48.8 Agreeing to the Audit Changes

After the audit, the agent will discuss proposed changes either with you or your representative.

If you agree with the agent’s proposed changes, you will be asked to sign a Form 870, which, when signed, permits an immediate assessment of a deficiency plus penalties and interest, if due. The Form 870 is called “Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment.”

If you believe that you have done as well or better than expected regarding the proposed deficiency, you can bring the case to a close by signing the Form 870, but the agent’s supervisor must also approve the assessment.

By signing the form, you limit the amount of interest charges added to the deficiency. A signed Form 870 does not prevent the IRS from reopening the case to assess an additional deficiency. If on review the deficiency is increased, you will receive a revised Form 870. You can refuse to sign the form. The signed first form has the effect of stopping the interest on the original deficiency. As a matter of practice, however, waivers of acceptances ordinarily result in closing of the case.

Caution

Waiving Your Right To Appeal

Before deciding whether to sign the Form 870, consider that, by signing, you are giving up your right of appeal to both the IRS Office of Appeals and the Tax Court. However, you may still file a refund suit in a federal district court or in the Court of Federal Claims unless you have agreed not to do so on the Form 870.

- - - - - - - - - -

It is possible, although unlikely, that upon examining your return, the agent will determine that you are due a refund. In this situation, a signed Form 870 is considered a valid refund claim. You should file a protective refund claim even if you sign the Form 870 acknowledging the overpayment. Generally, the agent will process the refund, but if he or she fails to do so or the review staff puts it aside for some reason and the limitations period expires, the refund will be lost. The refund claim will protect you from such a mishap.

The payment of tax before the deficiency notice (90-day letter) is mailed is, in effect, a waiver of the restrictions on assessment and collection. If the payment satisfies your entire tax liability for that year, you cannot appeal to the Tax Court. You must sue for a refund in either federal district court or the Court of Federal Claims.