Are you someone who has recently amended their tax returns? If so, you may be curious about the likelihood of an audit. The fear of being audited can be a nerve-wracking experience for anyone, but it’s important to understand how often amended tax returns are audited. In this article, we’ll explore this topic and give you some insights that may put your mind at ease.
Amending tax returns can be a stressful process for many individuals. It’s a tedious task that requires time and effort but is essential to ensure accuracy and compliance. But, once you file an amended tax return, you may wonder what the chances are of being audited. After all, nobody wants the IRS to come knocking on their door. Our goal is to provide you with some useful information so you can be more informed about the probability of an audit following an amended tax return.
In this day and age, everyone wants to have peace of mind when it comes to tax compliance. As tempting as it may be to cut corners and take risks, it’s crucial to remain diligent and informed. So, if you’re someone who has just submitted an amended tax return, or you’re considering it in the near future, then you may want to know how often these returns are audited. In this article, we’ll delve into the details and give you the information you need to be prepared.
Common Reasons for Amending Tax Returns
Amending tax returns is a process that allows taxpayers to correct errors or omissions on previously filed tax returns. The Internal Revenue Service (IRS) has provided guidelines for taxpayers to follow when filing amended returns. It is important to note that filing an amended return does not automatically trigger an audit, but certain factors may increase the likelihood of an audit. Here are some common reasons why taxpayers may need to amend their tax returns:
- Inaccurate Information: Taxpayers may discover that they made errors or provided incorrect information on their tax returns. These errors may include incorrect Social Security numbers, incorrect filing status, or wrong itemized deductions. Inaccurate information can result in underpayment or overpayment of taxes, and can therefore require an amended tax return.
- Missed Deductions or Credits: Taxpayers may realize that they missed certain deductions or credits that they were entitled to claim on their tax returns. For example, taxpayers might have overlooked charitable contributions, medical expenses, or education expenses that can result in an increase in a refund or lower tax liability. Filing an amended tax return can help taxpayers claim these tax benefits.
- Income Adjustments: Taxpayers may receive additional income after filing their tax returns. This could include income from a second job, rental income, or interest income that was not initially reported. Amending the tax return can ensure that the taxpayer pays the correct amount of taxes on the additional income.
- Mathematical Errors: Sometimes taxpayers may make mathematical errors while preparing their tax returns. This could include miscalculations of tax owed, overclaiming of tax credits or deductions, or errors in transferring information from one form to another. These errors can result in either overpayment or underpayment of taxes, and therefore an amended tax return may be necessary.
- Amended 1099 or W-2 Forms: If the taxpayer receives a corrected or amended 1099 or W-2 form after they have filed their tax return, they will need to report the corrected information by filing an amended tax return. This can happen if the employer or payer made a mistake or if the taxpayer received additional income from the same source.
IRS Audit Selection Process
The IRS selects tax returns for audit either randomly or through a computerized screening process. However, audits may also be based on the taxpayer’s history of noncompliance or involvement in related transactions. The selection process has several stages, and the IRS follows set guidelines to ensure that audits are conducted fairly and impartially.
- Information Matching: The first stage involves comparing information on the tax return with information provided by withholding agents, banks, and other third-party sources. If any discrepancies are found, the IRS may flag the return for further review.
- Computer Screening: The next stage involves running the tax return through a computer program that selects returns for audit based on certain criteria such as unusually high deductions or credits compared to income.
- Manual Review: If the return makes it through the computer screening, the IRS may still manually review it to determine if it should be selected for audit. During this stage, the IRS may look at a taxpayer’s history of noncompliance or involvement in related transactions.
- Field Audit: If the tax return is selected for audit, the IRS will schedule a visit to the taxpayer’s home or business to conduct an audit.
It’s important to note that just because a taxpayer’s return is selected for audit, it doesn’t necessarily mean that they have done something wrong. Audits can also be triggered by innocent mistakes or because the taxpayer’s return falls within a certain category that the IRS is focusing on that year.
Here is a summary of the audit selection process:
| Stage | Description |
|---|---|
| Information Matching | Comparing information on the tax return with information provided by third-party sources |
| Computer Screening | Running the tax return through a computer program that selects returns based on certain criteria |
| Manual Review | Manually reviewing the return to determine if it should be selected for audit |
| Field Audit | Scheduling a visit to the taxpayer’s home or business to conduct an audit |
Understanding the audit selection process can help taxpayers be better prepared in case they are selected for an audit by the IRS.
