Staying within the statute of limitations for filing a tax amendment

Before you begin the process of amending a personal income tax return, you should first make sure that filing an amended return isn’t time barred by the statute of limitations. The statute of limitations prohibits you from filing an amendment that increases a refund amount beyond three years of the original filing date or two years of the date you actually pay the tax, (basically whichever one is later).

For example, if you filed your 2015 taxes on April 15, 2016 and did not discover a calculation error until April 16, 2019, the statute of limitations bars you from claiming a refund.

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Reasons to file a tax amendment

The IRS allows you to file an amended return only to

  • correct your filing status,
  • cure any errors you make in claiming dependents,
  • increase or decrease the amount of income you originally reported, and
  • add or eliminate any deduction or credit.

If the original return includes mathematical errors that affect your tax liability, you should provide the IRS with sufficient time from the original filing date to fix the error. Generally, the IRS can detect and correct math errors on tax returns within a reasonable amount of time.

The IRS will notify you of any change it makes to your tax return. If additional changes are still necessary after receiving notice, only then should you amend the tax return.

Amending your tax return

A valid tax return amendment requires you to complete IRS Form 1040X. The two-page form requires you to update the amounts that differ from what you reported on the first tax return. The form also provides space for you to draft a short note to the IRS explaining why you are amending the return.

However, if the error relates to information you initially reported on a schedule or attachment to the tax return, you have to update that schedule and attach it to the 1040X.

For example, if you initially underestimated your capital losses because you omitted some stock transactions (presumably on accident), you must prepare a new Schedule D and file it with the 1040X.

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Interest and penalties on tax amendments

Although the IRS encourages taxpayers to amend a tax return when the original does not accurately report the correct tax, you are still liable for interest and penalties if the amended return requires an additional payment of tax.

  • Monthly interest will also accrue on the tax you underreported between the original filing date and the date you file the amendment.
  • Additionally, the IRS may impose a late-payment penalty that accrues concurrently with interest.
  • However, if you can provide reasonable cause, the IRS has discretionary authority to waive all interest and penalties.