IRS Form 870 is the waiver the examiner hands you at the close of an audit, and signing it does two things at once: it stops interest from continuing to accrue if the IRS is slow to bill you, and it gives up your right to challenge the proposed deficiency in U.S. Tax Court. You can still pay the tax and sue for a refund afterward, so signing is not the end of your dispute rights, but it does change which court you end up in and how much you have to pay before you get there.
The form’s full name is the Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. It usually arrives with the examiner’s report and a 30-day letter that lays out three options: agree and sign, disagree and request an Appeals conference, or do nothing and wait for the formal Notice of Deficiency that opens the Tax Court door.1Internal Revenue Service. Letters and Notices Offering an Appeal Opportunity
What Signing Form 870 Gives Up
By signing, you file a written waiver under 26 U.S.C. § 6213(d), which lets the IRS skip the Notice of Deficiency and assess the tax right away.2Office of the Law Revision Counsel. 26 USC 6213 – Restrictions Applicable to Deficiencies; Petition to Tax Court The Notice of Deficiency is what practitioners call your ticket to Tax Court, so once you waive it, the Tax Court route closes.3Taxpayer Advocate Service. 90 Day Notice of Deficiency
What survives is the refund-suit route. 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.”4Internal Revenue Service. Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment You pay the assessed amount, file a refund claim with the IRS, and if the IRS denies it, sue in a U.S. District Court or the U.S. Court of Federal Claims.5Office of the Law Revision Counsel. 26 USC 7422 – Civil Actions for Refund Under Flora v. United States, that route requires paying the full assessed amount first.6Justia Law. Flora v United States, 357 US 63 (1958) That is the real trade-off with Tax Court: pay first, then litigate, versus litigate first and pay only what the court orders.
What Signing Gets You
The reason to sign is interest. Under 26 U.S.C. § 6601(c), once you file the waiver, interest on the deficiency pauses if the IRS does not send you a bill within 30 days.7Office 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 the first quarter of 2026 is 7% per year, compounded daily.8Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026 On a large deficiency, the savings from cutting off that clock can be meaningful.
Signing also ends the audit. If you agree with the examiner’s numbers, or the cost of fighting exceeds what you would save, the waiver moves the file to closure.
Signing Is Not a Closing Agreement
Form 870 is a waiver of the assessment restriction, not a final settlement. It is not a closing agreement under 26 U.S.C. § 7121, and the language on the form preserves both sides’ options: you can still file a refund claim, and the IRS can technically revisit the matter. That is why signing carries less risk than many taxpayers assume. A closing agreement, which locks both sides in permanently, is a separate document (Form 906) and a separate process.
What Refusing to Sign Looks Like
Refusing keeps every option open, but interest keeps running at 7% compounded daily on whatever the IRS ultimately upholds. The path after refusal has two stages.
Appeals
The 30-day letter gives you 30 days to file a written protest requesting a conference with the IRS Independent Office of Appeals. Appeals officers are independent from the examination division and are authorized to settle cases based on the government’s litigation risk, so partial compromises are common. The step costs nothing beyond your own preparation time, and many disputes end here.
Notice of Deficiency and Tax Court
If Appeals cannot resolve the case, or if you skip Appeals entirely, the IRS mails a formal Notice of Deficiency by certified mail. Under 26 U.S.C. § 6213(a), you then have 90 days from the mailing date, or 150 days if you are outside the United States, to file a petition with the U.S. Tax Court. Tax Court is the only federal court where you can contest the deficiency without paying it first.
That 90-day window is not negotiable. Miss it and the IRS assesses the tax and starts collection, leaving you with the same pay-first refund route a Form 870 signer would face. Mark the deadline the day the notice arrives.
Refund-Claim Deadlines That Catch Signers
If you sign, pay, and then plan to fight through a refund claim, watch the clock. You must file the 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 mailing of that denial to sue 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 does not respond at all, you can sue after waiting six months.
Sitting on a refund claim after signing is how signers lose their remaining rights. There is no equitable tolling for not knowing the rules.
Accuracy-Related Penalties in the Decision
The proposed deficiency often carries a 20% accuracy-related penalty for 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. Appeals officers frequently reduce or remove penalties, particularly where a reasonable-cause argument exists, so a significant penalty amount is a strong reason to at least try Appeals before signing.
Don’t Confuse Form 870 With Form 870-AD
Form 870-AD is a related but different document the IRS uses to memorialize settlements reached in Appeals.12Internal Revenue Service. Office of Chief Counsel Memorandum – Complex Interest Issue for Non Docketed Case It contains language stating that neither side will reopen the settled issues, but like Form 870 it is not a closing agreement under § 7121. Some circuits apply equitable estoppel to hold the parties to a Form 870-AD; others do not. If you need ironclad finality on a settlement, the correct vehicle is a closing agreement on Form 906, not either version of Form 870.
How to Decide
The choice comes down to three questions. Do you actually disagree with the examiner’s numbers, and by enough to justify the fight? Can you afford to pay the assessed tax now if you want to keep the refund-suit option, or do you need the Tax Court route that lets you litigate before paying? And how large is the interest exposure while a dispute drags on? If you agree with the adjustments, signing ends the interest clock and closes the file. If you disagree and want to challenge without paying first, do not sign; request an Appeals conference within 30 days, and if that fails, file your Tax Court petition within 90 days of the Notice of Deficiency.