District Court reiterates the difference between adjustment and assessment of tax

Tax Hot Topics: Adjustment versus assessment of taxThe U.S. District Court for the District of Colorado reiterated in a Jan. 13 decision that the IRS has the ability to make an adjustment in a taxable year that is closed for assessment purposes to reflect the correct tax owed, which is separate and apart from the IRS’s ability to make an assessment of tax.

In Hamilton v. U.S., No. 13-cv-00051-REB-KMT (D. Colo. 2016), the individual taxpayer claimed charitable contribution deductions for certain years. The taxpayer executed a restricted consent to extend the statute of limitations for the charitable contribution deductions, and it appears from the facts that the IRS made adjustments to other items to offset the tax benefit of the deductions.

In the court case, the taxpayer argued that because he had executed a restrictive consent, the IRS may not redetermine the correct amount of tax for any items other than the charitable contribution deductions. The IRS argued that such a restricted consent does not prevent the IRS from making adjustments to tax.

The court agreed with the IRS, citing the Supreme Court’s decision in Lewis v. Reynolds, 284 U.S. 281 (1932). The court summarized Lewis by saying that “the [IRS] is not required to refund any assessment for tax that was in fact owed.” In addition, a restricted consent may restrict the IRS’s ability to make a “deficiency assessment,” but it does not affect the IRS’s ability to make an adjustment to tax owed.

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.