A framing contractor in Rio Rancho has spent the fall answering a revenue agent’s questions about his 2023 Schedule C, mostly about cash paid to subcontractors. In November 2026 the agent mails him a filled-in form that would push the IRS deadline on that return to December 31, 2027, with a cover letter that makes it sound routine.
It deserves more thought. On September 30, 2026, the Tax Court held in Fine v. Commissioner, 167 T.C. No. 13, that a taxpayer cannot cut a signed Form 872 short. And for someone who files in New Mexico, the form skips a second question: what the state’s clock does meanwhile.
Can a Form 872-T end a Form 872 early?
No. In Fine, a couple had signed Forms 872 for 2015 and 2016. After Appeals talks failed, their lawyer faxed Forms 872-T, ticking the form’s only box (which refers to Form 872-A). The notices of deficiency came inside the consent dates but long past 90 days from the faxes. Judge Ashford’s answer: “only the passage of time can terminate Form 872.”
Form 872 names a date. Form 872-A names none; under its printed terms (IRM 25.6.22.7.1; Rev. Proc. 79-22) it ends 90 days after a Form 872-T reaches the IRS office handling the case, or 90 days after the agency mails one of its own, and a notice of deficiency also ends it. Form 872-T offers no box for a fixed-date consent, and Form 872 never mentions the termination form. An open-ended promise can be ended at will, but a dated one holds, consistent with Treas. Reg. § 301.6501(c)-1(d), which allows an extension “for any period of time agreed upon in writing.” For anyone already holding a Form 872-A, the 90 days start only when the right office receives a properly executed Form 872-T, never from a letter or call (IRM 25.6.22.7.1.4).
Fine came on the IRS’s motion for partial summary judgment, granted by order on October 5, 2026. The merits were tried in March 2023, and as of October 16, 2026 the docket shows no ruling on the deficiencies. A New Mexico individual’s appeal goes to the Tenth Circuit under 26 U.S.C. § 7482(b)(1)(A), and I found no Tenth Circuit decision on the point, so under Golsen the Tax Court would apply Fine.
Why is the IRS asking me to sign Form 872 in a New Mexico audit?
Because time is running out. Under 26 U.S.C. § 6501(a), more income tax generally must be assessed within three years after the return was filed, and § 6501(b)(1) treats an early return as filed on its due date. Fraud removes the limit under § 6501(c)(1) (see the firm’s post on preparer fraud after the Murrin cert denial), but most audits are fought inside the three years.
Section 6501(c)(4)(A) lets the IRS and the taxpayer extend the period by written agreement made before it expires. Under IRM 25.6.22.2.1, examiners ask when the statute will expire within 180 days with work unfinished, or when the case must go to Appeals, which needs at least 365 days left when it receives the file. Without that cushion there is no administrative appeal, as IRS Publication 1035 acknowledges.
Section 6501(c)(4)(B) also requires the IRS, each time it asks, to tell the taxpayer of the “right to refuse to extend the period of limitations, or to limit such extension to particular issues or to a particular period of time.” The notice is printed on Form 872 and repeated in the cover letter (IRM 25.6.22.3).
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What is a restricted consent, and when should I ask for one?
A restricted consent keeps the statute open only for named issues and lets it close on everything else (IRM 25.6.22.8). The standard clause limits any deficiency to adjustments in the described “area(s) of consideration,” plus related penalties and “consequential changes” (IRM 25.6.22.8.12). Fine itself noted that the taxpayers “could have set a shorter timeframe or limited the IRS’s examination to certain issues.”
The IRS treats this as a right to ask. Under IRM 25.6.22.8.2, it generally agrees only when the open issues are few enough to describe precisely and everything else is agreed and ready to assess, and Area Counsel must approve the wording. Agreed items must be assessed on a partial agreement inside the original deadline (IRM 25.6.22.8.4). In my experience the request lands best late in an exam, when one question, such as whether workers were employees or subcontractors, is the only real dispute left.
What happens if I refuse to extend the statute of limitations with the IRS?
Refusing is lawful, and Publication 1035 says that “under no circumstances” will a penalty be charged for it. What usually follows is a notice of deficiency mailed before the statute runs, on whatever record the examiner has (IRM 25.6.22.3(8)). The notice starts the 90 days under 26 U.S.C. § 6213(a) to petition the Tax Court, a period that cannot be stretched (see the firm’s post on the Tax Court 90-day deadline in New Mexico).
Settlement remains possible. Under Rev. Proc. 2016-22, § 3.01, IRS Counsel generally refers a docketed case to Appeals unless Appeals issued the notice. After a petition, 26 U.S.C. § 6503(a) suspends the assessment period until the Tax Court decision is final and for 60 days after. The cost is posture: Appeals then works against a trial calendar, from a notice the agent may have rushed.
