1. INTRODUCTION - After filing a chapter 7 case in 1990, the debtor, Talford Bray, entered into a written settlement with the IRS through one of its Special Procedures agents. The IRS Special Procedures agent and Bray agreed in May, 1992, that, in consideration of Bray's payment to IRS of $4,000, the IRS would: (a) release over $57,000 of IRS       4 ABR 127  tax liens on property which was exempt in the bankruptcy and (b) "discharge and release" all tax claims for tax years before 1986.

After entering into the agreement, the IRS discovered it had not yet assessed some taxes arising from tax shelters which the debtor was involved in, which affected tax years before 1986. The additional tax liability, which was liquidated by compromise in September, 1994, in a tax court case filed by debtor after he filed chapter 7, is shown in the decision of the court as:

1982 deficiency	$20,983.00
1985 deficiency	3,405.14
1985 § 6659	511.00
TOTAL	$24,899.14

The tax court settlement was conditioned upon this bankruptcy court determining that the May, 1992, agreement reached by Bray and the IRS Special Procedures agent was not sufficient to discharge the liability.

This adversary proceeding is to determine if the IRS can renege on the $4,000 settlement reached in May, 1992, for release of all pre-1986 federal income tax claims. Apparently it can. I find for the IRS.

     2. BACKGROUND - The debtor, Talford Bray, has been a high wage earner. He is currently a pilot for Federal Express and earns $250,000 a year. For a number of years prior to his bankruptcy, he had participated in tax-shelter partnerships which the IRS found to be abusive.

The IRS pursued Bray and he had already paid a substantial amount of taxes to settle with the IRS prior to his bankruptcy, but the IRS still claimed a substantial tax indebtedness due to these investments. To discharge some of the large, accumulated tax liability, Bray filed bankruptcy in February, 1990.

Bray's schedules showed the following priority and general unsecured taxes:

Priority Tax Claims:
1988 Taxes	$4,500.00
1989 Taxes (Estimated)	13,000.00
Total	$17,500.00
General Unsecured Tax Claims:
1979 Taxes	$35,253.82
1980 Taxes	18,450.83
1981 Taxes	86,906.98
1982 Taxes	22,648.77
4 ABR 128
1983 Taxes	21,614.00
1984 Taxes	2,500.00
1985 Taxes	37,562.00
Total	$224,936.40

A footnote to the list of unsecured claims indicated for 1984: "Dollar amount of the Tefra audit unknown. Amount owing for 1984 will be higher. 1985 & 1986 will also be affected by new 1040x to be filed later." "TEFRA" refers to the Tax Equity and Fiscal Responsibility Act. In fact, 1982 and 1985 (the years involved in this adversary proceeding) were the years under audit, not 1984.

When Bray filed bankruptcy, tax years 1982 and 1985 were still open to the IRS to assess additional taxes against Bray. The general partner of several tax shelter TEFRA partnerships in which Bray was a limited partner had extended the statute of limitations for the assessment of taxes. Thus, under 11 USC §§ 507(a)(7)(A)(iii) [since renumbered by the 1994 Bankruptcy Reform Act to § 507(a)(8)(A)(iii)] and 523(a)(1)(A), these taxes, if assessed after the bankruptcy was filed, could still be nondischargeable in Bray's bankruptcy.

In May, 1990, Cabot Christianson, Bray's bankruptcy attorney wrote IRS Special Procedures agent Tom Smith to establish that the tax debt prior to 1986 was dischargeable under bankruptcy law due to its age. Christianson did not know about the open 1982 and 1985 tax years. He followed up with a letter in August, 1991, inquiring about the status of his earlier letter. In this second letter, he offered $4,000 for the release of Bray from tax liens (with a face amount of over $57,000) against an auto with a value of $3,000 and an IRA with a value of $1,462, and the release of all Bray's tax liability for the years 1979 through 1985.

Cabot Christianson testified that this offer was to buy peace, and not as a reflection of the value of the lien release. He said that he did not think the IRS would ever seek to enforce its lien against the car or the IRA. The testimony was elicited to show that the $4,000 was something more than payment for a lien release, and the additional consideration was for obtaining a discharge of all taxes prior to 1986. An agreement, prepared by Christianson, was signed by Tom Smith on behalf of the IRS in May, 1992, and a formal lien release was executed by the IRS. The agreement purported to discharge and release Bray from       4 ABR 129  pre-1986 federal income taxes. Tom Smith had no special authority from the IRS to enter into formal compromises pursuant to the Internal Revenue Code or its regulations.

