Everything You Need to Know About IRS Amended Tax Returns

When the IRS set January 23 this year as the official start to the 2023 tax filing season, the clock began ticking for taxpayers to get their returns in order.

While the vast majority of the 168 million individual tax returns will be filed by the Tuesday, April 18 tax deadline (three extra days to file this year due to the calendar), and the rest requesting an extension will have until Monday, October 16 to file, that is not the absolute end to your tax year 2022 liabilities.

Any IRS Audits Generally Occur within 3 Years of Filing

For starters, the IRS can audit your return.

“Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years,” explains the IRS.

Remember this rule of thumb about audit timeframes:

• No limit:  There's no period of limitations to assess tax when you file a fraudulent return or when you don't file a return.
  
  
• 6 years: If you don't report income that you should have reported, and it's more than 25 percent of the gross income shown on the return, or it’s attributable to foreign financial assets and is more than $5,000, the time to assess tax is 6 years from the date you filed the return.

Taxpayers Can File an Amended Return to Correct Errors

The IRS, however, is not the only actor with the ability to revisit a past tax year as taxpayers, if they discover an error on their previous tax returns, can file an amended tax return.

“We all know that tax preparation can be quite complicated and many times a filed tax return can contain information that is incorrect, or the return failed to include information beneficial to the taxpayer,” said experienced tax attorney Steve Powell. “You have the right to amend your tax returns, by including this corrected or new information.”

Like the time constraints on the IRS to conduct an audit on your tax return, the taxpayer has time limits to file an amended return to claim a refund.

“Generally, to claim a refund, you must file Form 1040-X within 3 years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later,” says the IRS.

About 3 million Forms 1040-X are filed by taxpayers each year.

When and How to File an Amended Tax Return

When taxpayers discover an error after filing their return, they may need to amend the return by filing Form 1040-X, Amended U.S. Individual Income Tax Return.

In some instances, the IRS may correct certain errors on a return and may accept returns without certain required forms or schedules. If this occurs, you will not need to file an amended return.

When should you file an amended return? The IRS says you need to file an amended return if there’s a change in:

• Filing status
  
  
• Income
  
  
• Deductions
  
  
• Credits
  
  
• Tax liability

If you are undecided if you should file an amended tax return, you can consult a tax professional, or use the IRS “Should I File an Amended Return?” tax tool.

You can now file Form 1040-X electronically with tax filing software to amend 2019 or later Forms 1040 and 1040-SR, and 2021 or later Forms 1040-NR.

Paper filing is still an option for Form 1040-X.

The IRS says to file Form 1040-X to:

• Correct Form 1040, 1040-SR, or 1040-NR (or older filings of Form 1040-A, 1040-EZ, or 1040-NR-EZ).
  
  
• Make certain elections after the deadline.
  
  
• Change amounts previously adjusted by the IRS.
  
  
• Make a claim for a carryback due to a loss or unused credit.

Taxpayers can use the Where's My Amended Return? online tool to check the status of their electronically-filed Form 1040-X.

Many Business-Related Returns can be Amended such as Forms 1120, Form 940 and Form 941

An amended return is not just for individual taxpayers and those filing versions of Form 1040.

Corporations (and LLCs filing as corporations) who file Form 1120 can file an amended return by filing a paper version of Form 1120-X to correct a return.

The IRS says that corporations should use Form 1120-X to:

• Correct a Form 1120 (or Form 1120-A, if applicable) as originally filed, or as later adjusted by an amended return, a claim for refund, or an examination.
  
  
• Make certain elections after the prescribed deadline.

Employer’s Quarterly Federal Tax Return (Form 941) and Employer’s Annual Federal Unemployment (FUTA) Tax Return (Form 940) can also be amended.

To amend Form 941, which reports income taxes, Social Security tax, or Medicare tax withheld from employee’s paychecks, and is used to pay the employer’s portion of Social Security or Medicare tax, file Form 941-X to correct errors on a Form 941 that was previously filed.

To amend Form 940 (most employers pay both a federal (FUTA) and a state unemployment tax), taxpayers would use Form 940 for correcting a previously filed return by checking the amended return box in the top right-hand corner of Form 940.

 Other IRS business-related forms that can be amended:

• Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees: Amended by Form 943-X.
  
  
• Form 944, Employer’s Annual Federal Tax Return (designed for the smallest employers): Amended by Form 944-X.
  
  
• Form 945, Annual Return of Withheld Federal Income Tax (used to report withheld federal income tax from non-payroll payments such as pensions and military retirements): Amended by Form 945-X.
  
  
• Form CT-1, Employer’s Annual Railroad Retirement Tax Return: Can be amended by Form CT-1X.

Keep in mind that the IRS website says that it currently takes more than 20 weeks to complete the processing of amended returns so taxpayers will need to be patient after filing.

Contact Powell Tax Law today in the Austin, Houston, and San Antonio areas for help understanding all of the procedures and processes involved in filing an amended IRS tax return.