25.6.22  Extension of Assessment Statute of Limitations By Consent (Cont. 1)

25.6.22.6 
Preparation of Consents for Specific Entities and Taxes

25.6.22.6.10 
Employment Taxes

25.6.22.6.10.2  (08-26-2011)
FICA Tax on Tips Not Reported to Employer

  1. Form SS-10 is the form to use to extend the statute of limitations with respect to FICA tax on underreported tips. However, Form 872 or Form 872–A may be used to extend the statute for assessing additional FICA tax on tips if those forms specify that they relate to FICA tax.

  2. If income tax and FICA tax on tips were reported on the same return, the statute for assessment of additional FICA tax is the same as the statute for the income tax.

  3. If the FICA tax on tips was not reported on the return, there is no statute on the assessment of the FICA tax and an extension is not necessary in order to assess the FICA tax. See Rev. Rul. 79–39, 1979-1 C.B. 435

  4. The kind of tax to specify on the consent is "FICA on tips."

25.6.22.6.10.3  (08-26-2011)
Trust Fund Recovery Penalty (formerly referred to as 100% Penalty)

  1. The period of limitations for assessment of the Trust Fund Recovery Penalty (IRC 6672) can be extended by consent as per IRC 6501(c)(4). Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty, is used for this purpose.

  2. The Trust Fund Recovery Penalty period for assessment is not protected by the Form SS–10 on the corresponding employment tax returns.

  3. All examiners are responsible for protecting the Trust Fund Recovery Penalty statute of limitations. See IRM 5.7.3.5, Statutory Assessment Period, and IRM 5.7.3.6, Extension of Statutory Assessment Period, for determining the period for assessment of the Trust Fund Recovery Penalty.

  4. Form 2750 should be obtained from all persons who appear to be responsible for, but did not collect, account for, and/or pay over the taxes which are "collected" taxes. If Form 2750 cannot be secured, Form 6238, Referral Report for Potential Trust Fund Recovery Penalty Cases, should be completed by the examiner and sent to Advisory, Insolvency and Quality (AIQ).

  5. The Form 2750 should be secured when the Trust Fund Recovery Penalty statute will expire within 1 year for agreed cases or 2 years for unagreed cases, see IRM 5.7.3.4.1, Referral from Examination.

  6. The waiver should provide for extension of the statutory assessment period to allow ample time during which issues bearing on assertion of the penalty may be resolved, so that normally it will be necessary to secure only one waiver from each responsible officer.

  7. Care should be exercised in determining the date to which the statute should be extended. In the absence of unusual circumstances, this date should not be after December 31 of the year following the year in which the statutory period will expire (e.g., one year and 260 days after the April 15 filing date of the Form 941). See IRM 5.7.3.6.1, Form 2750 Waiver.

  8. The consent Form 2750 will be signed by the person(s) potentially responsible if he/she agrees to extend the assessment statute.

25.6.22.6.11  (08-26-2011)
Excise Tax

  1. Form 872–B, Consent to Extend the Time to Assess Miscellaneous Excise Tax, is used to extend the statutory period of limitation on assessment of the excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, Form 2290, Heavy Highway Vehicle Use Tax Return, Form 730, Monthly Tax Return for Wagers, and Form 11–C, Occupational Tax and Registration Return for Wagering.

  2. Separate consents are needed for each type of excise tax return (e.g., Form 2290 and Form 720) for which the limitations period will be extended.

  3. For the kind of tax, name the specific excise tax being extended. The pertinent code section should be stated in the space provided in the consent.

    Example:
    "The amount of liability for Federal Excise Heavy Truck & Trailers Sold at Retail tax, imposed on the taxpayer(s) by section 4051 of the Internal Revenue Code..."

  4. If an extension is desired for more than one type of tax reported on the same Form 720, each type of tax and its corresponding code section should be listed separately on the consent form.

  5. The periods ("due for the period" ) should be shown inclusive, beginning with the first day of the earliest period and ending with the last day of the most recent period.

    Example:
    "January 1, 2002 through June 30, 2003"

  6. Transferee liability — Consent Form 4016, Consent Fixing Period of Limitation Upon Assessment of Employment or Miscellaneous Excise Taxes Against a Transferee, is used for extending the statutory period of limitations for assessment of excise taxes against a transferee, arising on liquidation or dissolution of a corporation or partnership, or on a reorganization within the means of IRC 368(a). See IRM 25.6.22.6.17.1, Transferee Liability.

  7. Limited Liability Companies–

    Note:

    For certain excise tax liabilities imposed or collected in periods beginning on or after January 1, 2008, single-owner LLCs will no longer be classified as disregarded entities for excise tax purposes. See T.D. 9356, 72 FR 45891 (August 16, 2007). If an LLC is not a disregarded entity for excise tax purposes, the consent must be secured from the LLC for excise tax issues. See IRM 25.6.22.6.17.9, Limited Liability Companies (LLCs), for instructions on securing consents for LLCs. Per T.D. 9462, 74 F.R. 46903–46904 (September 14, 2009), the LLC not disregarded as an entity for certain excise tax purposes will be treated as a corporation for tax administration purposes related to those excise taxes. The treatment as a corporation under the temporary regulations is effective September 14, 2009, but will expire on September 11, 2012, according to the regulations.

  8. The penalty imposed by IRC 6725 for failure to provided the required information or providing incorrect information on Form 720–TO and Form 720–CS returns may be extended by using Form 872–B. The consent form is to be modified by deleting all references to the word "tax" in paragraphs (1), (2) and (3) and inserting in lieu thereof the word "penalty" . Since some entities have multiple filings under a single employer identification number (EIN), the Form 872–B must be specific as to the respective terminal/vessel/pipeline. The specific terminal control number (TCN) of the respective terminal is to be reflected for Form 720-TO filers. Information to identify and distinguish respective vessel/pipeline is to be reflected on the Form 872–B.

  9. For information on whether or not the period of time for assessment for paid claims assessed under IRC 6206 can be extended, see IRM 4.24.8, Excise Tax Handbook - Claims for Refund or Abatement.

25.6.22.6.12  (08-26-2011)
Exempt Organizations

  1. Form 872 or Form 872–A is used to extend the statute for assessment of taxes under Chapters 41 (Public Charities) and 42 (Private Foundations and Certain Other Tax-Exempt Organizations) of the IRC.

  2. When consent agreements are entered into extending the statutory period of limitations for assessment of income and Chapter 41 or 42 taxes, the same consent form can be used. The kind of tax will be shown as "income and excise" .

  3. For the Form 990–T, Exempt Organization Business Income Tax Return, the consent should be signed by an officer or fiduciary.

  4. The statutory period for assessment of Chapter 41 or 42 taxes imposed upon a disqualified person, foundation manager, organization manager, public charity, a private foundation, or a black lung benefit trust may be extended when necessary by securing an executed Form 872 or Form 872–A for each year in which acts (or failures to act) occur which give rise to the Chapter 41 or 42 taxes.

  5. The consent form must also cover all other years in the taxable period because these excise taxes are imposed for each year in the taxable period and not merely the year in which the act occurred.

  6. The consent must always be obtained from the person upon whom the tax is imposed even though the period of limitations is determined by the due date of the annual return (Form 990, Return of Organization Exempt From Income Tax, Form 990–PF, Return of Private Foundation or Section 4947(a)(1), Nonexempt Charitable Trust Treated as a Private Foundation, Form 990–BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts & Certain Related Person, or Form 5227, Split-Interest Trust Information Return, or the date the return is filed, whichever is later.

    Example:

    Assume Foundation Y correctly reports a transaction with a disqualified person that occurred on July 30, 1995 on its timely filed Form 990–PF for calendar year 1995, and that this transaction is an act of self-dealing. Assume also that an examining officer discovers the uncorrected act on January 12, 1999 and recommends imposition of IRC 4941 tax on the disqualified person, who is a calendar year taxpayer. As of January 12, 1999 the first level tax imposed on the act occurring on July 30, 1995 would be 5% (see IRC 4941 to verify rate of tax at the time the self-dealing occurred) of the amount involved for each of the 5 full or partial tax years of the disqualified person within the taxable period. Because the three year statutory period will expire in less than 180 days on May 15, 1999, the examining officer should attempt to secure Form 872 to extend the statutory period for all years in the taxable period. Separate consent forms must be secured from the self-dealer and any foundation managers who may be liable for self-dealing taxes. If the same person is liable for the tax both as a self-dealer and a foundation manager, separate consent forms are not needed for that person. Even though it was the foundation's return that started the running of the period of limitations on assessment, a Form 872 does not have to be secured from the foundation unless it may be liable for other Chapter 42 taxes. Using the wording "years that are fully or partially within the taxable period" on the Form 872 automatically includes all years within the taxable period, including any taxable years after the year in which the Form 872 is secured.

25.6.22.6.13  (08-26-2011)
Employee Plans

  1. Form 872 is used to extend the statute for assessment of taxes under Chapter 43 (Qualified Pension, Etc., Plans) of the IRC.

