Wednesday, September 12, 2012

Consents to Extend the Statute of Limitations Must Be Properly Executed During Open Period (9/12/12)

My partner, Larry Jones, called this IRS memorandum to my attention.  ILM 201235009, here, published also at 2012 TNT 171-27.   The bottom line is that, while the statute of limitations of limitations was still open a Form 872-I, Consent to Extend the Time to Assess Tax As Well As Tax Attributable to Items of a Partnership, here, had been signed by the Revenue Agent who did not have authority to sign a consent.  A person authorized to sign the consent subsequently signed the consent over two years later, after the statute of limitations had expired.  Held, the consent was invalid because an authorized signature for the IRS had not occurred during the period of the statute of limitations.

The memo summarizes the requirements for a valid consent as follows:
To be valid, an agreement by the taxpayer to extend the statute of limitations on assessment must be (1) in writing; (2) entered into before the expiration of the original collection period or a previously agreed upon extension; and (3) executed by the taxpayer and an authorized delegate of the Commissioner. I.R.C. § 6502(a); Treas. Reg. § 301.6502-1(a)(2)(i). In an Action on Decision regarding Rohde v. United States, 415 F.2d 695 (9th Cir. 1969), the Service acceded that, under applicable Treasury Regulations, the Commissioner (or his delegate) must counter-sign a waiver form prior to the expiration of the period of limitations for the waiver to be effective. AOD-1973-442, 1973 WL 35098 (IRS AOD). Although Rohde only addressed the validity of a waiver of the six-year period of limitations on collection after assessment, the AOD states that the signature requirement also applies to extensions of time for the assessment of income tax (i.e. Form 872). Id.
This requirement of valid signatures by the taxpayer and the IRS within the open period of limitations applies to the types of consents tax controversy practitioners usually deal with - such as most prominently the regular Form 872, here.  We recommend that taxpayers check their consents to make sure that they are signed by a person with proper authority.

One question I would have is whether a Form 872 or other form having that also extends the refund statute of limitations signed by an IRS agent without proper authority could be relied upon the taxpayer to claim a refund.  Note that the current Form says:  "(2) 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)."  That provision is consistent with the statute, Section 6501(c), here.  But it assumes a valid consent.  I suppose that (i) the IRS would not have the poor grace to raise the bar of the statute of limitations and (ii), if it did, a court would invoke some equitable doctrine (such as estoppel) or the doctrine of apparent authority to permit the the claim for credit or refund.

Addendum 9/15/12:  I received a related question on my Federal Tax Crimes Blog.  I will provide the answer (the answer covers the question so it is not needed:

The rule is that a return filed on or before the original due date for the return is deemed filed on the original due date.  A return filed after the original due date is filed on the date the IRS receives the return.  The filing date thus determined starts the beginning of the statute of limitations. 
The original due date for Forms 1040 is April 15.  The original due date for Forms 1040-NR are either April 15 or June 15, depending on whether the taxpayer received wages subject to income tax withholding.  U.S. taxpayers residing overseas are given an automatic 2-month extension from the normal due date (April 15) to June 15; that is an extension, the original due date is still April 15. 
So, applying these rules to your facts:
Return filed 3/1/06
Return deemed file 4/15/06 See § 6501(b)(1) and § 6513(a).
3 year assessment period ends 4/15/09
Taxpayer signs extension ??/??/11
IRS signs consent to extend on 9/10/12.
The consent to extend is ineffective because not filed within the statute of limitations. 
I hope this answers your question. 
Jack Townsend

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