Category: IRS Procedure Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Taxpayer is an individual. IRS examined the 1994 return. That case is as yet unresolved. During the 1994 examination, the return for 1995 was selected for examination. That matter was settled and the case was closed on a no-change basis. Now the IRS has announced that due to the adjustments made to the 1994 return, the 1995 and 1996 returns will be examined. I have located two IRS policies that may be helpful to some extent, the policy against repetitive examinations and the policy regarding reopening closed cases. Repetitive Examinations If the IRS selects a return for examination and the same issue was examined in either of the two preceding years, the taxpayer may suggest that the examination be discontinued under the IRS policy against repetitive examinations. This relief is available only if the prior examinations produced no change or a small tax change. IRM Section 4241. Based on the facts you related in your letter, this relief would be available for the 1996 return only if the 1996 return contains the same issue settled favorably in the 1995 examination--and only to the extent of that issue. I presume that any other issues in the 1996 tax year (i.e., issues not favorably examined for the 1995 tax year) are subject to examination currently. Note that this is an IRS policy rather than a legal restriction in the taxpayer's favor. In any event, the policy could represent some leverage on behalf of your client. I have sent a hard copy of IRM Section 4241 by mail. Reopening Closed Cases The IRS has an internal policy against reopening closed cases to make an adjustment unfavorable to the taxpayer. This policy is based on Internal Revenue Code Section 7605(b) which provides as follows. No taxpayer shall be subjected to unnecessary examination or investigations, and only one inspection of a taxpayer's books of account shall be made for each taxable year unless the taxpayer requests otherwise or unless the Secretary, after investigation, notifies the taxpayer in writing that an additional inspection is necessary. This details of the policy are set forth in Revenue Procedure 94-68, 1994-44 IRB 16 and Internal Revenue Manual Section 4023. The IRS will not reopen a case closed after examination unless · there is evidence of fraud, malfeasance, collusion, concealment, or misrepresentation of a material fact; · the closing involved a clearly defined substantial error; or · other circumstances indicate that failure to reopen would be a serious administrative omission. What is a closed case for this purpose? (1) A case agreed at the district level is considered closed when the taxpayer is notified in writing, after a district conference, if any, of adjustments to tax liability or acceptance of the taxpayer's return without change. (2) For disagreed income, estate or gift tax matters, the case is considered closed when the period for filing a petition with the Tax Court specified in the statutory notice of deficiency issued by the District Director expires and no petition was filed. Reopening a closed case requires the approval of the Examination Division Chief. I gather from your letter that the examination of the 1995 return was a real examination, albeit not a very extensive one, and not just a mere survey of the return of the type that normally goes on as a routine part of the examination of another tax year. It seems to me the taxpayer at the very minimum has a right to protest the reopening of the 1995 case and to ask that the agent show cause and demonstrate that the required approval by the Chief of Examinations has been obtained. I have sent a copy of Rev. Proc. 94-68 and IRM Section 4023 by mail. |