  2. The statutory period for assessment of the IRC 4975(a) excise tax on a disqualified person may be extended when necessary by securing an executed Form 872 for each year in which transactions occur that give rise to the excise tax. The consent must always be obtained from the person upon whom the tax is imposed, even though the period of limitations is determined by the due date of the annual return (Form 5500 series) or the date the return is filed, whichever is later.

  3. When consent agreements are entered into extending the statutory period of limitations for assessment of Chapter 43 taxes, the kind of tax will be shown as "excise."

  4. Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, should be signed by the person (employer, entity, individual) against whom the tax will be assessed and any consent Form 872 pertaining to the Form 5330 should be signed by the same person or another person authorized to sign the consent.

  5. Consents related to a Form 5500, Annual Return/Report of Employee Benefit Plan, are secured with respect to Form 1041, U.S. Income Tax Return for Estates and Trusts. The most current version of Form 872-H should be used when extending a statute of limitations for a Form 1041 related to a Form 5500. Form 56, Notice Concerning Fiduciary Relationship, must also be sent to the trustee(s) for completion when extending the statute of limitations on a trust. Since an examination of Form 5500 may result in the revocation or disqualification of the plan, consents must be secured for the trust for the applicable year.

  6. Prior to the 2006 plan year (2004 for EZ filers), the proper filing of the Schedule P generally started the statute of limitations. Schedule P has been eliminated as part of the process for electronic filing. For plan years before the Schedule P was eliminated, regardless of whether or not the trustee files a Schedule P, examiners should secure extensions as if the trust has or will lose its qualified status. Once a plan is no longer qualified under IRC 401(a), the trust becomes taxable. See IRM 4.71.9, Statute Control Procedures, for special rules that apply for plan years for which the Schedule P has been eliminated.

  7. In some cases, the trust may be required to file a Form 1041 for those years during which the plan is disqualified and the statute of limitations is open. It is the trustee (or authorized representative) who must sign the Form 872-H consent in order for the extension to be valid. The consent to extend the statute of limitations must be signed by a current trustee, which may be a different individual than the person who was trustee when Form 5500 was filed/the plan became disqualified.

  8. Research should be conducted to determine if the trust has an EIN. If it is determined that the trust does have an EIN, then the correct trust EIN should be used on Form 872-H. If the trust does not have an EIN, the plan sponsor’s EIN may be used on Form 872-H. When preparing Form 872–H:

    • Input the trust name and current address on the appropriate lines

    • Input the word “Income” on the “Kind of tax” line

    • Input a date on the “Expiration date” line that is far enough in the future to allow ample time for the case to be processed

    • The trustee(s) must sign the consent form exactly as his/her name appears on Form 56 (the trustee must be a current trustee

    • Ensure that the consent is dated on the “Date signed” line next to the signatures

    • See IRM 4.71.9, Statute Control Procedures, for additional details, specifically Exhibit 4.71.9-1 for an example of a completed Form 872-H

25.6.22.6.14  (08-26-2011)
Form 1042 Withholding on U.S. Income of Foreign Persons

  1. A Form 872 or Form 872–A is used to extend the period of limitations for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. See IRM 4.23.14.8(2), Form 872 Consent to Extend the Time to Assess Tax for Form 1042, for guidance regarding preparation of the consent.

  2. Separate consent forms should be used to extend the periods of limitation for Form 1120 and Form 1042.

25.6.22.6.15  (08-26-2011)
Preparer Penalty

  1. The statute for the preparer penalties imposed by IRC 6694(a) and IRC 6695 can be extended by agreement. See Rev. Rul. 78–245,1978-1 C.B. 435.

  2. The statute must be extended using Form 872–D, Consent to Extend the Time on Assessment of Tax Return Preparer Penalty.

    Note:

    A signed consent extending the period for assessment of tax liabilities of the taxpayer has no effect on the statute of limitations for assessing preparer penalties.

  3. A separate consent should generally be obtained for each taxable period under consideration and the related taxpayer returns for which the penalties are applicable must be included on each consent.

25.6.22.6.16  (08-26-2011)
Appraiser Penalty

  1. The statute for the penalties imposed by IRC 6695A, substantial and gross valuation misstatements attributable to incorrect appraisals, can be extended by agreement.

  2. The statute is extended by using Form 872–AP, Consent to Extend the Time on Assessment of IRC Section 6695A Penalty.

    Note:

    A signed consent extending the period for assessment of tax liabilities of the taxpayer has no effect on the statute of limitations for assessing penalties on the appraiser.

  3. A separate consent should generally be obtained for each taxable period under consideration and the related taxpayer returns for which the penalties are applicable must be identified on each consent.

25.6.22.6.17  (08-26-2011)
Special Situations

  1. Special conditions affect the statute of limitations. This subsection deals with the effect of these conditions on consents to extend the period of time for assessment of tax.

25.6.22.6.17.1  (08-26-2011)
Transferee Liability

  1. A statute extension obtained from the transferor (the primary taxpayer) extends the transferee period for assessment. Therefore, if possible, the transferor statute should be extended.

  2. The statutory period for assessment against a transferee can be extended by consent. The forms used for this purpose are:

    • Form 977, Consent to Extend the Time to Assess Liability at Law or in Equity for Income, Gift, and Estate Tax Against a Transferee or Fiduciary

    • Form 4016, Consent Fixing Period of Limitation Upon Assessment of Employment or Miscellaneous Excise Taxes Against A Transferee


    Caution: A consent signed by one transferee does not extend the period for assessment for another transferee or a succeeding transferee (a transferee of a transferee). See Columbia Pictures Industries, Inc. v. Commissioner, 55 T.C. 649. Also, see General Counsel Memorandum, GCM 34599.

  3. Form 2045, Transferee Agreement (used in income tax situations), is an agreement between the transferee and the Commissioner in which the Commissioner agrees to discontinue action against the corporation transferor and the transferee agrees to be liable as a transferee for, and to pay, the tax liability of the transferor. The examiner should attempt to obtain this agreement, as appropriate, but it is not required in order to extend the statute. The Form 2045 does not extend the statute for assessment against the transferee or transferor.

  4. A separate extension Form 977 and/or Form 4016 and agreement Form 2045 (in income tax situations) should be obtained from each transferee.

  5. The transferee's statute of limitations date is one year after the expiration of the period of limitations for assessment against the transferor. See IRC 6901(c). If the transferor's statute is extended by a consent, the transferee's statute expires one year after the assessment can be made against the transferor under the terms of the consent.

25.6.22.6.17.2  (08-26-2011)
More Than 25% Omission of Gross Income

  1. A 6–year statute applies when gross income reported on the return is understated by more than 25% or as a result of an understatement of more than $5,000. of income which is attributable to foreign financial assets. This 6–year statute can be extended by consent in the same manner as the normal 3-year statute is extended by consent.

  2. Form 872 and Form 872–A (or Form 872–I or Form 872–IA prior to 10/29/09) are used for income tax returns. Form 872–P and Form 872–O are used for TEFRA partnership returns.

  3. No special wording is required to be added to the consent forms to extend the statute where more than 25% of gross income has been omitted from the return, whether the normal 3–year statute has expired or not. But if the normal 3–year statute has expired, the following wording can be added at the top of the consent, if desired:  "This consent is valid only if IRC 6501(e) is applicable."

  4. If examination issues indicate that gross income was understated by more than 25% and the 6–year statute may apply, the normal statutory period should be extended, if it is still open. If the examiner lets the normal 3–year statute pass due to reliance on the more-than-25%-of-gross-income understatement, but it is ultimately determined the understatement is 25% or less, the Service would be barred from assessing any underpayment of tax.

25.6.22.6.17.3  (08-26-2011)
IRC 183 Election

  1. If a taxpayer makes an election under IRC 183(e), the period of limitations for an assessment of any deficiency attributable to the IRC 183 activity for which an election was made will not expire any earlier than a special period provided in IRC 183(e)(4). See, Form 5213, Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit.

    Note:

    See requirements for filing Form 5213 under "When to File" portion of instructions for Form 5213. In order to rely on the IRC 183(e)(4) statute and to further extend the IRC 183(e)(4) statute, as discussed immediately below, the form must have been filed timely, in accord with the instructions.

  2. A consent to extend the IRC 183(e)(4) statute may be entered into after expiration of the normal three year statutory period, but must be entered into before expiration of the IRC 183(e)(4) statute. In this case, the extension would only apply to the specific activity for which the IRC 183 election was made.

  3. Form 872 or Form 872–A is used for this purpose.

  4. No special wording is required to be added to the consent form to extend the IRC 183(e)(4) statute. But the following wording can be added at the top of the extension form if desired:
     "This consent is under the provisions of IRC section 183(e)(4)."

25.6.22.6.17.4  (08-26-2011)
Prompt Assessment IRC 6501(d)

  1. A qualifying corporate taxpayer or executor, administrator, or other fiduciary representing the estate of a decedent may shorten the period for assessment to 18 months after the date the request for prompt assessment is filed. See IRC 6501(d). This shortened statute expiration date may be extended by consent, if the case cannot be closed (including administrative processing) prior to the shortened expiration date.