Between Christianson's two letters of May, 1990, and August, 1991, in October, 1990, the debtor received a notice of deficiency from the IRS claiming additional tax liability for the years 1982 and 1985 as a result of two TEFRA partnerships. The alleged deficiency was for over $35,000, plus interest. He commenced a U.S. Tax Court case in 1991 in Seattle through separate tax counsel, LeSourd & Patton, sophisticated tax practitioners, to challenge this notice of deficiency.

A number of issues were raised in tax court. The issues of accord and satisfaction and whether the debt was discharged in bankruptcy, were referred back to bankruptcy court by the tax court, while the tax court retained the issues of equitable estoppel and the statute of limitations.

The tax court case was settled in September, 1994, for $24,388.14 subject to the possibility that this amount was discharged or previously settled by the May, 1992, settlement agreement between Bray and Tom Smith, the IRS Special Procedures agent. The present adversary proceeding is to determine if the tax court compromise of $24,388.14, plus accruals, must be paid.

I find that the debtor is not a sophisticate with regard to tax matters, and possibly did not fully understand the difference between an assessment and a notice of deficiency. On the other hand, although the IRS notices are confusing to follow, the fact that Bray had hired and was probably paying good money for his tax court counsel would lead to the inference that he understood he was subject to additional tax liability. For the purposes of this opinion, I will nonetheless attribute no inequitable behavior to Bray in reaching the $4,000 settlement.

Christianson appears to have used his best effort to pin the IRS down as to the amount of taxes so he could get the pre-1986 taxes discharged in the bankruptcy. He testified he was unaware of the October, 1990, notice of deficiency. Presumably he was unaware of the tax court case too.

Although the IRS said in opening argument that the bankruptcy attorney was perhaps a little too slick for the poor neophyte IRS Special Procedures agent, I do not find that the attorney was attempting to       4 ABR 130  mislead Tom Smith, the IRS agent. Rather, the attorney appears to have made a good faith effort to get a binding commitment from the IRS.

The Special Procedures agent, on the other hand, was unaware of the potentiality of taxes due from the TEFRA partnerships. A potential unassessed TEFRA partnership tax was disclosed in a footnote on Schedule A-3, although it referred to the wrong tax year. Had the agent been more astute or diligent, he would possibly have caught the fact that there were unassessed taxes of some sort, or he would not have signed such an open ended "discharge and release" of all taxes between 1979 and 1985.

At the time he reached the $4,000 settlement with the IRS in May, 1992, the debtor had recently gone through a divorce and was remarried. He testified that, in reliance on his being absolved of all his tax debts prior to 1986 upon paying the $4,000 settlement, he purchased a home and incurred indebtedness for about $200,000 and a boat for a similar amount. He said he paid a substantial amount down, and that had he known there were additional taxes, he would not have put his money into these assets, but would have used his funds to address the tax liability. He implied the tax liability would be a substantial hardship given these new committments. Thus, the debtor claims equitable estoppel because he reasonably relied on the settlement to his damage. Given his earning capacity, I find the contention of substantial hardship is not supported.

Bray received a discharge in bankruptcy. He has also received subsequent IRS communications attempting to collect the substantial remaining tax debt for the years 1982 and 1985 in the amount of $27,032. The debtor filed this adversary proceeding to enforce the May, 1992, settlement, and get rid of the IRS's claim for delinquent 1982 and 1985 taxes, penalties, and interest.

     3. ISSUES - The issues raised by the debtor are whether the IRS is equitably estopped from proceeding to collect the taxes, and whether it is bound by an accord and satisfaction in its settlement with the debtor.

     4. ANALYSIS -

     4.1. Accord and Satisfaction - The debtor argues that the IRS is a party subject to contracts like any other, and it is bound by its settlement. He cites Anthony v. U.S., 987 F2d 670 (9th Cir 1983). In Anthony, the taxpayer entered into a stipulation settling some taxes       4 ABR 131  with an IRS attorney. The IRS attorney drafted a "decision document" signed by Anthony, which provided that "it is further stipulated that this agreement constitutes a final civil settlement of taxes due for the years in issue." The settlement for about $15,000 was entered as the final decision of the Tax Court. Notwithstanding the settlement, the IRS then attempted to collect about $19,000 for additional interest. The debtor argued that the "settlement document" was essentially a "compromise". The court said:

We look next to the nature of the agreement. Entitled "settlement document", the Anthonys argue that it is analogous to a "compromise" and therefore constitutes a full and final payment. The government prefers that we view it as a "closing agreement," which would not include interest. The document does not satisfy the Code requirements for either and so remains open to interpretation. See 26 U.S.C. §§ 7121, 7122; 14 Jacob A. Mertens, Mertens Law of Federal Income Taxation § 52 (specific forms required for closing agreements and compromises). Although we have previously held that Congress has set out a statutory procedure for the settlement of tax disputes which precludes informal agreements, Uinta Livestock Corp. v. United States, 355 F2d 761, 765 (10th Cir.1966), this was not an informal agreement but a stipulation by the parties, issued as a decision of the Tax Court. The agreement therefore is valid, and we must turn to the intentions of the parties to construe the document.

