Oregon Administrative Rules › Chapter 150 - DEPARTMENT OF REVENUE › Division 305 - GENERAL ADMINISTRATION OF REVENUE LAWS - MULTISTATE TAX COMPACT › Section 150-305-0198 - Reopening an Audit

Current through Register Vol. 63, No. 7, July 1, 2024
(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.