Many practitioners have reported that they are receiving 90-day letters in CP2000 (underreported income) cases and correspondence exams after timely submitting substantiation documents but before the IRS has considered the response. Since it usually takes more than 90 days to resolve notices and correspondence exams on the IRS side, receipt of a 90-day letter creates additional paperwork and expense for the client in concluding the case.
If the taxpayer properly files a Tax Court petition in response to the 90-day letter, the case normally will be referred to an Appeals case manager for resolution prior to a Tax Court hearing. However, a taxpayer may employ another procedure to resolve a case without a Tax Court hearing. Internal Revenue Manual Section 184.108.40.206 provides a procedure for rescinding a 90-day letter. This procedure basically causes the 90-day letter to become null and void, as if it never occurred, except that, if the IRS grants the rescission, the running of the statute of limitation is suspended for the period the notice is outstanding prior to rescission. For example, if 60 days transpire between the date the 90-day letter is issued and the date the IRS official signs the formal agreement (generally, Form 8626, Agreement to Rescind Notice of Deficiency), then 60 days will be added to the statute-of-limitation period that applies to that tax return.
Rev. Proc. 98-54 lists three situations that can result in a rescission of a 90-day letter and several in which the IRS will not grant rescission.
WHEN DOES RESCISSION MAKE SENSE?
Obtaining a rescission is not an easy process. In most cases, it is probably more expedient to just file a Tax Court petition and use the Appeals process to resolve the case. But some situations might warrant a rescission request rather than a Tax Court petition.
In the case of administrative error, such as an assessment against the wrong taxpayer or for the wrong tax period, or if the taxpayer wants to settle the case right away, it may be faster to use the rescission request procedure. The request goes directly to Appeals rather than through the Tax Court docketing queue.
Ninety-day letters issued to victims of identity theft for fraudulently filed returns have been identified as an administrative error by the IRS. Since it commonly takes more than six months to resolve an identity theft issue, a request for rescission is the appropriate first response to a 90-day letter in this case.
In all cases, if the rescission is not granted, the taxpayer still has a right to file a Tax Court petition within the 90-day window.
STEPS TO OBTAINING A RESCISSION
The first step in obtaining a rescission is to contact the person or office listed on the notice and request a Form 8626. The taxpayer should make the request as soon as possible after receiving the 90-day letter. The request should include all the facts and proof of qualification for rescission that support the request.
If the IRS grants the request, Appeals will issue Form 8626 and forward it for the taxpayer's signature. The taxpayer must return the form as soon as possible because it is not effective until it is signed by the appropriate IRS official. If it is not executed before the 90-day window expires and if no Tax Court petition is filed, the taxpayer will lose all rights to a hearing or appeal.
For a detailed discussion of the issues in this area, see "Tax Practice & Procedures: Procedure for Obtaining Rescission of 90-Day Letters," in the April 2017 issue of The Tax Adviser.
—Janet C. Hagy, CPA
The Tax Adviser is the AICPA's monthly journal of tax planning, trends, and techniques.
Also in the April issue:
- A discussion of tax issues for nontraditional households.
- A look at the Third Circuit's Giant Eagle decision.
- An analysis of the statute of limitation for net operating losses.
AICPA members can subscribe to The Tax Adviser for a discounted price of $85 per year. Tax Section members can subscribe for a discounted price of $30 per year.