Form 872 – Consent to Extend the Time to Assess Tax

Technical topics regarding tax preparation.
#1
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I have a client that is currently under audit for his 2017 income tax return. It is a National Research Program audit, so they are not looking at any suspected deficiency in the tax return. They did ask for an extensive list of documentation, mostly related to his Schedule C. Gathering the required documentation, two potential issues were discovered, which we reported in a cover letter to the auditor when we delivered the requested audit documentation.

1. The client found several deposits that were not in his original accounting, so gross receipts were underreported on the tax return by about $6.6k. The correct total receipts were about $248.6k, so the underreported income was about 2.7% of gross receipts.

2. The client had a foreign checking account that, while it did not any income, did have enough money in it to require Form 8939, Statement of Specified Financial Assets, which was not filed. The client thought that since the account earned no income, he didn’t need to let me know about it for his tax return. Yes, I know I was supposed to ask. (There also now an issue of the delinquent FBAR filing. That’s outside the scope of this audit, I believe, but I imagine he will get a notice about it).

The auditor is working at home because of the pandemic and has generally been slow to respond to my voicemails and emails. Even before I sent the letter notifying here of the issues, she mentioned that she might send a Form 872, Consent to Extend the Time to Assess Tax. We have now received a Form 872 requesting an extension to December 31, 2022. The current statute of limitations for the audit is in September 2021. I have no reason to think that the Form 872 is in response the information we provided, because she mentioned that she might send the form before we even sent her any information. I think they are very, very backlogged at the IRS right now.

So, my question is, should the client grant the consent to extend the audit deadline by over a year to December 2020? I can’t think of a reason to, but I don’t have a lot of experience with these kinds of audit deadline extensions. Any insight would be greatly appreciated.
 

#2
skassel  
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I would ask why they feel the need to extend out an addtional 15 months. I would tell them that an extension of 6 months would be appropriate.
Steve Kassel, EA
 

#3
dave829  
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skassel wrote:I would tell them that an extension of 6 months would be appropriate.

I disagree. The request for the 872 is premature. Examiners are required to solicit a consent when the statute of limitations is due to expire in 180 days. See IRM 25.6.22.2.1(3)(a).

https://www.irs.gov/irm/part25/irm_25-0 ... 1043310336
 

#4
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Yeah, at this point, I'm don't feel like the client should grant the consent, but I'd love to hear other opinions. I don't see why they should need more time when we gave them all the information they asked for in October. I don't have any reason to think they've even looked at documents information we gave them. I think they're just understaffed and stalling for time.
 

#5
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I typically sing off on these and send them back, mostly just to play nice with the auditor.
More bees with honey, than vinegar, as the saying goes.
I have never had a situation where I thought it prudent not to play along nicely.
 

#6
dave829  
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I used to just sign off on 872s in order to "just play nice with the auditor" until one instance where the auditor took no action on the case for over a year, then I decided to challenge them. As a result, if the current statute of limitations is September 2021, and the auditor is asking for an extension to December 31, 2022, I would be concerned that the auditor is going to just put the file into the cabinet and let it languish for a year or more before taking any action.
 


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