IRS Form 870, the “Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment,” lets the IRS assess a proposed tax deficiency against you right away and stops interest from accruing during the gap before the bill arrives. The trade-off is that you give up your right to take the dispute to U.S. Tax Court. You can still pay the tax and sue for a refund later, but Tax Court, the one federal forum that hears tax disputes before you pay, is off the table once you sign.
Where Form 870 Shows Up in an Audit
The form arrives at the end of an examination. When the IRS examiner finishes auditing your return and proposes changes, you get an examination report and a cover letter, usually Letter 525 or Letter 950. Practitioners call it the “30-day letter” because it gives you 30 days to respond.1Internal Revenue Service. Letters and Notices Offering an Appeal Opportunity
You have three options at that point. Agree with the examiner, sign Form 870, and move toward paying or arranging payment. Disagree and file a written protest asking for a conference with the IRS Independent Office of Appeals. Or do nothing, in which case the IRS will eventually mail you a formal Notice of Deficiency, the “90-day letter,” which is your ticket to Tax Court.
Form 870 is an early off-ramp, not a last chance. If the examiner’s numbers look wrong, you can skip the form and keep the dispute alive.
What Signing Form 870 Actually Does
Signing is a written waiver under 26 U.S.C. § 6213(d). It gives the IRS permission to skip the Notice of Deficiency and assess the tax immediately.2Office of the Law Revision Counsel. 26 USC 6213 – Restrictions Applicable to Deficiencies; Petition to Tax Court That’s the exchange: you surrender the statutory notice that would carry you into Tax Court, and the IRS gets to process the assessment faster.
Stopping the Interest Clock
The main financial reason to sign is interest. Under 26 U.S.C. § 6601(c), once you file the waiver, if the IRS doesn’t send you a bill within 30 days, interest on the deficiency pauses during that gap.3Office of the Law Revision Counsel. 26 USC 6601 – Interest on Underpayment, Nonpayment, or Extensions of Time for Payment, of Tax The IRS underpayment rate for Q1 2026 is 7% per year, compounded daily, so on a large deficiency the pause is worth real money.4Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
You Can Still Sue for a Refund
Signing does not end your ability to fight the tax. The form itself states: “Your consent will not prevent you from filing a claim for refund (after you have paid the tax) if you later believe you are so entitled.”5Internal Revenue Service. Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment What changes is the venue. You pay the assessed amount, file a refund claim with the IRS, and if the IRS denies it, you sue for a refund in a U.S. District Court or the U.S. Court of Federal Claims.6Office of the Law Revision Counsel. 26 USC 7422 – Civil Actions for Refund Under the Supreme Court’s ruling in Flora v. United States, you must pay the full assessed amount before bringing that suit.7Justia Law. Flora v United States, 357 US 63 (1958)
It Is Not a Closing Agreement
A detail that surprises people: Form 870 is not a binding closing agreement. It’s a waiver of the assessment restriction. The IRS can technically reopen the matter, and you can file a refund claim after signing. That makes it very different from a formal closing agreement under 26 U.S.C. § 7121, which locks both sides in permanently. In practice, signing Form 870 carries less finality, and less risk, than many taxpayers assume.
What Happens If You Refuse to Sign
Refusing keeps the dispute alive and preserves every administrative and judicial option you started with. The cost is that interest keeps running at 7%, compounded daily, on any deficiency ultimately upheld.
The Appeals Conference
The 30-day letter that came with Form 870 tells you how to request a conference with the IRS Independent Office of Appeals by filing a written protest within 30 days.1Internal Revenue Service. Letters and Notices Offering an Appeal Opportunity Appeals officers are independent from the examination division and can settle cases based on the government’s litigation risk. Many disputes resolve here, often at a compromise amount. The process is free and does not require a lawyer, though complex cases benefit from professional help.
The 90-Day Notice and Tax Court
If Appeals cannot resolve the case, or you never asked for a conference, the IRS mails a Notice of Deficiency by certified mail. Under 26 U.S.C. § 6213(a), you then have 90 days from the mailing date (150 days if you are outside the United States) to file a petition in U.S. Tax Court. Tax Court is the only federal forum where you can challenge a tax deficiency without paying it first.8Taxpayer Advocate Service. 90 Day Notice of Deficiency
That 90-day deadline is absolute. Miss it and the IRS can assess the deficiency and begin collection, and your only remaining judicial route is the same pay-first refund suit a Form 870 signer would use. Mark the date on the day the notice arrives and treat it as a hard cutoff.
Deadlines If You Go the Refund-Suit Route
Whether you signed Form 870 or missed the Tax Court window, the refund path has its own deadlines. You must file a refund claim with the IRS within three years of filing the return or two years from the date you paid the tax, whichever is later.9Office of the Law Revision Counsel. 26 USC 6511 – Limitations on Credit or Refund If the IRS denies the claim, you have two years from the date it mails the denial notice to file suit in District Court or the Court of Federal Claims.10Office of the Law Revision Counsel. 26 USC 6532 – Periods of Limitation on Suits If the IRS simply does not respond, you can file suit after waiting six months.
These deadlines interact in ways that catch people out. If you sign Form 870, pay the tax, and then sit on the refund claim for three years, you have lost the right to file one.
Accuracy-Related Penalties Get Locked In
If the audit produced a deficiency, the proposed adjustments likely include an accuracy-related penalty. The standard penalty is 20% of the underpayment attributable to negligence, disregard of tax rules, or a substantial understatement of income tax.11Internal Revenue Service. Accuracy-Related Penalty For individuals, a “substantial understatement” means the reported tax was off by at least 10% of the correct amount or $5,000, whichever is greater.
Signing Form 870 locks in whatever penalty the examiner proposed. Taking the case to Appeals or Tax Court gives you the chance to argue the penalty should be reduced or removed, for instance by showing reasonable cause for the position on your return. Penalties often get negotiated down in Appeals, so if the penalty is significant, weigh that before you sign.
Form 870 Is Not Form 870-AD
Form 870-AD (“Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment”) looks similar but comes out of a different part of the process. The IRS uses it to memorialize settlements reached through Appeals, and it contains language saying both sides agree not to reopen the settled issues.12Internal Revenue Service. Office of Chief Counsel Memorandum – Complex Interest Issue for Non Docketed Case
Even so, Form 870-AD is not a formal closing agreement under § 7121, and courts have held that the IRS can reopen a case after a taxpayer signed one. Some circuit courts apply equitable estoppel to prevent either side from backing out of an 870-AD settlement, but the rule varies by jurisdiction. If you want ironclad finality in a settlement, the proper vehicle is a closing agreement on Form 906 under § 7121, not Form 870 or Form 870-AD.