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.