From time to time, Denver area business owners uncover an error on their business or individual tax return. This can happen when a review of prior year returns reveals that credits or deductions were missed which would entitle the taxpayer to an increased refund. It can also happen when it’s determined important information was omitted from the return, increasing the amount due for the year. Whatever the situation, it’s important to understand that a taxpayer can file an amended return to make the necessary changes and provide the IRS with the correct information. Since there are timelines under which refunds can be received or a penalty structure for late payments, if an issue is suspected, it’s important to have the matter reviewed and action is taken. To help clients, prospects and others understand the amended return process, Hanson & Co has provided a summary of key details below.

Filing Deadline

Generally speaking, to claim a refund from an amended return it must be filed within 3 years after the filing date of the original returns or within 2 years after the date taxes were paid (whichever is sooner). Be aware that returns filed before the actual due date are considered by the IRS to be filed on the due date. There are special rules that apply to refund claims arising from net operating losses, foreign tax credits, and bad debts. For example, an amended return can be filed by a taxpayer to change a foreign tax credit or deduction within ten years of the initial file deadline.

Filing Process

Unlike regular tax returns, amended returns cannot be filed electronically. The means the amended return, along with paper copies of any affected forms or schedules, should be mailed to the IRS at the appropriate mailing address. If filing an amended individual return, the IRS recommends including the tax forms (i.e. 1099’s, K-1’s, etc.) that support any changes made on the return (if appropriate).

Interest & Penalties

For most taxpayers, the realization they may owe additional taxes from a prior tax year due to error is not a welcome one. If this situation occurs, it’s best to take immediate actions to remedy the error to avoid the assessment of additional interest and penalties. There are several scenarios under which a taxpayer can receive a penalty, including:

  • Late Payment of Taxes – The penalty for the late payment of taxes is typically ½ of 1% of the unpaid amount for each month the tax went unpaid. The penalty can be as high as 25% of the total unpaid amount and applies to any unpaid tax on the return. Please note this penalty is addition to the interest charges on late payments. The IRS does waive the penalty assessment if the taxpayer can demonstrate reasonable Jul 18, 2019cause for not paying on time.

  • Erroneous Refund/Credit Claim – The IRS may assess a taxpayer a penalty if they filed a claim for refund/credit in excess of the correct amount unless there was a reasonable cause for the claim. Generally speaking, the penalty is equal to 20% of the disallowed amount and is not calculated on any part of the disallowed amount claim.

  • Other Penalties – The IRS can also impose other penalties for negligence, substantial underpayment of income, reportable transaction understatements or fraud. While this is quite unlikely, it’s important to be aware of the penalty possibilities.

Amended Return Status

The IRS offers the ability to track the status of an amended return using an online tool, Where’s My Amended Return?.  Be sure to leave enough time for the IRS to receive and process the return before checking on status. It’s recommended to wait at least three weeks after the date of mailing before checking the website. The IRS advises it can take up to 16 weeks to review and process an amended return. Keep this in mind when going through the process.

Contact Us
The rules around when and how to file an amended tax return are rather straight forward, but taxpayers should consult with a qualified professional prior to submitting an amended return to the IRS. There are many issues to consider prior to making the submission. If you think an error has been made on your return or need assistance with tax planning or compliance issue, Hanson & Co can help. For additional information please call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.