[Date]
[Examiner name and title]
Internal Revenue Service, [Group and address from Letter 907]
cc: [Group manager name], Group Manager
Re: Letter 907 dated [Date] requesting Form 872 for [Form 1040 / 1120 / 1065], tax year(s) [Years]
Taxpayer: [Client name(s) as shown on the return] TIN: [SSN or EIN]
Current assessment statute expiration date: [Date as the taxpayer computes it] Proposed extension on the draft Form 872: to [Date on the IRS draft]
Dear [Mr./Ms. Name]:
I represent the taxpayer under the Form 2848 on file, which authorizes me to sign consents for the tax and periods above. I have received the Form 872, Letter 907 and Publication 1035. The taxpayer declines to sign the general consent as drafted, and under IRC 6501(c)(4)(B) and IRM 25.6.22.8.1 requests a restricted consent limited to the issues and the period described below. The taxpayer is willing to sign a restricted consent that the IRS prepares on those terms.
1. Issues to be covered
The examination has been in progress since [Date of initial contact]. The following issues remain unresolved and are the only issues the taxpayer agrees to keep open:
- [Area of consideration 1, described as an area rather than a tax treatment, e.g. 'the deduction claimed for the cost of goods sold of [business]' or 'the basis of the [property] sold on [date]']
- [Area of consideration 2]
- [Add: items affected by continuing tax effects caused by adjustments to any prior tax return, if the IRS asks for it]
[All other proposed adjustments / The adjustments to [list] shown in the examiner's report dated [date]] are agreed. The taxpayer will sign a partial agreement on Form 870 for those items so that the agreed tax can be assessed before the current expiration date, as IRM 25.6.22.8.4 contemplates.
2. The IRM 25.6.22.8.2 conditions
- The number of unresolved issues ([number]) does not make a restricted consent impractical.
- Each unresolved issue is described above; the taxpayer will accept any clarification of scope the IRS or Area Counsel considers necessary to describe it clearly and accurately.
- The remaining issues are agreed and the taxpayer will execute the partial agreement described in section 1 so that provision is made for assessing the deficiency on them.
- The taxpayer asks that the use of the restricted consent be approved by the appropriate official and that the wording be approved by Area Counsel, and understands that the IRS prepares the restrictive language.
3. Wording and placement
The taxpayer asks that the consent carry the basic restrictive statement in IRM 25.6.22.8.12, with the areas of consideration above inserted: “The amount of any deficiency assessment is to be limited to that resulting from any adjustment to (description of the area(s) of consideration), any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment,” together with the sentence the IRM requires on a restricted Form 872: “The provisions of IRC 6511(c) are limited to any refund or credit resulting from an adjustment for which the period for assessment is extended under this agreement.” If the statement will not fit in the space on Form 872, the taxpayer asks that the form reference an attachment, as IRM 25.6.22.8.13 provides, so that the restriction appears on or is referenced on the executed consent itself.
4. Period of the extension
The taxpayer requests a fixed-date consent on Form 872 expiring on [Specific date, month, day and year], not an open-ended Form 872-A. That date allows [N] days beyond the current expiration date, which is sufficient for [the remaining examination steps you have identified / review by Technical Services / the 365 days Appeals requires on receipt]. If you believe a later date is needed, please tell me how the date was determined and what steps remain, as IRM 25.6.22.3 contemplates, and the taxpayer will consider it.
5. Preparation and execution
The taxpayer will not alter the Form 872 you provide. Please prepare a new Form 872 containing the restrictive statement and the expiration date above, in duplicate, and send it to me with a copy of Letter 907 under Letter 937; please also send the consent, Letter 907 and Publication 1035 to the taxpayer[ and separately to [spouse name] at [address] for the joint return]. On receipt I will return the signed consent promptly so that it can be executed by the IRS before [Current expiration date]. Please confirm in writing the assessment statute expiration date the IRS has computed for each year, and send a copy of the fully executed consent when it is signed.
If the IRS declines to accept a restricted consent or a fixed date on these terms, please explain the reasons in writing as IRM 25.6.22.3 requires. The taxpayer understands that in that event the IRS may issue a notice of deficiency, and reserves the right to petition the Tax Court.
Sincerely,
[Representative name, credential]
[Firm, address, phone, fax, email]
CAF [CAF number]
Enclosures: Copy of Letter 907 and the unsigned draft Form 872; [signed Form 870 partial agreement, or a statement that it will be signed on receipt of the partial report]; Form 2848.
When to ask for a restricted consent
Each time the IRS asks for a consent, IRC 6501(c)(4)(B) requires notice 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 delivers that notice with Letter 907, Publication 1035 and the rights printed on Form 872. The IRS reads the right narrowly: “It is the position of the IRS that the taxpayer’s right to a restricted consent is the right to request a restricted consent.” For the forms and the consequences of refusing, see Form 872 statute extensions.
A restricted consent fits when the examination is nearly finished and one or two issues remain. It is a poor fit early: “Restricted consents will be discouraged, if possible, until the examination is completed to the extent that all potential issues have been identified,” and they are generally not accepted in Joint Committee cases. A fixed date rather than Form 872-A is a separate request; the IRS “is not compelled to agree to such period of time” when the date is shorter than it needs, but the examiner must explain a rejection (IRM 25.6.22.3).
