The Tax Court Discusses the Assessment Statute of Limitations, Form 872, Form 872-A and Form 872-T

A recent decision in by the U.S. Tax Court in Fine v. Commissioner, 167 T.C. No. 13(2026)  is a good reminder about the IRS assessment statute of limitations (SOL) and the impact of agreements to extend the assessment statute of limitations.

By way of background, Internal Revenue Code § 6501(a) provides the IRS with three years after a return is filed to assess additional tax or issue a notice of deficiency. Section 6501(c)(4), however, allows the taxpayer and the IRS to agree in writing to extend that period, by executing either a Form 872, Consent to Extend the Time to Assess Tax or Form 872-A, Special Consent to Extend the Time to Assess Tax. Forms 872-A are rare and are typically requested by the IRS during complex or protracted audits.  In almost 40 years of practicing tax law, I have seen very few cases involving a Form 872-A, one of which I will discuss below.

Although a Form 872-A is rare, it is important to understand the differences between a Form 872 and Form 872-A. Both a Form 872 and a Form 872-A must be executed by the taxpayer and the IRS before the assessment SOL expires to extend the assessment SOL. That is where the similarities end. The most important difference between a Form 872 and a Form 872-A is that while a Form 872 extends the assessment SOL to an agreed upon date, typically the end of a year, a Form 872-A extends the assessment SOL indefinitely. The Tax Court has called a Form 872-A as a waiver of the assessment SOL. However, the indefinite extension of the assessment SOL provided by a Form 872-A can be terminated by a taxpayer sending the IRS an IRS Form 872-T, Notice of Termination of Special Consent to Extend the Time to Assess Tax. Upon receipt of a Form 872-T, the IRS has 90 days to either assess additional tax or send the taxpayer a notice of deficiency. If the IRS fails to send the notice of deficiency or assess additional tax, the tax year is closed.

In Fine v. Commissioner, the IRS examined the taxpayers’ federal income tax returns for the 2015 and 2016 tax years. During the examination, the taxpayers signed Forms 872 extending the time to assess tax for the 2015 tax year until December 31, 2021, and for the 2016 tax year until June 30, 2021. After failed settlement negotiations with the IRS Independent Office of Appeals, the taxpayers faxed Forms 872-T to the IRS on September 11, 2020, attempting to terminate the previously executed Forms 872 and requesting the expedited issuance of a notice of deficiency. The IRS subsequently issued notices of deficiency on April 15, 2021, which was within the periods agreed to on the Forms 872 but more than 90 days after receiving the taxpayers’ Forms 872-T. The taxpayers filed a petition with the Tax Court, asserting that the notices of deficiency were untimely because they were issued more than 90 days after the IRS received the Forms 872-T. The Tax Court granted partial summary judgment in favor of the IRS, holding that Form 872-T cannot be used to terminate a Form 872. The court explained that Form 872 is a fixed-date extension that expires on a specific, agreed-upon date, whereas Form 872-A is an indefinite extension designed to be terminated by the taxpayer or the IRS through the execution and remittance of Form 872-T. 

Although the decision in Fine is not surprising, it reminded me of a case where we had a Form 872-A, and we filed a Form 872-T.  I was contacted by a large corporate taxpayer which had been in an IRS examination involving multiple tax returns for several years and there were Forms 872-A for all the years at issue. The taxpayer had not had any communications with the IRS in over 12 months and was exploring options. The taxpayer knew about Form 872-T and wanted to understand what to expect if they filed a Form 872-T. We discussed the Form 872-T and the high likelihood that the IRS would issue a notice of deficiency within the 90 days of receiving the Form 872-T. In addition, we discussed options for responding to the notice of deficiency, including filing a tax court petition or paying and filing a refund claim in federal district court. After multiple conferences and much deliberation, the taxpayer decided to send the Form 872-T. Much to everyone’s surprise, the IRS responded to the Form 872-T not by sending a notice of deficiency but instead by notifying the taxpayer that the IRS was closing the examination with no changes. A great result, but not likely in most examinations.

If you have questions or comments about this article, please do not hesitate to contact me at jcrouch@meadowscollier.com.