Sometimes things just aren’t quite handled as they should be, even by the IRS in attempting to obtain a consent to extend the statute of limitations under IRC §6501(c)(4). In Chief Counsel Email 201652023 an attorney in the IRS National Office outlined what she saw as the impact of the failure to use the proper form to obtain the consent.
As most advisers are aware, it’s not unusual for an examination of a taxpayer’s return to take considerable time and, in many cases, the exam is not near begin completed as the deadline for the IRS to assess tax under IRC §6501 approaches. When that happens, the IRS will ask a taxpayer to agree to extend the time to assess tax under the provisions of §6501(e)(4).
IRC §6501(e)(4) provides:
(4) Extension by agreement
(A) In general
Where, before the expiration of the time prescribed in this section for the assessment of any tax imposed by this title, except the estate tax provided in chapter 11, both the Secretary and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.
(B) Notice to taxpayer of right to refuse or limit extension
The Secretary shall notify the taxpayer 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, on each occasion when the taxpayer is requested to provide such consent.
As is noted above, a taxpayer is not required to consent to extend the statute. However, as most advisers understand, a failure to do so will generally result in the agent concluding the exam immediately by resolving all remaining open issues against the taxpayer. That does not mean that consent should always be given, but rather that the impact of being forced to move beyond the agent level if consent is withheld must be considered. That impact is both with regard to the likely eventual outcome on the outstanding issues and the costs that will be incurred.
In this case, for reasons not explained in the email, the IRS agent apparent filled out Form 872-H (which generally grants consent to extend the statute by a trust) instead of Form 872 (which would be used for most other cases including, in this case, a married couple filing a joint return). The husband signed the Form 872-H. As there was no “spouse” line on that form, the wife did not sign the form and the agent accepted the form as filed.
Sometime later, likely after the regular statute under IRC §6501 had expired, the fact that the wrong form had been used to extend the statute and the fact that only the husband had signed the form was discovered. The email is a response to what appears to be a simple question—was the statute extended when the husband signed the Form 872-H?
The email concludes that, despite using the wrong form, that the Form 872-H should serve to extend the statute of limitations. While the email does not explain the rationale for this decision, it seems to this author an appropriate decision. In the case of Hartland Management Services, et al v. Commissioner, TC Memo 2015-8 the Tax Court found the key question to be decided was whether there was intent to extend the statute even when the Form 872 was not properly completed. In that case the wrong dates were entered by the agent on Form 872, but the Court found that the taxpayer was aware of the purpose of the form and the intended extension, thus the form served to extend the statute. Presumably the same argument would apply here.
But the memo concludes that because the wife did not sign the form, the statute is only extended with regard to the husband. Again, this makes sense, since there is no evidence that the wife consented to an extension of the statute.