The new provision applies only to taxpayers who hold an interest (directly or indirectly) in any partnership subject to Subchapter C of Chapter 63 of the Code (partnerships subject to the TEFRA provisions under sections 6221-6234) with respect to deficiencies resulting from adjustments to partnership items, affected items, computation adjustments and partnership items converted to nonpartnership items—i.e, TEFRA adjustments—reported in the source year that affect the carryforward year.
The new language in Form 872 provides that with respect to TEFRA adjustments:
Additionally, this agreement extends the period of limitations for assessing any tax (including penalties, additions to tax, and interest) relating to any amounts carried over from the taxable year specified in paragraph (1) to any other taxable year(s).
Read the revised Form 872 [PDF 44 KB]
Section 6501(c)(4) provides authority for the IRS and a taxpayer to agree to extend the period of time for assessment of tax under the Code.
Importantly, any agreement pursuant to section 6501(c)(4) to extend the period of assessment of tax imposed by the Code creates an extension for filing a claim for refund claim for six months after the end of the agreed period for assessment. See section 6511(c)(1).
Section 6511(d) provides for an extended period of limitations in the case of a loss or credit carryback, but not for a loss or credit carryforwards.
Revised Form 872
The inclusion of the new language on Form 872 will allow the IRS to assess additional tax for carryforward years resulting from TEFRA adjustments that are otherwise barred from assessment under section 6501 if the source year is still open by agreement under section 6501(c)(4).
Likewise, the new language will give taxpayers additional time to obtain a credit or refund resulting from the carryforward of TEFRA adjustments to carryforward years that would otherwise be closed under section 6511—notwithstanding the fact that the source year of the TEFRA adjustments is still open under section 6511(c)(1) pursuant to agreement under section 6501(c)(4).
Taxpayers that are partners in a TEFRA partnership previously could find their refund claim with respect to carryover adjustments to a subsequent year to be barred absent anticipating the need for and undertaking protective measures. Protective measures undertaken by taxpayers include executing a Form 872 for the carryforward year or filing a protective refund claim before the period of limitations expires for the carryforward year.
Unfortunately, the modification of Form 872 only extends the period of limitation for refund for taxpayers who hold an interest in a TEFRA partnership and only with respect to TEFRA adjustments. The modification to Form 872 does not apply to other taxpayers who must continue to monitor and undertake protective measures with respect to carryover adjustments to subsequent years.
For more information, contact a KPMG tax professional: