Allen Davis; Carol Davis v. United States of America

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ALLEN DAVIS; CAROL DAVIS,
Plaintiffs-Appellees,
v.
UNITED STATES OF AMERICA,
Defendant-Appellant.
No. 13-16458
D.C. No.
3:11-cv-04316-
EDL
OPINION
Appeal from the United States District Court
for the Northern District of California
Elizabeth D. Laporte, Magistrate Judge, Presiding
Argued and Submitted
November 17, 2015—San Francisco, California
Filed January 25, 2016
Before: Sidney R. Thomas, Chief Judge and Sandra S.
Ikuta and Andrew D. Hurwitz, Circuit Judges.
Opinion by Judge Hurwitz

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DAVIS V. UNITED STATES 2
SUMMARY*
Tax
Reversing a judgment of the district court in an income
tax refund action brought by Al Davis, former principal
owner of the Oakland (and Los Angeles) Raiders, and his
wife Carol Davis, the panel held that a breach of a Closing
Agreement between the Internal Revenue Service (IRS) and
the partnership that formally owned the Raiders did not
invalidate the tax assessments, which were properly assessed
within the statute of limitations.
Davis and his wife were partners in a partnership that
entered into a settlement with the IRS in which the partners
had a designated amount of time to review and comment on
the IRS’s proposed tax liability calculations before any
assessments were made. The IRS admittedly breached the
Closing Agreement by making certain assessments without
giving Davis a second opportunity to review its calculations.
The panel held that the IRS’s breach of contract entitled
Davis to a contractual remedy but did not invalidate the
assessments. The panel noted that the breach did not prevent
Davis from challenging the assessed amounts and seeking
consequential damages in an administrative refund claim or
a refund action, which he did not do.
The panel also held that the assessments were timely.
Applying the plain language of I.R.C. § 6231(b)(1)(C), the
* This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.

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DAVIS V. UNITED STATES 3
panel held that the IRS does not “enter into a settlement
agreement with the partner” when it enters into a settlement
agreement with the tax matters partner, and the individual
partner is bound merely by operation of the tax court’s
decision to which the partner is a party. Because the Closing
Agreement and stipulations were not a “settlement agreement
with” Davis within the scope of I.R.C. § 6231(b), the panel
held that the tax assessments were timely, as they occurred
within one year after the Tax Court decision became final.
COUNSEL
Kathryn Keneally, Assistant Attorney General, Richard
Farber, Andrew M. Weiner (argued), Attorneys, Tax
Division, Department of Justice, Washington, D.C., for
Defendant-Appellant.
Steven L. Mayer (argued), Kenneth G. Hausman, Stuart S.
Lipton, Julian Y. Waldo, Arnold & Porter LLP, San
Francisco, California, for Plaintiffs-Appellees.

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DAVIS V. UNITED STATES 4
OPINION
HURWITZ, Circuit Judge:
The late Al Davis is a gridiron icon, deservedly inducted
into the Pro Football Hall of Fame in 1992. He served as
coach, then general manager, and finally as the “principal
owner” of the Oakland (and Los Angeles) Raiders over some
fifty years. During the Davis years, the Raiders appeared in
five Super Bowls, winning three.
The case before us arises from a complaint filed in 2011
by Davis and his wife, Carol, against the United States,
seeking a refund of income taxes.1 Davis2 argues that the
1 By 2011, Davis and the Raiders were hardly strangers to the courts. In
1978, the Los Angeles Coliseum, with the Raiders as cross-claimants,
successfully sued the National Football League (NFL) for violation of the
antitrust laws for the NFL’s refusal to allow the Raiders to move to Los
Angeles. L.A. Mem’l Coliseum Comm’n v. Nat’l Football League,
791 F.2d 1356 (9th Cir. 1986); L.A. Mem’l Coliseum Comm’n v. Nat’l
Football League, 726 F.2d 1381 (9th Cir. 1984). In 1980, after the
Raiders announced their intention to move to Los Angeles, the City of
Oakland brought an action to acquire the Raiders’ property by eminent
domain; the Raiders prevailed after five appeals and eight years of
litigation. City of Oakland v. Oakland Raiders, 646 P.2d 835 (Cal. 1982)
(in bank); City of Oakland v. Oakland Raiders, 249 Cal. Rptr. 606 (Ct.
App. 1988); City of Oakland v. Oakland Raiders, 220 Cal. Rptr. 153 (Ct.
App. 1985); City of Oakland v. Superior Court, 197 Cal. Rptr. 729 (Ct.
App. 1983); City of Oakland v. Superior Court, 186 Cal. Rptr. 326 (Ct.
App. 1982). In 1984, the Oakland Coliseum successfully sued the Raiders
and Davis for unpaid rent. Oakland-Alameda Cty. Coliseum, Inc. v.
Oakland Raiders, Ltd., 243 Cal. Rptr. 300 (Ct. App. 1988). In 1997, the
Raiders unsuccessfully sued the Oakland Coliseum for negligently
misrepresenting the success of advance season ticket sales to induce the
team to move back to Oakland. Oakland Raiders v. Oakland-Alameda
Cty. Coliseum, Inc., 51 Cal. Rptr. 3d 144 (Ct. App. 2006). In 1999, the

