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Saturday, April 11, 2020

When Should You Amend An IRS Return?

I have been doing a number of amended returns for taxpayers so far this summer. The actions of creating the IRS Form 1040X of course as a result of either the taxpayer finding a reason or in most cases the IRS sending one of those dreaded letters (e.g.CP2000) stating that an amount of $15,000 is due. So, what exactly is this process all about?

 How can I explain to the interested reader of this article what they should or should not concern themselves with?

In this initial article, l am going to stick with just a few basic areas and then expand topics in subsequent writings. I will guarantee you that all the examples are real. I have experienced each one.

 Here goes.

What is the purpose of the 1040X? 

You filed an original return (e.g 1040A) for… let’s say the tax year 2010. The return was filed timely, on or before April 15, 2011. The end result of either owing or getting a refund doesn’t really matter for this example.

During April 2012 you discover hiding in your desk drawer (while finalizing your return for the tax year 2012) a 1099Misc with the year 2010 on it. There is an amount of $2,000 in box 7. Normally when you have filed returns you did not have a document like this but thinking back to 2010 … now it all comes back to your memory that you agreed to deliver some products for a friend and she wrote you a check for that amount.

She sent a Form 1099Misc to the IRS and to you around February 2011. Plenty of time you to include with your return.

 Now what?

You need to amend the 2010 tax return by preparing a 1040X and mail it to the IRS. This should be done sooner rather than later because you have unreported taxable income that is accumulating interest due the IRS. The IRS knows that you did not report the income since they received a copy of the Form 1099Misc. Their audit process just has not pulled your return up for an error yet but you can count on receiving one of those letters informing you that you owe additional taxes plus interest. It could arrive any day.

The Question is…Should you wait until the IRS Letter arrives or mail the 1040X to “cut them off at the pass”?

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