The IRS is—finally—making more amended returns available for taxpayers to file electronically. For years, all amended returns had to be filed by paper. However, with backlogs piling up, the IRS announced in 2020 that 2019 Forms 1040 and 1040-SR returns could be amended electronically.
That has expanded over the years to now include Forms 1040 and 1040-SR for tax years 2019, 2020, and 2021, and Form 1040-NR and Form 1040-PR for the tax year 2021. All other amended returns must be filed by paper.
About 3 million amended returns, also called Forms 1040-X, are filed by taxpayers each year. That doesn’t seem like a lot—just a fraction of the 150 million (give or take) individual tax returns filed most years.
But that number begins to look a little more daunting when added to the millions of tax returns still waiting to be processed. National Taxpayer Advocate Erin Collins said in her annual report to Congress that as of April 22, 2022, the total inventory requiring manual processing for individual returns was 16,300,000. If you add in business and other returns, the IRS was, as of April 22, 2022, sitting on nearly 30 million unprocessed returns.
That’s likely why IRS Commissioner Chuck Rettig said about the update: “This new feature will further help people needing to make corrections. This development will also assist the IRS with its inventory work on the current backlog of amended returns. This is another tool we’re using to help get us back on track.”
It feels like a cheer-worthy development for taxpayers and tax professionals who need to file amended returns. But not all taxpayers who file not-so-flawless returns need to file an amended return. Here’s a quick look at when you should—and shouldn’t—file an amended return.
When Should You File an Amended Return?
If you receive information after filing your original tax return—like a pesky Form 1099-NEC that you forgot about—you may want to file an amended return. That’s especially true if it significantly affects your taxable income—forgetting $10 may not be a big deal, but not including $10,000 could be. Keep in mind that changes to your taxable income can also affect your deductions and credits.
Other reasons to file an amended return include changes to your filing status (for example, you filed as head of household when you did not qualify) or dependents (you claimed a child when the child was not properly your dependent).
Of course, it’s not all gloom and doom; sometimes an amended return goes your way. You’ll want to file, for example, if you forget to claim certain deductions and credits to which you were entitled.
When Shouldn’t You File an Amended Return?
If you made a simple error—like a math error—the IRS will fix it for you. You don’t need to file an amended return. Ditto if you forgot to attach forms to your return. In that case, the IRS will send you a letter asking for the information—if they need it.
You should not file an amended return if you receive certain notices from the IRS—like a CP2000. Instead, follow the instructions on the notice. Those instructions typically ask for specific information or documentation.
If the IRS files a substitute return for you because you did not file a timely tax return, you should not file an amended return. However, you don’t want to simply accept the return either since the IRS will use the documentation it has on hand—typically, Forms W-2 and 1099—to prepare your return and won’t include items like medical expenses or freelance-related deductions that would lower your tax bill. In that event, it typically makes sense to file your own Form 1040 to replace the substitute return.
If the deadline for filing your return has not yet passed, consider filing a superseding return instead. If you file a second return after the tax filing deadline, it’s considered an amended return. But if you file a second return before the filing deadline, the second return “supersedes” the first return, and it’s treated like the originally filed return. And while previously, you could not file a superseding return electronically, now you can. As part of the latest round of changes, a new electronic checkbox has been added for Forms 1040/1040-SR, 1040-NR, and 1040-SS/1040-PR to indicate a superseding return is being filed electronically.
If you’re requesting a refund or abatement of interest, penalties, or additions to tax, you shouldn’t file an amended return—you’ll want to file Form 843. Form 843 is appropriate, for example, when there was an unreasonable error or delay caused by the IRS.
What if You’re on the Fence?
You may not need to file an amended return if you’re seeking a quick tax refund resulting from certain carrybacks like NOLs. You may be able to file Form 1045—which is processed more quickly—instead. However, you must file an amended return instead of Form 1045 to carry back any items related to a Section 965 year and specific issues related to the foreign tax credit. Always check the instructions if you’re not sure.
When making a decision about filing an amended return, you may want to consider the cost. If the return would result in a significant return or if the omission is big, then it may make sense to amend. But if it’s a minor error—that $10 in interest you forgot to report, for example—the cost to amend may not make good financial sense. If you’re not sure, talk to your tax professional.
You also want to balance your level of comfort against the potential risk. I’ve had clients suggest that they’ll wait and see if the IRS catches the error. There’s a lot to consider here, from the size and nature of the omission or error to the potential for a full examination or audit. Maybe the taxpayer doesn’t want to pony up $1,000 to amend a return, but I can assure you that representation at audit is much more expensive. Additionally, an omission of certain income or an overstatement of specific deductions—think Schedule C, for example—may tip an auditor to investigate prior years.
Is the IRS Required to Accept Your Amended Return?
I’ll bet you assume that the IRS is required to accept your amended return. After all, the forms appear on the IRS website, and we know that the agency accepts millions of them every year. But, if you go to the Tax Code, you won’t find any mention of amended returns. (Go ahead, do a search—you know you want to).
That’s because amended returns are an administrative creature. In Klinghamer v. Brodrick, the taxpayer challenged a judgment, claiming he had the right to file an amended return. But, the court noted, “there is no statute or general regulation having the effect of law which vests in a taxpayer the right to file an amended return after the time for the filing of the original return has expired.” However, it’s been the general practice of the IRS to recognize amended returns filed after the due date to correct clear errors or plain mistakes in original returns.
When Do You Need to File?
You normally need to file your amended return within three years from the date you filed your original return or two years from the date you paid any tax due, whichever is later. And, if you filed your original return before the due date, it’s considered filed on the due date.
Some special due date rules apply in certain situations—like those related to bad debts and net operating losses, so always check the instructions.
How Can You Check on Your Amended Return?
You can check the status of some amended returns using the “Where’s My Amended Return?” tool on the IRS website or by calling the automated IRS refund line at 1-866-464-2050.
You’ll want to be patient. You’d think that filing electronically ought to speed up the process, right? Not quite. While it’s true that filing by paper usually extends the time to process returns, according to the IRS, the normal processing time of up to 16 weeks currently also applies to electronically filed amended returns.
This is a regular column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl.