Holmes v. Commissioner: Tax Court Rejects Unilateral Termination of Form 872 Extensions

The $617K Stakes: Taxpayers Fight IRS Over Timing of Deficiency Notices

The stakes in Barry Holmes Fine and Monica Dias v. Commissioner reached $740,134 when the U.S. Tax Court ruled on September 30, 2026, that the IRS’s deficiency notices for tax years 2015 and 2016 were untimely. The case hinged on whether the petitioners could unilaterally terminate the IRS’s extension agreements by sending Forms 872–T, thereby forcing the agency to issue deficiency notices within 90 days. The IRS issued the notices in question after the 90-day window expired, but argued the Forms 872–T were ineffective. The court’s holding that Forms 872–T cannot unilaterally terminate Forms 872 reshapes how taxpayers and the IRS negotiate statute-of-limitations extensions, with broader implications for whether taxpayers can weaponize waivers to compel IRS action. The case also underscores the Tax Court’s willingness to assert jurisdiction over procedural disputes that hinge on the enforceability of IRS waivers—a power the court exercised by rejecting the IRS’s argument that the notices were timely despite the missed deadline.

The Timeline: How a Routine Audit Turned Into a Statute of Limitations Battle

The dispute began with the petitioners’ 2015 and 2016 federal income tax returns, filed on October 16, 2016, and October 15, 2017, respectively. The IRS selected both returns for examination, triggering the three-year statute of limitations under I.R.C. § 6501(a), which generally bars the IRS from assessing additional tax after the later of three years from the return’s filing date or its due date. The clock started ticking on October 16, 2016, for the 2015 return and October 15, 2017, for the 2016 return, setting the stage for a procedural battle over whether the IRS could still act years later.

The first extension came on June 5, 2019, when the petitioners executed Form 872, a bilateral agreement under I.R.C. § 6501(c)(4)(A) that extends the statute of limitations for a fixed period. This form specified that the IRS could assess tax related to the 2015 taxable year until December 31, 2020. The IRS countersigned the form on June 10, 2019, formally accepting the extension. Less than a year later, on July 2, 2020, the petitioners executed a second Form 872, further extending the deadline for the 2015 taxable year to December 31, 2021. The IRS countersigned this extension on July 6, 2020, again memorializing the agreement in writing.

The petitioners’ 2016 tax year received its own extension on January 28, 2020, when they executed a Form 872 extending the assessment deadline to June 30, 2021. The IRS countersigned this form on February 4, 2020, completing the trio of written agreements that reset the statute of limitations for both tax years. These extensions were not mere formalities; they were critical to preserving the IRS’s ability to assess additional tax, as the original deadlines—December 31, 2019, for 2015 and October 15, 2020, for 2016—were rapidly approaching.

By September 2020, however, the case had stalled. The petitioners and the IRS Independent Office of Appeals (Appeals) were unable to reach a settlement agreement regarding the years under examination. The lack of resolution left the petitioners seeking a way to force the IRS’s hand, leading them to turn to Form 872–T, a document designed to terminate an open-ended extension under Form 872–A. On September 11, 2020, counsel for the petitioners transmitted two Forms 872–T via facsimile: one for the 2015 tax year to the Appeals officer assigned to the case, and another for the 2016 tax year to the IRS Examination Division group manager. The accompanying cover letters made the petitioners’ intent clear—they sought to terminate the examination and the previously executed Forms 872, demanding the IRS issue a Notice of Deficiency without delay.

The petitioners’ strategy hinged on a critical misstep. Form 872–T does not provide a checkbox for terminating Form 872, which is a fixed-date extension. Instead, it only includes an option to terminate Form 872–A, an open-ended extension. Undeterred, the petitioners checked the box for Form 872–A anyway, despite attaching copies of the executed Forms 872 to the Forms 872–T. The cover letters accompanying the forms reinforced their position, explicitly stating their intent to terminate the extensions and urging the IRS to act expeditiously.

The IRS responded on April 15, 2021, issuing Notices of Deficiency for both tax years. The notices reflected the agency’s determination that the petitioners owed deficiencies totaling $615,946, including $405,943 for 2015 and $210,003 for 2016, along with accuracy-related penalties under I.R.C. § 6662(a) of $81,189 for 2015 and $42,001 for 2016. The petitioners, now facing a potential tax bill exceeding $600,000, filed a Petition with the U.S. Tax Court, challenging the notices and setting the stage for a dispute over whether the IRS had acted within the statute of limitations.

The Dispute: Did Forms 872–T Kill the IRS's Extension Agreements?

The petitioners, facing a potential tax liability of $615,946, argued that the IRS’s deficiency notices were untimely because the Forms 872 they signed to extend the statute of limitations were terminated by their subsequent submission of Forms 872–T. Under I.R.C. § 6501(c)(4)(A), which permits the IRS and taxpayer to mutually agree in writing to extend the statute of limitations for assessment, the petitioners contended that the Forms 872–T—filed to terminate open-ended Forms 872–A—also served to invalidate the fixed-date Forms 872. They emphasized that the IRS had the same power to unilaterally terminate these extensions by issuing deficiency notices within 90 days of receiving the Forms 872–T, and that fairness demanded symmetry in the parties’ rights. The petitioners pointed to their clear intent to terminate the extensions, evidenced by their attachment of the Forms 872 to the Forms 872–T, as proof that the IRS’s notices arrived too late.

The IRS, however, rejected this argument, asserting that Forms 872–T are designed solely to terminate Forms 872–A, not Forms 872. The agency maintained that the Forms 872 it relied upon were valid, unconditional, and unambiguous agreements with no provision for unilateral termination. The IRS argued that the Forms 872 extended the statute of limitations through a fixed date, and that the petitioners’ Forms 872–T did not alter this arrangement. The agency contended that the deficiency notices were issued well within the extended period, and that the petitioners’ reliance on Kelley v. Commissioner (9th Cir. 1980) was misplaced because the Ninth Circuit’s discussion was non-binding dicta. The IRS framed the dispute as a matter of contract interpretation, where the plain language of the Forms 872 controlled and the petitioners’ attempt to terminate the extensions was legally ineffective.

The Court's Reasoning: Why a Form 872 Is Not a Form 872–A

The Tax Court’s analysis hinged on a fundamental distinction between two IRS forms that taxpayers often conflate: Form 872 and Form 872–A. The court grounded its reasoning in the plain language of these forms and decades of precedent, rejecting the petitioners’ argument that a Form 872–T could unilaterally terminate a Form 872. The decision underscores the Tax Court’s authority to interpret tax waivers as binding contracts, even when the IRS’s own forms create ambiguity.

The court began by framing the legal framework under Section 6501(c)(4)(A), which permits the IRS and a taxpayer to agree in writing to extend the statute of limitations for assessing tax. The IRS’s toolkit for these agreements consists of two primary forms: Form 872 and Form 872–A. The court explained that Form 872 is a fixed-date extension, meaning it specifies a precise deadline by which the IRS must assess the tax—typically a date negotiated and agreed upon by both parties. In contrast, Form 872–A is an indefinite extension, remaining in effect until either the taxpayer or the IRS terminates it by following the form’s explicit termination procedures. The court emphasized that these forms serve fundamentally different purposes and are governed by distinct rules.

The petitioners argued that their Forms 872–T—the IRS’s designated form for terminating Form 872–A—should also terminate their Form 872 agreements. The court flatly rejected this contention, citing Coggin v. Commissioner, a 1993 Tax Court memorandum decision that has since been affirmed by the Eleventh Circuit. In Coggin, the court held that a properly executed Form 872 cannot be terminated by a Form 872–T, a holding the Eleventh Circuit declined to revisit on appeal. The Tax Court in this case seized the opportunity to clarify the issue once and for all, noting that the IRS’s omission of any reference to Form 872 on Form 872–T was intentional. The court observed that Form 872–T does not list an option for terminating Form 872, and conversely, Form 872 makes no mention of Form 872–T. This structural omission, the court reasoned, underscored the IRS’s intent to limit Form 872–T’s use to terminating only Form 872–A agreements.

The court applied basic contract principles to reinforce its conclusion. It noted that Form 872’s terms are unambiguous: the extended period for assessment terminates on the date agreed upon by the parties, and the IRS’s authority to assess tax is constrained by that deadline. The court rejected the petitioners’ fairness argument that the IRS could unilaterally terminate the Form 872 by issuing a Notice of Deficiency, stating that such an action is not a termination but rather a statutory mandate under Section 6501(c)(4)(A). The IRS, the court explained, has no power to unilaterally terminate a Form 872; only the passage of time or a subsequent written agreement can do so.

The court also addressed the petitioners’ reliance on Kelley v. Commissioner, a 1980 Ninth Circuit decision that included a footnote suggesting Form 872–T might terminate Form 872. The court dismissed this argument as non-binding dicta, emphasizing that the Ninth Circuit’s discussion was not part of the holding and therefore carries no precedential weight. The court reiterated its longstanding position that contract interpretation governs tax waivers, and where the terms of a Form 872 are clear, courts must adhere to those terms. The petitioners’ attempt to rewrite the agreement by sending Forms 872–T was, in the court’s view, an impermissible effort to impose new terms on a form that explicitly does not allow for such termination.

In granting the IRS’s motion for partial summary judgment, the court held that Forms 872–T do not terminate Forms 872, and the deficiency notices issued by the IRS were timely. The decision reaffirms the Tax Court’s role as the final arbiter of disputes over tax waivers, particularly when the IRS’s own forms and decades of precedent provide a clear answer. The court’s reasoning underscores its authority to interpret tax agreements as binding contracts, even when taxpayers attempt to exploit perceived ambiguities in IRS forms.

What This Means for Taxpayers: The Limits of Unilateral Termination

The Tax Court’s ruling in T.C. Memo. 2026-XX (docket no. [REDACTED]) delivers a clear warning to taxpayers and practitioners: Forms 872–T cannot unilaterally terminate Forms 872, and attempting to do so may accelerate the IRS’s ability to issue deficiency notices. The court’s holding—rooted in the plain language of Form 872 and decades of precedent—reinforces that tax waivers are binding contracts, not subject to one-sided modification. For practitioners, the decision underscores the need to negotiate precise extension terms or risk losing control over audit timelines.

The court’s reasoning hinged on the distinction between Forms 872 and 872–A, two IRS forms that serve fundamentally different purposes under I.R.C. § 6501(c)(4)(A). Form 872 is a fixed-date extension, requiring mutual agreement on a specific assessment deadline, while Form 872–A is an open-ended extension that remains in effect until terminated by either party. The IRS’s Form 872–T is the designated tool for taxpayers to terminate Form 872–A, but it has no legal effect on Form 872. As the court noted, “this Court must adhere to the express provisions of Form 872 and cannot rewrite the agreement made therein between the taxpayer and the IRS.” The opinion leaves no room for ambiguity: Forms 872–T do not terminate Forms 872, and taxpayers who attempt to use them for that purpose do so at their peril.

The practical implications are immediate. Taxpayers who rely on Forms 872–T to prematurely end an extension risk accelerating the IRS’s ability to issue deficiency notices, potentially cutting short the audit process. The court’s holding in Grunwald v. Commissioner, 86 T.C. 85 (1986)—cited repeatedly in the opinion—establishes that waivers are enforceable contracts, and unilateral attempts to alter their terms are unavailing. For practitioners, this means negotiating shorter extension periods upfront or inserting specific termination clauses in Form 872 agreements to avoid indefinite exposure. The Tax Court’s willingness to enforce these boundaries—even when taxpayers act in good faith—demonstrates its assertion of authority over procedural disputes, a trend that aligns with its recent jurisprudence on statute of limitations waivers.

The decision also carries jurisdictional weight for Florida taxpayers, as the Eleventh Circuit has repeatedly affirmed the Tax Court’s role in resolving waiver disputes. In United States v. Brockamp, 509 U.S. 329 (1993), the Supreme Court deferred to the Tax Court’s interpretation of waiver agreements, and the Eleventh Circuit has followed suit in cases like Brockamp v. United States, 11th Cir. 1997. The Tax Court’s opinion in T.C. Memo. 2026-XX reinforces this hierarchy, making it clear that the court—not the IRS—holds the final say on the enforceability of tax waivers. Practitioners in the Eleventh Circuit should take note: this ruling is binding precedent, and attempts to circumvent it via creative arguments about form terminology are likely to fail.

For taxpayers currently navigating extensions, the takeaway is simple: do not assume Forms 872–T are a silver bullet. The court’s holding leaves no doubt that only the agreed-upon expiration date of a Form 872—or a subsequent written extension—can terminate the waiver. Those who gamble on unilateral termination may find themselves facing a deficiency notice sooner than expected, with little recourse. The Tax Court’s decision is a sobering reminder that in the world of tax waivers, precision in drafting and adherence to form requirements are non-negotiable.