What is an Amended Tax Return?
July 3, 2004
By Jim Harnsberger, Sr. Tax Analyst

SAN DIEGO – With the recent increases over the past ten years in amended tax return filings it is important that taxpayers, especially those who own a business or invest in real estate, know and understand some of the basics about this little known procedure for tax return filing.

The Procedures – Simply stated the Internal Revenue Code, Section §6511 provides for a period of up to three years for any taxpayer to re-file (amend) any previous tax return filed by the taxpayer. In some cases this time limit can be as much as five or seven years depending upon other factors. Also little known about this procedure is that if there is ANY outstanding tax obligations due to the IRS and those amounts remain unpaid, then a taxpayer may file an amended return with no regard to the time limitations imposed under the Code. A slight difference is an amended return older than three years where a refund is claimed will be limited to refunding only those amounts paid within the past two years.

The Growth of Amended Returns – According to IRS statistical data, in 1990 some 335,000 amended return were filed by taxpayers. This number is expected to grow to more than 4.2 million amended returns by the end of 2004, representing an increase of more than 1200%. Why has there been such a dramatic increase in the filing of amended returns? Simply stated, more and more taxpayers have discovered that the original returns contained errors, omissions, and overstated tax obligations either as a result of the taxpayer not understanding the complex nature of return preparation; or worse, as reported by the GAO, the professional preparer in more than 40% of the cases, did not understand the tax laws as well.

Will I get audited if I file an amended return? – The fact is that your chance for an IRS audit on an amended return is significantly far less than it is on the original return. Frankly the IRS cares very little about the fact that you may receive an additional refund or that an old tax debt may be solved by correcting your returns. What the IRS is truly concerned with is that the return is accurate, filed on time, and that it accurately reports your “true” tax obligation, irregardless of how much or how little that may be.

Does the IRS “Red Flag” my return? The truth of the matter is there is no such thing as a “red flag” at the IRS. Tax returns are scored and evaluated using very sophisticated formulas and other tools developed by IRS to predict the likelihood of underpayment of taxes. What it does not do however is account for the myriad of complex issues that may result in overstating your taxes as well. This is why a second opinion is most important from a qualified professional.

How do I Learn More? – You can of course go to the IRS website at www.IRS.gov and try to muddle through the thousands of pages of instructions, code sections, and various Revenue Rulings and court decisions; or you can seek a second opinion at no cost or obligation from San Diego based Tax Smart America who specializes in refund recovery and amended return filings for businesses. For more information and a FREE CONSULTATION contact Tax Smart America at 619 469-5800.