It is true; the IRS must operate under the rights that are given to you as a taxpayer. Some of these rights given to taxpayers are the ability to reject unnecessary IRS examinations. The general rule is that the IRS is only allowed to examine your books and records once per year. This is a very general rule though, there are many exceptions that can occur that are not applicable. One of these exceptions is a second examination of a prior year return that has been audited for determining your current year tax liability.
What Constitutes an IRS Examination?
The IRS has determined that some proceedings are in fact not examinations. If the IRS requests you to fill out a questionnaire or meet with them in an informal way this does not constitute an examination. If you receive a letter from the IRS to participate in one of these proceedings, it will usually indicate that it is voluntary. You will also not be asked for books or records which would constitute an examination.
If you are confused on whether or not you are being subject to an examination it may be best to contact your legal representation and confirm. You don’t want to go into an informal meeting that is voluntary and accidentally say something you shouldn’t.
Reopening Closed Examinations
Only in a few circumstances is the IRS allowed to reopen a case that was closed to raise your tax liability. Only in a few circumstances is the IRS allowed to reopen a case that was closed to raise your tax liability. These situations include:
1. If there is evidence that you have committed some kind of tax fraud.
2. If there is evidence you have misstated some type of material fact regarding your financials.
3. If it has been determined you have been concealing funds in order to lower your tax liability.
4. Some form of administrative omission has occurred.
5. Your case involved a specific error that was based on an IRS position at the time of your original examination.
Another key point is the fact that the IRS will reopen multiple years if it is determined that a pattern of fraud has occurred. This means that if fraud is detected in years that have not been examined, the IRS may open other years not related to fraud to check for additional concealment of fraud. In this specific situation the burden of proof is on the IRS to prove their claims against you for fraudulent reporting.