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DAVIS V. UNITED STATES 5
Internal Revenue Service (IRS) assessed the taxes outside the
statute of limitations and in breach of a Closing Agreement
between the IRS and the partnership that formally owned the
Raiders. The district court held that the breach of contract
invalidated the assessments and entered judgment for Davis.
We reverse, finding the assessments valid.
I. Background
Davis had the largest interest in the Oakland Raiders, a
California limited partnership (the “Partnership”), which
owned and operated the professional football team. Davis
was also the president of A.D. Football, Inc., the sole general
partner and tax matters partner (“TMP”) of the Partnership.
See 26 U.S.C. (“I.R.C.”) § 6231(a)(7).
The Partnership and the IRS were involved in long-
running Tax Court litigation. See Milenbach v. Comm’r,
318 F.3d 924 (9th Cir. 2003). In 2005, the Partnership and
the IRS reached a settlement over tax years 1988 through
1994. The Closing Agreement, which concluded the
litigation, was signed by Davis, as President of the TMP.
Raiders unsuccessfully sued the NFL, seeking (1) compensation for the
“opportunity” the Raiders gave the NFL by moving back to Oakland and
thereby opening up a spot for a team in Los Angeles, and (2) damages for
the NFL’s failure to offer the Raiders more support to develop a stadium
in Southern California. Oakland Raiders v. Nat’l Football League,
161 P.3d 151 (Cal. 2007).
2 Al Davis died on October 8, 2011, a few months after this case was
filed. Carol Davis is the executrix of his estate and the sole trustee of the
Allen and Carol Davis Revocable Trust, which succeeded to Al’s interest
in this litigation. For convenience, we refer to the plaintiffs collectively
as “Davis.”

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DAVIS V. UNITED STATES 6
Under the Agreement, the IRS was required to make
“computational adjustments” to determine the effect of the
settlement on each partner’s tax liability. I.R.C. § 6231(a)(6).
Paragraph Q of the Closing Agreement gave the partners the
following procedural rights related to those computations:
[E]ach partner of the [Raiders] will be
permitted at least 90 days to review and
comment on computational adjustments
proposed by the IRS with respect to the
implementation of this settlement (and at least
60 days to review any revised computational
adjustments) prior to the IRS assessing such
amounts.
The Closing Agreement was implemented through three
stipulations filed in the Tax Court, one each for tax years
1990, 1991, and 1992. Each stipulation included a Form
4605-A, showing the agreed-upon adjustments to the
Partnership’s informational tax return; a Form 886-Z,
showing each partner’s share of the corrected income for that
tax year; and a corresponding decision to be entered by the
Tax Court. The stipulations recited that they were in
agreement with and subject to the Closing Agreement. They
were signed by Stuart Lipton, identified as counsel for
“Petitioner”—the Partnership and its TMP, A.D. Football.
On June 6, 2006, the Tax Court approved and entered the
stipulated decisions.
The IRS did not distribute its calculations of each
partner’s computational adjustments until June 2007. Davis
responded a few weeks later, but by the time the IRS sent
revised calculations on August 27, 2007, it had no time to
wait 60 days for Davis to review these calculations (as

