INDIVIDUAL DID NOT PROVE CLAIMED AGREEMENT ELIMINATING INTEREST AND PENALTIES.

The court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 157(b)(1) & 1334 and order of the United States District Court for the Southern District of Iowa. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). The court now enters its findings and conclusions pursuant to Fed. R. Bankr. P. 7052 and 9014.

On March 30, 2004, Debtors objected to claim number 9 filed by the IRS on January 10, 2003, in the amount of $2,408,071.11 (DN 349) for the years 1993 and 1994. Debtors contend that no tax is owed by the debtors for those years.

The IRS has resisted this objection and contends that the assessed penalties, interest on those penalties, interest that accrued on the taxes for those years, and interest on the accrued interest are owed by the debtors. The IRS concedes that the debtors do not owe taxes for the 1993 and 1994 years because of a net operating loss (NOL) carry back. However, the IRS asserts that the NOL cannot be used to reduce the penalties and interest for those years and has filed an amended proof of claim, Claim No. 28, on April 12, 2004 in the total amount of $2,880,351.32.

The objection and resistance thereto were set for hearing, but the hearing was canceled when the parties agreed that further discovery would be completed, and the matter would be submitted upon written brief and argument.

The order of July 19, 2004 (DN 448) provided for informal discovery and the deposition of Paul Unger by August 20, 2004. The matter was to then be submitted to the court by written brief and argument. Debtors were to submit their brief by September 3, 2004, and the United States was to file a responsive brief by September 20, 2004. Debtors filed their brief, with a copy of the deposition of Paul Unger, on September 9, 2004, and the United States filed its brief on September 17, 2004.

The United States prays that Debtors' brief be stricken as untimely. Debtors never prayed for additional time within which to file their brief.

The United States prayer that the brief be stricken is well taken. The late filed brief is untimely and violates the terms of the order of July 19, 2004. However, the court prefers to address the issues upon the merits and will not grant subject motion to strike.

Debtors contend that their agent, John Foust, had an agreement with Paul Unger, appeals officer of the IRS, that the taxes, interest, and penalty for years prior to 1997 were reduced to zero and that the United States should be bound by that agreement. This purported agreement was never memorialized in writing in any fashion.

The IRS contends that interest and penalty due for the 1993 and 1994 tax years is still due from the debtors, as the NOL cannot be used to reduce the penalties and interest related to those years. Further, there never was an agreement between John Foust and Paul Unger, and Debtors have failed to prove such an agreement. In addition, even if such an agreement existed, which is denied, it would not be binding upon the IRS.

Paul Unger testified that there was a sizeable deficiency due on the taxes for the 1993 year. However, these issues were decided by the United States Tax Court. The tax court ruled that the debtors owed income tax and penalty for the 1993 year pursuant to the provisions of the Internal Revenue Code. The tax court did not waive the interest on that debt. Pursuant to 26 U.S.C. §§ 6601, 6621, and 6622, the interest automatically accrues on that debt.

Paul Unger further testified that he never had the debtors' 1994 tax year in appeals and that he had no recollection of ever discussing interest and penalties for the 1993 tax year with John Foust.

During the course of the deposition Mr. Unger was never asked if he had any agreement with John Foust, the circumstances surrounding the purported agreement, or his understanding of the nature of this alleged agreement.

Debtors contend that since Mr. Unger had no recollection of any conversation with Mr. Foust concerning the waiver of taxes, penalties or interest, that he cannot refute Mr. Foust's claim that there was such an agreement. The court disagrees. The burden is on the debtors to show the purported agreement. Counsel for the debtors very carefully avoided the subject of whether there was any agreement at all and, if so, the nature of the agreement.

Mr. Unger's testimony supports the circumstances of the case -- the tax court decided the issues surrounding the 1993 taxes, and Mr. Unger never had Debtors' 1994 tax year in appeals. Mr. Unger could not recall any such conversation with Mr. Foust because such a conversation never took place.

The court concludes that there never was an agreement by and between John Foust and Paul Unger concerning the penalty and interest for the debtors' 1993 and 1994 tax years.

Even if there was such an agreement, Paul Unger, as an appeals officer, lacked the authority to enter into such an agreement. Estate of Akin v. United States, 31 Fed.Cl. 89, 94-95 (1994), aff'd, 43 F.3d 1487 (Fed. Cir. 1994). Debtors have failed to show that any agreement was submitted to an officer of the IRS with settlement authority.

Debtors have failed to show that any purported agreement with the IRS, through Paul Unger, has ever been approved by any officer of the IRS with settlement authority.

IT IS ACCORDINGLY ORDERED, that Debtors' Objection to Claim No. 9, Internal Revenue Service, is overruled and denied.

Dated: November 3, 2004