Does signing a federal Form 872 extend New Mexico’s assessment deadline?
Not by its own terms. Under NMSA 1978, § 7-1-18(A), the Taxation and Revenue Department may not assess “after three years from the end of the calendar year in which payment of the tax was due.” Subsection F lifts the limit if “the taxpayer has signed a waiver of the limitations on assessment imposed by this section,” meaning New Mexico’s own limits. Nothing in the section makes a federal consent count, or adds a fixed period after one.
Instead it tracks the federal result. Subsection E says that when an IRS audit changes the basis for federal tax and “results in liability for any tax,” the tax “may be assessed at any time, but not after three years from the end of the calendar year in which filing of a federal adjustments report is required.” Under NMSA 1978, § 7-1-13(E), that report and any tax are due “no later than one hundred eighty days after the final determination date,” which for an agreement both sides must sign is the day the last one signs (§ 7-1-13(N)(8)(a)). State income tax starts from federal adjusted gross income (NMSA 1978, § 7-2-2), so a Form 872 moves the state window indirectly, by postponing the federal outcome it runs from. How TRD applies subsection E to a given return is a state-law question I would take to New Mexico-licensed counsel.
How would the choices play out for a Rio Rancho contractor?
Illustration only. The contractor filed his 2023 return on March 20, 2024, so under § 6501(b)(1) the federal statute ends April 15, 2027. The agent’s December 31, 2027 date leaves exactly 365 days if the file reaches Appeals by December 31, 2026. Signed as presented, the date is locked in under Fine, though he may refuse the next request. A consent restricted to the subcontractor issue would require him to settle the rest (say, a vehicle expense adjustment) and have it assessed by April 15, 2027. He can propose September 30, 2027 instead, but IRM 25.6.22.3(9) says the IRS need not accept a shorter period. If he refuses and a notice is mailed February 24, 2027, his last day to petition is Tuesday, May 25, 2027.
His 2023 New Mexico income tax was due in 2024, so § 7-1-18(A) runs to December 31, 2027. If he signs and the last signature on an Appeals settlement goes on August 12, 2027, his federal adjustments report is due by February 8, 2028, and subsection E lets TRD assess through December 31, 2031. Litigating would tie those dates to the Tax Court decision.
| Choice | Federal effect | Tax Court and Appeals | New Mexico effect |
|---|---|---|---|
| Sign Form 872 as presented | Date binds; Form 872-T cannot shorten it | Exam continues; Appeals needs 365 days | § 7-1-18(E) runs from the later federal result |
| Restricted consent | Only named issues stay open | IRS may refuse; Counsel approves wording | Report duty covers every final adjustment |
| Shorter date | Binding only if the IRS signs | Too little time can bypass Appeals | State tail may start sooner |
| Refuse | Notice of deficiency likely; no penalty | 90 days to petition; usually referred to Appeals | Report due 180 days after final decision |
| Already signed Form 872-A | Form 872-T ends it 90 days after receipt | Expect a notice within the 90 days | Same report rule |
Frequently Asked Questions
Can I revoke a Form 872 after I sign it?
No. Fine holds that a Form 872 ends only on its stated date, and a Form 872-T does not change that. You can still decline a later request for more time.
Is there a penalty for refusing to sign Form 872?
No. Publication 1035 says no penalty will be charged. Expect a notice of deficiency instead, with 90 days to petition the Tax Court.
How long does the IRS have after I send a Form 872-T?
Ninety days after the IRS office considering your case receives it, and only if you are ending a Form 872-A. A letter or phone call does not start that period.
Does the IRS have to accept a restricted consent?
No. The IRS treats the statutory notice as a right to request one. It generally agrees only when the open issues can be described clearly and the rest is agreed.
Does New Mexico require a report after a federal audit change?
Yes. NMSA 1978, § 7-1-13(E) calls for a federal adjustments report and payment within 180 days after the federal final determination date. Section 7-1-18(E) then allows assessment until three years after the end of the calendar year in which that report was required.
How North Star Law Firm Can Help
North Star Law Firm represents New Mexico taxpayers in IRS audits and before the IRS Independent Office of Appeals. When a notice of deficiency issues, the firm handles Tax Court litigation.
Phillip Zagotti, JD/CPA, represents taxpayers before the IRS and the U.S. Tax Court and is admitted to the U.S. District Court and Bankruptcy Court for the District of New Mexico. The firm works alongside New Mexico-licensed counsel on state-law questions. If an examiner wants your signature on a Form 872 by Friday, contact North Star Law Firm.