Before we even jump into repetitive examinations, we want to thank those readers (and viewers, as it were) who sent us emails regarding our Western New England University School of Law program on “How to Handle an IRS Audit.”  We deeply appreciate the kind words, and we are extremely pleased that so many found it useful.

As a practitioner, we are finding more and more that practitioners are not raising the issue of repetitive examinations when the Internal Revenue Service returns to examine a particular taxpayer a second (or third) time.  As such, we want to take this opportunity to briefly discuss how we generally raise the argument of a repetitive examination.

But one issue needs to be clarified immediately.  We are not talking about an examination that has expanded in scope to include another year.  That presumably occurs because the examiner has found an issue that warrants expansion.  In the repetitive examination context, we are referring to an examination that was conducted, closed, and now the IRS comes back later to examine the next year.  That distinction is important.

The concept of repetitive examinations comes right out of the Internal Revenue Service rulebook (the Internal Revenue Manual).  Our old dusty hardbound edition lists the doctrine under Income Tax Examinations, Section 4241 (dtd 9/19/94) Repetitive Examinations.  But here is the deal in a nutshell.

First, a taxpayer must have been examined in one of the two preceding years.  However, our office wouldn’t hesitate to raise the doctrine of repetitive examination if the taxpayer was examined several years prior.  It would seem imprudent not to at least raise the issue.

Second, in the prior examination year, there must have been little to no change.  If the change was significant, the IRS can come back, there isn’t much of an argument in the area of repetitive examinations!  What constitutes “little change?”  Well, it appears to be based upon the facts and circumstances.  An AGI of $250,000 with a tax adjustment per the examination of $3,000, for example, this practitioner would certainly argue that an examination of a second year is completely unwarranted. 

Our office raises the issue with the examiner immediately, preferably in writing.  The case may be closed as a result, which frankly, seems entirely appropriate.  If not, we strive to get a reason.  Perhaps the IRS looked at one issue in the first year (employee business expenses, for example), and in the second year the target area is different (charitable contributions).  One thing is for certain, if the IRS decides to go forward, there isn’t a whole heck of a lot one can do about it.  But, subject to managerial approval, this office has found the IRS to be pretty fair with the concept of repetitive examinations, and more than a few letters of examination have resulted in case closures with no changes, as a result of simply raising the issue.  But, at the end of the day, that is the issue – the IRS will NOT close the case unless the issue is raised by the practitioner!

Several years ago, we had a corporate client that was examined for a second time, and there were significant changes in the original examination.  This practitioner raised the repetitive exam issue, albeit futile.  Well, we able to get the examination limited in scope.  Upon conclusion of the first examination, our client was “mandated” to switch to a computer general ledger system.  We were able to control the scope of the second examination to be a study of that computer conversion, which basically made the examination a non-examination.  It was more a look into the systems our client put into place.  The result, no change!  So the repetitive examination is a very useful tool, in that even if the argument fails, the practitioner may get some control as to the scope of examination.

The doctrine of repetitive examinations is one of the most useful tools in the arsenal of taxpayer representation, and I fear that many examinations take place that simply don’t need to, which result in wasted resources across the board, for both the IRS and for the taxpayer in the way of professional costs.

We hope our readers find this helpful.   Feeback and stories always welcome, as that’s what makes us better.