Blog by BR Accounting and Tax Service

A Refund Does Not Preclude the IRS From Auditing YOU!

  • Lewis Turner

Categories: Individual Taxes , IRS Audits , Tax Accountant , Tax Planning , Tax Resolution , Tax Resolution Professional , Tax Services

I hope you have managed to stay safe and well! We focus on resolving tax issues in Prince William County and throughout the lower Northern Virginia area.


It’s story time! Here’s the scenario: Before their marriage, two taxpayers separately enrolled in health insurance for the current tax year, purchased through the Health Insurance Marketplace. They each elected to receive advance premium tax credit (APTC) payments, paid directly to their insurance companies and applied to the cost of their health insurance premiums.

Subsequently, they filed their joint tax return for that year, to which they attached Form 8962, Premium Tax Credit, which was used to reconcile the amount of the APTC benefit received.The taxpayers claimed a $4,515 Premium Tax Credit (PTC) and erroneously claimed $3,200 had been paid on their behalf. In fact, their actual APTC was $7,950. The taxpayers elected the alternative calculation for year of marriage but failed to complete Part V of Form 8962.

The IRS requested additional documentation from the taxpayers to support their PTC claim. They supplied this information and the IRS issued a previously frozen refund of $4,187 plus interest.


The IRS later audited the taxpayer’s tax return and issued the taxpayers a notice of deficiency for $7,550. The taxpayers informed the IRS that the notice of deficiency did not account for their election regarding the alternative calculation of the PTC for year of marriage. The IRS accordingly adjusted the deficiency to $4,750. In court, the taxpayers did not argue that the IRS miscalculated their PTC, but Instead they argued that the IRS is precluded from issuing a deficiency notice after previously providing a refund.

The court stated their argument is inconsistent with case law. Meridian Mut. Ins. Co. v.
Commissioner, 44 T.C. 375 (1965), which was upheld by the 7th Circuit Court of Appeals.  “A refund is not binding on the Commissioner in the absence of a closing agreement, valid compromise, or final adjudication.”
“It is well settled that the granting of a refund does not preclude the Commissioner from issuing a notice of deficiency merely because he accepted a taxpayer’s return and issued a refund.” (Beer, 6th Cir. 1984). “Refunds are subject to final audit and adjustment, and thus are not final determinations that would preclude subsequent adjustment” such as a notice of deficiency. (Clark, 6th Cir. 1946)
The tax court rejected the taxpayer’s contention that the IRS was precluded from issuing them a deficiency notice merely because they had been issued a refund.


Bottom line, you’re not in the clear because IRS has previously issued you a refund, even when a correspondence audit has been previously completed. If you’re feeling overburdened by your tax situation or you’d rather be doing something else with your time, just remember we’re here to help you with all of your tax preparation, resolution/representation needs.  Now and in the future. Don’t put off addressing your tax situation. Feel free to contact us with any questions you may have in approaching your specific tax scenario.