  2. Form 872 or Form 872–A (or Form 872–I or Form 872–IA prior to 10/29/09) is used for this purpose. No special wording needs to be added to the consent.

  3. If a joint return was filed by the husband and wife, the period for assessment of tax cannot be shortened under IRC 6501(d) as to the surviving party to the joint return by the fiduciary requesting a prompt assessment as to the deceased party.

25.6.22.6.17.5  (08-26-2011)
Rev. Proc. 92–29 Estimated Costs of Common Improvements

  1. A taxpayer requesting to use the alternative method under Rev. Proc. 92-29, 1992-1 C.B. 748, with respect to a real estate project must agree to extend the period of limitation for assessment for each taxable year in which that method is used. The consent is limited to the assessment of deficiencies attributable to the use of that method with respect to the project covered by the consent.

  2. Form 921, Consent to Extend the Time to Assess Income Tax, Form 921–A, Consent Fixing Period of Limitations On Assessment of Income and Profits Tax (S-Corporation, Partnerships, Limited Liability Company, Trusts, Syndicates, Pools, Etc.), Form 921-I, Consent Fixing Period of Limitations On Assessment of Income and Profits Tax (S Corporations, Partnerships, Limited Liability Companies, Trusts, Syndicates, Pools, Etc.) and Form 921-P, Consent Fixing Period of Limitations On Assessment of Income and Profits Tax (Partnerships and Limited Liability Companies), are used to extend the period of limitations for assessment for each taxable year in which the alternative method under Rev. Proc. 92-29, 1992-1 C.B. 748, is used.

  3. Form 921, as revised 07/2001, provides for a period of assessment ending one year after a return is filed for the tax year in which the project is expected to be complete. The prior revision (01/2001) provided a period for assessment ending on or before a date specified in the consent.

  4. Form 921-A is used for an S Corporation, Partnership, Limited Liability Company, Trust, Syndicate, Pool, Etc. It provides a period for assessment ending on a date specified in the consent. However, it has virtually been replaced by the two new forms: Form 921-I and Form 921-P, see below.

  5. Form 921-I (Rev. 9/2001) is used by investors in the electing S Corporation, Partnership, Limited Liability Company, Trust, Syndicate, Pool, etc. that are not subject to unified audit and litigation procedures under TEFRA (Tax Equity & Fiscal Responsibility Act). It provides a period for assessment ending one year after the date a return is filed for the tax year in which the project is expected to be complete.

  6. Form 921-P (Rev. 10/2001) is used by entities subject to the unified audit and litigation procedures under TEFRA. It provides a period for assessment ending one year after the date a return is filed for the tax year in which the project is expected to be complete.

25.6.22.6.17.6  (08-26-2011)
Bankruptcy

  1. For taxpayers who are in bankruptcy, consult Area Counsel or local procedures that have been approved by Area Counsel to determine who is authorized to sign the consent.

  2. Bankruptcy does not affect the name used on the consent. Follow the same rule for a taxpayer who is not in bankruptcy.

25.6.22.6.17.7  (08-26-2011)
Fraud - Civil

  1. Although tax and penalties can be assessed after the expiration of the normal period for assessment when the return is false or fraudulent with intent to evade tax, if the period for assessment is still open, it should be protected.

  2. If the examiner allows the period for assessment to expire, in reliance on the return being false or fraudulent with the intent to evade tax, but it is ultimately determined the return is not false or fraudulent with the intent to evade tax, the Service would be barred from assessing any deficiency.

25.6.22.6.17.8  (08-26-2011)
Fraud - Criminal

  1. The examiner and his/her manager are responsible, in joint investigation cases, for taking any action necessary to protect the interest of the government with respect to the statutory period for assessment (the civil statute). It is not the responsibility of the criminal investigator to protect the civil statute. The referral of a case to the Criminal Investigation Division does not protect the statutory period of assessment. The assessment period continues to run during the criminal proceedings.

  2. The taxpayer should not be requested to extend the period for assessment without first obtaining agreement from Criminal Investigation to do so. See IRM 25.1.4.3.6, Statute Protection, for procedures to follow with regard to extending the statute or letting it expire in joint investigation cases.

25.6.22.6.17.9  (08-26-2011)
Limited Liability Companies (LLCs)

  1. In General

    In general, the tax classification of an LLC is determined in accordance with Treas. Reg. 301.7701-1, et seq. A business entity that is not classified as a corporation under Treas. Reg. 301.7701-2(b) (eligible entity) can elect its classification for federal tax purposes as provided in Treas. Reg. 301.7701-3.

    If no election is made by a domestic entity and if it has at least two members, it is classified as a partnership by default, or if it has a single owner, it is classified as a disregarded entity.

    If no election is made by a foreign entity and if it has at least two members and at least one member does not have limited liability, it is classified as a partnership by default; if all members have limited liability, it is classified as an association (which, in turn, is classified as a corporation), or if it has a single owner that does not have limited liability, it is classified as a disregarded entity.

    Note:

    There may be a lag between the time an LLC becomes a successor and the time it elects its status or defaults to disregard entity status. In such a situation, contact Area Counsel to consider whether dual consents are appropriate.

    Note:

    The date an entity classification election takes effect may vary. An election may be effective on the date specified by the entity on Form 8832, Entity Classification Election, or on the date filed if no such date is specified on the election form. The effective date specified on Form 8832 cannot be more than 75 days prior to the date on which the election is filed and can not be more than 12 months after the date on which the election is filed. Treas. Reg. 301.7701-3(c)(1).

  2. Association (which, in turn, is classified as a corporation)

    If an LLC has elected to be treated as an association taxable as a corporation, the instructions above for corporation consents should be followed.

  3. Partnership

    An LLC must have two or more members to be classified as a partnership, see Treas. Reg. 301.7701-2 (c)(1). Thus, if an LLC is treated as a partnership, the instructions above for partnership consents should be followed.

    While the consent may be executed by the members of the LLC, if under state law the members are not liable for the debts of the LLC, absent fraudulent transfers or other special circumstances, the Service may not collect the LLC's employment tax liability from the members, including by levy on the property and rights to property of the members. Rev. Rul. 2004-41, 2004-1 C.B. 845.

  4. Disregarded entity

    1. In General

      A disregarded entity has a single owner. It is disregarded as an entity separate from that owner and, instead is treated as a branch, division or proprietorship of the owner, see Treas. Reg. 301.7701-2(c)(2)(i). If an LLC is a disregarded entity, the consent generally should not be prepared for the LLC, but instead, should be prepared for the single owner of the LLC.

      Note:

      A disregarded entity is an entity separate from its owner for state law purposes and the Service cannot collect from the LLC's property in order to satisfy the single owner's federal tax liability.

    2. Employment Taxes

      For periods beginning prior to January 1, 2009, the owner of a disregarded entity is primarily liable for the employment taxes attributable to compensation paid to the disregarded entity’s employees.

      Under Notice 99-6, 1999-1 C.B. 321 the calculation, reporting and payment of employment taxes with respect to the employees of a disregarded entity may be performed by either (but see NOTE: with respect to T.D. 9356, below in this subsection):

      1. the sole owner of the disregarded entity in its name and tax identification number (as though the employees of the disregarded entity are employed directly by the owner), or

      2. the disregarded entity itself, using its own name and tax identification number.

      In either case, the ultimate responsibility for paying employment taxes rests with the owner of a disregarded entity and the consent must be executed by the sole owner.

      Note:

      For employment tax returns for periods beginning on or after January 1, 2009, single-owner LLCs will no longer be classified as disregarded entities for employment tax purposes. Such LLCs will be treated as corporations for employment tax purposes. See T.D. 9356, 72 F.R. 45891 (August 16, 2007). If an LLC is not a disregarded entity for employment tax purposes, the consent must be secured from the LLC for employment tax issues.

    3. Exceptions (These exceptions apply on or after April 1, 2004. Treas. Reg. 301.7701-2(e)(2))

      A disregarded entity is treated as an entity separate from its owner for purposes of:

      1. the federal tax liabilities of the entity with respect to any taxable period for which the entity was not disregarded; and

      2. the federal tax liabilities of any other entity for which the entity is liable. Treas. Reg. 301.7701-2 (c)(2)(iii)

      Example: ABC Corp. existed during tax year 2000 but through a series of reorganizations, ABC LLC became its successor during tax year 2001. ABC Corporation was not a member of a consolidated group at any time during the 2000 taxable year. ABC LLC is wholly-owned by XYZ Corporation. ABC LLC has not elected to be treated as an association taxable as a corporation and is therefore a disregarded entity. For purposes of extending the statute of limitations on assessment for ABC Corp.’s 2000 tax year, a consent should be prepared in the name of ABC LLC, successor in interest to ABC Corp.

      Note:

      A deficiency may be assessed against ABC LLC and, in the event that it fails to pay the liability after notice and demand, a general tax lien will arise against all of ABC LLC's property and rights to property.

