SECTION 5. REOPENING CLOSED

CASES

.01 General circumstances permitting reopening . The Service will not reopen a case closed after examination to make an adjustment to liability unfavorable to the taxpayer unless:

(1) there is evidence of fraud, malfeasance, collusion, concealment, or misrepresentation of material fact;

(2) the closed case involved a clearlydefined, substantial error based on an established Service position existing at the time of the examination; or

(3) other circumstances exist indicating that a failure to reopen the case would be a serious administrative omission.

.02 Other circumstances permitting reopening . Under section 5.01(3) of this revenue procedure, other circumstances indicating that a failure to reopen a case would be a serious administrative omission include cases with items or transac

tions that present significant potential for abuse for which a limited examination was performed. If the Service conducted and closed an examination that was limited to one or more tax return items or transactions with significant potential for abuse, and the Service later determines that other tax return items or transactions for the same taxpayer and the same taxable period also merit examination, the examination may be reopened. Items or transactions with significant potential for abuse may include reportable transactions within the meaning of § 1.6011–4(b). In these circumstances, a subsequent examination by the Service of other tax return items for the same taxpayer and the same taxable year is not an unnecessary examination under section 7605(b) and the failure to reopen such cases would be a serious administrative omission.

.03 Approval . All reopenings must be approved by, and all notices of an additional inspection of a taxpayer’s books

June 6, 2005 1208 2005–23 I.R.B.