petition in U.S. Tax Court. Fortunately,
though, that doesn’t mean your case will
necessarily be decided in court. An IRS lawyer will file an answer to your Tax Court petition. As with most other answers in litigation, the IRS will generally deny whatever
your petition says.
But then, you can ask the IRS lawyer to
transfer your case to IRS Appeals. Often, a
Notice of Deficiency is issued before a case
has ever gone to IRS Appeals. In that sense,
it can seem as if the IRS is trying to cut off
your right to an Appeal. Actually, though,
it is usually because of workload, or because the IRS is worried that the statute of
limitations on the tax year in question is
about to run.
The IRS often issues a Notice of Deficiency to make sure you can’t later say the
IRS is too late to assess taxes. When this
happens, the IRS lawyer will almost always be happy to transfer your case to (or
back to) IRS Appeals. This also ties into
extensions of the IRS statute of limitations, below.
IRS Often Asks You to
Extend the Statute
Often, the IRS says it is auditing you, but
needs more time. Giving the IRS more
time to audit you? It may sound counter-intuitive—if not downright crazy—to give
the IRS more time, but it is not, as we will
see. The IRS may ask you for an extension
because they need more time to audit you.
Your first reaction may be to relish the
thought of telling the IRS absolutely not!
Even a routine tax audit can be expensive
and nerve-wracking. The IRS normally has
three years to audit, measured from the
return due date or filing date, whichever is
later. But the three years is doubled in a
number of cases. For example, the IRS gets
six years if you omitted 25 percent or more
of your income.
Even worse, the IRS has no time limit if
you never file a return, or if you skip certain
key forms (for example if you have an off-
shore company but fail to file IRS Form
5471). You have to assume that if the IRS
is asking you to extend the statute, the IRS
is already monitoring you closely. And for
the most part, people usually do voluntari-
ly give the IRS more time to audit.
Why would anyone do that? It works like
this. The IRS contacts you (usually about
two and a half years after you file), asking
you to extend the statute. Most tax advisers
say you should usually agree. If you say
“no” or ignore the request, the IRS will assess extra taxes, usually based on an incom-
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9The IRS may
ask you for an
they need more
time to audit you.
Tax Notice Tips