      Note:

      Consolidated Group– If a subsidiary of a group becomes, or its successor is or becomes, a disregarded entity for Federal tax purposes, the common parent continues to serve as the agent with respect to that subsidiary's tax liability under Treas. Reg. 1.1502-6 for consolidated return years during which it was included in the group, even though the entity generally is not treated as a person separate from its owner for Federal tax purposes. Treas. Reg. 1.1502-77(a)(1) (iv).

25.6.22.6.17.10  (08-26-2011)
Assessable Penalties

  1. The consent Form 872 can be modified to extend the period of time for assessment of assessable penalties which are not return related (do not require a statutory notice of deficiency to assess) and for which the statute must not have expired in order to assess the penalty. Certain assessable penalties can be assessed at any time, e.g., IRC 6700 penalty.

  2. An example of an assessable penalty which does not require a statutory notice of deficiency to assess and the assessment statute must be open in order to assess would be the penalty prescribed by IRC 6707A for failure to include reportable transaction information with the return. If a separate consent form is being used to extend the period of time to assess the penalty, the consent form can be modified as follows: "(1) The amount of any I.R.C section 6707A penalty due with respect to any return(s) made by or for the above taxpayer(s) for the period(s) ended ............. may be assessed at any time on or before...." A sample Form 872 consent for the IRC 6707A penalty can be obtained at http://abusiveshelter.web.irs.gov/AJCA/FORM%20872%20FOR%206707A%20DRAFT.DOC.

  3. The Form 872 can be modified by adding the following wording to cover both a tax deficiency and the IRC 6707A penalty on the same consent form: "Without otherwise limiting the applicability of this agreement, this agreement also extends to the expiration date, identified in paragraph (1) above, the period of limitations for assessing any penalty pursuant to I.R.C. section 6707A, Penalty For Failure to Include Reportable Transaction Information with the Return, with respect to the taxpayers, kind of tax, and tax periods identified above."

25.6.22.7  (08-26-2011)
Open-ended Consents

  1. The open-ended consent holds the period of limitations open to an unspecified date. The purpose is to extend the statute for the time required for the Service to complete its consideration of the case plus 90 days for administrative closing action. Open-ended consent forms:

    • Form 872–A, Special Consent to Extend the Time to Assess Tax

    • Form 872–O, Special Consent to Extend the Time to Assess Tax Attributable to Partnership Items

    • Form 872–R, Special Consent to Extend the Time to Assess Tax Attributable to Items of an S Corporation (designated as obsolete on April 11, 2008)

    • Form 872–IA, Special Consent to Extend the Time to Assess Tax As Well As Tax Attributable to Items of a Partnership (designated as obsolete on October 29, 2009)

25.6.22.7.1  (08-26-2011)
Form 872–A Special Consent to Extend the Time to Assess Tax

  1. Form 872–A, Special Consent to Extend the Time to Assess Tax, is an open-ended consent form. This form can be used instead of the Form 872, the fixed-date consent form.

  2. Form 872–A extends the period of limitations as follows:

    1. 90 days after the Service office considering the case receives a Form 872–T, Notice of Termination of Special Consent to Extend the Time to Assess Tax, from the taxpayer electing to terminate Form 872–A;

    2. 90 days after the Service mails a Form 872–T to the taxpayer for such period to the taxpayer's last known address;

    3. 90 days after the Service mails a notice of deficiency, plus another 60 days after the period the Service is prohibited from making an assessment;

    4. The date of assessment or overassessment of tax that reflects a final determination of tax and administrative Appeals consideration. See (3) below for further discussion of final determination of tax and administrative Appeals consideration.

    Note:

    Items a), b), and c), which are now printed on the form were originally set forth in Rev. Proc. 79-22, 1979-1 C.B. 563.

  3. Some assessments do not reflect a final determination and Appeals consideration and therefore will not terminate the agreement before the expiration date. Examples of assessments that do not constitute final determination and appeals consideration are:

    • Tax under a partial agreement

    • Tax in jeopardy

    • Tax to correct mathematical or clerical errors

    • Tax reported on amended returns

    • A tax assessment not attributable to a TEFRA partnership shall not terminate the consent for items attributable to a TEFRA partnership

    • The issuance of a notice of deficiency will not terminate consent for the items described in paragraph (7), relating to TEFRA, of the Form 872–A.

    Note:

    The versions of Form 872, Form 872-B, and Form SS-10 with a revision date before 6-1996 provided for ending of the consent agreement on the "assessment date that reflects a final determination of tax" . This wording was removed from fixed-date consents because it led to disputes concerning what is a "final determination" . The potential for disputes on Form 872-A is alleviated because, in general, any assessment not listed above is a "final determination of tax" .

    Note:

    The execution of a Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, does not constitute a final determination and assessment because the first paragraph of the instructions provides "It will not prevent us from later determining, if necessary, that you owe additional tax."

  4. Unassessed payments, such as amounts treated by the Service as cash bonds and advance payments not assessed by the Service, will not terminate the consent agreement.

  5. The agreement entered into on Form 872–A, will end on the date determined in paragraph (2) above, regardless of any assessment for any period includable in a report to the Joint Committee on Taxation (JCT) submitted under IRC 6405. See IRM 4.36.3.5, Statute of Limitations, for procedures to be followed in cases reportable to the JCT under IRC 6405.

  6. Form 872–A should be used by Examination personnel in situations where its use would be advantageous to both the Service and the taxpayer.

  7. The Form 872–A is processed in the same manner as the Form 872:

    1. Form 872–A will be requested at the same time a Form 872 would be normally requested.

    2. Form 872–A may be used as a renewal consent if Form 872 had previously been secured.

    3. Form 872–A may contain restrictive wording.

  8. The Form 872–A is signed by the same persons authorized to sign the Form 872.

25.6.22.7.1.1  (08-26-2011)
Form 872–T Notice of Termination of Special Consent to Extend the Time to Assess Tax

  1. Form 872–T, Notice of Termination of Special Consent to Extend the Time to Assess Tax, is the written notification to the Service (or to the taxpayer by the Service) that terminates the open-ended consent (Form 872–A or Form 872–IA, prior to 10/29/2009) 90 days after issuance by the Service or 90 days after the date on which the Form 872–T is received by the office designated by the Commissioner of Internal Revenue. 

25.6.22.7.1.2  (08-26-2011)
Signatures

  1. The Service or the taxpayer may terminate the Form 872–A unilaterally. Therefore, signatures of both parties are not required to terminate the Form 872–A.

  2. Form 872–T may be signed on behalf of the Service by any person authorized to sign consents as specified in Servicewide Delegation Order 25–2 effective July 6, 2009 (formerly Delegation Order 42, Revision 28), Authority to Execute Agreements to Extend the Period of Limitations on Assessment or Collection and to Accept Form 900, Tax Collection Waiver or Servicewide Delegation Order 4–19 (formerly Delegation Order 209, Revision 5) for TEFRA partnership or TEFRA Subchapter S corporation matters. See IRM 1.2.52.3, Delegations of Authority for Special Topic Activities, and IRM 1.2.43.20, Delegation of Authorities for the Examining Process, for the above-referenced delegation orders, respectively.

  3. The same persons authorized to sign a consent for the taxpayer can also sign the Form 872–T.

25.6.22.7.1.3  (08-26-2011)
Inform Taxpayer of the Method for Terminating Form 872–A Consent

  1. At the time the taxpayer is sent the copy of the executed Form 872–A, the taxpayer will be informed in the transmittal letter that Form 872–T should be used to terminate Form 872–A, in the event the taxpayer elects to terminate the consent. The taxpayer should also be informed that Form 872–T may be requested from the Service office considering the case.

  2. If the taxpayer requests the Form 872–T, the Service will partially complete the form by filling in the taxpayer's name and address, identification number, type of tax, issuing office, campus where return was filed, and in the body of the form, the date Form 872–A was executed by the Service official. This information will aid in locating the return in the event Form 872–T is sent to an office other than the one considering the case.

  3. Letter 1343, Transmittal Letter - Form 872-A, and Letter 1344(DO)/1344(SC), Transmittal Letter - Form 872-T, may be used to transmit executed Form 872–A and partially completed Form 872–T to the taxpayer, respectively.

25.6.22.7.1.4  (08-26-2011)
Taxpayer's Termination

  1. Receipt of a properly executed Form 872–T from the taxpayer in the Service's office considering the case will start the running of the 90–day period for assessment of tax or issuance of a notice of deficiency.

    Caution:

    Although the 90–day period does not start until the office considering the case receives the Form 872–T, if it is received by another Service office, care should be taken to get the Form 872–T to the office considering the case as soon as possible. Examiners should act based upon the earliest received date.

  2. If the taxpayer attempts to terminate Form 872–A other than by using Form 872–T (e.g., by letter or orally), the Service office considering the case will notify the taxpayer in writing that termination may only be made by submitting a properly executed Form 872–T. In this situation, a partially completed Form 872–T will be enclosed with a letter to the taxpayer.