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DAVIS V. UNITED STATES 7
provided for by Paragraph Q of the Closing Agreement)
because the statute of limitations to make assessments was
about to expire. On September 4, 2007, the IRS issued
assessments against Davis in the amounts of $501,661 for
1990, $1,820,400 for 1992, and $159,287 for 1995.3 The IRS
applied a portion of refunds otherwise due to Davis for earlier
years to satisfy those assessments.
In November 2007, Davis filed an administrative refund
claim for tax years 1990 and 1992, arguing that the
September 2007 assessments were invalid because the IRS
had breached Paragraph Q of the Closing Agreement. The
IRS never responded to this claim. In February 2009, Davis
filed an administrative refund claim for tax year 1995,
claiming that the IRS had breached Paragraph Q, made the
September 2007 assessments outside the statute of
limitations, and miscalculated interest. The IRS disallowed
the claim in large part, adjusting only the calculation of
interest.
In 2011, Davis brought this action in the United States
District Court for the Northern District of California, seeking
refunds for tax years 1990, 1992, and 1995, based on the
IRS’s breach of Paragraph Q. Before the district court, the
IRS argued that it did not breach the Closing Agreement, and
that even if it did, the breach did not invalidate the
assessments. The district court granted Davis’s motion for
summary judgment, holding that the IRS’s breach of the
Closing Agreement invalidated the assessments. The
government timely appealed.
3 The IRS issued an assessment for tax year 1995 because, although the
Closing Agreement did not expressly govern that tax year, it changed the
Net Operating Loss Carryover applicable to that year.

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DAVIS V. UNITED STATES 8
II. Discussion
A. Breach of the Closing Agreement
The IRS now admits that it breached Paragraph Q of the
Closing Agreement by making the September 2007
assessments without giving Davis a second opportunity to
review its calculations. The issue is whether, as the district
court concluded, that breach of contract invalidates the
subsequent assessments.
Closing agreements are contracts, States S.S. Co. v.
Comm’r, 683 F.2d 1282, 1284 (9th Cir. 1982), governed by
federal common law, United States v. Nat’l Steel Corp.,
75 F.3d 1146, 1150 (7th Cir. 1996). “[F]or most purposes
closing agreements are just like other contracts.” Id. And,
“damages are always the default remedy for breach of
contract.” United States v. Winstar Corp., 518 U.S. 839, 885
(1996) (plurality opinion) (citing Restatement (Second) of
Contracts § 346, cmt. a (Am. Law. Inst. 1981)).
But Davis does not seek damages; instead, he argues that
any assessments made in breach of the Closing Agreement
are invalid.4 Davis relies primarily on I.R.C. § 7121(b)(2),
which provides that closing agreements are “final and
conclusive.” He notes that the Tax Court incorporated the
Closing Agreement into its decision, making it enforceable as
a court order. But, the “final and conclusive” nature of
closing agreements simply means that they “settle an existing
dispute with finality,” Nat’l Steel, 75 F.3d at 1150, and may
not be modified or disregarded “except upon a showing of
fraud or malfeasance, or misrepresentation of a material fact,”
4 Davis does not seek rescission of the Closing Agreement.

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DAVIS V. UNITED STATES 9
I.R.C. § 7121(b); see also In re Hopkins, 146 F.3d 729, 732
(9th Cir. 1998) (“In applying § 7121, courts unanimously
have held that closing agreements are meant to determine
finally and conclusively a taxpayer’s liability for a particular
tax year or years.”). That a contract is “final” does not dictate
the remedy for its breach. Cf. Jeff D. v. Andrus, 899 F.2d
753, 759 (9th Cir. 1989) (noting that even after court
approval, “[a]n agreement to settle a legal dispute is a
contract and its enforceability is governed by familiar
principles of contract law”). And, 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.
Davis argues that Philadelphia & Reading Corp. v.
United States, 944 F.2d 1063 (3d Cir. 1991), establishes that
the remedy for the breach of a closing agreement is
invalidation of subsequent assessments. In that case, a
settlement waived the statutory requirement that the IRS mail
a notice of deficiency prior to making assessments. Id. at
1066–67. The settlement agreement expressly conditioned
that waiver on the IRS delaying the assessments until after it
had approved a schedule of overpayments, so that the
taxpayer, which had overpaid taxes in certain years and
underpaid in others, could pay only the net balance owed. Id.
at 1067. The IRS, however, assessed taxes before the
overpayments had been approved and, more importantly,
without sending the statutorily mandated notice of deficiency.
Id. at 1068. The Third Circuit held that the assessments were
invalid. Id. at 1072.

