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IRS exams and Form 872

“My client is going through an IRS examination of his company’s retirement plan, and he has been asked to sign a Form 872 [1]. What is the purpose of this form?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from California is representative of a common inquiry related to an IRS examination.

Highlights of the Discussion

To ensure timely examination of tax returns, the law prescribes a deadline, or statute of limitations, for assessing taxes, making refunds or crediting taxes related to a particular tax return. By law, the IRS has the authority to extend the period of time for which it may assess a tax on a taxpayer [IRC Sec. 6501(c)(4)]. [2]However, a taxpayer must consent to the extension in order for it to be valid; that’s where IRS Form 872, Consent to Extend the Time to Assess Tax comes in.

The assessment statute of limitations generally limits the time the IRS has to make tax assessments to within three years after a return is due or filed, whichever is later. In certain limited circumstances, the IRS examiner may identify tax returns under examination for which the statutory period for assessment is about to expire and may request that the taxpayer (in this case, the plan sponsor) extend the assessment statute of limitations.

It is the policy of the IRS to secure consents to extend the period of time to assess tax only in cases involving unusual circumstances (see Revenue Procedure 57-6 text reprinted below). Two common reasons are 1) the limitation period for a taxable year under examination will expire within 180 days and there is insufficient time to complete the examination and the administrative processing of the case; or 2) the statute of limitations for the taxable year under examination requires extension so the case can go through an appeals process. For a broader list of potential reasons for an extension see the IRS examination manual at [3].

How can a plan sponsor respond to an assessment extension request? There are four options:

  1. Consent to an extension;
  2. Refuse to extend the period of time for assessment;
  3. Request that the extension be limited to particular issues; or
  4. Request that the period for assessment be limited to a particular period of time, for example, to a specific date.

For additional information and guidance, see IRS Publication 1035, Extending the Tax Assessment Period [4].

What benefit could the plan sponsor receive from an assessment extension? The statute of limitations also limits the time a taxpayer has to file a claim for credit or refund. The IRS is legally prohibited from making a refund or credit for a claim if it is filed after the time for filing has expired under the statute of limitations. Also, if a taxpayer were to disagree with the IRS’s examination findings, the IRS cannot provide the taxpayer with an administrative appeal unless sufficient time remains on the statute of limitations.


Some plan sponsors facing a plan examination from the IRS may be asked to sign a Form 872, but that should only be in situations with unusual circumstances.

Rev. Proc. 57-6 (reprinted)

It is the policy of the Internal Revenue Service to secure a consent, extending the statutory period of limitation upon assessment of income and profits tax, only in a case involving unusual circum­stances. It is the purpose of the Service to keep to an absolute minimum the number of consents obtained from taxpayers.

The Internal Revenue Service has been asked to state its policy and issue a guide for taxpayers and practitioners regarding the circum­stances under which the securing of a waiver or consent provided for by. section 6501 (c) (4) of the Internal Revenue Code of 1954, to extend the period of limitation upon assessment of income and profits tax, is appropriate.

It has been the long-established policy of the Service to secure a consent, extending the statutory period of limitation, only in a case involving unusual circumstances. An examining officer must have the approval of his group supervisor prior to requesting a consent. Approval will not be granted in any case where previous contact with the taxpayer has not been made, except where compelling reasons exist.

It is the policy and purpose of the Service to keep to an absolute minimum the number of consents obtained from taxpayers. The audit program of the Service is set up to obtain the completion of the examination of returns within the present statutory period of limi­tation wherever possible. Nevertheless, situations arise which make it impossible for the examining officers to complete some of their examinations within the statutory period. As an example, an issue involved in a particular taxpayer’s case may be similar to an issue in litigation in the case of another taxpayer or the same issue may be pending decision by the courts with reference to some other year of the same taxpayer. Obviously, in an instance of this nature, the examination cannot be satisfactorily completed until such time as the court’s decision has been rendered and the issue resolved.

Similarly, where disagreement exists regarding some complex or intricate question of fact or doubtful issues of law and sufficient time does not remain within the statutory period to permit the taxpayer to gather the necessary data to support his contentions and to avail himself of his conference and appellate rights, there is no alternative, in the interest of a practical administration of the tax laws, but to request a consent from the taxpayer, extending the statutory period of limitation, in order to arrive at an equitable solution to the problem involved.

Also, where a net operating loss is to be applied as a carry back, sufficient time may not remain to complete the necessary audit action within the regular period and, accordingly, an extension of the period of limitation is obtained, an action of mutual benefit to the taxpayer and the Government. In these examples, and in other instances, the possibility exists that an additional or renewal consent may be found necessary. However, it is the policy of the Service to restrict addi­tional consents to such cases as were the circumstances are, ordinarily, beyond the control of the Service and a further extension is fully justified in the opinion of the supervisory officials concerned, after a thor­ough review of all the facts present in the case.