  3. If it appears that an inadvertently completed Form 872–T is received from the taxpayer, the taxpayer should be contacted to determine if termination was intended. If the taxpayer did not intend to terminate Form 872–A, obtain a new Form 872–A from the taxpayer. After the new Form 872–A is executed, void the Form 872–T by noting thereon "Void — superseded by subsequent Form 872–A dated___. "

25.6.22.7.1.5  (08-26-2011)
Service's Termination

  1. The Service will prepare and issue the Form 872–T for all "no change" taxable years closed to the campus. Otherwise, upon the closing of the case to the campus, the statute would remain open.

    Caution:

    Prior to sending a Form 872-T on a no change return ensure that any carryback years with statutes controlled by the originating year Form 872-A have been protected or assessed. The statute date for any carryback returns open under an originating year Form 872-A will be 90 days from the date the Form 872-T is mailed.

  2. Generally, in a "no change" case, the Form 872–T should be prepared and signed at the time a case is closed at the group level. It will be mailed to the taxpayer by the case closing unit of the respective operating division or function. When the examiner closes a "no change" case with a Form 872–A, he/she should note on the Form 3198 on page 2, under Letter Instructions for CCP — Other Instructions, that the Form 872–T needs to mailed.

  3. Do not issue Form 872–T for fully agreed taxable years resulting in an assessment or overassessment in which a Form 872–A was secured. In those cases, the period of limitations for assessment generally will terminate immediately after assessment of an increase in tax which reflects the final administrative appeals consideration for any such period. The provision on Form 872–A concerning the automatic termination of the period of limitation applies equally to an overassessment date of a decrease in tax for a taxable year, if such overassessment reflects the final determination of tax and the final administrative appeals consideration.

25.6.22.7.1.6  (08-26-2011)
Location of Executed Form 872–T in Case File

  1. A copy of an executed Form 872–T mailed to or received from the taxpayer should be attached to the back of the first page of the tax return to which it applies. If it covers multiple years, the original will be attached to the tax return for the latest year and photocopies will be attached to the tax return for the earlier years.

25.6.22.7.1.7  (08-26-2011)
Final Adverse Determination

  1. A final adverse determination subject to declaratory judgment under IRC 7428, IRC 7476 or IRC 7477 will not terminate Form 872–A. A final adverse determination case containing Form 872–A may be received from either Appeals or the TE/GE Division. If the "fully agreed" requirement is met, Form 872–T will be mailed by the case closing unit of the respective operating division or function upon closing of the agreed case.

25.6.22.7.1.8  (08-26-2011)
Accumulated Earnings Tax

  1. If the taxpayer terminates Form 872–A in an accumulated earnings tax case, in order to protect the interests of the government, it may be necessary to issue a notice of deficiency even if the taxpayer's statement under IRC 534(c) and Treas. Reg. 1.534–2(d) has not yet been received.

25.6.22.7.1.9  (08-26-2011)
Personal Holding Company Tax

  1. If the taxpayer terminates Form 872–A in a personal holding company tax case prior to execution of Form 2198, Determination of Liability for Personal Holding Company Tax, the Form 2198 should not be accepted. In the event the taxpayer terminates the Form 872–A after Form 2198 is executed, subsequent processing will be determined by the area office in accordance with the time available for assessment and processing of the case.

25.6.22.7.1.10  (08-26-2011)
Notice of Deficiency

  1. If a notice of deficiency is mailed to the taxpayer and the Service or the taxpayer has not previously terminated Form 872–A, issuance of the notice of deficiency will constitute termination of the Service's consideration of the case.

    Note:

    A notice of deficiency that is not valid should not terminate the consent as the terms of the consent agreement have not been fulfilled.

  2. If a notice of deficiency is sent to the taxpayer, the time for making an assessment will expire 60 days after the end of the period during which the making of an assessment is prohibited.

25.6.22.7.2  (08-26-2011)
Form 872–O Special Consent to Extend the Time to Assess Tax Attributable to Partnership Items

  1. The Form 872–O, Special Consent to Extend the Time to Assess Tax Attributable to Partnership Items, is an open-ended consent form for use at the TEFRA partnership level. This form may be used instead of the fixed–date consent Form 872–P. See IRM 25.6.22.6.5.1, Partnerships (TEFRA), and IRM 4.31.2.6, Statutes, for discussion of Form 872–P.

  2. See IRM 25.6.22.7.1, Form 872–A, Special Consent to Extend the Time to Assess Tax, for discussion of the procedures for open-ended consents and IRM 4.31.2.6.2, Extension of Statute at the Partnership Level, for further information on statute extensions for TEFRA returns.

  3. Form 872–N, Notice of Termination of Special Consent to Extend the Time to Assess Tax Attributable to Partnership Items, is the written notification to the Service (or to the taxpayer) that terminates the open-ended consent (Form 872–O) 90 days after issuance by the Service or 90 days after the date on which the Form 872–N is received by the office designated by the Commissioner of Internal Revenue.

  4. To determine the person empowered to sign the consent for the partnership, see the IRM 4.31.2.6, Statutes.

  5. The Form 872–O is handled in a similar fashion as the Form 872–P:

    1. Form 872–O will be requested at the same time a Form 872–P would normally be requested.

    2. Form 872–O may be used as a renewal consent if Form 872–P had previously been secured.

    3. Form 872–O may contain restrictive wording

  6. If the partner has signed a Form 872 or Form 872–A with respect to issues unrelated to the terminated Form 872–O (i.e., non-TEFRA partnership adjustments), that Form 872 or Form 872–A remains in full force and effect for the non-TEFRA partnership adjustments.

25.6.22.7.3  (08-26-2011)
Form 872–R Consent to Extend the Time to Assess Tax Attributable to Items of an S Corporation

  1. The Form 872–R, Special Consent to Extend the Time to Assess Tax Attributable to Items of an S Corporation, is an open-ended consent form for TEFRA S corporation returns. This form was designated obsolete on April 11, 2008.

    Note:

    TEFRA procedures do not apply to any S corporation tax year beginning after 12/31/1996.

25.6.22.8  (08-26-2011)
Restricted Consents

  1. A restricted consent is a consent which extends the assessment statute of limitations for one or more specific issues only. The statute of limitations is allowed to expire on all other issues.

25.6.22.8.1  (08-26-2011)
Taxpayer's Rights Concerning Restricted Consents

  1. The taxpayer has the right to request a restricted consent.

  2. The Internal Revenue Service Restructuring and Reform Act of 1998 requires the Service to notify taxpayers of their right to limit the extension to particular issues (effective for requests to extend the period of limitations made after 12/31/99). See IRM 25.6.22.3, Notification of Taxpayer's Rights, regarding notification.

  3. It is the position of the Service that the taxpayer's right to a restricted consent is the right to request a restricted consent. The Service is not compelled in all circumstances to agree to a restricted consent. A consent constitutes a mutual agreement, with both parties, the taxpayer and the Service, having the right to determine what they will agree to in the consent.

  4. See IRM 25.6.22.8.2 immediately below for circumstances where the Service will enter into a restricted consent requested by taxpayers.

25.6.22.8.2  (08-26-2011)
Situations Permitting Taxpayer's Request for Restricted Consent

  1. As a general rule, as reflected in Publication 1035, the Service will enter into a restricted consent requested by the taxpayer if all of the following conditions are met:

    1. The number of unresolved issues required to be covered by the restricted consent do not make it impractical to do so;

    2. The scope of the restrictions must be clearly and accurately described for all the unresolved issues;

    3. The issues not covered by the restricted consent are agreed and provision is made for assessing any deficiency or, under certain situations, scheduling any overassessment (refund or credit) attributable to the agreed issues;

    4. The use of the restricted consent is approved by an appropriate Service official.

    5. The wording in the restricted consent is approved by Area Counsel.

  2. Restricted consents should be avoided, if possible, until the examination has been completed to the extent that all potential issues have been identified.

  3. Generally, restricted consents should not be accepted for returns included in a Joint Committee case. See IRM 4.36.3.5.1, Restricted Consents.

  4. Since a restricted consent is used to allow the statute to expire with regard to all items on the return except those included in the restrictive statement, the examiner should include a statement on the Form 895, Notice of Statute Expiration, to the effect that all conditions noted above have been met.

25.6.22.8.3  (08-26-2011)
Situations when the Service may Request Restricted Consents

  1. Generally, the Service will not solicit restricted consents.

  2. The Service may request a consent restricted to one or more issues where, in the light of reasonable tax administration, resolution of such issue or issues requires establishment of a Service position through court decision, regulation, ruling or other Headquarters action, or where other equally meritorious circumstances exist. See Rev. Proc. 68–31, 1968-2 C.B. 917 (modified by Rev. Proc. 77–6, 1977-1 C.B. 539, for other matters).

25.6.22.8.4  (08-26-2011)
Issues Not Subject to Restricted Consent

  1. If there are issues other than those subject to the restricted consent, a partial agreement on Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, must be obtained and the assessment made within the regular period for assessment and extensions thereof.

  2. The report transmittal for the partial agreement report should be clearly marked, "partial agreement report." The basic report form should clearly set forth that it is a partial agreement report and that a final report will be prepared when the examination has been completed. Process Form 5344, Examination Closing Record, in accordance with the instructions contained in IRM 4.4.12, Examined Closings, Surveyed Claims, and Partial Assessments, or Form 5599, TE/GE Examined Closing Record, and the instructions in IRM 4.5.2, TE/GE Examined and Non-Examined Closures.

