Although an amended return will make the IRS sit up and take notice, if you do it right,
your chances of being audited may actually decrease.
I know you were careful. You did the math. Your tax preparer did the math.
You double-checked HIS math. But sometimes, no matter how hard you look at a
figure, that error you just made -- or that your preparer just made --
doesn't register in your mind.
This is not the end of the world. When a mistake is made on your tax
return, correct it! The error may be in your favor, or in favor of the
IRS. But in any case, correct it. It may be due to a missed deduction, an
incorrect interpretation of the law or facts, or simply by a late or
corrected W-2 or 1099.
Fortunately, the IRS recognizes that your tax return may need to be
corrected and actually has drafted a specific form for that purpose: the
1040X. Form 1040X is an easy form to complete. It has three columns: one for
what you originally reported, one for the changes in the numbers and a third
for the final, corrected numbers. On the back you explain the reason for the
change, such as you received a late 1099, or there was a missed deduction,
you found additional charitable contributions, and so on.
If the change is due to a corrected 1099 or other third-party document,
attach a copy to your return. If the change is due to a deduction you
missed, attach a copy of the receipt for the additional deduction to the
return. While not necessary, I suggest you try to attach documentation to
"prove" your change.
What I'm trying to do here is minimize your chances of getting audited.
The very fact that you filed an amended return will not, in and of itself,
increase your chance of being audited. However, what you change and the
magnitude of that change might trigger an audit. By its very nature, an
amended return demands extra scrutiny by the IRS. An agency representative
must call up your old return and compare the changes with the new return.
That gives the IRS twice as many chances to see something that concerns an
agent.
Prove those deductions
That's why I recommend attaching substantiation for the changes on your Form
1040X. If the change, for example, is a huge charitable contribution missed
on your original return, the IRS computer will pop out your return for human
review. That's where your attached substantiation should dissolve any audit
questions, because you've already "proved" your deduction.
In fact, by attaching substantiation of the change to your amended return,
you have shown the reviewing agent that you know the rules, and actually
would be a poor audit risk. You may have actually decreased your chances of
a full audit.
When can you amend your return? The normal statute of limitations for a tax
return is three years. That means that you have three years from the due
date of your return to amend your returns.
For example, your 1999 individual tax return should have been filed by April
15, 2000. After April 15, 2003, you will no longer be able to amend that
return. If you found a mistake on your 1998 return, I'm sorry. The original
filing deadline was April 15, 1999. You should have filed your amended
return on April 15, 2002.
This statute of limitations is really important if you are due a refund and
haven't yet filed your return for the current year. Some people, if they
think they're due a refund, take the easy route and procrastinate. They know
they don't owe any additional tax, and therefore figure there's no rush in
getting that return out to the IRS. They're wrong.
Use refund or lose It
If you don't file your tax return, and you're owed money, the statute of
limitations never even starts to run. You just don't qualify. But if you are
due a refund, the statute of limitations begins running on April 15 of the
year it's due. So let's look at your 1998 return and the money you didn't
yet claim. Here's the bad news. If you didn't file your 1998 tax return by
April 15 2002, your refund is gone, disappeared into the U.S. Treasury. So
if you have a similar problem with your 1999 return, get it in by April 15,
2003.
Everyone -- even the government -- will agree that you overpaid and that the
IRS should have sent you your refund. But they won't, and, under the law,
you can't make them. In fact, you can't even use that "refund" to offset
taxes for future years; it's lost forever.
That's the nature of the statute of limitations. It limits the time both you
and the IRS have to make changes. The IRS has actually publicized the fact
that it's holding billions of dollars in unclaimed taxes.
If you haven't filed . . . file! There are penalties for not filing separate
from the issue of whether you owe any money. If you have filed and received
a corrected or late 1099, file an amended return. The IRS computers are
going to be looking for those corrected numbers.
Alternatively, if you found out that you missed a deduction or a credit
two years ago, file an amended return. And make sure they give you the
interest owed for holding your money. (Unfortunately, that interest will
be taxable.)
By Jeff Schnepper
MSN.Money (April, 2003)