Anthony, unlike our case, involves a stipulation that was approved by the court. There was no court approval in the present case.

IRS regulations establish the procedures for closing agreements and compromises pursuant to 26       4 ABR 132  U.S.C. §§ 7121, 7122. Treas.Reg. §§ 301.7121-1, 301.7122-1 (1967). These procedures are exclusive. Botany Mills v. United States, 278 U.S. 282, 288-89, 49 S.CT. 129, 131-32, 73 L.ED. 379 (1929).

Notwithstanding a finding that Bray acted in good faith, the agreement entered into by the debtor and IRS Special Procedures agent Tom Smith is not an enforceable accord and satisfaction, at least in the absence of court approval of the compromise.

     4.2. Equitable Estoppel - The IRS can be equitably estopped from pursuing a tax claim. Bray cites Watkins v United States Army, 875 F2d 699 (9th Cir 1989) (homosexual plaintiff seeking to prevent discharge and regain security clearance) for the requirements of equitable estoppel.

A party seeking to estop the government must meet two threshold tests beyond those required by traditional estoppel. The threshold tests are: (1) affirmative misconduct, beyond mere negligence, must be established, and (2) serious injustice arising out of the government's act must be established, which outweigh any damage to the public interest by the imposition of liability. Watkins at 707; United States v Asmar, 827 F2d 907, 912-13 (3rd Cir 1987) (tax case; affirmative misconduct must be proved).

Bray, in his trial brief, ignores these substantial hurdles which must be overcome before applying the traditional elements of estoppel, and only cites the traditional elements. These traditional elements are:

(1) The party to be estopped must know the facts;
(2) he must intend that his conduct shall be acted on or must so act that the party asserting estoppel has a right to believe it is so intended;
(3) the latter must be ignorant of the true facts;
and (4) he must rely on the former's conduct to his injury.

Bray has not overcome the threshold hurdles to even get to the traditional test. The Special Procedures agent's actions can hardly be characterized as misconduct beyond mere negligence.

"Unconscionability" was an element in many of the cases Bray cites in support of his estoppel argument. E.g., Matter of La Difference Restaurant, Inc., 63 BR 819 (SDNY 1986), Tonkonogy v United States, 417 F Supp 78 (SDNY 1976), and In re Hollenbeck, 166 BR 291 (Bankr SD Tex 1993) (debtor had TEFRA partnership tax liability; IRS affirmatively misrepresented that TEFRA taxes had been assessed so debtor unwittingly filed bankruptcy before 240-day time limit per 11 USC § 507(a)(7)(A)(ii), making the TEFRA taxes priority and nondischargeable). Such unconscionability and affirmative misrepresentation are not present in this case.

Also, there is no serious injustice in this case. Bray alleges he would not have paid anything, let alone $4,000, if the IRS had not been willing to release any pre-1986 federal income tax claims. Bray's bankruptcy attorney testified that the IRS, in his estimation, never would have sought to foreclose on Bray's $3,000 auto or his $1,462 IRA. The IRS testimony disputes this, but even if Bray is correct, the release of over $4,000 of property from an IRS lien for a $4,000 payment is not "serious injustice."

Bray's only other claim of prejudice was that he would not have bought a home and a boat, incurring about $200,000 debt for each, had he known he had these 1982 and 1985 tax claims outstanding. This may alter his budget, but it is not sufficient to raise a "serious injustice" for an ATR pilot earning $250,000 per year. Schuster v Commissioner Internal Revenue, 312 F2d 311, 317-18 (9th Cir 1962). See also, In re Depaolo, 45 F3d 373, 376-77 (10th Cir 1995).

The IRS Special Procedures agent's actions were not egregious enough and the injury or prejudice to Bray not severe enough to establish an equitable estoppel against the IRS in this case.

At trial, the IRS noted that the issue of equitable estoppel was subsumed in debtor's September, 1994, tax court settlement, and was not properly before the bankruptcy court. I have not ruled on this contention, but determined that, assuming the issue of equitable estoppel is properly before me, the debtor loses on the merits.

     5. CONCLUSION -The debtor has failed to establish at trial that he should be discharged from the 1982 and 1985 federal income taxes assessed against him. Judgment will be for the IRS.

DATED: May 5, 1995

HERBERT A. ROSS
U.S. Bankruptcy Judge