Time Limit to Make Adjustment
The provisions of this rule that apply to a federal change or correction apply to reports that are received by the department on or after October 4, 1997. The provisions of this rule that apply to another state’s change or correction apply to changes or corrections made on or after October 23, 1999.
The department may mail a Notice of Deficiency at any time within two years after the department receives notification of a change or correction contained in:
A report received from the Internal Revenue Service;
A report received from another state’s taxing authority; or
The written report filed by the taxpayer as required by ORS 314.380 (Furnishing copy of federal or other state return or report)(2)(a)(A).Example 1: Ron filed his 1996 federal and state returns on time. The Internal Revenue Service (IRS) audited and adjusted his federal return in March 2000. The department may mail a Notice of Deficiency within two years of receiving the report of the Internal Revenue Service adjustment.
The department may mail a Notice of Deficiency if, at the time the change or correction by the Internal Revenue Service or another state’s taxing authority was made, an assessment or issuance of a refund of federal or other state’s tax based on the change or correction was within the time permitted by federal tax law or the tax law of the other state, as applicable. This provision applies regardless of whether an adjustment to the return is allowable under any other provision of Oregon law.Example 2: ABC Corporation was audited by the IRS for tax year 1991. ABC Corporation signed an agreement with the IRS to extend the period of time for assessing federal tax. No separate extension agreement was signed with Oregon. Following completion of the federal audit, the department may mail a Notice of Deficiency at any time within two years of receiving the report of the Internal Revenue Service adjustment.Example 3: Sally filed a timely 1993 tax return. In 1999, the IRS determined that Sally had omitted an item of income that was more than 25 percent of the gross income shown on the return. The IRS assessed additional tax based on Internal Revenue Code section 6501(e), which allows an assessment to be issued within six years of the filing of the return when there is such an omission. The department may mail a Notice of Deficiency based on the federal RAR within two years of receiving that report.
The department may not mail a Notice of Deficiency based on a federal adjustment or the audit report of another state if, at the time of the change or correction, the tax year was closed to adjustment for Oregon purposes and also closed for adjustment under federal tax law, or the law of the other state, whichever applies.Example 4: Lester filed timely 1995, 1996 and 1997 federal and state tax returns. In 1999, the Internal Revenue Service issued an adjustment that indicated Lester had incorrectly figured a capital loss for 1995. However, the IRS did not assess additional federal tax for 1995 because the year was not open to adjustment under any provision of federal law. Because both the federal and state returns were closed to adjustment, the department may not use the provisions of ORS 314.410 (Time limit for notice of deficiency)(3)(b) to issue a Notice of Deficiency based on the Internal Revenue Service adjustment.
When the department is notified of a change or correction, the department is not limited to the adjustments reflected in the IRS report, the report of the other state’s taxing authority, or the taxpayer’s written report submitted in the format required by OAR 150-314-0160 (Report of Changes in Federal Taxable Income). The department may make any adjustments deemed necessary to properly reflect Oregon taxable income or Oregon tax liability for the year in question.Example 5: Paul, a California resident, worked temporarily in Oregon in 1995 before returning to California. In April 1996, Paul filed a nonresident Oregon return for 1995 and claimed a credit for taxes paid to California. In March 2000, California audited his 1995 California return and in July 2000 Paul paid additional tax to California based on additional wages earned in Oregon. Paul filed a claim for refund with Oregon in November 2000, as allowed by ORS 314.380 (Furnishing copy of federal or other state return or report)(2)(b). In reviewing the claim, the department allowed the increase in the credit for taxes paid to another state based on the increased wages. However, the department determined Paul had incorrectly calculated the political contribution credit and issued an adjusted refund.