Extending Deadlines for Filing Amended Returns Has Its Limits

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Everyone makes mistakes. That’s why pencils have erasers.

And that’s why there’s no need for taxpayers to panic if they recheck their 1040 forms after submitting them and discover errors — say, overlooked deductions, exemptions or credits, overstated or omitted income, or some other miscues that could affect tax liability.

Opportunities for errors abound because Congress continually changes our already complex Internal Revenue Code. And making amends can bring rewards. 

The normally unforgiving IRS wants to help taxpayers who file their 1040s and subsequently spot errors. Those who decide that their returns were actually just first drafts can confess their errors by filing amended returns.

To do so, they use Form 1040X, a simple (in most cases) two-page form known officially as Amended U.S. Individual Income Tax Return. It’s available at irs.gov, as is a lengthy set of instructions and Publication 556, Examination of returns, Appeal Rights, and Claims for Refund.

There are deadlines for filing amended returns. Let’s say Alberta DeSalvo wants to submit a 1040X. The statute of limitations, legal lingo for deadline, limits the time for both Alberta and the IRS to make changes.

The time limits are fairly liberal. As a general rule, the deadline for submission of a 1040X is (1) three years from the date (including any filing extension) Alberta filed her original return, or (2) two years from the time she paid the tax, whichever is later. The IRS treats a return that was filed early as though it was filed on the due date.

An example: Alberta wants to correct an erroneous 1040 form for 2014 that she filed in February of 2015. Ordinarily, the cut-off date for filing a 1040X is April 15, 2018. Suppose, though, that she obtained an automatic six-month extension of the filing deadline from April 15, 2015, to Oct. 15, 2015. She filed earlier and paid the tax due; the IRS received her return on July 1, 2015. In that case, a three-year limit means that 2014’s return remains open for amendment until July 1, 2018. 

The three-year window doesn’t apply to everyone. As with so many other code provisions, there are important exceptions.

One of them authorizes relief for persons who are “physically or mentally unable to manage their financial affairs.” The IRS has to extend the cut-off date if the taxpayer seeking a refund has a serious physical or mental impairment, such as senility or chronic alcoholism, which can be expected to result in death or which has lasted or can be expected to last longer than 12 consecutive months.

For a joint return, only one spouse has to be “financially disabled.” But the IRS invokes the general rule and denies an extension when the disabled person has a spouse or someone else authorized to act on his or her behalf in financial matters—an agent named under a durable power of attorney, to cite a common example.

Another exception makes it possible for Alberta to go back more than three years. The deadline is extended when she forgot to take deductions for bad debts or worthless securities or it took awhile to determine the year in which a debt became uncollectible or a stock actually became worthless. In those cases, she has seven, instead of three, years to submit a refund claim.

Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 200 and counting).

About Julian Block

Julian Block

Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com

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