Taxpayer Rights During an IRS Audit
When the IRS decides to audit a taxpayer, they are required to follow certain guidelines and procedures. Taxpayers have rights during an audit, which are designed to ensure that the audit process is conducted fairly and accurately. Some of the key taxpayer rights include:
- The right to professional and courteous treatment by IRS employees
- The right to privacy and confidentiality regarding their tax information
- The right to know why the IRS is requesting information, how the information will be used, and what will happen if the requested information is not provided
These rights are outlined in the Taxpayer Bill of Rights, which was first introduced in 1988 and has been updated periodically since then. The IRS is required to provide taxpayers with a copy of the Taxpayer Bill of Rights at the beginning of any audit, and taxpayers can also find information about their rights on the IRS website.
Another important right that taxpayers have during an audit is the right to representation. Taxpayers can choose to represent themselves during an audit, or they can hire a tax professional, such as a CPA or tax attorney, to represent them. If a taxpayer chooses to have representation, the IRS is required to communicate with the representative, rather than the taxpayer directly, regarding the audit.
IRS Audit Selection Process
There is no set formula for determining which tax returns will be selected for audit, but the IRS uses a variety of methods to identify returns that are more likely to have errors or omissions. Some of the factors that may trigger an audit include:
- Math errors or inconsistencies on the tax return
- Large deductions or credits that are not typical for the taxpayer’s income level or industry
- Failure to report all income
- Random selection by computer program
Once a tax return has been selected for audit, the IRS will notify the taxpayer by mail and request additional information or documentation. The taxpayer will then have the opportunity to respond to the IRS’s requests and provide any supporting evidence.
Frequency of Audits for Amended Tax Returns
Amended tax returns are different from original tax returns, as they are a revision to a previously filed return. The frequency of audits for amended tax returns is not significantly different from audits of original tax returns. According to the IRS, the overall audit rate for individual tax returns was 0.45% in 2019. However, the audit rate for high-income taxpayers and those with more complex tax situations was higher.
| Taxpayer Income Level | 2019 Audit Rate |
|---|---|
| Under $25,000 | 0.69% |
| $25,000 – $50,000 | 0.48% |
| $50,000 – $75,000 | 0.50% |
| $75,000 – $100,000 | 0.63% |
| $100,000 – $200,000 | 0.92% |
| $200,000 – $500,000 | 1.45% |
| Over $500,000 | 2.21% |
It’s important for taxpayers to remember that even if they are selected for an audit, it does not necessarily mean that they have done anything wrong. Audits are simply a way for the IRS to ensure that taxpayers are reporting their income and expenses accurately and paying the correct amount of tax.
Consequences of failing to amend a tax return
When a taxpayer fails to amend a tax return, there can be serious consequences that can snowball over time. Here are some of the potential negative outcomes:
- Increased penalties: Failing to amend a tax return can result in additional penalties and interest from the IRS. These penalties can quickly add up and make it even harder to pay any outstanding taxes.
- Interest charges: Similarly, interest charges can accrue over time on any late or unpaid taxes. These charges can add up quickly and make it even more expensive to settle any outstanding debts.
- Audit risk: When a tax return is amended, the IRS has a chance to review it again and potentially discover any errors or discrepancies. If a taxpayer fails to amend a return, there is a higher risk of an audit in the future.
Here is a breakdown of how IRS audits break down by percentage:
| Type of Audit | Percentage of Audits |
|---|---|
| Correspondence | 75% |
| Office | 20% |
| Field | 5% |
As you can see, the majority of IRS audits are correspondence audits, which means that the IRS will send a letter requesting more information on a particular item on the tax return. However, failing to amend a tax return can increase the chances of a more invasive audit, such as an office or field audit.
The bottom line is that it is in a taxpayer’s best interest to amend a tax return as soon as possible. Failing to do so can have serious financial and legal consequences down the line. If you need to amend a tax return, it is highly recommended that you speak with a qualified tax professional who can help guide you through the process and minimize your risk of negative outcomes.
The difference between an amended return and a corrected return
Before we dig into how often amended tax returns are audited, it’s important to understand the difference between an amended return and a corrected return. Though they may seem similar, there are some key distinctions between the two.
- A corrected return is filed to fix a simple mistake or to add a missing bit of information. For example, if you accidentally forgot to include income from a W-2 on your original tax return, you would file a corrected return to fix the error.
- An amended return, on the other hand, is used when you need to make more significant changes to your tax return. This could include changing your filing status, adding deductions or credits that you initially missed, or reporting additional income that you discovered after filing your original return. Sticking with our previous example, if you forgot to include income from a W-2 and then also found out that you could have claimed a certain deduction, you would need to file an amended return to make these changes.
The key takeaway here is that amended returns are generally used for more substantial changes, while corrected returns are mostly used to fix minor mistakes.