    Caution:

    The additional tax on the partial agreement must be assessed on or before the statute date for all issues not covered by the restricted consent.

  3. When appropriate, a partial overassessment may be made. See Policy Statement P-4-41 at IRM 1.2.13.1.17, Policy Statement 4-41.

25.6.22.8.5  (08-26-2011)
Authority to Sign Restricted Consent on Behalf of the Service

  1. A restricted consent may be signed on behalf of the Service by any person who is authorized to sign consents as specified in Servicewide Delegation Order 25–2 effective July 6, 2009 (formerly Delegation Order 42, Revision 28), Authority to Execute Agreements to Extend the Period of Limitations on Assessment or Collection and to Accept Form 900, Tax Collection Waiver or Servicewide Delegation Order 4–19 (formerly Delegation Order 209, Revision 5) for TEFRA partnership or TEFRA Subchapter S corporation matters. See IRM 1.2.52.3, Delegations of Authority for Special Topic Activities, and IRM 1.2.43.20, Delegation of Authorities for the Examining Process, for the above-referenced delegation orders, respectively.

25.6.22.8.6  (08-26-2011)
Area Counsel Approval

  1. The area office is responsible for preparing the restrictive wording and must obtain the approval of Area Counsel as to its legal sufficiency, prior to providing any consent containing restrictive wording to the taxpayer.

    Note:

    For exceptions to this requirement for non-TEFRA small business corporations and partnerships, or organizations treated as partnerships by the taxpayer (all of which are referred to collectively as non-TEFRA flow-through entities), see discussion at IRM 25.6.22.8.8, Non-TEFRA Flow-Through Entities.

  2. Any questions regarding the use of restricted consents or restrictive wording should be discussed with Area Counsel.

25.6.22.8.7  (08-26-2011)
Restricted Consents Prepared by Coordinating Areas/Divisions

  1. When other areas or divisions are involved, only the area/division having jurisdiction of the controlling entity (hereinafter the "coordinating" office) will prepare the restrictive statement and obtain approval from Counsel. The "coordinating" area/division will then distribute the approved restrictive statements to the impacted offices. When such a restricted consent is prepared, the restrictive wording will not be modified to cover an additional unresolved issue of any particular taxpayer without first obtaining approval of the "coordinating" office.

  2. In those cases where the coordinating area/division and its Area/Division Counsel determine that it is not appropriate for the impacted office to secure a modified restricted consent, the "coordinating" area/division will notify the other impacted areas/divisions of this decision by memorandum. The reasons why a restricted consent would not be appropriate will be set forth in the memorandum.

  3. The area/division preparing the consent should anticipate the possibility of issues being present in the tax period for which the consent is being sought based on the continuing effects of a prior year adjustment. The preparing area/division can cover such possible situations by including the following statement as the first provision of the description of the issues to which the consent is restricted: "(1) items affected by continuing tax effects caused by adjustments to any prior tax return;" . Such an opening provision is followed by provisions describing the major areas of consideration. The addition of the restrictive statement addressing the continuing tax effects of adjustments to prior tax periods does not require approval by the coordinating office.

  4. When requesting a restricted consent which has been prepared by the "coordinating" area/division, the examiner should explain to the taxpayer that, for consistency purposes, the restricted consent cannot be changed and that all similarly situated taxpayers are being requested to sign either a general consent or this restricted consent. If the restrictive wording contains a provision for the continuing tax effects of prior year adjustments, the examiner should explain that the provision was included to cover possible situations of numerous taxpayers and, if there are no continuing tax effects from adjustments or proposed adjustments in a prior year, the provision has no effect.

  5. When approval of Area/Division Counsel is required for the restrictive wording, such approval must be sought no later than 90 days prior to the earliest statute expiration date of any related taxpayer's return. Concurrently, the "coordinating" area/division also will seek Area/Division Counsel approval of wording for adjustments to be used in statutory notices in the event such notices become necessary when consents cannot be secured from the related taxpayers.

  6. If the request for approval cannot be made within the time limit prescribed in (5) above, the request to Counsel must be made in writing signed by the Territory Manager in LB&I, SB/SE and W&I, or the Area Manager in TE/GE of the coordinating office.

25.6.22.8.8  (08-26-2011)
Non-TEFRA Flow-Through Entities

  1. When the only unresolved issues appearing on a taxpayer's return are those resulting from the non-TEFRA flow-through items, the division office having jurisdiction over the shareholder's or partner's (hereinafter referred to as "distributee" ) tax return will prepare the restricted consent using the wording contained in IRM 25.6.22.8.15 (5), (6), or (7), Examples, except in unusual circumstances. When the wording specified in IRM 25.6.22.8.15 (5), (6) or (7) is used without modification, approval of Area Counsel is not required. For this purpose, the addition of a statement regarding the continuing tax effects of prior year's adjustments as an area of consideration is not considered to be a modification requiring the approval of Area Counsel.

    Note:

    With the prior approval of Area Counsel, other unresolved issues (i.e., issues other than those resulting from flow-through items) may be included on the restricted consent, consistent with this IRM section.

  2. Prior to soliciting a restricted consent from a distributee, the division office having jurisdiction over the distributee's return will determine if other flow-through entities are being examined by researching AIMS and PCS. The Partnership Control System (PCS) places a Partnership Investor Control File (PICF) code of "6" on the AIMS record for the investor. The code alerts IRS personnel to the existence of an ongoing examination of the key case return and prevents its premature closure. For example, an examiner in Peoria may be auditing Investor A's individual income tax return when an examiner in Boston begins the examination of a non-TEFRA partnership in which Investor A is a partner. If Investor A asks for a restricted consent, the Peoria examiner must check the PICF Code and determine whether the restricted consent should include any flow-through entities. Investor A's examination cannot be closed without addressing the PCS linkage.

25.6.22.8.9  (08-26-2011)
TEFRA Entities

  1. Although the restricted consent procedures apply to the returns of TEFRA entities, a consent containing wording restricting adjustments to one or more items of a partnership may not be solicited without the prior written approval of Area Counsel. Because of the potential impact on distributees and the interrelationship of partnership items, managers and technical personnel must consider the difficulties in clearly and accurately describing the scope of a restricted consent covering items of a TEFRA partnership. Suggested wording for restricted consents for TEFRA partnerships is provided in IRM 25.6.22.8.15, Examples ; however, review by Area Counsel of the restrictive wording is still required.

25.6.22.8.10  (08-26-2011)
Multiple Year Consents

  1. Restricted issues must be identical for each tax period, in order to have one consent form to cover multiple tax periods. See IRM 25.6.22.5.5.1, Multiple Tax Periods, for more information on multiple tax period consents.

25.6.22.8.11  (08-26-2011)
Preparing Restricted Consents

  1. Extreme care should be exercised when drafting restrictive wording for use in a consent.

    1. The restriction should not foreclose the utilization of alternative rationale for making the adjustment, if such action becomes necessary. Thus, the restrictive wording should describe the area or areas of consideration rather than the proposed tax treatment.

    2. Internal Revenue Code sections should not be included in the restrictive wording.

    3. Each restricted consent must contain a basic restrictive statement (see IRM 25.6.22.8.12, Basic Restrictive Statement) and a description of the area(s) of consideration. While the area(s) of consideration may vary with each restricted consent, the basic restrictive statement will remain constant.

    4. See IRM 25.6.22.8.7, Restricted Consents Prepared by Coordinating Areas/Divisions, for a discussion concerning the continuing effects of a prior year adjustment that should be considered for inclusion in the restrictive statement.

25.6.22.8.12  (08-26-2011)
Basic Restrictive Statement

  1. The basic restrictive statement is:
    "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to (description of the area(s) of consideration), any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

  2. The following wording should also be included on Form 872 and Form 872-A when the consent is being restricted:
    "The provisions of Section 6511(c) of the Internal Revenue Code are limited to any refund or credit resulting from an adjustment for which the period for assessment is extended under this agreement."

    Definitions: (Also see Rev. Proc. 77–6,1977-1 C.B. 539, modifying Rev. Proc. 68–31, 1968-2 C.B. 917)
    Adjustment The word "adjustment" in the basic restrictive statement means any change or changes within a restricted area of consideration, whether reported or not reported on the return. The change can be in amount, taxable status, allocation, etc.
    Consequential changes The term "consequential changes" in the basic restrictive statement means any direct or indirect effect. For example, the prime effect of the disallowance of an exemption for a dependent is an increase in taxable income — the "adjustment." One possible direct consequence of the "adjustment" is the disallowance of any medical expenses claimed for the disallowed dependent. If this direct consequence reduces the total itemized deductions to the point that the standard deduction amount is greater, the disallowance of all itemized deductions and the allowance of the standard deduction amount would be indirect consequences of the "adjustment," the disallowance of the dependency exemption. To illustrate further, an "adjustment" which increases adjusted gross income can have a direct consequence on the statutory limitations for medical expenses and contributions.

