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regulations existing prior to enactment of section 183(e)(4), the
taxpayer and Commissioner were required to execute a written
agreement extending the period of limitations for assessing
deficiencies and for claiming refunds of overpayments.5 When
section 183(e)(4) was enacted in 1976, the legislative history
explains the reasons for the law as it existed prior to enactment
of section 183(e)(4):
The taxpayer, it was believed, should have time to
claim a refund of tax paid by him during the period and
the Internal Revenue Service should also have time to
assess any deficiency owed by the taxpayer for any year
in the period. [S. Rept. 94-938 (Part I), at 67 (1976),
1976-3 C.B. (Vol. 3) 49, 105.]
Congress was aware that an election under prior law enlarged
the period of limitations for deficiencies and refunds. The
5In 1971, when Congress first recognized the need to enlarge
the period of limitations in order to accommodate a sec. 183(e)
election, Congress envisioned that such an election would be
conditional on a general waiver of the statute of limitations as
to both deficiencies and overpayments for the election year.
Thus, the Senate committee report states:
The committee is aware that because of the 5- or
7-year periods involved in the case of the presumption,
the statute of limitations may run before any action
could otherwise be taken under the provision added by
the committee. For this reason, the committee believes
that this provision should not generally be applicable
unless the taxpayer executes a waiver of the statute of
limitations for the 5- or 7-year period and for a
reasonable time thereafter. This will allow the
taxpayer time to claim any refunds of tax paid during
this period and also will allow the Internal Revenue
Service to assess any deficiencies. [S. Rept. 92-437
at 74 (1971), 1972-1 C.B. 559, 600.]
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