IRS Letter 907- Request for Statute Extension

IRS Letter 907- Request for Statute Extension

IRS uses Letter 907 to request an extension of the assessment statute. This time can be extended is the taxpayer agrees on Form 872, Consent to Extend the Time to Assess Tax, or Form SS 10, Consent to Extend the Time to Assess Employment Taxes.

These consent forms extend the assessment statute of limitations to either a specific period of time or an unlimited, indefinite period. The statute is usually extended for a period of time that both the IRS and the taxpayer agree is “reasonable” to complete the audit. The consent can also be negotiated to apply only to certain audit issues (although many IRS agents refuse to do so).

It is easy to understand why a taxpayer would not agree to extend the audit period. A taxpayer might decide to limit or refuse to extend the assessment statute of limitations because the taxpayer might not want to provide the IRS more time to consider additional issues on audit or allow the IRS the opportunity to further develop audit issues already under consideration after the normal statute period has expired.

When might a taxpayer agree to extend?

A taxpayer might agree to extend the statute:

When they want to pursue additional audit issues that are in the taxpayer’s favor in offsetting a proposed tax assessment or that might allow for a tax refund.
If the remaining time before the statute expires is too short, to avoid having the IRS prematurely stop the audit process and issue a notice of deficiency that limits the time for the normal appeals process before the taxpayer must file a petition with the U.S. Tax Court.
Some taxpayers may not prefer the publicity filing a petition to U.S. Tax Court or the impact it can have on their reserve positions.

Consequences of not extending the statute

In many cases, if the taxpayer is able to get all of the information into the audit record that it needs to substantiate its claims, taxpayers are better off not agreeing to extend the statute. This is particularly true for larger taxpayers and for more complex audits. There are consequences for this course of action.

As a practical matter, to the extent the taxpayer is not willing to extend the assessment statute, the taxpayer should put the IRS on notice of this at the start of the audit. If presented appropriately and in advance, this can go a long way in making sure that the IRS is not put off (too much) by the refusal to extend the assessment period.

This will usually result in the IRS closing the audit as an unagreed case with the issuance of a Statutory Notice of Deficiency. The proposed adjustments will also tend to be significantly larger, as the IRS may hedge its bets given that the issues will probably not be as well developed by the IRS on audit. The taxpayer will have to file a petition in the U.S. Tax Court before their case will be forwarded to the IRS Office of Appeals for settlement consideration.

There can be benefits of this course of action too. In addition to keeping the IRS from discovering other issues and keeping the IRS focused on closing the audit timely, it can result in a case that is easier to defend given that it was not fully developed on audit. Also, since tax court petitions are relatively brief, this course of action can have the added benefit of avoiding the time and cost of developing a detailed appeals protest.

What are your options?

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What is my first step?

If you received a letter or notice, a decision has to be made. Do you feel confident to handle this situation on your own? If it is a simple issue and you already know the answer, call or write them. If the issue is more complicated, you need to hire a Certified Tax Resolution Specialist. The IRS or State will take full advantage of your lack of knowledge and experience.

What is Your Next Step?

The next step is to determine if the notice was sent in error. Do you have an outstanding tax liability? Do you have unfiled or incomplete returns?

Is There a Time Limit?

Yes, each letter or notice from the IRS or State will indicate a date that you MUST to contact them by. If you need more time, call the number on the notice or letter and request an extension. DO NOT ALLOW the time to expire without contacting them or hiring a representative to contact them for you.

What You Don’t Want to Do!

What you don’t want to do is nothing. Your tax problems will only get worse if you ignore them. If you cannot pay, there are a number of potential solutions available to those who are otherwise in compliance. In compliance means having all tax returns filed and any balances paid or on a payment plan. If you have outstanding debts or unfiled returns, you need to get hire a Certified Tax Resolution Specialist.

Get Some Help

If you don’t know how to address the issue(s), have unfiled return/unpaid balances or just done feel confident, let the experts at Legacy Tax & Resolution Services represent you. Work with our team of Certified Tax Resolution Specialists to resolve your issue(s) quickly. Best of all, you don’t have to talk to the IRS or State; we can speak on your behalf.