25.6.22.8.13  (08-26-2011)
Placement of Restrictive Statement on the Consent Form

  1. The restrictive statements should be typed on the consent in the space provided, depending upon the particular consent form being used.

  2. On some consent forms there is very little space for typing a restrictive statement. If the restrictive statement will not fit on the consent form, a reference is to be made on the consent form to an attachment. A key consideration is that the attention of both the taxpayer and the Service is clearly directed to the restriction. Consent Form 872 and Form 872–A, revised October 2009, specify that "This Form contains the entire terms of the consent to extend the Time to Assess Tax. There are no representations, promises, or agreements between the parties except those found or referenced on this Form." Also, see IRM 4.31.2.6.2, Extension of Statute at the Partnership Level.

25.6.22.8.14  (08-26-2011)
Expiration Date of the Restricted Consents

  1. The expiration date of the consent should generally be sufficient to provide time for disposition of the case without a foreseeable need for obtaining a renewal consent. This is particularly important when the outcome of the case is dependent upon a court decision in another case.

  2. If it becomes necessary to extend the statutory period beyond the date originally agreed upon, renewal consents may be secured before the expiration date of the original consent. Renewal consents may be obtained by using an open-ended consent agreement even if the preceding consent was a fixed-date consent.

  3. If a restricted consent was secured originally, the restrictive statement on the renewal consent must be worded exactly as the original restricted consent. If a general consent had been obtained originally, the renewal consent may be restricted to certain areas of consideration using the principles described in this IRM section.

25.6.22.8.15  (08-26-2011)
Examples

  1. The following examples illustrate the principles to be used in drafting the restrictive statement.

    Note:

    The restrictive statement in IRM 25.6.22.8.12 (2), Basic Restrictive Statement, pertaining to IRC 6511(c), i.e., "The provisions of Section 6511(c) of the Internal Revenue Code are limited to any refund or credit resulting from an adjustment for which the period for assessment is extended under this agreement" , is not included in the examples contained in (2) through (9), immediately below, but this restrictive statement is required to be included if the restricted consent form being used is a Form 872 or 872-A.


  2. In general — Assume the taxpayer and the Service are awaiting a court decision involving the deduction for dependency exemptions for the taxpayer's parents in a particular factual setting. The only unresolved issue on a subsequent return of the taxpayer involves the same issue with the same facts. The basic restrictive statement with the description of the area of consideration is as follows (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples):

    "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to the total number of exemptions, any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

  3. Shareholder receiving distribution — Assume the taxpayer in a particular taxable year received distributions as a shareholder from Corporation A. The corporation advised shareholders that the distribution was only 50 percent taxable but the taxable status of the distribution has not yet been made by the Service. The only unresolved issue on the return of the taxpayer/shareholder involves the amount of the distribution subject to tax. The basic restrictive statement with the description of the area of consideration is as follows (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples):

    "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to distributions from Corporation A, any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

  4. Shareholder receiving distribution in exchange for stock — In any examination, an adjustment to the tax treatment of a particular item in one year can have continuing effects on items in a subsequent year. For example, assume a situation where the shareholders of Corporation X received common stock of Corporation Y in exchange for their shares of Corporation X common in a merger. The shareholders treated the transaction as a tax-free exchange but the Service is questioning that treatment. For the year of the exchange, the basic restrictive statement with the description of the area of consideration is as follows (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples):

    "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to the exchange of shares of common stock of Corporation X for shares of common stock of Corporation Y, any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

    1. For a subsequent year, the many possible continuing effects of a change in the tax treatment of the prior year exchange can be covered with the following description of the area of consideration:

    "items affected by the (insert year of exchange) exchange of shares of common stock of Corporation X for shares of common stock of Corporation Y."

  5. S Corporation Shareholder/Partner Consent (non-TEFRA) Covering Only Specific Entities on Return — In examinations of S corporations or partnerships (hereinafter referred to as "flow-through entity" ), the adjustments may be at the flow-through entity level with changes in profit, loss, etc., flowing to the shareholders' or partners' returns based on the flow-through entity adjustments. However, adjustments also may be reflected at the shareholder or partner level due to changes in the shareholder's or partner's basis in the flow-through entity. For example, in partnership leveraged tax shelter situations utilizing nonrecourse financing, a possible Service position is that the loans lack economic substance and create artificial losses because taxpayers never intend to honor the loans. Disallowance of the losses on such grounds is a partnership level adjustment. If the fair market value of the property underlying the nonrecourse loans is not at least equal to the loans, an alternative Service position would be the disallowance of a portion of the losses at the partner level on the grounds that the losses exceed the partner's basis in the partnership. A partner's basis includes nonrecourse liabilities only to the extent of the fair market value of the property underlying such liabilities. In certain partnership situations, it is also possible to argue that the partnership is an association taxable as a corporation. In such situations, the "distributive shares" of income, gain, loss, deduction, or credit of the "partnership" are not recognized to the "partners" but are taxable to the association. However actual distributions to the "partners" from the association, as opposed to distributive shares from the "partnership" , could be taxable as dividends.
    In preparing restricted consents to be obtained from shareholders or partners in any flow-through non-TEFRA entity situation, the restrictive statement should cover all of the possible issues. Additionally, the restricted consent will exclude all flow-through non-TEFRA entities which are not under examination. The following restrictive wording may be used to include specific flow-through entities on the consent. The wording in IRM 25.6.22.8.15 (6) and (7) below may be used to include all flow-through entities appearing on the return or all flow-through entities except specifically named flow-through entities, respectively. Except in unusual circumstances, the appropriate restrictive wording provided in this paragraph, or in IRM 25.6.22.8.15 (6) or (7) below, will be used on Form 872 or Form 872–A. The restrictive statement with the description of the areas of consideration is as follows (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples):

    1. Small business corporation and partnership flow-through items to shareholder/partners within the same taxable year:

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the taxpayer's distributive share of any item of income, gain, loss, deduction, or credit of, or distribution from (list names of small business corporation(s) and partnership(s) or organizations treated as partnership(s) on the taxpayer's return which are to be included); (b) the tax basis of the taxpayer's interest(s) in the aforementioned corporation(s) and partnership(s) or organization(s) treated by the taxpayer(s) as a partnership; and (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such corporation(s) and partnership(s) or organization(s) treated by the taxpayer as a partnership; any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment. "

    2. Only small business corporation flow-through items to shareholders:

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the taxpayer's distributive share of any item of income, gain, loss, deduction, or credit of, or distribution from (list names of small business corporation(s) which are to be included); (b) the tax basis of the taxpayer's interest(s) in the aforementioned corporation (s); and (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such corporation(s); any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

    3. Only partnership flow-through items to partners:

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the taxpayer's distributive share of any item of income, gain, loss, deduction, or credit of, or distribution from (list name(s) of partnership(s) or organization(s) treated as partnership(s) on the taxpayer's return which are to be included); (b) the tax basis of the taxpayer's interest(s) in the aforementioned partnership(s) or organization(s) treated by the taxpayer(s) as a partnership; and, (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such partnership(s) or organization(s) treated by the taxpayer as a partnership; any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

      Note:

      As stated in IRM 25.6.22.8.8, Non-TEFRA Flow-Through Entities, approval of Area Counsel is not required if the above wording in IRM 25.6.22.8.15 (5)(a), (b) or (c) is suitable for use under the circumstances without modification except to add the statement pertaining to the IRC 6511(c) restriction at IRM 25.6.22.8.15 (1) or the continuing tax effects of adjustments to prior years. As discussed in IRM 25.6.22.8.7, Restricted Consents Prepared by Coordinating Areas/Divisions, Area Counsel approval is not required for the addition of the restrictive statement regarding items affected by continuing tax effects caused by adjustments to a prior tax return.

  6. S Corporation Shareholder/Partner Consent (non-TEFRA) Covering All Entities on Return — The following restricted consent wording may be used if all (one or more) flow-through entities in which the taxpayer is a shareholder or partner are under examination or if the examiner is unable to determine if one or more of the flow-through entities are under examination. If the taxpayer is involved in numerous flow-through entities, not all of which are under examination, the wording in IRM 25.6.22.8.15 (7) below may be used to exclude specifically named flow-through entities or, alternatively, the wording in IRM 25.6.22.8.15 (5) above (naming specific flow-through entities to be covered) may be used. The restrictive statement with the description of the areas of consideration is as follows (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples):

    1. Small business corporation and partnership flow-through items to shareholder/partners within the same taxable year:

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the taxpayer's distributive share of any item of income, gain, loss, deduction, or credit of, or distribution from any small business corporation(s) and any partnership(s) or organizations treated as partnership(s) on the taxpayer's tax return; (b) the tax basis of the taxpayer's interest(s) in such corporation(s) and partnership(s) or organization(s) treated by the taxpayer(s) as a partnership; and (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such corporation(s) and partnership(s) or organization(s) treated by the taxpayer as a partnership; any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

    2. Small business corporation flow-through items to shareholders:

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the taxpayer's distributive share of any item of income, gain, loss, deduction, or credit of, or distribution from any small business corporation(s); (b) the tax basis of the taxpayer's interest(s) in such corporation(s); and (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such corporation(s); any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

    3. Partnership flow-through items to partners:

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the taxpayer's distributive share of any item of income, gain, loss, deduction, or credit of, or distribution from any partnership or any organization treated by the taxpayer as a partnership on the taxpayer's tax return; (b) the tax basis of the taxpayer's interest(s) in such partnership(s) or organization(s) treated by the taxpayer as a partnership; and (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such partnership(s) or organization(s) treated by the taxpayer as a partnership; any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

      Note:

      As stated in IRM 25.6.22.8.8, Non-TEFRA Flow-Through Entities, approval of Area Counsel is not required if the above wording in IRM 25.6.22.8.15 (6)(a), (b) or (c) is suitable for use under the circumstances without modification except to add the statement pertaining to the IRC 6511(c) restriction at IRM 25.6.22.8.15 (1) or the continuing tax effects of adjustments to prior years. As discussed in IRM 25.6.22.8.7, Restricted Consents Prepared by Coordinating Areas/Divisions, Area Counsel approval is not required for the addition of the restrictive statement regarding items affected by continuing tax effects caused by adjustments to a prior tax return.

