Thomas E. Johnston, and Thomas E. Johnston, Successor in Interest to Shirley L. Johnston, Deceased v. Commissioner of Internal Revenue

This case presents an attempt at “post-deal negotiation.” It doesn’t usually work in business. Why should we treat the tax collector differently?

Specifically, we address the following question: when a taxpayer offers to pay the Internal Revenue Service a sum certain to “fully resolve all adjustments at issue” for certain tax years, and the Commissioner accepts his offer, may the taxpayer then apply net operating losses (“NOLs”) to reduce his agreed payments under the settlement? Here, the answer is no. The taxpayer did not reserve the right to use NOLs in the settlement agreement, nor did he raise the issue of using the NOLs before the Commissioner ac cepted his settlement offer. A deal is a deal, even with the tax man. Therefore, we affirm.

Facts

Thomas E. Johnston, on his own behalf and as the successor-in-interest to his late wife’s estate, appeals the order of the tax court granting summary judgment for the Commissioner of Internal Revenue (“the Commissioner”). Beginning in the 1970s, Johnston conducted a real estate business in Southern California. His business was successful for many years, but, in 1988, it turned for the worse when the local real estate market crashed.…