Or. Admin. Code § 150-305-0198

Current through Register Vol. 63, No. 12, December 1, 2024

Section 150-305-0198 - Reopening an Audit

(1) Policy. When an issue has been audited, a position taken, and the case closed, that issue may be reopened for audit if there is evidence of fraud, malfeasance, concealment, misrepresentation of material fact, omission of income, or collusion either by the tax payer or by the taxpayer and a representative of the department. If income or expenses are claimed on a return from an outside entity, those items of income or expenses may be adjusted if the entity is later audited and adjustments are made.

(2) Definitions. Audited. An issue is not considered to have been "audited" unless the department has examined the issue and verified supporting documentation. Requesting a copy of a federal schedule is not an audit.

Example 1: A taxpayer reports $18,000 income from self-employment on a 1987 return. The department examines the return and reconstructs income using a T-account analysis. An adjustment of $5,000 is made to the return for under reported income.

In 1989, the department receives a federal audit report (RAR). The IRS discovered $15,000 of unreported income. Because the case involves omitted income, that issue may be reaudited by the department.

Example 2: A taxpayer claims a credit for household and dependent care expenses on a 1987 Oregon return. The taxpayer did not attach a copy of the required federal form 2441 to the return. The return suspends in processing and the department denies the credit and adjusts the return. The taxpayer submits the required form in response to a department notice and the credit is allowed.

In 1989, the department receives a federal audit report (RAR). The IRS disallowed the household and dependent care credit because the taxpayer could not document expenses claimed in computing the credit. This issue was not previously "audited" by the department since dependent care expenses had not been examined or verified. The household and dependent care credit may be audited by the department.

Example 3: A taxpayer claims a $14,000 casualty loss on a 1987 return. Upon request by the department, the taxpayer provides substantiation of the loss in the form of written records, insurance documents, etc. After an examination and review of documentation, the department allows the casualty loss in full. No adjustments are made to the return.

In 1989, the department receives a federal audit report (RAR) in which the IRS has allowed a casualty loss of only $10,000 on the 1987 return. Additionally, $3,000 of employee business expenses have been disallowed by the IRS. Because the department has previously audited the casualty loss, and there is not evidence of fraud, malfeasance, collusion, concealment, misrepresentation, or omission of income, the department will not reaudit that issue. The employee business expenses may be audited by the department.

Example 4: In 1990, the department audits the taxpayer's 1988 personal income tax return. As a shareholder in an S corporation, the taxpayer claimed a loss from the S corporation return. As part of the audit, the auditor looks at the S corporation return and verifies that the taxpayer has sufficient basis to deduct the loss. The auditor does not audit the S corporation return nor is the loss from the S corporation audited.

In November, 1990 the S corporation return for tax year 1988 is audited by the department. Due to the adjustments to the S corporation return, the taxpayer no longer has sufficient basis to deduct the 1988 loss. The taxpayer's 1988 return will be adjusted to disallow the loss. Even though the taxpayer's return has previously been audited, the S corporation return had not been audited. The adjustments made to the S corporation return will flow through and be made on the individual shareholder's return.

Or. Admin. Code § 150-305-0198

RD 7-1991, f. 12-30-91, cert. ef. 12-31-91; Renumbered from 150-305.265(2)-(C), REV 47-2016, f. 8-13-16, cert. ef. 9/1/2016

Stat. Auth.: ORS 305.100

Stats. Implemented: ORS 305.265