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Old 10-02-2008, 03:38 PM
 
Location: Rural Central Texas
3,080 posts, read 5,610,685 times
Reputation: 4282
Default IRS Audit Question: 3 yrs Statute of Limitations

I was audited a few months ago and the auditor's final report indicated a number of changes that I did not agree with and I appealed the audit. I have only just been contacted by the new reviewer and he has asked me a question that I am not sure how I should address.

The current reviewer has told me that there is a three year limitation which is rapidly approaching for the 2005 tax year, after which neither I nor the government can make any changes to my return. He wants me to file a waiver of limitations to permit the appeal to have the ability to make changes to my return after this three year limitation has expired.

My question is should I sign this waiver? If the original auditor has made changes to the return disallowing my deductions, then those extra taxes become set in stone. If by appealing the original auditor I prevented the return from being modified pending the appeal, then if the limitations expire the return must remain as I filed it with the original deductions intact and the IRS cannot demand any additional taxes.

Which is the true scenario? Did IRS already change my return to reflect the first auditors decision or is it still in the orginal status pending the completion of the appeal? If I refuse to waive the limitation do I help myself or shoot myself in the foot?
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Old 10-02-2008, 08:22 PM
 
516 posts, read 1,196,362 times
Reputation: 252
You don't want to mess with the IRS - you need to talk to a tax attorney ASAP.
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Old 10-03-2008, 08:56 AM
 
2,758 posts, read 5,654,585 times
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The IRS will not let their statute expire. If you refuse to extend the statute so there is "enough" time for appeals to hear the case and make a determination, they will issue a Statutory Notice of Deficiency which will give you exactly 90 days to file a petition in tax court.

There are many minor issues here but the statute is an important item for them to protect and having a Statutory Notice of Deficiency can create a lot of headaches and extra costs.

Depending on the $$$ involved and issues, perhaps it is time for some advice from a qualified professional and not an online service.
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Old 10-03-2008, 11:22 AM
 
Location: Ohio
10,406 posts, read 5,752,160 times
Reputation: 5969
Quote:
Originally Posted by johnrex62 View Post
The current reviewer has told me that there is a three year limitation which is rapidly approaching for the 2005 tax year, after which neither I nor the government can make any changes to my return. He wants me to file a waiver of limitations to permit the appeal to have the ability to make changes to my return after this three year limitation has expired.
Let me explain something to you.

There is a 10 year statute of limitations. That is the period in which the IRS must move to collect taxes due. If they fail to initiate any action to toll the statute of limitations within 10 years, they cannot collect the taxes owed.

Now, let's shift gears.

What you are asking about is a 3 year statute of limitations. You'll find that under section 6501(a) of the IRS Code and section 301.6501(a)-1(a) of the tax regulations. Basically, the IRS is required to assess a tax within 3 years after the tax return was filed.

Also under 301.6501(a)-1(b) of the regulations, the IRS cannot begin a proceeding in tax court after the expiration of 3 years.

The statute of limitations applies to the IRS, not to you. If I read this right, he's trying ********* by getting you to waive the statute of limitations so that they can sue you later.

From the IRS:

Quote:
Statutes of limitations generally limit the time the IRS has to make tax assessments to within three years after a return is due or filed, whichever is later. That particular date is also referred to as the statute expiration date. Statute of limitations will also limit the time you have to file a claim for credit or refund.
So if you are due a refund and the statute of limitations expires you wouldn't get a refund, unless you waived it.

You probably have Form 872, Consent to Extend the Time to Assess Tax.

If you think you are right and the IRS owes you a refund, sign the waiver.

If you think you might owe the IRS a huge chunk of taxes, don't sign the waiver.

If you didn't prepare your own taxes, you might want to get with the tax preparer on this, and like others have said, it wouldn't hurt to talk to an attorney.

If the amount of money in question here is chump change, don't worry about it.
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Old 10-03-2008, 01:23 PM
 
Location: Chicago (Albany Park)
651 posts, read 1,373,712 times
Reputation: 517
Quote:
Originally Posted by sweetana3 View Post
The IRS will not let their statute expire. If you refuse to extend the statute so there is "enough" time for appeals to hear the case and make a determination, they will issue a Statutory Notice of Deficiency which will give you exactly 90 days to file a petition in tax court.

There are many minor issues here but the statute is an important item for them to protect and having a Statutory Notice of Deficiency can create a lot of headaches and extra costs.

Depending on the $$$ involved and issues, perhaps it is time for some advice from a qualified professional and not an online service.
This is pretty much right on. Basically, the IRS is asking for some more time to finish your case. They likely won't extend the assessment period very long, maybe 6-12 months at most. If you don't sign, they'll issue a 90-day letter after which you can either:

- file a tax court petition (which stops the clock on the assessment period and sends your case to appeals); or
- pay the disputed amount of tax and sue for a refund in US district court

So yeah, go see an attorney or CPA with experience representing folks before the IRS.
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Old 10-03-2008, 01:24 PM
 
Location: southern california
49,278 posts, read 45,802,045 times
Reputation: 40356
need a tax attorney asap. bad stuff can happen on retro audits.
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Old 02-26-2009, 07:24 PM
 
1 posts, read 21,107 times
Reputation: 10
I always choose signing the waiver for my clients. You're at appeals already so put up your best documented evidence and try to lower those adjustments. If you don't sign, you have to file a court petition within 90 days. At best you can get appeals to look at the case without you going to tax court. Usually appeals isn't able to do audits so they send it back to exam anyway. (not always). Appeals oversees it. Nothing a lot different then what will happen now. If your arguments are simple and the appeals officer experienced, with a small case load, they may do the exam of your data themselves.
Either way, hire someone experienced in audit appeals to represent you. You'll be glad you did

Last edited by www.taxproblemdotorg; 02-26-2009 at 07:26 PM.. Reason: spelling errors
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Old 02-27-2009, 06:27 AM
 
Location: Baltimore
1,749 posts, read 4,339,917 times
Reputation: 1605
I do not work for the IRS, but if their rules are similar to state tax rules, if a taxpayer fails to sign a waiver of limitations, it only expedites the assessment process. If it appears as though there is a liability, and the statute is not allowing sufficient time in which to review all of the relevant information, an estimated assessment is issued in order to protect the agency's right to collect the deficiency. This means you end up in court a little earlier, whereas if you sign the waiver you have time to work things out and hopefully avoid court altogether.
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