Why the IRS May Reopen a Closed Tax Year (And What You Can Do About It)

Florida taxpayers often breathe a sigh of relief once tax season ends. However, under certain circumstances, the IRS can and does reopen closed tax years, sometimes going back several years beyond the standard window.

If you receive notice that a closed tax year is under review, do not panic. Don’t ignore the situation, either.  Our Florida tax-IRS attorney has over 50 years of experience as a Certified Public Accountant and former FBI Special Agent investigating complex tax matters. We explain when the IRS may reopen a previously closed tax year and what to do if you receive a notice.

When Is a Tax Year Considered “Closed”?

Generally, the IRS has three years from when your return is filed to audit or make changes, known as the statute of limitations. Once that window closes, the return is typically off-limits unless certain exceptions apply. Under the Internal Revenue Code (IRC) section 6501, the IRS may reopen a closed tax year if:

• There’s evidence of a substantial understatement of income (generally more than 25% of your gross income);
• You failed to file a federal tax return for the year in question;
• The IRS suspects the return was fraudulent or involved willful evasion;
• You improperly claimed certain tax credits or deductions that you were otherwise not entitled to;
• The IRS discovers new information regarding your return through third-party reports or audits of related taxpayers.

While rare, these situations allow the IRS to go back as far as six years, or indefinitely in cases of fraud.

What Triggers a Reopened Tax Year, and How Should You Respond?

Receiving an IRS notice about a closed year can be jarring. In some cases, the inquiry is relatively minor. In others, it may be part of a larger investigation. The following are common triggers:

• A Form 1099 or W-2 filed late by a third party that contradicts your original return;
• IRS review of a business partner, ex-spouse, or employer;
• Tip-offs from whistleblowers or informants;
• Large refund claims or amended returns that draw attention;
• Foreign accounts or offshore income disclosure.

If you get contacted about a closed tax year, do not ignore the notice or attempt to handle it alone. Gather all tax records and communications from that year and avoid making any statements to IRS representatives without getting experienced legal counsel first. Fortunately, working with a qualified tax-IRS attorney can often resolve issues without escalating to full audits or legal proceedings.

Protect Yourself With Help From Our Florida Tax-IRS Attorney

A closed tax year doesn’t always stay closed. If the IRS reopens a prior return, it’s often a sign that something flagged their system or someone brought it to their attention. But you still have rights, and experienced legal representation can make all the difference.

At Ronald Cutler, P.A., our Florida tax-IRS attorney brings over five decades of experience in audits, investigations, and dispute resolution. We’ll work quickly to protect your interests, clarify your obligations, and fight back when the IRS oversteps. Contact our office today to schedule a consultation.

Sources:

uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section6501&num=0&edition=prelim

irs.gov/irm/part4/irm_04-004-026