What is IRS Form 872 Statutory Extension Consent Used For?

IRS Form 872 Statutory Extension Consent

Recently, we had a US Taxpayer reach out to us who is being represented by another tax law firm in a voluntary disclosure case. While this firm touts itself as self-proclaimed international tax experts – they may have caused the Taxpayer hundreds of thousands of dollars in Offshore Penalties (read: just copying another more experienced law firm’s blog posts and claiming to be an expert — does not make you an expert). The taxpayer approached us because the IRS had requested that he sign a Form 872 extending the Statute of Limitations for one year. We confirmed that extending the SOL in VDP cases was commonplace and an inherent part of cooperating with the IRS.  Previously, the prior law firm told the Taxpayer not to extend the SOL. While a Taxpayer may not absolutely have to do extend the SOL — it will negatively impact their Voluntary Disclosure case if they do not sign it. That is because refusing to sign Form 872 ties the examiner’s hands when it comes to negotiating the penalty — as the Agent/Examiner is now under a tight deadline that they cannot miss. In this particular case, since the taxpayer rejected the 872 notice, the IRS hit them with the maximum penalty — without providing the Taxpayer an opportunity to dispute the penalty amount. When Taxpayers directly reached out to the IRS, they were told that because the Taxpayer refused to sign the extension of the statute of limitations, they had no choice but to issue the penalty to avoid the statute expiring.

What is Form 872?

Form 872 is a simple form invoice in which the Taxpayer agrees to extend the statute of limitations through the following year (usually), to allow the IRS sufficient time to work the case. They are commonplace in nearly all VDP cases.

What Does Form 872 Provide?

The content of Form 872 is as follows:

• • • The amount of any Federal (Kind of tax) tax due on any return(s) made by or for the above taxpayer(s) for the period(s) ended may be assessed at any time on or before (Expiration date). If a provision of the Internal Revenue Code suspends the running of the period of limitations to assess such tax, then, when, under the Internal Revenue Code, the running of the period resumes, the extended period to assess will include the number of days remaining in the extended period immediately before the suspension began.

    • The taxpayer(s) may file a claim for credit or refund and the Service may credit or refund the tax within 6 months after this agreement ends, except with respect to the items in paragraph (4).

    • Paragraph (4) applies only to any taxpayer who holds an interest, either directly or indirectly, in any partnership subject to subchapter C of chapter 63 of the Internal Revenue Code.

    • Without otherwise limiting the applicability of this agreement, this agreement also extends the period of limitations for assessing any tax (including penalties, additions to tax and interest) attributable to any partnership items (see section 6231 (a)(3)), affected items (see section 6231(a)(5)), computational adjustments (see section 6231(a)(6)), and partnership items converted to nonpartnership items (see section 6231(b)). Additionally, this agreement extends the period of limitations for assessing any tax (including penalties, additions to tax, and interest) relating to any amounts carried over from the taxable year specified in paragraph (1) to any other taxable year(s). This agreement extends the period for filing a petition for adjustment under section 6228(b) but only if a timely request for administrative adjustment is filed under section 6227. For partnership items which have converted to nonpartnership items, this agreement extends the period for filing a suit for refund or credit under section 6532, but only if a timely claim for refund is filed for such items.

    • This Form contains the entire terms of the Consent to Extend the Time to Assess Tax. There are no representations, promises, or agreements between the parties except those found or referenced on this Form.

Voluntary Disclosure and 872 Statute Extension

Oftentimes, IRS agents are overworked and fall behind when it comes to processing voluntary disclosure cases – with many cases taking several years to complete – even for a relatively straightforward voluntary disclosure case. Once the case has been assigned to an agent or examiner and the statute of limitations may be nearing, the agent will request the taxpayer to sign a form 872 extending the statute of limitations for the matter – and it is common practice to sign the form. In fact, under the prior version of OVDP, taxpayers were required to extend the statute of limitations in order to provide ongoing cooperation throughout the resolution of the matter, and based on the above-referenced scenario, it does not appear that that concept has changed under New VDP either.

We Specialize in Streamlined & Offshore Voluntary Disclosure

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure, Voluntary Disclosure, and New OVDP.

Contact our firm today for assistance with getting compliant.