IRS Form 872: How to Navigate Extending the Tax Assessment Period During an Audit

Howard Richardson
5 days ago
3 min read

When dealing with the Internal Revenue Service (IRS), taxpayers may encounter a request to sign Form 872, the "Consent to Extend the Time to Assess Tax." This document plays a critical role in the tax examination process, but understanding its implications is crucial before making a decision.

The Foundation: The Statute of Limitations on Assessment

The IRS generally has a limited time to assess additional tax on a return. This period, known as the Assessment Statute Expiration Date (ASED), is a cornerstone of tax procedure, providing finality for taxpayers. According to Internal Revenue Code § 6501(a), the IRS must assess any tax within three years after a return is filed. Once this period expires, the IRS is generally barred from assessing any additional tax for that year save for issues like fraud or criminal charges.

However, tax examinations can be complex and time-consuming. The IRS may need more than the standard three years to resolve all issues fairly. This is where Form 872 comes into play.

What is IRS Form 872?

IRS Form 872, "Consent to Extend the Time to Assess Tax," is a written agreement between a taxpayer and the IRS to extend the three-year statute of limitations for assessing tax. As authorized by IRC § 6501(c)(4), this consent allows the IRS additional time to complete an audit and assess any tax that may be due. It is a voluntary agreement, and the IRS is required to obtain the taxpayer's written consent before the original statute of limitations expires.

Your Rights as a Taxpayer

It is essential to understand that signing Form 872 is not mandatory. The IRS is legally obligated to inform you of your rights. IRC § 6501(c)(4)(B) explicitly states that the Secretary must notify the taxpayer of their right to refuse to extend the period of limitations or to limit the extension to specific issues or a particular timeframe. Your key rights include:

The right to refuse to sign the consent.
The right to limit the extension to a specific period.
The right to limit the extension to particular, unresolved issues (a "restricted consent").

Signing the consent does not waive your appeal rights. You retain all appeal rights you would otherwise be entitled to.

The Strategic Decision: To Sign or Not to Sign?

Deciding whether to sign Form 872 is a strategic decision that depends on the specifics of your case. There are both advantages and disadvantages to consider.

Reasons to Sign Form 872

Provides More Time: Signing the consent gives you and your representative more time to gather documents, research your position, and negotiate with the examiner.
Avoids a Hasty Assessment: If the statute is about to expire and you refuse to sign, the examiner may be forced to issue a Notice of Deficiency based on the information they currently have, which may not be in your favor.
Maintains a Cooperative Stance: Cooperating with the examiner by signing the consent can foster a more favorable environment for resolving the audit.
Preserves Appeal Rights: It allows time for the examination to be completed and for you to pursue administrative appeals within the IRS if you disagree with the findings.

Consequences of Refusing to Sign Form 872

If you choose not to sign the consent, the IRS will proceed based on the expiring statute of limitations. The consequences differ based on the type of tax. For most taxes, including income tax, refusing to sign will prompt the IRS to issue a Notice of Deficiency (also known as a "90-day letter"). This notice details the IRS' proposed changes and the amount of additional tax they believe you owe. You then have 90 days (150 if you are outside the U.S.) to file a petition with the U.S. Tax Court without first paying the disputed amount.

If you do not file a petition within the 90-day period, the IRS will assess the tax and begin collection procedures.

Conclusion

IRS Form 872 is a standard tool used in tax examinations, but it carries significant legal weight. It is a voluntary agreement that extends the time the IRS has to assess tax and taxpayers have the right to refuse, negotiate the terms, or restrict the scope of the extension. The decision to sign should be made after careful consideration of your specific circumstances to determine the best course of action.