Who has the burden of proof on extended assessment periods?

The IRS [Commissioner] has the burden of proof for any exception to the normal 3 year period following the due date. Technically, this includes late-filed returns (including those on extension), but such is rarely challenged because a taxpayer often knows he has filed after the original due date (unless filing of the return was an issue).

So how does that theoretically work? If someone wanted to hold the IRS's feet to the fire upon receiving a notice that the IRS plans to re-open the return, how do they force the IRS to show that it has met the burden of proof? A court action to attempt to block the re-opening?

See the following Tax Court case from this month on how one entity responded in Tax Court when the IRS used the 6 year period for assessment. This is another case where the IRS has lost the argument that an overstatement of cost basis represents an understatement of gross income.

That doesn't quite answer my question. In that case the IRS believed GI was understated by more than 25% and ultimately sent a final administrative adjustment. The taxpayer challenged the adjustment, saying it was untimely because they did not understate GI by more than 25%. But to get to that point the IRS had audited the return and issued an adjustment.

I'll try to state my question better.

Say I timely file my return. Then five years later the IRS totally randomly decides to re-open my return. They have no reason whatever to believe I've understated my gross income at all, let alone by 25% or more. They've sent me a notice they are going to re-open my return.

Question 1: At that stage can I go to court and argue "The IRS had no reason at all to believe I understated my gross income by more than 25%. Therefore I would like the court to stop this whole IRS action right now, before it goes any further." ?

Question 2: If the answer to (1) is "yes", do I have to prove the IRS didn't meet the belief threshold or does the IRS have to prove it did? And what is the threshold?

Question 3: If the answer to (1) is "no", then if the IRS goes on to re-open my return and finds that I did indeed understate GI by more than 25% and issues me an assessment, can I block the assessment by going to court and arguing "Yes, I did understate my GI by more than 25%, but since the IRS had no reason to believe that at the time they re-opened my return, the 6 year period does not apply and this assessment is untimely and should be voided." ?

Question 4: If the answer to (3) is "yes", then again, what's the belief threshold and who has to prove if it's met or not?

In short, can the IRS go on fishing expeditions after the 3-year period expires and be able to nail you if your behavior meets one of the exceptions to the 3-year rule? Or do they have to have some level of belief you meet an exception (and what's the level and who has to prove it?) before they can start looking at your return after 3 years?

Again, I imagine that due to resource constraints they would seldom if ever re-open a return after 3 years unless they actually did have a high level of belief that one of the exceptions will be met, but I'm asking about what they are legally allowed to do, not what they do in practice.

I don't believe there is such a thing as "randomly" opening your return after 5 years. The IRS will open your return after 5 years if it has reasonable evidence that you failed the 25% test and the 6 year clock is still open. You are entitled to know why the IRS believes you have failed the 25% test. I sent you the link, because the respondent upon being notified by the IRS and obtaining the reason for the assessment decided to go to Tax Court and ask for a summary judgment rather than paying the tax and suing in Federal District Court.

Therefore, should the IRS open your return after 5 years, they will inform you as to why they believe you failed the 25% test. The burden then falls on to you to disprove it. How you do this depends upon what evidence they give you.

Certainly not. In order to open such a return, the examining agent must already have a strong indication that an exception to the normal 3 year rule applies, and generally, his manager must also sign off on such. When the audit request is submitted to the computer system, the appropriate exception's code must be entered else the system should reject the audit as untimely (at least that's how it worked under "AIMS" used in the 1990's by the IRS).

No. Opening an examination does not grant Tax Court jurisdiction. The IRS must propose a deficiency first (on a 90-day letter).

Yes, you are free to raise that the 25% gross omission exception does not apply. That is what was done on the recent case cited in this thread.

You do. In the tax Court, the taxpayer is the petitioner.

During my IRS career, I only saw this issue once in six years. It was for a "private loan" where one taxpayer deducted $13k of interest expense (and another 25% of it for "home office" EBE as "rent," or 125% in total), and the other taxpayer whose return I pulled for comparison reported ZERO for interest and had no Schedule E, plus $10k of other unreported income per

As I was reassigned before the audit interview, I can't say how it came out. However, either way as rent or as interest, it was income that yielded a tax.