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CPA Accountant discusses Amended Tax Returns | Form 1040-X Considerations

Amended tax return CPA explains amending tax returns with Form 1040-X

Amending tax returns with Form 1040-X seems straight forward. Bu if you run into problems, consider giving us a call for a free consult. Our virtual office means distance isn’t a factor. (910) 399-2705.

Amended tax return CPAs factor in multiple issues when considering to file Form 1040-X.  The type of amended tax return to file depends on the original return being amended. Amending a personal tax return requires the use of Form 1040-X. Many folks handle Form 1040-X themselves, but sometimes the underlying changes presented on Form 1040-X are complex.

Here are some tips I’ve learned as a CPA accountant. If you get uncomfortable preparing Form 1040-X, consider giving us a call for a free consult.

Should I file an amended tax return?

  • Tax refund?
    • Amended tax returns can generate refunds.
    • Every Form 1040-X CPA and IRS agent has stories about huge tax refunds being lost.
    • The IRS side of the story is usually income based and demands more tax.
    • Your side of the story is legitimate deductions and tax credits.
  • Not if the original return just had math errors.
  • Not if you agree with the IRS calculation on Notice CP 2000. You just pay the IRS demand without amending the tax return.
  • Amending tax returns should be cost-effective. Don’t stand on principle over a trivial amount.

Understand the underlying tax issues on Form 1040-X

Let’s say you left off a Form 1099-C from your original tax return. You probably didn’t get a copy, because the bank had an old address. But the IRS received their copy! The cancelled debt on Form 1099-C becomes taxable income, so the IRS demands taxes on the entire amount. However, we’re generally able to exclude some or all the debt cancellation income through Form 982. It pays to thoroughly understand everything about Form 982 before amending a tax return with Form 1040-X.

Bulletproof the Amended Tax Return

  • It seems logical the IRS scrutinizes Form 1040-X closely.
  • Document every figure on Form 1040-X in case you’re audited.
  • Form 1040-X requires a statement about why you’re amending the tax return. Craft this carefully.
  • Amended tax returns generally need supplemental documentation.
  • Amended tax returns are hand processed. Try to anticipate what a skeptical IRS Agent wants to see in the first two minutes of processing.

“When amending tax returns, know when to punt. If the tax issues are complex, or the tax/refund amount is large, consider using a Form 1040-X CPA.”
– Gary Bode, CPA accountant

Does amending a tax return raise red flags with the IRS?

It depends. Generally Form 1040-X just presents some information left off from the original return, usually in response to an IRS Notice CP 2000 or Letter 566. So there’s just added tax, penalties and interest. But if your original tax return was fraudulent, it’s possible that amending it would raise tax audit and/or criminal issues.

Should I just hope the IRS won’t catch me?

The IRS has great success with its Correspondence Audits. These audits compare the information the IRS received against your tax return. Their databases churn out computer generated notices. The IRS has three years to catch you, but they can find ways to increase that time period. My perception is that the IRS can catch most amended tax return issues, but they don’t have the resources to pursue them all.

Self incrimination on amended tax returns

Clients sometimes open up a can of worms when amending their tax returns. Don’t expand areas of IRS scrutiny on your tax return or open issues on other tax years.

Don’t forget about the State!

If your State requires an income tax return, the IRS informs them there’s been a change. Include potential State consequences into your amended tax return strategy.

Pull your IRS transcript:

Here’s a true story: A Client received IRS Notice CP 2000 showing the IRS received a Form 1099-S reporting a real estate sale for the last tax year. So they proposed $120,000+ more tax. The Client did omit the real estate transaction on her original return. I pulled her IRS transcript. The IRS also issued a Form 1099-C reported cancellation of debt, associated with the real estate transaction. My point? The IRS may not ask about all your amended tax return issues at one time. As it turns out, it was a rental property sales that generated a loss. She got a refund and has excess loss to carry over to 2013.

Like what you read?

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