The five conditions the IRS applies
IRM 25.6.22.8.2 says the IRS “will enter into a restricted consent requested by the taxpayer if all of the following conditions are met,” and Publication 1035 gives the taxpayer the same list. Section 2 of the letter answers each one.
| IRM 25.6.22.8.2 condition | How the letter addresses it |
|---|---|
| “The number of unresolved issues required to be covered by the restricted consent do not make it impractical to do so.” | States the number of issues |
| “The scope of the restrictions must be clearly and accurately described for all the unresolved issues.” | Describes each area of consideration and accepts clarifying language |
| “The issues not covered by the restricted consent are agreed and provision is made for assessing any deficiency” (or scheduling an overassessment) | Offers a Form 870 partial agreement so the agreed tax is assessed before the ASED (IRM 25.6.22.8.4) |
| “The use of the restricted consent is approved by an appropriate IRS official.” | Asks for the approval and copies the group manager |
| “The wording in the restricted consent is approved by Area Counsel.” | Asks that the IRS draft the wording and obtain Counsel approval |
The wording rules are the IRS’s own. IRM 25.6.22.8.11 says “the restrictive wording will describe the area or areas of consideration rather than the proposed tax treatment,” and Code sections stay out except in the basic statement. The basic restrictive statement and the IRC 6511(c) sentence in section 3 come from IRM 25.6.22.8.12. That sentence limits the refund period to the restricted issues; see protective refund claims.
What each section does
Section 1 names the areas in the IRM’s style and separates the agreed items, because IRM 25.6.22.8.4 requires a partial agreement with the tax “assessed on or before the statute date for all issues not covered by the restricted consent.” Section 3 asks for the restriction on the form or by reference to an attachment; IRM 25.6.22.8.13 notes that Form 872 states it contains the entire terms of the consent and that “A key consideration is that the attention of both the taxpayer and the IRS is clearly directed to the restriction.” Section 4 picks a date, since IRM 25.6.22.5.7 requires a fixed-date consent to show month, day and year. Section 5 is the Piarulle paragraph.
In Piarulle v. Commissioner, 80 T.C. 1035 (1983), the taxpayers signed a three-year Form 872 and an IRS employee struck one year before the IRS signed; the court held the altered form “is invalid and does not operate to extend the period of assessment” for any year, because there was no mutual assent to one instrument. The IRM states the rule from both sides: “The consent must be prepared by the IRS, not by the taxpayer or the taxpayer’s representative,” and “If the taxpayer has made alterations on the consent, a new consent must be prepared for the taxpayer’s signature.” Publication 1035 tells the taxpayer to discuss added restrictions with the employee requesting the consent, and that the IRS “generally will prepare a new consent form.” The letter is that discussion, in writing.
Timing: the ASED, Technical Services and Appeals
The letter has to move faster than the statute. IRM 25.6.22.2 requires the consent to be “executed by both the taxpayer and the IRS before the statutory period for assessment expires,” and a restricted consent adds steps: IRM 25.6.22.8.6 makes the area office responsible for preparing the wording and obtaining Area Counsel’s approval “prior to issuing to the taxpayer,” and the examiner must note on Form 895 that the conditions were met. Letter 907 generally allows “at least 10 calendar days from the date of the letter” to respond (IRM 25.6.22.4.2); answer inside that window even if the answer is a request for different terms. For a case headed to Appeals, “There must be at least 395 days remaining on the assessment statute of limitations when the case is received by Technical Services and at least 365 days remaining on the statute of limitations when the case is received by Appeals.” A fixed date that gives Appeals its 365 days is more likely to be accepted; compute it with the statute date calculator and check the assessment statute rules for the year.
Where to send it and what happens next
- Send the letter to the examiner at the address on Letter 907, with a copy to the group manager, and keep proof of the date.
- The area office prepares the restrictive wording and sends it to Area Counsel for approval of its legal sufficiency.
- If accepted, the IRS sends a new Form 872 in duplicate with Letter 907 and, for a represented taxpayer, Letter 937. Sign without marking the form, return it, and ask for a copy of the executed consent.
- If rejected, IRM 25.6.22.3 requires the examiner to explain why. The choices are then a general consent, a different date, or no consent, in which case a notice of deficiency issues and Appeals comes after docketing; see Appeals and the statute.
Mistakes
- Typing restrictions onto the IRS draft and signing it. IRM 25.6.22.5.2 says altered consents will not be relied on without a new form or Counsel advice, and Piarulle shows an altered instrument can fail for every year on it.
- Describing a tax treatment instead of an area. A description such as disallowance of the Schedule C travel deduction under IRC 162 will be rewritten; travel expenses claimed on Schedule C is the IRM’s style.
- Leaving the agreed issues open. Without a partial agreement the third condition fails and the IRS will insist on a general consent.
- Signing without authority. A representative needs a Form 2848 valid at signing that covers the tax and periods and authorizes consents.
Questions practitioners ask
Can the IRS refuse a restricted consent even if all five conditions are met?
The IRM says the IRS “will enter into” one when the conditions are met, but also that a consent is a mutual agreement and the IRS “is not compelled in all circumstances to agree.” If it declines, the examiner must explain why.
Can a restricted consent be open-ended?
Yes; Publication 1035 says restricted consents have either a fixed or open-ended date. This letter asks for a fixed date on Form 872 because a specific date is one of the rights IRC 6501(c)(4)(B) names and it avoids the Form 872-T termination procedure.
Can one restricted consent cover several years?
Only if the restricted issues are identical for each period (IRM 25.6.22.8.10). Otherwise the IRS prepares a separate form for each year.