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DAVIS V. UNITED STATES 10
However, Philadelphia & Reading is of no aid to Davis.
Because the IRS had failed to approve the schedule of
overpayments, the Third Circuit found that the taxpayer’s
contractual waiver of its statutory right to receive a notice of
deficiency never came into effect. Id. The assessments were
therefore not authorized by statute. Id. at 1072–73. Here, by
contrast, the IRS violated no law in making the assessments.
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. The IRS’s
failure to perform its contract with the Partnership cannot
relieve Davis of his statutory obligation to pay taxes; nothing
in the Closing Agreement provided that any taxes assessed on
the partners pursuant to statute would be rendered invalid if
the government failed to perform.
The IRS breached its contract. That entitled Davis to a
remedy, but only one in contract.5 Moreover, although the
breach denied Davis an opportunity to comment on the
amounts of the assessments before they were made, it did not
prevent him from challenging the assessed amounts; Davis
could have sought to challenge those amounts in an
administrative refund claim or a refund action. See I.R.C.
§ 6230(c)(1)(A). He did not. And, had he done so, Davis
5 Contrary to Davis’s argument, the government preserved this argument
in its motion for summary judgment, which argued that “A ‘Breach’ Does
Not Entitle Plaintiffs to a Tax Refund.” Because the government does not
contest Davis’s ability to raise a contractual claim, we assume for present
purposes that although not personally a party to the Closing Agreement,
Davis was a third-party beneficiary of that contract.

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DAVIS V. UNITED STATES 11
might have sought consequential damages resulting from his
having to challenge the assessments in a more expensive
manner than that provided for by Paragraph Q. Again, he did
not. Instead, he threw a Hail Mary and sought a full refund.
That pass falls incomplete. We hold that the IRS’s breach of
Paragraph Q did not invalidate the assessments.6
B. Statute of Limitations
Because we find that the district court erred in holding
that the breach of the Closing Agreement invalidated the
assessments, we must address an issue that the court
pretermitted—whether the assessments were untimely.
We begin with general principles of partnership tax law.
A partnership is not liable as an entity for income taxes.
I.R.C. § 701. Rather, income is allocated among the partners.
Id. § 702. Until tax year 1982, partnership tax disputes were
conducted at the individual partner level. See Crnkovich v.
United States, 202 F.3d 1325, 1328 (Fed. Cir. 2000) (per
curiam). The IRS was therefore required to conduct separate
investigations for each partner, and enter into “separate
settlement agreements with each.” Id. Congress responded
to this situation in the Tax Equity and Fiscal Responsibility
Act (TEFRA), I.R.C. §§ 6221–6233, which provided for the
6 We express no opinion as to what contractual remedies remain
available to Davis, if any, or the appropriate forum in which to pursue
them.

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DAVIS V. UNITED STATES 12
resolution of partnership tax disputes at the partnership level.7
Id. § 6221; Crnkovich, 202 F.3d at 1328.
TEFRA requires each partnership to designate a TMP
with primary responsibility over tax disputes. See, e.g.,
I.R.C. §§ 6223(g) (TMP must keep partners informed of
proceedings), 6224(c)(3) (TMP may bind certain other
partners), 6226(a)–(b) (TMP has first opportunity to
challenge administrative partnership tax rulings in court, and
may intervene in a challenge brought by another partner),
6231(a)(7) (defining TMP); see also Comput. Programs
Lambda, Ltd. v. Comm’r, 89 T.C. 198, 205 (1987). Other
partners retain the right to participate in tax disputes, and any
partner whose taxes may be affected by a partnership tax case
in district or tax court is statutorily a party to that case, bound
by the judgment. I.R.C. §§ 6224(a), 6226(c); Crnkovich,
202 F.3d at 1328.
Although TEFRA generally provides that the tax
treatment of partnership items will be determined at the
partnership level, the IRS still can enter into settlement
agreements with individual partners. I.R.C. § 6224. The
settling partner’s partnership items then convert to
“nonpartnership items,” id. § 6231(b)(1), and the partner can
be dismissed from the partnership-level proceeding, id.
§ 6226(d)(1)(A); Mathia v. Comm’r, 669 F.3d 1080, 1085–86
(10th Cir. 2012) (Section 6231(b) recognizes that “individual
partners may opt out of a partnership-level proceeding by
entering into a settlement agreement with the IRS with
respect to the determination of their individual partnership
7 The Bipartisan Budget Act of 2015, Pub. L. No. 114-74, § 1101, 129
Stat 584, 625–638, repealed TEFRA, effective for partnership tax years
beginning after December 31, 2017.

