Amending A Tax Return -- Frequently Asked Questions

Home

Frequently Asked Questions

Case Studies

Accountants Who Come To Us For Guidance

Useful Links

David M. Kaufmann, CPA

Voice: 720.493.4804

Email: contact2@kaufmann-cpa.com

Physical Address:

2831 Wyecliff Way
Highlands Ranch, CO 80126

Mailing Address:

PO Box 632285
Highlands Ranch, CO 801
63-2285

Note: This is a complicated subject. We will only touch on some topics. We recommend that you talk these issues over with a tax attorney or a CPA.

Why amend a tax return?
Does amending a tax return increase the risk of an IRS audit (Will I regret filing an amended tax return)?
Can I amend the US return, but forget about amending the state return?
Why is it so difficult to get a two page Form 1040X right?
When is it too late to file an amended return for a refund?
What is a protective claim of refund?
 

Why amend a tax return?

If you have filed your original tax return, you are past the due date of the return and your original return has a mistake, consider amending the tax return.

If the original tax return reports too much tax, properly amending the tax return should result in a refund.  In this situation, deductions or credits were under-reported or income was over-reported originally.  You need to know whether the refund from the amended return exceeds the cost and aggravation of amending the return.  If the amended return results in a $10 refund, don't bother with amending the tax return. If the amended return results in a $1,000 refund, it is probably worth doing.  If the refund is between $10 and $1,000, you have to look closely at the cost of amending the tax return.

If the original tax return reports too little tax, I must professionally recommend that you amend your tax return.  If the IRS finds mistake, you could owe penalties and interest in addition to the tax.  If you amend the return, you might get away with tax and interest, but no penalties. Common penalties are failure to pay at 1/2% per month and the 20% accuracy related penalty, but penalties could be higher than that if the underpayment of tax appears to be intentional.

If you have under-reported income, such as wages, interest, dividends or capital gains, the IRS will probably catch up with you with a CP2000 notice from their income matching program.  The IRS will automatically assert the penalties described above.

Does amending a tax return increase the risk of an IRS audit (Will I regret filing an amended tax return)?

Yes, amending a return may increase the audit risk, but probably not as much as you think.  It really depends on the items included or excluded in the amended return.

Certain items, for example reporting an unincorporated business (Schedule C), increase audit risk. For example sake, lets say your return has a 5% risk of audit with a Schedule C, and a 1% risk of audit without a Schedule C.

If the original and the amended return include a Schedule C, both returns will have a 5% risk of audit. Here, the amended return does not increase the risk of audit.

If the original return did not have a Schedule C, but the amended return will have a Schedule C, the original return will have a 1% risk of audit, and the amended return will have a 5% risk of audit. In this case, the amended return will increase the risk of audit from 1% to 5%.

If the original return did have a Schedule C, but the amended return does not have a Schedule C, the original return will have a 5% risk of audit, and the amended return will have a 1% risk of audit. In this case, I am also assuming that it was not proper to file a Schedule C.

There is a possibility that amended return will give the IRS a second look at your return. If you have a Schedule C for both the original and amended tax return, your combined risk of audit might be 10% (5% for the original return and 5% for the amended return.)

If you are concerned about the risk of audit with an amended tax return, consider filing close to the end of the statute of limitations period for the return. This may protect items not changed on the amended return from additional risk of examination.  If you are in this situation, seriously consider having a discussion with your tax return preparer or tax attorney.

Can I amend the US return, but forget about amending the state return?

The IRS will probably inform the state about the amended return.  If this should result in additional state tax, your state will probably send you a tax bill that includes penalties and interest.

Why is it so difficult to get a two page Form 1040X right?

The amended return, Form 1040X, is a deceptively simple 2 page return.  In fact, if your original was prepared with TurboTax, TurboTax will prepare the 2 page Form 1040X. There are 12 pages of instructions.

The problem comes with including and labeling the required attachments.  Lets assume that the amended return will result in a refund.  For the original return, the refund might take 10 to 14 days. Plan on waiting 6 - 10 weeks to get your refund from a properly filed amended return.  If you are missing some attachments, after 6 - 10 weeks you will get a letter requesting the missing attachments, and it will be at least another 6 - 10 weeks before you get the refund.  If you are still missing attachments, the refund will be further delayed. This can go on for months and months, if you don't get this right.

The best strategy is to have the professional tax preparer that prepared the original return prepare the amended return. [If you do not have a professional tax preparer, do not hesitate to contact us at 720-493-4804 to prepare your amended return.]

If there is a balance due with the amended return, consider computing and paying  interest.  Since interest is based on time, the sooner you pay it, the lower it will be.

When is it too late to file an amended return for a refund?

Generally, you have 3 years after the date the original return was filed to file an amended return for a refund. If the original return was filed before the original filing deadline, the 3 year period begins on the original deadline. Thus, if you file your original tax return on March 1, 2012 and the original filing deadline was April 15, 2012, you have until April 15, 2015 to file your amended return.

What is a protective claim of refund?

A protective claim of refund is a special situation were you want to keep the statute of limitations open past the normal 3 year period.  For an example, lets use a ridiculous situation of taking your dog, Winston, as a dependent. [Don't try this at home!]

You would like to claim Winston as a dependent on your 2012 tax return, but you won't, since you were told that dogs don't qualify as  dependents.  You found out that your parents were actually taking the IRS to court to take their dog, Buddy, as a dependent [This would never happen!].

You file your original tax for 2012 on April 15, 2013 without taking Winston as a dependent, since you did not want to get into trouble.  The last date that you can amend your 2012 return to include Winston as a dependent is April 15, 2016.

Your parents' law suit about taking Buddy as a dependent has not been settled by April 14, 2016.  You file an amended return taking Winston as a dependent on April 15, 2016 as a protective claim of refund. (There are special procedures for protective claims of refund.) By filing this protective claim of refund, if your parents win against the IRS, your amended return is processed. If your parents lose against the IRS, your amended return is ignored.

The protective claim of refund, a special case of an amended return, gives you the deduction if the court case changes the law, and gives you no deduction, if the law does not change.


The information contained here are simplifications of complex subjects. Talk to your CPA about amending your tax return.

If you have questions about this, do not hesitate to contact us at 720-493-4804.  We serve clients all over the country.  Regardless of where you live in the US, we can amend your tax return.