No-change reports, partial agreements and closing an IRS examination

The closing outcomes

Pub 3498 (Rev. 5-2025) describes three results: no change, agreed and unagreed. The IRM adds two more categories that matter in practice: excepted agreed cases (agreed but subject to further review or processing) and partially agreed cases. Each has its own report form and letters in IRM 4.10.8. Overassessment and no-change cases usually need no formal closing conference; unagreed cases generally get one (IRM 4.10.7.5.1).

No-change cases

When an exam ends with no adjustments, SB/SE examiners generate a no-change report and give it to the taxpayer and the representative. IRM 4.10.8.3.1 requires the report to say: “No-Change Subject to Approval by Area Director or Area Manager.” The examiner prepares the final letter (Letter 590, or Letter 992 for Forms 1120-S, 1065 and 5500), which the group manager signs; it tells the taxpayer the report was reviewed and accepted. For cases closed electronically, the group mails it; otherwise it is mailed at closing. Letter 3401 is the transmittal for a no-change report, and Letter 3401-S for pass-through entities.

The gap between the report and the final letter has a consequence: “Re-opening procedures do not apply if subsequent changes are needed before issuance of Letter 590 or Letter 992.” Until the final letter arrives, the no-change can still change without the reopening protections described below. Keep the final letter; it is the proof for repetitive audit purposes and for any later reopening argument. IRM 4.10.8.3.1 notes the no-change report itself can serve for repetitive audit verification if the transcript corroborates it.

A no-change with adjustments is not the same as a clean no-change. If the exam changed a carryover (a net operating loss, a basis figure, a credit carryforward) without changing this year's tax, the change will show up in the affected year. Read the report for those adjustments before calling it a win.

Agreed cases

In an agreed deficiency case, the examiner issues an agreed report and asks for signatures (IRM 4.10.8.4.1.1). Field examiners can mail it with Letter 4121; office examiners use Letter 915 and follow up with Letter 1912 after 15 days. The taxpayer is told the case is subject to review, and once it is accepted, Letter 987, Agreed Income Tax Change, confirms the case is closed (IRM 4.10.8.4.5). LB&I uses Letter 4121-L for agreed 1120 and 1040 reports.

Excepted agreed cases (IRM 4.10.8.5) use Form 4549-A with Form 870. They include partially agreed cases, whipsaw issues, Joint Committee cases, transferee cases and Fast Track Settlement cases settled on hazards. The signature on Form 870 there does not bar a further deficiency or a request for further consideration, and the case is excepted from the reopening criteria. What signing does and does not settle is covered in signing Form 870 or 4549.

Partial agreements

IRM 4.10.8.6 defines it: “A partially agreed case contains more than one issue of which at least one issue is agreed and at least one issue is unagreed.” The IRS assesses the agreed part on a Form 870 and sends only the rest through unagreed procedures. The paperwork depends on timing (IRM 4.10.8.6.2.1 and 4.10.8.6.2.2):

The taxpayer generally has 15 days to sign (Letter 1967 before an Appeals request; Letter 1967-A when agreement comes with the request). If the Form 870 is signed before the 30-day letter, the 30-day letter goes out on the total report; if after the 30-day letter but before an Appeals request, a new 30-day letter is issued for the remaining deficiency. Partial assessments are not made in some cases: Joint Committee and Counsel-review cases, docketed cases, and years (or multi-year cases) where agreed tax-reducing items offset unagreed tax-increasing ones for a net deficiency. A partial agreement stops interest on the agreed amount once paid and narrows what Appeals has to decide.

Unagreed closings

When a protest or small case request comes in, the group reviews it within seven days for adequacy under Pub 5; an inadequate one is returned with time to perfect it (Letter 1025). A complete protest closes to Appeals with Letter 2280, or with Letter 5072 if the examiner writes a rebuttal, which must be copied to the taxpayer (IRM 4.10.8.12.9.3). See formal protests and small case requests.

If no protest arrives, IRM 4.10.8.12.10 has the examiner send a reminder (Letter 923) no later than seven days after the 30-day letter expires where the taxpayer indicated an intent to protest, then close the case: deficiency cases to Technical Services for a notice of deficiency, overassessment and no-change-with-adjustment cases to processing, claim disallowances to Technical Services for a statutory notice of claim disallowance. The clock is short: “Cases must be closed from the group within 20 days after the expiration of the time (including extensions) allowed to file a protest.” If you need more time to protest, ask before the 30-day letter expires; see the revenue agent's report for the extension rules.

Can the IRS reopen a closed year?

IRC 7605(b) provides that “only one inspection of a taxpayer's books of account shall be made for each taxable year unless the taxpayer requests otherwise” or the IRS notifies the taxpayer in writing that another inspection is necessary. IRM 4.2.1.6 applies Rev. Proc. 2005-32: the IRS will not reopen a case closed after examination to make an adjustment unfavorable to the taxpayer unless one of three conditions exists:

1. “there is evidence of fraud, malfeasance, collusion, concealment, or misrepresentation of material fact”;
2. the closed case involved a clearly defined, substantial error based on an established IRS position existing at the time of the exam; or
3. other circumstances indicate that failing to reopen would be a serious administrative omission, which Rev. Proc. 2005-32 says can include a limited exam of items with significant potential for abuse, such as reportable transactions, where other items later merit examination.

Procedure is strict: “All IRS initiated reopenings to make adjustments unfavorable to a taxpayer must be approved by the territory manager.” The examiner prepares Form 4505, Reopening Memorandum, and if the books must be re-examined, Letter 939 (signed by the territory manager) goes to the taxpayer when the re-examination starts. Reopening rules do not apply to taxpayer-initiated reopenings such as claims and audit reconsiderations, or to returns closed by survey (a survey is not an exam), and a TC 290 on the transcript is not a prior exam; a TC 300 is.

The statute still controls: a reopening only matters while the assessment period is open. For true finality on an issue, the tool is a closing agreement under IRC 7121; LB&I uses them for recurring issues (IRM 4.46.5.6).

Repetitive audits

IRM 4.10.2.13 applies to individual returns without Schedule C or F when an exam of one or both of the two preceding years ended in no change or a small change and the same issues are selected again. Pub 556 asks taxpayers in that situation to contact the IRS promptly to see if the exam should be discontinued. “Prior year surveys do not meet the criteria for repetitive audit procedures.” The no-change letter or report is what proves the earlier result.

Closing checklist

1. Get the final letter (Letter 590, 987 or 1156) and file it with the report.
2. Check the transcript for the closing transaction codes (TC 300 for an exam assessment) and that the assessed amounts match the report.
3. Note carryover and other-year adjustments and make the corresponding changes on later returns.
4. Calculate interest and payment deadlines; amounts under $100,000 paid within 21 calendar days of the bill avoid more interest and penalties (Pub 3498, Rev. 5-2025).
5. Consider state amended returns; the IRS shares exam changes with states (IRM 4.10.7.5.4).
6. For an unagreed case, calendar the protest date and the assessment statute, and keep proof of what was submitted.

Questions practitioners ask