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I have a difficult tax case in the US. I myself have no relation to the US. So I wanna file a form with the IRS stating that I do not owe any tax for such and such reasons. I will not include any payment. Can IRS simply ignore my request for a couple of years and then come back to me and say that they disagree with my position and impose late payment penalties for the whole period? Wouldnt it be their fault that so much time elapsed?

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    If you have no relation to the US, why are you concerned about the IRS? Why do you think the IRS would expect payment from you?
    – yoozer8
    Commented Jul 8 at 0:30

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Can IRS simply ignore my request for a couple of years and then come back to me and say that they disagree with my position and impose late payment penalties for the whole period?

Yes, they can. You then can contest their disagreement at the US Tax Court before any payments are due.

Wouldnt it be their fault that so much time elapsed?

That's the "protective" part of the form. The "protective" return is just a regular tax return on which you disclose your position. The protection is that if they don't reject your position within the statutory time period they lose the right to collect. This is called "statute of limitations", and the statute of limitations period only starts from the time the return is filed.

Your attorneys are suggesting to file a return disclosing your position to the IRS, which starts the clock. If the IRS doesn't get back to you with opposition within the period defined in statute, you're good to go. The period is usually 3 years after filing the return, or the return due date, whichever is later (although there are some exceptions, especially if the position you took is frivolous and not based on any law).

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  • thanks for all the info. And just to make it crystal clear for myself. You do think they will actually impose late payment fees for the whole period it took them to respond? Doesn't this incentivise them to prolongue the process as much as possible to collect as much in fees as possible? Seems bizarre.
    – Tupel Mike
    Commented Jul 9 at 12:05
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    @TupelMike depending on how good your attorneys are and how reasonable your position is you may be able to argue penalties down or away, but that's not an incentive for anyone - the IRS agents don't get bonuses for penalties collected, so they're not incentivized to protract the process. If anything, the statute of limitations clock requires them to hurry up.
    – littleadv
    Commented Jul 9 at 16:58

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