  7. S Corporation Shareholder/Partner Consent (non-TEFRA) Covering All Entities on Return Except Those Specified — The following restricted consent wording effectively modifies the "any small business corporation and any partnership" clause in IRM 25.6.22.8.15 (6) above to exclude specifically named flow-through entities. The "exclusion" applies to all flow-through entities which are not under examination. Alternatively, the wording in IRM 25.6.22.8.15 (5) above (naming specific flow-through entities to be covered) may be used. The restrictive statement with the description of the areas of consideration is as follows (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples):

    1. Small business corporation and partnership flow-through items to shareholder/partners within the same taxable year:

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the taxpayer's distributive share of any item of income, gain, loss, deduction, or credit of, or distribution from any small business corporation(s) and partnership(s) or organizations treated as partnership(s) on the taxpayer's return except (list name(s) of small business corporation(s) and partnership(s) or organization(s) treated as partnership(s) on the taxpayer's return to be excepted); (b) the tax basis of the taxpayer's interest(s) in the aforementioned corporation(s) and partnership(s) or organizations(s) treated by the taxpayer(s) as a partnership; and (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such corporation(s) and partnership(s) or organization(s) treated by the taxpayer as a partnership; any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

    2. Small business corporation flow-through items to shareholders:

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the taxpayer's distributive share of any item of income, gain, loss, deduction, or credit of, or distribution from any small business corporation(s) except: (list name(s) of small business corporation(s) to be excepted); (b) the tax basis of the taxpayer's interest(s) in the aforementioned corporation(s); and (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such corporation(s); any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

    3. Partnership flow-through items to partners:

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the taxpayer's distributive share of any item of income, gain, loss, deduction, or credit of, or distribution from any partnership or any organization treated by the taxpayer as a partnership on the taxpayer's tax return except (list name(s) of partnership(s) or organization(s) treated as partnership(s) on the taxpayer's return to be excepted; (b) the tax basis of the taxpayer's interest(s) in such partnership(s) or organization(s) treated by the taxpayer as a partnership; and, (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such partnership(s) or organization(s) treated by the taxpayer as a partnership; any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

      Note:

      As stated in IRM 25.6.22.8.8, Non-TEFRA Flow-Through Entities, approval of Area Counsel is not required if the above wording in IRM 25.6.22.8.15 (7)(a), (b) or (c) is suitable for use under the circumstances without modification except to add the statement pertaining to the IRC 6511(c) restriction at IRM 25.6.22.8.15 (1) or the continuing tax effects of adjustments to prior years. As discussed in IRM 25.6.22.8.7, Restricted Consents Prepared by Coordinating Areas/Divisions, Area Counsel approval is not required for the addition of the restrictive statement regarding items affected by continuing tax effects caused by adjustments to a prior tax return.

  8. Tiered S Corporations/Partnerships (Non-TEFRA Tiers) — Problems can be encountered when a partner of a partnership is another partnership (a tier partnership) or an S corporation. Care must be taken to assure that consents are secured from the right parties and that the restricted consent properly identifies the entity from which an adjustment will flow. If this situation arises, consult Area Counsel for restrictive wording. Assume an examination of the TEFRA XYZ Partnership is in process and it becomes necessary to extend the statutory period for assessment. Eighteen partners are individuals, one partner is the AB Partnership (a non-TEFRA partnership), and one partner is the CD Corporation, an S corporation. It has been determined that it is appropriate to secure restricted consents from each affected taxpayer except the XYZ and AB partnerships. If consents from the partnerships are necessary, general consents should be secured (see below).

    1. IRC 6501(g) holds that if a partnership return is filed in good faith, and it is later determined that the partnership is an association taxable as a corporation, the filing of the partnership return will start the running of the statutory period for assessment. Therefore, if it appears possible that the XYZ Partnership could be held to be an association taxable as a corporation, or if sufficient facts have not been developed to make the determination, a general consent should be secured from the "partnership." In such a situation, Area Counsel should be consulted as to who should sign the Form 872 for the partnership.

    2. A restricted consent should be secured from each of the eighteen individual partners of the XYZ Partnership. The restrictive statement with the description of the areas of consideration is as follows (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples):

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the partner's distributive share of any item of income, gain, loss, deduction, or credit of, or distributions from the XYZ Partnership; (b) the tax basis of the partner's interest in the aforementioned partnership; and, (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such partnership(s) or organization(s) treated by the taxpayer as a partnership; any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

    3. The AB Partnership is a tier (pass-through) partnership which has two individual partners. Any adjustment to the XYZ Partnership will flow through the tier partnership to the partners of the AB Partnership. Since the two individuals are the eventual taxpayers, restricted consents must be secured from each of them with their partnership, the AB Partnership, identified in the consent. Therefore, the restrictive statement with the description of the areas of consideration is as follows (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples):

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the partner's distributive share of any item of income, gain, loss, deduction or credit of, or distributions from the AB Partnership; (b) the tax basis of the partner's interest in the aforementioned partnership; and, (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such partnership(s) or organization(s) treated by the taxpayer as a partnership; any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment" . (See discussion in a), above, relative to the possibility of holding a partnership to be an association taxable as a corporation. If it appears necessary to secure a consent from the AB Partnership, a general consent should be secured.)

    4. A restricted consent should be secured from the CD Corporation. The restrictive statement with the description of the areas of consideration is as follows (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples):

      "The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the partner's distributive share of any item of income, gain, loss, deduction, or credit of, or distributions from the XYZ Partnership; (b) the tax basis of the partner's interest in the aforementioned partnership; and, (c) any gain or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in such partnership(s) or organization(s) treated by the taxpayer as a partnership; any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."
      In addition, restricted consents should be secured from each shareholder of the CD Corporation since they may be the eventual taxpayers of the adjustment which flows from the XYZ Partnership through the CD Corporation. The S corporation must be identified on these consents. Therefore, the restrictive statement with the description of the areas of consideration is as follows (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples):
      " The amount of any deficiency assessment is to be limited to that resulting from any adjustment to: (a) the shareholder's distributive share of any item of income, gain, loss, deduction, or credit of the CD Corporation; (b) the tax basis of the shareholder's interest in the aforementioned corporation; and, (c) any or loss (or the character or timing thereof) realized upon the sale or exchange, abandonment, or other disposition of taxpayer's interest in corporation; any penalties and additions to tax attributable thereto, and any consequential changes to other items based on such adjustment."

  9. Partner Consent (investor in TEFRA Partnership) — Consents at the partner level to extend the time to assess tax attributable to items of a TEFRA partnership should contain specific wording.

    1. The following wording should be used when drafting the restrictive statement in a consent extending the statute to a fixed date for an individual partner. This wording may be limited to a specific partnership(s) or S corporation(s) (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples): "This agreement is limited to items, as provided for in paragraph (4) of this agreement, related to [specify TEFRA entity(s)]."

    2. The following wording should be used when drafting the restrictive statement in an open-ended consent for an individual partner. This wording may be limited to a specific partnership(s) or S corporation(s) (also see NOTE pertaining to IRC 6511(c) restriction at IRM 25.6.22.8.15 (1), Examples): "This agreement is limited to items, as provided for in paragraph (7) of this agreement, related to [specify TEFRA entity(s)]. "

      Caution:

      The restrictive wording in consents extending a TEFRA partnership or restrictive wording extending the statute at the investor level for adjustments flowing from TEFRA entities, requires the approval of Area Counsel.
      If a partnership return is filed by an entity for a taxable year but it is determined that the entity is a C corporation for that year, the TEFRA provisions including the extension provisions under IRC 6229, are extended with respect to that year, that entity, and its purported partners, IRC 6233 and Treas. Reg. 301.6233-1. For a partnership to which IRC 6233 does not apply, see IRC 6501(g). Consents from such entities may have to be secured from both the entities as if they were C corporations and individually from the purported partners. Consult your Area Counsel if this situation arises.


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