Oops! I Missed Something On My Income Tax Return, What Should I Do? Form 1040X May Be The Answer

In addition to auditing returns, The Internal Revenue Service (IRS) also regularly corresponds with us when they cannot match or identify certain deductions or income.  Sometimes it may be easier or more efficient to file an amended return versus corresponding with IRS, which takes time and several letters back and forth.  Amended returns can also be tracked through the IRS system more efficiently than a notice. Furthermore, if a deduction is missed or discovered after the fact, a potential refund could be in store.

Keep in mind however; whenever there are rewards in store- usually risk lurks nearby.  Amended returns can be more likely to be audited, especially if the additional items are large.  This alone is likely not a reason to avoid amending a return, assuming you have the proof. If support does not exist, I may be less likely to make this suggestion.  Remember in the IRS world we are guilty and have to prove our innocence opposite from other courts of law.

Of course there are always limits on most things.  The statue of limitations is the main obstacle you face with amended returns.  Three years from the due date including extension is your window of opportunity.  If it takes longer than this window the government keeps your money.  Amended returns can also be used to change some elections. Today we can depreciate property we buy for a business or elect to take a onetime write-off called a 179 expense, assuming we meet the criteria.  An amended return can be used to change this election after the fact.

Interestingly enough, amended returns are not mandatory.  We are obligated to file a return if our income exceeds certain limits and we can even be prosecuted for not filing this return. On the contrary, we cannot be prosecuted for failing to file an amended return! There is nothing that prevents us from filing multiple amended returns if we continue to find missing income or expenses, as long as the statute is open you may file as many as you choose, although I would recommend to limit these.  It is not hard to confuse IRS and once this occurs, good luck correcting this in an  reasonable  time period.  They get paid for the process and you do not! Naturally there can be penalties if additional tax is owed. On the flip side, IRS will also pay you interest if you missed a deduction or loss.

Another benefit of an amended return is sometimes a filing status can be changed under unique situations.  I have never had a client annul a marriage but, if you do, you would be able to go back and amend any joint returns filed.

One interesting situation that I have only experienced once in 20 plus years, is filing a return twice.  Tax court is considered the Holy Grail within IRS, and occasionally we must ask for their assistance to redirect a return to appeals.  Because different branches within the IRS working at different paces this was able to slip by- one not knowing what the other is doing.  In this particular case, they changed an amended return we had filed back to the original return due to timing.  The only way to get the correct amended return in the system was to file again!

There may be times it is not advisable to file an amended return.  If we see there are positions we would rather not discuss on a return or it is two years passed and you find a missing deduction you may decide the risk of audit does not justify the reward.  There is nothing that stops IRS from asking questions about anything on the return if an amended return sparks this inquiry.  There are normally risks we are willing to accept.  I may decide to forgo an amended return if the items are small or insignificant.  While IRS does state amended returns do carry a higher risk of audit, I can say I have never had one of my clients audited due to filing one yet.  IRS has a hard time keeping up with the taxpayers and cannot audit and question every return. They pick and choose their battles carefully, as we all should do.  I must admit I have used this form 1040X myself and it has been very helpful many times with clients, so remember there are sometimes second chances in life, even with the IRS!

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