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DAVIS V. UNITED STATES 13
items.”); Olson v. United States, 37 Fed. Cl. 727, 733 (1997)
aff’d, 172 F.3d 1311 (Fed. Cir. 1999) (“[T]he settling partner
essentially has become a free agent to whom the collective
approach of TEFRA no longer applies.”).
If the IRS “enters into a settlement agreement with the
partner” under I.R.C. § 6231(b)(1)(c), the partner’s
partnership items convert to nonpartnership items, id.
§ 6231(b)(1), which triggers a one-year statute of limitations
under I.R.C. § 6229(f)(1). If the IRS does not enter “into a
settlement agreement with the partner,” then the one-year
statute of limitations under I.R.C. § 6229(d) begins to run
when the tax court decision becomes final, which occurred
here 90 days after the tax court entered the decision
documents. See 26 U.S.C. § 7481(a)(1); Tax Ct. R. 190(a).
The Tax Court approved the stipulated decision
documents in this case on June 6, 2006. Davis argues that
these documents were each a “settlement agreement with the
partner,” I.R.C. § 6231(b)(1)(C), so that the statute of
limitations expired on June 6, 2007, one year after their entry.
Davis relies on the prefatory language of the stipulated
decisions, which provide that the adjustment to the
Partnership’s returns is made “[p]ursuant to the agreement of
the parties in this case.” Davis argues that, under I.R.C.
§ 6226, all partners were parties to the Tax Court proceeding,
so each stipulation was “a settlement agreement with the
partner” under I.R.C. § 6231(b)(1)(c). Because the one-year
statute of limitations under I.R.C. § 6229(f) ended on June 6,
2007, Davis claims that the government’s September 4, 2007
assessments were too late.
The government argues that the individual partners did
not enter into a settlement agreement with the government on

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DAVIS V. UNITED STATES 14
June 6, 2006. Rather, they were bound by force of law when
the tax court entered the stipulated decision documents,
because the individual partners were parties to the tax court
proceeding under I.R.C. § 6226(c), and a decision by the tax
court in a partnership action is binding on all parties, Tax Ct.
R. 251. Because the individual partners did not “enter into a
settlement agreement with” the IRS for purposes of
§ 6231(b)(1)(C), the applicable statute of limitations, see
I.R.C. § 6229(d), expired on September 4, 2007, one year and
90 days after the stipulated decisions were entered.
Accordingly, the government argues, its September 4, 2007
assessments were timely.
Under the plain language of I.R.C. § 6231(b)(1)(C), we
conclude that the IRS does not “enter into a settlement
agreement with the partner” when it enters into a settlement
agreement with the TMP and the individual partner is bound
merely by operation of the tax court’s decision to which the
partner is a party. Here, the stipulations were not agreements
with Davis individually. He did not sign them, nor did
anyone purporting to represent him in his individual capacity.
Instead, each stipulation was signed only by an attorney for
the IRS and Stuart Lipton, in his capacity as “Counsel for
Petitioner.”8 The “Petitioner” in the Tax Court proceeding
was the Partnership and its TMP, A.D. Football. Thus, the
stipulations, like the Closing Agreement, were agreements
only between the IRS and the Partnership. To be sure, these
documents had consequences for Davis, but they were not
agreements “with” him under I.R.C. § 6231(b). Nothing in
TEFRA indicates that Congress meant the word “partner” in
§ 6231(b) to mean “tax matters partner;” to the contrary,
8 Davis does not argue that Lipton signed in his capacity as Davis’s
personal lawyer.

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DAVIS V. UNITED STATES 15
Congress appears to have chosen its wording carefully
throughout the statute, differentiating between partners in
general and the tax matters partner repeatedly. See, e.g.,
I.R.C. §§ 6223, 6224(c), 6226(a)-(b), 6226(g), 6227, 6228(a),
6229(b).
Because the Closing Agreement and stipulations were not
a “settlement agreement with” Davis within the scope of
I.R.C. § 6231(b), the assessments made on September 4, 2007
were timely, as they occurred within one year after the Tax
Court decision became final. I.R.C. § 6229(d).
III. Conclusion
We reverse the judgment of the district court and remand
for further proceedings consistent with this opinion.

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