Consent to Extend The Time to Assess Tax

[equinecpa]

I have a 1040 client who is under audit for 2004.

This has been a really strange case. I filed the return originally in 10/2005. Later when I was doing the 2005 return I noticed that there was a business limit calculation error that had restricted a Sec 179 claim that shouldn't have. been restricted. I filed an amended 2004 return in late 2006.

After numerous phone calls about the status of this return, I finally turned it over to taxpayer advocate. It was pulled for audit and the auditor contacted us in Jan 08. I have provided everything that has been requested and our records are in great order.

Just last week I received a consent to extend the time to assess tax form from the IRS. I am of the opinion to recommend to my client to notgrant the extension but have a couple of questions:

a)If the amendment is not processed by the IRS by 04/15/04 that return does not get statute barred for the refund will it? The 1040X was filed a year and a half ago. Are they obligated to process the 1040X?

b) Has anyone had any repercussions from not granting the extension? I worry as this is a horse business that has not been very profitable -though the 2004 year happened to be pretty much breakeven. I don't want them to come back and audit 2005 because they didn't get 2004 completed. The client has good records, profit motive, business plan etc.

c) The auditor has requested an additional year extension-there is no way we are granting a whole year. I was thinking of recommending a restricted consent, perhaps 60 days and limit the authorization to the form 4562 adjustment as originally requested.

Any recommendations?

Carolyn

[glgillis]

Request to extend audit period

There has been a long held view by tax advisors that a lot of things can happen if you refuse to grant an extension request, and none of them are good. Now whether that is true or not, I leave up to you. If you do refuse, they will do a hurryup, under the assumption that you have something to hide. I understand your feelings and frustration, but give it a lot of thought before refusing.

I had an audit on going for almost a year, with a lot of delays along the way-not our fault. They requested an extension- reason- Examining agent was no longer with IRS, and his work was not up to IRS standards, and they were going to do a complete re-audit. We were confidant of our records, but we did negotiate a 3 month time period, and they were very prompt and cooperative (almost apologetic) and finished the audit with taxpayer owing no additional tax. That was the same conclusion the original auditor came up with.

Good Luck

[equinecpa]

I called the auditor to discuss and the first thing he brought up was section 183 -pretty much threatening to apply that section should we not grant the extension.

I then tried to negotiate the extension time period down to about 90 days instead of a year- he implied that it would only hurt us to shorten it up. He said it might limit our time frame to appeal -is that true? I'm also puzzled on why this request has been issued now. The taxpayer filed the original return in October 2005 -wouldn't the statute of limitations then expire in October 2008? I believe our refund request is protected as our return was filed timely.

I'm a bit perplexed at the moment. The auditor has not requested 1/2 of the documents that the client has that will support a profit motive. He's been focusing on support for figures reported on the return, all of which has been provided. Would it be strategic at this point to volunteer the information that would support the profit motive? I didn't want to draw any attention to the 183 issues until it was mentioned, but now that he has thrown that tidbit at us, wouldn't it be in my client's best interest to provide those documents now even though they have not been requested?

I really am in no mood for cat and mouse games on March 31st!

Carolyn

[ChEAr$]

wow

and I just poured myself another happy hour drink, SO thankful that I don't have your problem.

Sorry I can't add any advice at this point, except to say I think you're right on target.

KUTGW!

[glgillis]

Audit

I, too, am a little puzzled about the request for extension this early. Maybe the agent is just looking at the tax year and not thinking about the extension period, or have you already mentioned that to them.

I don't see anything wrong with being prepared to offer any info favorable to the client, but I might hold back and make sure they are headed in that direction. No need to drag it out if it looks like they will be satisfied with the info requested.

[myerstaxes]

The Extension gives you both time

to hash out the issues and come to (hopefully) a meeting of the minds/agreement...To not do so will cause the government to protect their interest and issue a 90 letter and cause you to have to go through the appeals process meaning filing a petition for tax court...

I have been on that other side and I can tell you that no extension means that they will have to rush to judgement, and since that 1040X has not been processed, it can be disallowed as well and they will/can issue you a Statutory Notice of Claim Disallowance in addition to applying Section 183 to your client...

Lastly, a restricted consent as you requested is not an easy thing to be done within the IRS, the IRS Counsel has to review the case, the wording for the restrictions and approve it and it is not a quick process...So I doubt that you will be successful in getting one at this late date...

Good Luck, just thought I would provide some feedback from one who was once on the otherside for 31 years...

[equinecpa]

Thanks for an insightful post. I faxed the auditor yesterday and requested a reason for issuing the form 872 request so early.

If the 1040X has been filed but not processed does the 3 year statute of limitations come into play therefore making 04/15/08 a deadline for refund?

[myerstaxes]

The request for an extension is not early

if I understand you correctly, the 2004 was filed on extension in October of 2005 making the Statute expire in Oct 2008...The request to extend is not early, internal procedures require that extensions be requested 6 to 9 months prior to the statute expiring...Since the original return was on extension and filed in Oct 05, that would hold true for the claim (1040X)...Depending on the auditors workload he/she may need this time to review all facts and documentation and with the internal closing procedures when the case is closed there needs to be sufficient time to process the case as well...So it appears with your client the SOL is October 2008 for all issues including the claim...
Your amended appears to have triggered the examination of the claim and therefore the entire return has been subjected to being examined since it appears that your claim does have to do with the business...Hope this helps...When I was a manager of RAs, I was a stickler about Statutes, they either got an extension or I pushed them to close the case expeditiously to protect the governments interests...The last thing any manager or auditor wanted was to explain to upper management why a statute was allowed to blow because no assessments could be made when that happened...

[equinecpa]

I appreciate the "inside" information.

If you don't mind I have one more question. If the 872 is not signed...can this jeopardize our appeal? This excerpt from the pub 3498 concerns me "..., if you
disagree with the results of the examination, you can’t appeal the
items you disagree with unless sufficient time remains on the statute"

For example if we received a letter of proposed changes say at the end of September 2008, would the statute limit our appeal filing to 15 days...or would we get the full 30 days?

[myerstaxes]

It will not get that far

if you do not extend, you will not get to September...Any good manager and/or examiner will have that case closed more than 90 days before the tolling of the statute, and yes your appeals rights are different...This (if I am recalling correctly) case will be a docketed court case if you file a petition...