Is it always a good idea to amend your tax return if you find an error?
There’s usually an element of relief after your annual tax return has been filed. But what do you do if you find an error on your tax return? Should you always file an amended return? Here are some things to consider.
Errors in the IRS’s favor
Errors discovered that lead to an additional tax obligation are legally required to be fixed by filing an amended tax return. This is especially true if the discovered error is from missing information found on a Form 1099 or a Form W-2. Why? This information is being reported to the IRS and matching programs will typically catch the error.
Errors that result in a lower tax liability
If correcting the error or omission results in a large additional refund, the answer is usually obvious. File the amended return. But this is not always the case.
- The period of time during which the IRS can audit your tax return could be extended. Federal tax returns are typically subject to audit for three years after the original tax return due date OR the date the return was filed, whichever is later. If you file an amended tax return, the audit clock may change based on the amended return filing date and degree of change requested. It may trigger a request from the IRS to extend the audit review period. The refund also resets the IRS erroneous refund recovery statute, adding another two to five years during which a review by the IRS is possible based upon the date of the latest tax return refund.
- The amended return may become examined. Amending a tax return puts a spotlight on your tax return. The IRS has certain topics that trigger individual examination when amended returns are requested. Amended tax returns based on things like the Earned Income Tax Credit, Small Business Income and the Research Tax Credit for small businesses, could result in a visit from your local IRS examiner. Because of this, keep all the necessary records to substantiate your amended tax return close at hand.
- Amending one tax return may require amending several other returns. Making a minor change in one year may require you to make changes in other tax years. Is it worth it?
- Don’t forget other taxing authorities. Making a change on your federal tax return may require you to file an amended state or local tax return. Do not assume that an amendment in your favor at the federal level will necessarily also be in your favor at the state and local level.
- Don’t expect the refund to be timely. Amended tax returns can take a long period of time to be processed. There have been cases where the IRS has delayed initial review of an amended return for more than a year, then decided to examine the return. While not typical, the process could take up to 18 months to resolve.
- Timing is important. Remember there is also a time limit to request a change to your tax return and receive an additional refund. This is typically set at three years after the initial filing deadline of the tax return. Make sure you file these tax returns using certified mail. Should the IRS delay responding to your amended return, you may need to prove it was filed timely.
- You have a chip in your pocket. If the refund amount is not large enough to justify an amended tax return, still keep the documentation. Should you be chosen for an audit, you can often present your case at that time to offset any additional tax.
From Your Tax Lawyers Perspective
Remember that a tax return is a legal document that you, the taxpayer, sign under penalty of perjury that you have reviewed the content of the return and you know what is in the return. Tax crimes enthusiasts will note that the government often pursues criminal tax perjury charges because it is often easier to prove over some other types of tax crimes. Either from a criminal or civil perspective, the tax return and any amended returns are considered admissions under the law and the penalty structures, if applicable varies.
While finding an error or omission on your tax return can be unsettling, rest assured there are ways to fix the problem, but we recommend that you speak with a tax attorney regarding your duties to amend and the implications of amending to determine the best solution.
Moskowitz LLP is a tax law and accounting firm that has dedicated over 30 years to representing individuals and businesses with civil and criminal tax problems, cleaning up accounting and tax messes, and providing tax and accounting advisory services. We offer practical and affordable tax and accounting solutions.
Remember a blog post or email blast is not a substitution for obtaining personal legal and tax consultation. This information is not intended to be legal or tax advice nor does it form an attorney-client relationship between us.