Form 870 is an IRS form used to request relief from liability for estate tax. The basic Form 870 is typically used when a mutual concession settlement is not involved. The Form 870-AD is used in mutual concession settlements. The forms are related, but the AD version contains a provision against re-opening the case.
Form 906 provides agreement terms; Form 870 provides the tax calculation. The IRS may take a contrary position on a related issue.
A closing agreement is a written contract between a taxpayer and the Internal Revenue Service (IRS) to resolve a tax dispute. It provides certainty as to the amount of the tax liability. The agreement should be carefully reviewed and negotiated to ensure all terms and conditions are clear and appropriate.
Form 872 is used by the IRS to extend the time to assess tax. This consent can be obtained for income tax or FICA tax. The form is mostly known for use in the IRS Offshore Voluntary Disclosure Program. Form 872 is required in that program due to the voluntary disclosure period being eight years while the statute of limitations is three years.
In cases where it is proposed to close all tax payable for a period before the agreement date, Form 866 is used. In cases where an agreement resolves one or more issues and consistent treatment is needed in a different period, Form 906 is used.
All participants of an offshore voluntary disclosure program must execute a Form 906 closing agreement. Setting aside the agreement using duress theory can be challenging. When litigating a refund, selecting the right forum is important.
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