Although I haven’t received any more direct updates from other practitioners on how this problem is playing out around the country, it is still ongoing.  Last week, I came across and responded to this posting from a California CPA on the Kleinrock discussion board.  I’m copying it here because I think you need to be registered to read it directly on the board.

Would appreciate your comments/suggestions on the following situation:

Taxpayer filed 1040X for 2001 in May, 2004 requesting huge refund.
IRS issued notice in Sept 2004 notifying t/p that case will be referred to district office
T/P received notice of exam Dec 29, 2004

Question:
Since refund claim was filed timely, if the exam is conducted past 4/15/05, would the statute of limitations have any effect on the refund?

It might be wishful thinking to delay the case for 3+ months, but I certainly hate to deal with any exam during the tax season. After all, the IRS is taking 8 months to notify the T/P. ( I wish I knew the date that the district office got the case. My understanding is that examination or other audit action must take place within 30 days after the District Office receives the claim from the regional service center.)

Selina Kong, C.P.A.

Reply 1:

Selina...when the taxpayer did the 1040X...he started the wheel again....

Reply 2:

If the refund claim was timely, your client can file suit in District Court
(or Court of Claims) after 6 months from the time the 1040X was filed. The
limitations period for filing the suit is generally 2 years after the
refund claim is denied. See IRC 6532.

Assuming the original return was filed on or before 04/15/2002, the statute
of limitations for assessments expires 04/15/2005. After that date, unless
the statute is extended, the tax shown on the original return cannot be
increased, although the requested refund could be decreased or eliminated
entirely by the IRS audit.

Ralph H. Weintraub, CPA
Los Angeles, CA

My first reply:

Selina:

What state are you in? I have been chronicling the spread of this program by IRS to audit 1040Xs with refunds and violate the statute of limitation in my blog, such as here.

Kerry Kerstetter
Osage, Arkansas

From Selina:

I'm in CA.

I'm just frustrated for the IRS's delay to notify T/P of the audit (8 months from the date 1040X was filed, not to mention the fact that its the start of tax season now).

May be the amount of refund requested has something to do with it: close to $ 40k. May be it's the complexity of the issue: I.R.C. Sec. 1202.

You mentioned in your blog that IRS have recently started a policy of running full blown audits of anyone who files amended tax returns requesting a refund. Is this "policy" in writing, & if so, did you get your hands on a copy of same?

Selina Kong, C.P.A.

My Last Post:

Selina:

I haven't been able to get the auditor or audit manager to give me anything official in writing from DC authorizing this new practice; just their verbal claims that this is the new policy. I think it's time for me to submit a FOIA request, which may or may not turn up anything in writing.

I have an auditor coming out to my office on Tuesday to go fishing for things that he can disallow in order to offset the $13,000 + that we requested on a 1040X that had been in IRS limbo for several months.

The other similar situation is with a 1040X for about $10,000, where the auditor went fishing around and opened up completely new issues that have cost us a lot of time to defend against his imaginative theories. He is definitely exploiting the burden of proof anomaly by tossing out all kinds of crazy ideas and making us scramble to prove him wrong without his having to prove his theories are anywhere close to accurate.

Good luck with your case. I will be posting my ongoing findings on these matters on my blog.

Kerry

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/11/2005 09:35:00 AM Send this post: