SAN FRANCISCO (CN) - The former owner of the Oakland Raiders is not entitled to additional tax refunds after the Internal Revenue Service breached a provision of the closing agreement for tax litigation, the Ninth Circuit ruled Monday.
The late Al Davis, who owned the NFL team for more than 50 years, sued the IRS seeking refunds for tax years 1990, 1992 and 1995 based on the agency's failure to allow the contractually required 60 days to review its calculations of assessments following long-running litigation in tax court.
Because the statute of limitations to make assessments was about to expire, the Circuit's opinion says, the IRS issued assessments against Davis in September 2007 in the amounts of about $501,000 for 1990, about $1.8 million for 1992 and about $159,000 for 1995.
A federal judge found for Davis after he filed suit in 2011, holding that the IRS's breach of the closing agreement - to which the agency now admits - invalidated the 2007 assessments.
But the Circuit reversed the court's decision, finding that the assessments were valid even though the IRS breached the contract.
Writing for the panel, Circuit Judge Andrew Hurwitz said in the 15-page opinion that "the 'final and conclusive' nature of closing agreements simply means that they 'settle an existing dispute with finality.'"
"That a contract is 'final' does not dictate the remedy for its breach," Hurwitz said.
He added that Davis "offers no support for the unlikely proposition that, because a settlement with the IRS is 'final' and court-approved, the remedy for any breach, however small, is to free the taxpayer from his pre-existing obligation to pay taxes.
"If this were the case, the IRS justifiably would be reluctant to enter into closing agreements, for fear that a minor error could have major consequences," Hurwitz said.
He said that "at bottom," the problem with Davis's argument "is that his obligation to pay taxes validly and accurately assessed comes from the Internal Revenue Code, not the closing agreement, which only specified the treatment of certain partnership income as inputs to the calculation of his taxes."
While the "IRS breached its contract," Hurwitz said the breach "entitled Davis to a remedy, but only one in contract."
Hurwitz also pointed out that Davis could have sought to challenge the assessment amounts in an administrative refund claim or refund action, but he did not.
"Instead, he threw a Hail Mary and sought a full refund," he said. "That pass falls incomplete."
The Circuit also found the assessments were timely.
Neither side's lead counsel immediately responded to an email requesting comment on Monday morning.