IRS Requests to Extend the Statute of Limitations
When business owners are engaging with the Internal Revenue System, there are often complex compliance requirements and processes that must be followed. Due to delays caused by the coronavirus, if you are in an examination with the IRS, you may receive a request to extend the statute of limitations.
First, what is the statute of limitations? The general rule is that IRS has 3 years to assess any tax, starting from the date a return is filed (remember that there are always exceptions to the rule). If you have an examination underway, you may start running up to that statue of limitations and IRS will likely ask you to sign a Form 872 which would extend that time for assessment.
If you receive such a request, your first inclination might be a quick “NO”, but there are some issues to consider. It is frustrating to consider extending any examination by IRS as it is an imposition and stressor in your life. Let’s look at your options.
If you are part-way through an examination and the statute is about to run, the IRS will likely issue a “Notice of Deficiency” assessing the maximum tax amount that they can. In other words, they will assess the largest amount of tax with adjustments that are least favorable to you. In that case, the options for recourse are to petition the US Tax Court within 90 days or to request an Appeals hearing. Alternatively, you can pay the tax assessed and file a claim for a refund. A claim for refund would be examined and could also be appealed.
If you decide you are willing to agree to the extension you can include some limitations on the amount of time allowed, or try to limit the tax items in question. If you do allow for a restricted extension, you can sign an additional consent in the future to broaden that if necessary. A shorter window of time might help to move the examination along. As always with tax issues, this is an overview but the best answer for you requires a deeper and more thorough look at all the details of your situation.
This article is an overview of legal considerations and does not cover every legal right or obligation, consideration, exception, or restriction. Every business decision should be well researched and discussed with a professional before being made.
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