Staue of Limitation (1)

Question of the week - Waiving the statute of limitations
From Tax Research Institute of H&R Block – July 2022
Q.
In 2020, just before the pandemic, the IRS started an in-person audit of Ralph’s 2018 tax return, including
his single-member LLC which he filed on Schedule C (Form 1040). Ralph put his 2018 return on
extension and filed it on October 10, 2019. The audit was suspended because of the pandemic and finally
resumed at the end of 2021, although interactions between Ralph and the examiner have been moving
along very slowly. At this point most of the audit issues have been resolved but Ralph and the examiner
still disagree on two of them. The IRS has now asked Ralph to sign a Form 872 to waive the statute of
limitations. He believes (and we agree) that his positions are the correct ones. Should Ralph sign Form
872 to waive the statute of limitations? Is he required to sign it?
A.
The IRS may ask a taxpayer to waive or extend the statute of limitations when the statutory period of
assessment is close to expiring. Generally, the statute of limitations for assessment of tax is a three-year
period beginning on the later of the due date of the return or the date the return was actually filed. Since
Ralph filed his 2018 return on October 10, 2019, the statute of limitations to assess additional tax for 2018
expires October 10, 2022.
Consequences of signing Form 872
When a taxpayer signs Form 872, Consent to Extend the Time to Assess Tax, the IRS will have a fixed
time limit to:
• Issue a notice of deficiency,
• Decide not to assess tax, or
• Negotiate a new extension.
Note that Form 872 is a consent to waive the upcoming expiration of the statute of limitations, but not
indefinitely. The taxpayer must also provide a new expiration date and indicate which type of tax (income
taxes, e.g.) the consent applies to.
Alternatively, a taxpayer may sign Form 872-A, Special Consent to Extend the Time to Assess Tax. This
waiver acts as an open-ended consent to an extension. It is effective until 90 days after the taxpayer
revokes the waiver by signing Form 872-T, Notice of Termination of Special Consent to Extend the Time
to Assess Tax or after the IRS issues a notice of deficiency.
Considerations for waiving or extending the statute of limitations
When the statute of limitations is about to expire, it may seem counterintuitive for a taxpayer undergoing
an audit to give the IRS more time to assess tax. However, in some circumstances it may be in the
taxpayer’s interest to agree to waive or extend the statute. This may happen, for example, if the taxpayer
is seeking a review of the audit by the Appeals Division.
If the taxpayer does not consent to an extension the IRS will likely assess tax based on the examiner’s
audit findings. In that case, if the taxpayer wants to contest the assessment, the taxpayer must either
petition the Tax Court or pay the tax and file a refund claim in a district court or Court of Federal Claims.

Contesting an assessment in Tax Court can be a lengthy and costly process for the taxpayer. Although a
case going through the Tax Court process will normally go to the Appeals Division first, the taxpayer may
not have sufficient time to have Appeals settle the case. In some instances, a case on the Tax Court
Docket may not go to the Appeals Division.
Ralph should weigh these considerations carefully in light of his audit issues and belief that his position is
correct. Waiving or extending the statute could give him more time to work with the examiner and possibly
iron out their remaining differences. If not, he would also have time to present his position to Appeals and
avoid the cost and difficulty of going to court.
In any case, Ralph is not required to sign the waiver form. As explained above, he also has the right to
limit both the subjects and the amount of time the extension covers.