By Tom Herman
As Oscar Wilde once put it, experience is the name we give our
mistakes. By that standard, millions of taxpayers are highly
experienced.
Even with the increasingly widespread use of sophisticated
tax-preparation software, it's easy to make costly errors,
omissions or both. Last year, he Internal Revenue Service received
nearly 3.5 million "amended" income-tax returns, says Eric Smith,
an IRS spokesman,t up from 3.4 million the prior year.
In the dazzlingly complex world of income taxes, however,
amending a return isn't always as simple as filing IRS Form 1040X
(which will be renamed Form 1040-X in January 2020). Figuring out
what to do depends on your specific facts and circumstances, "such
as the materiality of the error, whether the error was the result
of fraud or criminal activity, whether the IRS has already started
an audit or investigation of the taxpayer, and numerous other
considerations," says Megan L. Brackney, a lawyer at Kostelanetz
& Fink.
Here are answers to questions that readers may have about making
(tax) amends:
Can I file an amended return electronically?
No. It must be done the old-fashioned paper way, says Mr. Smith.
If you are amending more than one year's return, you must file a
separate Form 1040X for each year.
What are some of the common reasons for filing an amended
return?
These include neglecting to report valuable deductions, credits
or other tax breaks on your original return -- or neglecting to
report taxable income, says Jere Doyle, senior vice president and
family wealth strategist, at BNY Mellon Wealth Management. Or
certain information you or your preparer relied on to prepare your
original return later turned out to be incorrect. For example, you
might have received revised forms showing different amounts of
dividend income, or partnership income, than you originally
received.
Many taxpayers are confused by the mind-numbing details of
education credits and thus may be good candidates to file amended
returns, says Lynn Ebel, director at the Tax Institute at H&R
Block Many people don't fully understand the eligibility rules for
the earned-income tax credit, designed to help the working poor,
she adds.
Another example: Failing to have reported correctly the
income-tax consequences of cryptocurrency transactions. The IRS
said earlier this year that it had begun sending letters to
taxpayers with cryptocurrency transactions who "potentially failed
to report income and pay the resulting tax from virtual-currency
transactions or did not report their transactions properly." IRS
Commissioner Chuck Rettig says taxpayers "should take these letters
very seriously" and "when appropriate, amend past returns and pay
back taxes, interest and penalties."
What are some less-common reasons?
Suppose you suffered a major casualty loss attributable to a
federally declared disaster. You can deduct those losses on the
return for the year in which they occurred, or on a return for the
tax year immediately before that year. If you've already filed for
the prior year, consider filing an amended return.
How long do I have to file an amended return and qualify for a
refund?
To claim a refund or credit, you "generally" have to file Form
1040X "within three years after the date the original return was
filed or within two years after the date the tax was paid,
whichever is later," says Mark Luscombe, principal federal tax
analyst at Wolters Kluwer Tax & Accounting.
Among the important exceptions: The IRS can suspend the time
limit for certain people who are "physically or mentally unable to
manage their financial affairs," according to the Form 1040X
instructions. Also, there is a special rule for amending a return
based on a "bad debt" or a worthless security." In such cases, the
amended return generally must be filed "within 7 years after the
due date of the return for the tax year in which the debt or
security became worthless," the IRS says. (For other exceptions,
see the IRS instructions).
Is there a law requiring me to file an amended return?
No, several lawyers say. But Mr. Smith of the IRS points out
that taxpayers are "required to file a correct return and they sign
the return under penalties of perjury. Furthermore, if someone
underreported income or underreported their tax, correcting that
omission promptly will minimize any late charges. If someone
overpaid their tax, they have a right to a refund and should claim
it."
How can I find out the status of my amended return?
The IRS says to allow up to 16 weeks to process the amended
return. You can check on the status using its "Where's My Amended
Return" online tool, or call 866-464-2050 three weeks after you
file your amended return.
What are some of the circumstances in which I don't/might not
need to amend my return?
Suppose you discover a small error or omission that would make
only a tiny difference in the amount of the refund or credit you
would be eligible to receive. Consider whether the change is
significant enough to justify the time, hassles and expense of
amending.
The IRS says "many" math errors are caught and corrected during
the processing of returns.
Go to the IRS site's "Should I File an Amended Return"
interactive assistant page for more information. And when in doubt,
hire a tax pro to help you explore your options.
Mr. Herman is a writer in New York City. He was formerly The
Wall Street Journal's Tax Report columnist. Send comments and tax
questions to taxquestions@wsj.com.
(END) Dow Jones Newswires
December 15, 2019 22:17 ET (03:17 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.