How to properly file an amended tax return
Amending your tax return can seem like a daunting task, but it is necessary if you need to make changes to your previously filed tax return. Here are some tips on how to properly file an amended tax return:
- Gather all necessary documents: Before filing an amended tax return, make sure you have all the necessary documents, such as your original tax return, W-2s, 1099s, and any other relevant tax forms.
- Use the correct form: To amend your tax return, you will need to fill out Form 1040-X. Make sure to check the year of the original tax return you are amending and use the correct form for that year.
- Provide a clear explanation: Include a clear explanation of the changes you are making on Form 1040-X, and attach any supporting documents that may be needed.
Once you have completed Form 1040-X, you can mail it to the IRS or file it electronically depending on the year that needs to be amended and if electronic filing is allowed.
It is important to note that filing an amended tax return does not necessarily increase your chances of being audited by the IRS. However, errors or inconsistencies in your amended return may raise red flags and increase your likelihood of being audited.
| Reason to file an amended tax return | Time limit to file |
|---|---|
| Correction of errors or omissions | 3 years from the date the original return was filed or 2 years from when the tax was paid, whichever is later |
| Claiming a missed credit or deduction | 3 years from the date the original return was filed or 2 years from when the tax was paid, whichever is later |
| Reporting a change in filing status | 3 years from the date the original return was filed or 2 years from when the tax was paid, whichever is later |
It is important to file an amended tax return as soon as possible if you need to make changes. In some cases, filing an amended return may result in a refund from the IRS, which you may be entitled to if you overpaid your taxes.
The Statute of Limitations for Amending a Tax Return
Amending a tax return can be crucial in correcting errors or omissions, but taxpayers should be aware of the statute of limitations for making such amendments. The IRS allows taxpayers to amend their returns up to three years after filing or two years after the date they paid the tax, whichever is later. However, there are exceptions to this rule for certain types of income and situations.
- If a taxpayer failed to report income that is more than 25% of the gross income shown on the return, the statute of limitations is extended to six years from the date the return was filed.
- If a taxpayer claims a loss from worthless securities, the statute of limitations is extended to seven years from the date the return was due.
- If a taxpayer reports a foreign asset and fails to file the required information return disclosing the asset, the statute of limitations is extended to six years from the date the return was filed.
It’s also worth noting that the statute of limitations for auditing a tax return is generally three years from the date the return was filed or two years from the date the tax was paid, whichever is later. However, if the IRS suspects a taxpayer of committing fraud or not reporting all of their income, there is no statute of limitations.
Overall, it’s important for taxpayers to be aware of the statute of limitations for amending their tax returns and to take action promptly if they need to make a correction. Failure to do so could result in penalties and interest charges in addition to the tax owed.
| Type of Income/Situation | Statute of Limitations for Amending |
|---|---|
| Regular Income/Non-Fraudulent Returns | 3 years from filing or 2 years from payment |
| Failure to Report Income > 25% of Gross Income | 6 years from date of filing |
| Loss from Worthless Securities | 7 years from date of filing |
| Foreign Asset Disclosure Failure | 6 years from date of filing |
Taxpayers should always consult with a tax professional for specific advice regarding their individual situations.
FAQs: How Often Are Amended Tax Returns Audited 2?
1. What is an amended tax return?
An amended tax return is a form used to correct any errors made on a previous tax return.
2. How often are amended tax returns audited?
There is no set frequency for audit of an amended tax return – it can vary based on a number of factors including the contents of the amended return and the taxpayer’s history.
3. What triggers an audit on an amended tax return?
Typically, audits are triggered by red flags like large deductions, omissions of income, and inconsistencies between what was reported on the tax return and what was reported on other financial documents.
4. What happens if your amended tax return is audited?
If your amended tax return is audited, the IRS will review it for accuracy and make a determination regarding any changes that need to be made. You will be notified of any changes and given the opportunity to dispute them.
5. Can you avoid an audit of an amended tax return?
While it’s not possible to entirely avoid an audit of an amended tax return, there are steps you can take to minimize your risk – like keeping good records and being honest about any mistakes that were made on your original tax return.
6. What are the consequences of an audit on an amended tax return?
If an amended tax return is audited and found to contain errors, the taxpayer may be required to pay additional taxes, fees, and penalties. In some extreme cases, taxpayers may even face criminal charges.
Closing Thoughts: Thanks for Reading!
We hope this article has given you a better understanding of how often amended tax returns are audited and what to expect if your amended return is audited. Remember, it’s important to be honest and transparent when preparing your taxes to avoid any problems down the line. If you have any further questions, please feel free to reach out to a tax professional for advice. Thanks for reading and we hope to see you again soon!