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    Waiver for the expiration of the statute of limitations

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    The IRS is disputing a deduction reported on your 2005 tax return, which you filed on April 17, 2006. On April 2, 2009, the IRS audit agent asks you to waive the statute of limitations for the entire return so as to give her additional time to obtain a Technical Advice Memorandum.

    The agent proposes in return for the waiver a "carrot" - the prospect of an offer in compromise - and a "stick" - the possibility of a higher penalty.

    Although you have substantial authority for the deduction, you consider the following alternatives:

    (1) waive the statute of limitations for the entire return,
    (2) waive the statute of limitations for the deduction only, or
    (3) do not waive the statute of limitations in any way, shape, or form.

    Which alternative should you choose, and why?

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    Solution Preview

    It's a little difficult to decide between (1) and (2) because the nature of the contested deduction might change another part of the return which could be beyond the statute if the waiver was limited to only the issue. Assuming the issue could not affect another part of the return, option (2) seems the best alternative to me.

    For ...

    Solution Summary

    The solution discusses the various strategies of whether to consent to the request for a waiver of the statute of limitations in an audit case, as outlined in the problem.