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Tax Byte
A recent Chief Counsel Advice memo (CCA 202505027) highlights a procedural trap that could save your partnership clients from IRS adjustments—or sink your own extension strategy if you’re not careful. It’s a stark reminder that in partnership tax matters, who signs the paperwork matters just as much as what they’re signing.
Who Can Sign Form 872-M?
A partnership filed its 2018 and 2019 returns under the Bipartisan Budget Act (BBA) audit regime, properly designating a Partnership Representative (PR) and Designated Individual (DI) on the returns. Later, when the IRS requested statute of limitations extensions via Form 872-M, the partnership’s CFO/Treasurer signed four separate extensions, seemingly buying the IRS time until April 2026.
Just one problem—the CFO wasn’t authorized as either a PR or DI.
Between October 2021 and August 2024, this partnership’s CFO confidently signed four separate Forms 872-M. The IRS accepted these forms without question, believing they had secured their assessment window through April 30, 2026. Nobody bothered to check whether the CFO had actual authority to bind the partnership.
ARTICLE CONTINUES BELOW
The Return Filing Details Matter
For their 2018 return, the partnership had designated an individual as the PR but included a TIN belonging to an entity, with a specific person named as the DI. For 2019, they named an entity as the PR with its own designated individual. These designations, made on the original Forms 1065, established the only parties with authority to sign extension forms.
The partnership never submitted Form 8979 to modify these designations. This seemingly minor oversight proved fatal to the IRS’s assessment timeline.
Technical Requirements Override Good Intentions
Under the BBA audit procedures, only the officially designated PR (or DI if the PR is an entity) has authority to bind the partnership by signing extension forms. The regulations are crystal clear—§301.6223-1(a) specifies there can be only one PR and one DI for a partnership tax year at any time.
What Are The Consequences?
The IRS lost its ability to assess when the original three-year windows closed in September 2022 (for 2018) and September 2023 (for 2019), despite believing it had valid statute extensions through 2026. All four extension forms were deemed invalid, and the assessment periods expired based on the original statute of limitations.
Why This Matters
This technical ruling has immediate implications for partnerships currently under examination. If you represent partnerships where extensions have been secured, you now have a clear roadmap to verify whether those extensions are actually valid.
What This Tells Us About BBA Partnership Audits
The BBA partnership audit regime was designed to streamline and simplify partnership examinations. However, this CCA demonstrates that these rules come with their own strict technical requirements that can create unexpected results when not precisely followed.
The IRS itself fell victim to these strict technical requirements, showing that even seemingly minor procedural issues can invalidate an entire assessment period. While frustrating for the IRS, this ruling might provide partnerships with unexpected protection from adjustments if extensions were improperly executed.
Tax Practitioner Planning
For the IRS, this represents a potentially significant loss of assessment authority across numerous cases where similar procedural errors may have occurred. For practitioners, it’s both a warning and an opportunity.
- Verify Signature Authority: Always confirm the person signing Form 872-M matches the PR/DI listed on the partnership’s return. A signature from anyone else—even a partner, managing member, or high-ranking officer—is ineffective.
- Document Changes Properly: If changing representatives, file Form 8979 before signing any extensions. Informal changes or verbal agreements have no legal effect.
- Review Client Files Now: Check existing extensions in your partnership cases—you might discover an unexpected defense if the wrong person signed. This could be particularly valuable for partnerships facing significant proposed adjustments.
- Calendar Critical Dates: The original three-year statute runs from the later of the filing date or due date—mark these clearly. With e-filing becoming universal, the actual filing date often becomes the operative date.
- Consider IRS Reliance: If the IRS has proceeded based on invalid extensions, evaluate whether this provides your client a complete defense to adjustments proposed after the statute has expired.
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