Rev. Proc. 72-40

Section 1. Purpose

The purpose of this Revenue Procedure is to restate and amplify the conditions under which a case closed after examination in the Office of a District Director of Internal Revenue may be reopened to make an adjustment unfavorable to the taxpayer.

Sec. 2. Scope

.01 This procedure pertains to all cases, regardless of type of tax, in which the prior audit and conference action, if any, did not extend beyond the jurisdiction of the Office of the District Director. It does not apply to cases previously closed after consideration by Regional Appellate Offices or Offices of Regional Counsels.

Sec. 3. Definitions

.01 Closed Case:

1. A case agreed at the district level is considered closed when the taxpayer is notified in writing, after district conference, if any, of adjustments to tax liability or acceptance of his return without change.

2. An unagreed income, estate or gift tax case is considered closed when the period for filing a petition with the United States Tax Court specified in the statutory notice of deficiency issued by the District Director expires and no petition was filed.

3. An unagreed excise or employment tax case is considered closed when the period for filing protest and requesting consideration by the Appellate Division specified in the preliminary letter expires and no protest or request for Appellate consideration is filed.

.02 Examination and Reopening:

Contacts with taxpayers to verify or adjust items disclosed on information returns, including items of income distributable to taxpyers by partnerships, fiduciaries, or small business corporations, and contacts with taxpayers to correct mathematical errors are not examinations or reopenings.

Sec. 4. Policy

.01 The Internal Revenue Service will not reopen any case closed after examination by a district office or Office of International Operations to make an adjustment unfavorable to the taxpayer unless:

1. There is evidence of fraud, malfeasance, collusion, concealment or misrepresentation of a material fact; or

2. The prior closing involved a clearly defined substantial error based on an established Service position existing at the time of the previous examination; or

3. Other circumstances exist which indicate failure to reopen would be a serious administrative omission.

.02 All reopenings must be approved by the District Director or by the Director of International Operations for cased under his jurisdiction. If an additional inspection of the taxpayer's books of account is necessary, the notice to the taxpayer required by section 7605(b) of the Code must be signed by the District Director, or by the Director of International Operations for cases under his jurisdiction.

Sec. 5. Effect on Other Documents

This Revenue Procedure supersedes Revenue Procedure 68-28, C.B. 1968-2, 912.