CCA 200033005: informing taxpayers before extending assessment deadlines

Plain-English summary

This Chief Counsel memorandum addresses requests made after 1999 to extend the time for assessing tax. Section 6501(c)(4)(B) requires the IRS to tell taxpayers each time that they may refuse an extension or limit it by issue or time. Counsel advised reviewing cases for documented notice, and seeking new consents when notice was missing and the assessment period remained open without the old extension. The memorandum identifies letters, publications, documented oral advice, and restricted consents that Counsel would accept as evidence of compliance. Other questionable extensions require case specific legal review, with timely deficiency notices where needed to protect an expiring assessment period.

Ruling snapshot

• Question: How should IRS personnel handle extensions of the assessment period obtained under the new taxpayer notice requirement?
• Outcome: Advice given. Review documentation, obtain a new consent where possible, and refer uncertain extensions for legal review.
• Key authorities: IRC § 6501(c)(4)(B); IRS Restructuring and Reform Act of 1998 § 3461(b).

Full text (IRS public release)

                          DEPARTMENT OF THE TREASURY
                              I N T E R N AL R E V E N U E S E R V I C E
                                   WASHINGTON, D.C. 20224
                                    March 30, 2000


Number: 200033005
Release Date: 8/18/2000                                          CC:DOM:FS:PROC
UIL: 6501.08-21
                                                                 SPRO-106532-00

MEMORANDUM FOR ALL DISTRICT COUNSELS
               ALL ASSOCIATE DISTRICT COUNSELS

FROM:                   Deborah A. Butler
                        Assistant Chief Counsel (Field Service)             CC:DOM:FS

SUBJECT:                Implementation of Section 6501(c)(4)(B)

The purpose of this memorandum is to provide guidance to Counsel attorneys
regarding new section 6501(c)(4)(B) of the Internal Revenue Code, as enacted by
section 3461(b) of the IRS Restructuring and Reform Act of 1998 (RRA 98). This
provision applies to requests to extend the period of limitations made after
December 31, 1999.

Background

New section 6501(c)(4)(B) provides that the Service shall notify the taxpayer of their
right: 1) to refuse to extend the period of limitations; or 2) to limit such extension to
particular issues; or 3) to limit the extension to a particular period of time. This
notice must be provided each time an extension is requested. The legislative
history of this provision states that Congress believed that taxpayers should be fully
informed of their rights with respect to the statute of limitations on assessment.
Congress expressed concern that in some cases taxpayers were not fully aware of
their rights to refuse to extend the statute of limitations, and have felt that they had
no choice but to agree to extend the statute of limitations upon the request of the
Service. See H.R. Conf. Rep. No. 105-599 at 286 (1998).

As part of RRA 98 training, Service personnel were instructed that section
6501(c)(4)B) can be satisfied by informing taxpayers, either orally or in writing, of
their right to refuse to consent to an extension of the statute of limitations, or to limit
such an extension to specific issues or to a specific time frame. Service personnel
were advised to secure consents to extend statutes of limitations by sending Letter
907(DO)(Rev. 2-2000) or Letter 907(SC)(Rev. 12-1999). See IRM 4541.1 and IRM
121.2.22.3. Service personnel were advised they could provide the taxpayer with a
copy of Publication 1035, Extending the Tax Assessment Period (Rev. 12-1999),
each time a statute extension was requested, but the best practice would be to
advise taxpayers of their rights by sending Letter 907(DO)(Rev. 2-2000) or Letter
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907(SC)(Rev. 12-1999). (See IRS RRA 98 National Resource Center Question
203.) Service personnel were instructed to document their actions.

It has come to the attention of this office that, notwithstanding the implementation
procedures summarized above, in certain cases, consents to extend the period of
limitations may have been requested after January 1, 2000, without following the
requirements of section 6501(c)(4)(B). In addition, it appears that consents to
extend the period of limitations may have been requested after January 1, 2000,
using the prior versions of Letter 907, and Publication 1035.

It is possible that courts may not sustain the validity of extensions obtained where
there was not strict compliance with the provisions of section 6501(c)(4)(B). As a
purely precautionary measure, instructions were recently transmitted to the
Assistant Commissioner (Examination), the National Director of Appeals, and all
Service Center Directors, the Service personnel responsible for securing
extensions, with respect to the requirements of section 6501(c)(4)(B).

Procedures

Service personnel have been instructed to check their inventories for cases where
extensions were requested after December 31, 1999. If Service personnel did not
follow section 6501(c)(4)(B), and the period of limitations would remain open on
those cases absent the extension, Service personnel are to request new extensions
following the proper procedures. Specifically, Service personnel have been
instructed to examine the administrative file to determine whether Form 9984,
Examining Officer Activity Record, or other written documentation, reflects that
section 6501(c)(4)(B) was followed when the extension was requested.

It is the position of this office that section 6501(c)(4)(B) has been followed and we
will defend the validity of the extension if the Form 9984, or other written
documentation in the administrative file, reflects that the extensions were requested
in one of the following scenarios:

•     Service personnel requested the extension by using Form Letter
      907(DO)(Rev. 2-2000) or Letter 907(SC)(Rev. 12-1999);

•     Service personnel furnished the taxpayer or representative with a copy of any
      of these specific revisions of Publication 1035: Rev. 12-1999, Rev. 8-1996, or
      Rev. 8-1987;

•     Service personnel orally advised the taxpayer or representative of all the
      provisions of section 6501(c)(4)(B) and documented this action
      contemporaneously in writing on Form 9984 or elsewhere in the
      administrative file;
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•     The taxpayer or representative declined to sign an unrestricted extension,
      Form 872-A, and instead signed a restricted extension, Form 872, that either
      limited the extension to certain issues or certain time periods; or, if the
      taxpayer refused to sign a restricted extension, Form 872, as originally
      prepared by the Service, and instead signed one containing additional
      restrictions, such as a shorter time period or fewer issues. See IRM
      22.8.4(1);

In all other cases, where it appears that the provisions were not followed, we
recommended that Service personnel immediately contact District Counsel for
expedited legal advice regarding the validity of the extension. Service personnel
have been advised to provide the facts of the particular case, including the
circumstances under which the extension was secured, the type of tax, the
taxpayer, the tax period(s), and the potential adjustments, to District Counsel.
Service personnel have also been advised to be prepared to issue timely statutory
notices of deficiency for those cases where the statute, without the extension, will
expire on April 15, 2000, while District Counsel considers whether the extensions
are valid. District Counsel should make a recommendation on a case by case basis
regarding whether the extension is valid and immediately coordinate all advice with
the Procedural Branch of the Field Service Division. The Procedural Branch will
determine the validity of the extensions in question on a case by case basis. If the
Procedural Branch determines that the extension is invalid, and an extension
cannot be secured, a statutory notice of deficiency should be issued.

In addition, any Tax Court or tax refund litigation case raising an issue under
section 6501(c)(4)(B) should be coordinated immediately with the Procedural
Branch of the Field Service Division.

For further information regarding this notice contact the Procedural Branch at (202)
622-7940 or (202) 622-7950.