Procedure for obtaining rescission of 90-day letters.

• Author: Hagy, Janet C.

Many practitioners are reporting that they are receiving 90-day letters in CP2000 (underreported income) cases and correspondence exams after timely submitting substantiation documents but before the 1RS has considered the response. Since it usually takes more than 90 days to resolve notices and correspondence exams on the 1RS 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 8.2.2.4 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 1RS 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 1RS 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 offers three situations that can result in a rescission of a 90-day letter:

* The 1RS issued the notice as a result of an administrative error. For example, the notice was issued (1) to the wrong taxpayer, (2) for the wrong tax period, or (3) without considering a properly executed Form 872, Consent to Extend the Time to Assess Tax, or Form 872-A, Special Consent to Extend the Time to Assess Tax;

* The taxpayer submits information establishing the actual tax due is less than the amount shown in the notice; or

* The taxpayer specifically requests a conference with the appropriate Appeals office for the purpose of entering into settlement negotiations; however, the notice may be rescinded only if the appropriate Appeals office first decides that the case is susceptible to agreement. The revenue procedure also outlines when the 1RS will not grant a rescission:

* On the date of the rescission, 90 days or less would remain before the expiration date of the period of limitation on assessment; however, a notice of deficiency may be rescinded in these circumstances if...