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District Court reiterates the difference between adjustment and assessment of tax

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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.

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