29, 2022| Paris, J. | Dkt. No. 16366-16, 13297-18
• Luu v. Comm'r, T.C. Memo. 2022-126| December 28, 2022 | Weiler, J. | Dkt. No. 714-20W
• Kechijian v. Comm'r, T.C. Memo 2022-127| December 28, 2022 | Gustafson, J. | Dkt. No 3430-20

Smith v. Comm'r, 159 T.C. No. 3 August 25, 2022| Toro, J. | Dkt. No. 5191-20

Short Summary: The case discusses the validity of a closing agreement and if a taxpayer can set aside such agreement under malfeasance or misrepresentation of fact.

Mr. Smith (the taxpayer) was employed by Raytheon Company, a private defense contractor with operations in Australia, specifically at the Pine Gap facility. The Pine Gap facility is a joint surveillance facility established back in 1966 in Australia in a joint effort with the U.S. Dozens of U.S. citizens moved to Australia to staff the Pine Gap facility. Given that such U.S. citizens could be double taxed (by Australia and the U.S.), these countries entered into the "Pine Gap Agreements", two agreements that basically exempted from Australian tax withholding any compensation received by U.S. citizens from personal services provided in connection with the Pine Gap facility, provided that such compensation was taxed in the U.S. Although the Pine Gap Agreements were entered before the signature of the 1982 tax treaty between the U.S. and Australia, such agreements remained valid under the language of the new treaty.

As consequence of the Pine Gap Agreements, the U.S. and Australia competent authorities worked together to coordinate the benefits of the Agreements with U.S. domestic statutes, specifically section 911, which provides for the foreign earned income exclusion. In that regard, the U.S.-Australian competent authorities agreed that U.S. citizens working at Pine Gap would need to give up their election under section 911 to avoid being taxed in Australia, and they further agreed that an employee who desired this result could achieve it by entering into a closing agreement with the IRS.

In this case...