Hi from Just Answer. The issue you are involved in is called "repetitive audits".
Internal Revenue Manual 22.214.171.124.5 guides IRS behavior in continued pursuit of a recurring tax inquiry. Generally, the IRS position is that they are supposed to discontinue an audit about an issue if examined in the prior two years. A third year, well, that is the magic test for the IRS to examine again.Repetitive Examinations (08-01-2007)(1) If a taxpayer (individual) responds to the initial contact by stating that an examination ofthe same issue(s) in either of the two preceding years resulted in no-change or a small taxchange (deficiency or overassessment), the following action will be taken:a. Ask the taxpayer for information which may help to determine if repetitiveexamination procedures apply, such as the prior year(s) audit reports, where thereturn(s) were filed and where the examination(s) were completed.b. If an appointment has been set, advise the taxpayer that the appointment ispostponed pending a review of our files to determine if the examination should becontinued.c. Secure an IDRS command code I/BMFOLZ print of the taxpayer's accounts. Allindividual returns closed as a no-change, require entry of an IMF no change issuecode to allow AIMS to record the issues considered during the examination andno-changed. This print will display the no change issue(s). Classifiers will reviewthis print if available during classification. See IRM 4.4.12 and visithttp://sbse.web.irs.gov/aims/docs/IMFissuecode.xls for a list of IMF Issue Codes.(2) When the taxpayer provides records identifying the issues examined in prior years:a. If the issues are the same as in the current year examination, and the I/BMFOLZprint indicates either no change or a small change to the taxpayer's liability, thenthe current examination can be closed. Send Letter 2684 (DO) to close theexamination.b. If a substantive tax change is shown for either year, the taxpayer will be informedthat repetitive audit procedures do not apply and the examination will becontinued. Letter 2685 (DO), Repetitive Exam Letter, will be used to notify thetaxpayer and reschedule the appointment.(3) When the taxpayer does not furnish records to identify the issues examined in prior years,the examiner should pull a MFTRA and I/BMFOLZ print. The examiner should use thefollowing techniques to determine whether repetitive audit procedures apply:a. If the MFTRA print indicates a no-change or small tax change for both years, orfor one of the years and no examination activity for the other year and the nochange issue codes on I/BMFOLZ print do not provide adequate information, thenthe return(s) and related files for the year(s) examined should be requisitioned.The requisitioned files should be reviewed to determine if the issues currentlyunder examination are similar enough to the issues in the prior no change/smallliability year(s) to warrant concluding the current examination.b. If a substantive tax change is shown for either year the taxpayer will be informedthat repetitive audit procedures do not apply and the examination will becontinued. Letter 2685 (DO) will be used to notify the taxpayer and reschedulethe appointment.(4) In office examination, group manager approval must be obtained and documented onForm 9984-D before applying repetitive audit procedures. In field examination,managerial approval is not required on repetitive audit cases.(5) Cases qualifying for repetitive audit should be closed as follows:a. If the taxpayer's records were not examined, even though contact was made, thecase may be closed using "survey after assignment" procedures. See IRM126.96.36.199.2.b. If the taxpayer's records were examined, the case will be closed using regular nochangeprocedures.
The excerpt from the Internal Revenue Manual came from the following website: http://www.bradfordtaxinstitute.com/Endnotes/IRM_410285.pdf.
going to Q and A now...
thank you for your responce, I was advised by the IRS 25 years ago about New Jersey State Police officer injured and was found that his disablity was non-taxable, Reasons give if Killed on federal land or Highways, he would have received the purple heart and his family the military death benifits, and this still aplies today. I worked with two Troopers that were killed on federal Highway abd received both benifit..... Thank you