IRS Form 870: What It Means to Waive Your Rights in an Audit

Receiving a notice from the Internal Revenue Service (IRS) can be an intimidating experience. As you navigate the complexities of an audit or tax dispute, you will encounter various forms and procedures, each with significant legal implications. One of the most important documents you might face is Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. While signing it can bring a swift end to the examination process, it involves waiving substantial rights. Understanding what this form is, the legal framework behind it, and its long-term consequences is crucial for any taxpayer. 

This article provides a comprehensive overview of IRS Form 870 to help you make an informed decision. 

What is IRS Form 870? 

At its core, Form 870 is a legal document through which a taxpayer agrees with the IRS on the amount of a tax deficiency (an increase in tax) or an overassessment (a decrease in tax) By signing this form, you are giving the IRS permission to immediately assess and collect the additional tax you owe, plus any applicable penalties and interest. In return, the process is expedited, and the accrual of underpayment of interest can be stopped sooner. 

The legal authority for this waiver comes from IRC § 6213(d), which states: "The taxpayer shall at any time (whether or not a notice of deficiency has been issued) have the right, by a signed notice in writing filed with the Secretary, to waive the restrictions provided in subsection (a) on the assessment and collection of the whole or any part of the deficiency." 

To appreciate the significance of this waiver, it is essential to understand the rights you are giving up. 

The Legal Rights You Waive by Signing Form 870 

Under normal circumstances, the IRS cannot simply demand more tax from you. The law provides a protective procedure that the agency must follow. These taxpayer protections, outlined in IRC § 6212 and § 6213(a), include two fundamental rights: 

1. The Right to a Notice of Deficiency: The IRS must first send you a formal "notice of deficiency," commonly known as a "90-day letter." This notice details the IRS’ determination and gives you 90 days (or 150 days if you are outside the United States) to challenge it. 

2. The Right to Petition the U.S. Tax Court: During this 90-day window, you have the right to file a petition with the U.S. Tax Court. Filing a petition allows you to dispute the deficiency in court before paying the amount in question. The IRS is generally prohibited from assessing or collecting the tax until the Tax Court’s decision becomes final. 

Signing Form 870 is a voluntary waiver of these critical rights. You are essentially telling the IRS, "I agree with your findings, and you do not need to send me a 90-day letter or wait for me to go to Tax Court. You can assess the tax now." 

Key Consequences of Signing Form 870 

Signing Form 870 sets in motion several important outcomes that affect both your obligations and the IRS’ procedures. 

Suspension of Interest 

One of the primary benefits of signing Form 870 is the potential to stop the clock on interest. According to IRC § 6601(c), if the IRS does not issue a notice and demand for payment within 30 days of filing the waiver, the accrual of interest on the deficiency is suspended. The suspension period starts on the 31st day after the waiver is filed and ends when the IRS issues its notice and demand. This can result in significant savings, especially in complex cases that have been open for a long time. 

You Can Still Sue for a Refund 

Crucially, signing Form 870 does not prevent you from changing your mind later and seeking a refund. After you pay the assessed tax, you retain the right to file a formal claim for refund with the IRS. If the IRS denies your claim or fails to act on it within six months, you can then sue for a refund in a U.S. District Court or the U.S. Court of Federal Claims. This is a vital distinction because you are giving up your right to a pre-payment forum (the Tax Court) but not your right to a post-payment forum. 

Form 870 vs. Form 870-AD: A Critical Distinction 

Taxpayers are often confused by the difference between Form 870 and Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment. While the names are similar, their legal effects are profoundly different. The "AD" in Form 870-AD signifies that it is used by the IRS Appeals Division and functions as a more binding settlement offer. 

Form 870-AD is typically used to resolve cases involving mutual concessions, where both the taxpayer and the IRS compromise on one or more issues. In contrast, Form 870 is used for cases agreed in full, without such concessions. 

It is important to note that while Form 870-AD is treated as a binding contract by the IRS, some courts have challenged this view. In Howe v. Commissioner, the Tax Court reiterated that only closing agreements that comply with the strict requirements of IRC § 7121 and § 7122 are truly binding on both parties. Nonetheless, taxpayers should treat a Form 870-AD as a final settlement and not expect to be able to file a refund claim later. 

Should You Sign Form 870? 

The decision to sign Form 870 depends entirely on your circumstances. If you and your tax advisor have thoroughly reviewed the auditor’s proposed changes and agree that they are correct, signing the form can be an efficient way to conclude the audit and minimize further interest charges. 

However, if you have any doubts about the accuracy of the adjustments or believe the auditor has misinterpreted the law or the facts, you should not sign. Signing away your right to go to Tax Court is a significant step. Once you sign, your only recourse is to pay the tax and then fight for a refund, which can be a more burdensome and expensive process. 

Before signing any agreement with the IRS, it is highly recommended that you consult with a qualified tax professional who can analyze your case, explain the long-term consequences, and help you determine the best course of action. 

Conclusion 

IRS Form 870 is more than just a standard administrative document; it is a powerful legal instrument that alters a taxpayer’s fundamental rights in a tax dispute. By waiving the restrictions on assessment, you allow the IRS to bypass the statutory notice procedures and move directly to assessment and collection. While this can be advantageous for stopping the accrual of interest and finalizing an agreed audit, it comes at the cost of losing access to the U.S. Tax Court. 

Understanding the distinction between Form 870 and the more binding Form 870-AD is equally critical, as each serves a different purpose at different stages of a tax controversy. By arming yourself with this knowledge, you can better navigate your interactions with the IRS and protect your financial interests. 

If you found this article helpful, download the QR Code or click the button to watch the free video, The Ultimate Guide to Solving Your IRS Tax Problems for more in-depth strategies to fix IRS tax issues. 

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