Form 872 statute extensions: fixed-date, open-ended and restricted consents, and when to refuse

What a consent does

IRC 6501(c)(4)(A) allows the IRS and the taxpayer to agree in writing, before the assessment period expires, that tax may be assessed later. The period can be extended again by further agreements made before the previous one expires. IRM 25.6.22.2 adds the timing rule that trips people up: “To be valid, the consent form evidencing the agreement to extend the period of time to assess tax must be executed by both the taxpayer and the IRS before the statutory period for assessment expires.” A consent the taxpayer signs on time but the IRS signs late is not valid. Consents are available for all taxes except estate tax.

Not every signed form is a consent. IRM 25.6.22.2 notes that agreement forms such as Form 4549 and Form 870 waive restrictions on assessment but that “the taxpayer's execution of these forms does not extend the period of time to assess tax.” See signing Form 870 or 4549.

When the IRS may ask

The starting point is restraint. IRM 25.6.22.2.1 says: “It is the policy of the IRS to secure consents to extend the period to assess tax only in cases involving unusual circumstances,” and the extension must be no longer than needed to finish the exam and administrative actions. Examiners need group manager approval before asking, except when the consent is sought only so the case can go to Appeals. The IRM lists conditions that warrant a request, including:

A consent will not be requested where there was no previous contact with the taxpayer, unless compelling tax administration reasons exist, such as consistent treatment of related taxpayers. In campus correspondence cases, Letter 907 with Form 872 goes out when fewer than 13 months remain and the case is headed to Appeals or an area office (IRM 4.19.13.16 and 4.19.13.17).

The rights the IRS must disclose

IRC 6501(c)(4)(B) requires the IRS, each time it asks, to notify the taxpayer of “the taxpayer's right to refuse to extend the period of limitations, or to limit such extension to particular issues or to a particular period of time”. IRM 25.6.22.3 implements that: the examiner mails or hands over the consent form (which prints the rights), Letter 907 (Letter 967 in Appeals) and Pub 1035. A represented taxpayer's representative receives the consent and letter with Letter 937, and the taxpayer still receives the package with Pub 1035. Each spouse on a joint return is notified separately. The examiner documents who was notified, when and how. Letter 907 generally allows at least 10 calendar days to respond (IRM 25.6.22.4.2).

If the taxpayer has questions, the examiner is to explain in plain language the reason for the request, how the proposed date was chosen and that the statute can be extended again if needed. Ask those questions; the answers tell you how much time the IRS believes the case needs.

The consent forms

A fixed-date consent ends on the date stated, entered as month, day and year (IRM 25.6.22.5.7). Pub 1035 says the fixed-date consent is used for most examination and appeal activities. For partnerships under the centralized audit regime, see the BBA statute of limitations.

Form 872-A and Form 872-T

Under IRM 25.6.22.7.1, Form 872-A keeps the period open until the earliest of: 90 days after the IRS office considering the case receives Form 872-T from the taxpayer; 90 days after the IRS mails Form 872-T to the taxpayer; 90 days after a notice of deficiency is mailed plus 60 days after the period the IRS is barred from assessing; or the assessment that reflects a final determination after Appeals consideration. Some assessments do not end it, including assessments under a partial agreement, jeopardy assessments, math error corrections and tax shown on an amended return. A signed Form 870 does not end it either, because the form itself says: “It will not prevent us from later determining, if necessary, that you owe additional tax.”

Ending an open-ended consent takes the prescribed form. A letter or phone call is not enough; under IRM 25.6.22.7.1.4 the IRS will reply that termination requires a properly executed Form 872-T and send a partly completed one. The 90 days run from receipt in the office considering the case, so send it there, by a method that proves delivery, and calendar the 90th day. An open-ended consent suits a case headed to Appeals with an uncertain schedule; it is a poor fit where the client wants a hard stop.

Restricted consents

A restricted consent extends the period only for listed issues and lets it expire for everything else. IRM 25.6.22.8.1 states the IRS view: “It is the position of the IRS that the taxpayer's right to a restricted consent is the right to request a restricted consent.” Under IRM 25.6.22.8.2 and Pub 1035, the IRS will generally agree when all of these are true: the number of open issues makes it practical; the restrictions clearly describe every open issue; the other issues are agreed with provision for assessing any deficiency; an appropriate official approves; and Area Counsel approves the wording. Restricted consents are discouraged until all potential issues have been identified, and are generally not accepted in Joint Committee cases.

The standard wording, in IRM 25.6.22.8.12, limits any deficiency to the adjustments to the described areas, related penalties and additions, and consequential changes, and adds a sentence limiting IRC 6511(c) refunds to those adjustments. Pub 1035 says the consent “should be prepared by the Service, and not by the taxpayer or the taxpayer's representative.” If you want restrictions, ask the examiner to prepare a new form with them; do not mark up the IRS draft.

Who can sign

A representative can sign a consent only with a power of attorney valid at signing that specifically authorizes signing consents and lists the tax type and periods, not “all years” (IRM 25.6.22.5.8.1). The acts-authorized language on Form 2848 (Rev. 1-2021) says the representative shall have the authority to sign any agreements, consents, or similar documents for the matters listed, so the periods and tax type on line 3 must cover the year being extended. Three traps: an unenrolled return preparer generally cannot sign; on a joint return the representative's signature binds only the spouse who signed the power of attorney; and “a representative appointed by a taxpayer with proper grant of authority to sign a consent ceases to have authority to sign the consent upon the death of the taxpayer.” The power of attorney must be dated on or before the date the representative signs the consent.

Refusing or limiting

Refusal is a right, but it has predictable consequences, and IRM 25.6.22.3 requires the examiner to explain them: a notice of deficiency may be issued, or other action taken where a notice is not required before assessment. In practice, refusing usually means:

1. No Appeals consideration before assessment if fewer than 365 days remain when the case would reach Appeals. With under 240 days left, the examiner issues the report with Letter 5153 and asks for a consent; if none is signed and the case is unagreed, it goes to Technical Services for a notice of deficiency (IRM 4.10.8.12.1).
2. A shorter exam with less time to submit documents. Adjustments are written on the record as it stands.
3. The route to an independent review becomes the Tax Court, through a petition after the notice of deficiency. Appeals can still consider a docketed case.

Limiting is often better than refusing. The taxpayer can propose a shorter date or restricted issues. The IRS is not bound to accept: IRM 25.6.22.3 says that “If the taxpayer requests an extension period that is shorter than needed to complete the examination and other administrative actions, the IRS is not compelled to agree to such period of time,” but the examiner must explain why a proposal is rejected. A taxpayer with a pending refund claim, or with issues the IRS has not yet found, has reasons to weigh the extension differently. See Appeals and the statute and the assessment statute.

Questions practitioners ask