Question

IRS Practice & Procedure

What is the purpose of a closing agreement, and what is the difference between a closing agreement and Forms 870 and 870-AD?

What is the difference between Form 870 and Form 870-AD

Answer 1

Closing Agreements

The third kind of frame is an end understanding. Shutting assentions bar the documenting of discount guarantees under contract standards (instead of under impartial estoppel) and can be repealed just on an appearing of extortion, impropriety or deception of a material actuality (Sec. 7121 (b)). There are two kinds of shutting understandings - those that conclude a citizen's whole obligation for the expense time frame at issue (Shape 866, Assention as to Definite Assurance of Duty Risk) and those that finish the treatment of particular issues (Frame 906, Shutting Concession to Definite Assurance Covering Particular Issues). These two sorts of understandings might be utilized in mix for a similar case.

As a reasonable issue, strategies make it troublesome (however not feasible) to acquire an end assention. The Administration keeps up strict powers over who can sign one. In Examination, most shutting assentions must be marked by Region Executives or their designees. In Offers, shutting assentions must be marked by the Head of Requests; in numerous cases, Area Direction should survey a proposed dosing understanding.

In the event that conclusion is a citizen's objective and the case is in Offers, Shape 870-Promotion achieves much bite the dust same outcome as an end assention. An end understanding, be that as it may, is the best way to accomplish "absolution" in an Examination-concurred case. In addition, a particular issues shutting understanding must be utilized if the citizen needs certainty for later years that are influenced by settled issues. For instance, if the citizen and Offers concur that an advantage has an estimation of $100,000 and is amortizable over an actual existence of 10 years, in fact, a Shape 870-Advertisement recounting this understanding isn't authoritative on Examination in the resulting nine years of the benefit's life. As a pragmatic issue, Examination quite often applies an earlier Interests settlement, despite the fact that, actually, just caseworkers in composed examination program cases are allowed to apply earlier Interests settlements outside of the end assention setting. Interestingly, a particular issues shutting assention that alludes to the life and estimation of an advantage will tie the IRS to that understanding for the duration of the life of the benefit.

Noncommittal Agreements

The first type of form permits the IRS to assess tax, but also allows the taxpayer to file a refund claim after paying the assessed tax. In the income tax context, Form 4549, Income Tax Examination Changes (used by Examination), and Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment (used by both Examination and Appeals), are generally employed to close "agreed" cases. By signing either form in Examination, the taxpayer loses its right to go to Appeals or to petition the Tax Court.

Form 870 may be used in Appeals if the taxpayer wants to litigate its case in Federal district court or the Court of Federal Claims. Because these are refund forums, the Service must first assess the disputed tax, and the taxpayer must pay the tax and file a refund claim before bringing suit. Form 870 is used in this context simply to expedite the case; otherwise, the IRS would have to issue a deficiency notice and wait 90 days before assessing the tax.

Committal Agreements

The second type of form (Form 870-AD, Offer to Waive Restrictions on Assessments and Collection of Tax Deficiency and to Accept Overassessment, in the income tax context) permits the Service to assess the tax, but generally prohibits refund claims for issues agreed upon by the parties. These forms are used only by Appeals (not by Examination), and are typically used for settlements in which both the IRS and the taxpayer are conceding something in order to settle the case (i.e., mutual concession settlements).

Courts have frequently applied the doctrine of equitable estoppel to prohibit either the Service or the taxpayer from reneging on an agreement embodied in a Form 870-AD (see Whitney, 826 F2d 896 (9th Cir. 1987); General Split Corp., 500 F2d 998 (7th Cir. 1974). However, estoppel typically will not apply if a refund claim issue was not addressed in Form 870-AD, not mentioned during audit and not known by either party at the time the closing agreements were made; see McGraw-Hill, D.C., N.Y, 1990, acq., 1993-1 CB 1.) As a precautionary measure, if there are specific but unrelated refund issues, a taxpayer should insert a provision (a reserve clause) on the Form 870-AD, reserving the right to file a refund claim for these issues before signing the form.