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harha
Level 2

Submitting 1040X Amended Tax Returns after Statute of Limitations has ran out for the purpose of paying off some missing extra income... How does it work? And can the Amended Returns still be Audited?

Hello,

 

I am in the process of submitting two 1040X Amended Tax Returns where I forgot to include some extra income from the years 2017 and 2018.  They have just been mailed in along with the checks for the tax amount owed.  My question is, particularly for the year 2017 (since that tax year's Statute of Limitations ran out back in April/May of this year), is that once this 2017 Amended Tax Return has been accepted, will they still accept the check/payment?  Will they still process the 2017 1040X Amended Tax Return forms?  And if so, can they still back go back and Audit the same 2017 Amended Tax Return if they want to- even after its Statute of Limitations has ran out a few months ago?   I heard that once Statute of Limitations has ran out, that they cannot Audit the Return (unless the missing income reported on the Return was 25% or greater of the Amended Tax Year's previous total reported income, which it most definitely was not), though they will still accept the payment (though one person told me that they won't even do that and will send the check back to me.  That sounds fishy however and has not been the normal reply I've gotten).   I've also been told that submitting Amended Tax Returns does NOT restart or extend the Statute of Limitations period.  But I'm not really 100% sure on any of this, and am kind of confused as to how this type of situation could play out.

 

And same question for 2018- given the huge backlog the IRS is dealing with in regards to Amended Tax Returns, and just people's taxes in general- I've been told that the IRS is about 6 months behind on processing Amended Tax Returns right now, which means by the time they get around to my 2018 Amended Tax Return, tax season (and thus the Statute of Limitations for the tax year of 2018) in the year 2022 may well and truly be ran out, and, assuming they get around to the 2018 Amended Tax Return too late, will end up in the same situation in regards to the Statute of Limitations scenario as written above.  

 

Basically, how does the IRS approach Amended Tax Returns with payments owed by the taxpayer once the Statute of Limitations runs out in regards to processing the 1040X Amended Tax Return, processing the check payment/potential penalties and interest, and potential future Audits, if any (assuming the rare criteria has not been met to extend the Audit period for up to 6 years)?

 

Thank you.

 

 

4 Replies
macuser_22
Level 15

Submitting 1040X Amended Tax Returns after Statute of Limitations has ran out for the purpose of paying off some missing extra income... How does it work? And can the Amended Returns still be Audited?

You mis-understand the 3 year statute of limitations - it applies to claiming additional *refunds* for 2017.    If you owe, there is no statute of limitations and the IRS can audit up to 7 years *after* the return is filed.    If they suspect fraud they can go back forever.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
harha
Level 2

Submitting 1040X Amended Tax Returns after Statute of Limitations has ran out for the purpose of paying off some missing extra income... How does it work? And can the Amended Returns still be Audited?

Not true.  The problem is, is that it seems as if you are acting as if I never submitted a tax return for 2017, in which case what you said above would be absolutely true.  However, I did submit a 2017 tax return on time during the proper tax season, in which case Statute of Limitations had indeed started and ran out for 2017 back in April/May of this year- I just missed (a small bit of) extra income which I am in the process of paying back. 

 

See here....

https://taxattorneyoc.com/blog/2018/12/24/does-filing-an-amended-tax-return-extend-the-irs-statute-o...

 

"Does an Amended Tax Return Extend the IRS Statute of Limitations?

 

In general, no. The ordinary IRS statute of limitations for the IRS to complete its audit and assess additional taxes is not changed by the filing of an amended return. (See further below for refund limitations.) That means that, if the original return was subject to a 3-year statute of limitations, then the time for the IRS to audit and assess additional tax still ends 3-years from the date of the filing of the original return or the ordinary April 15 due date, whichever was later. However, if the original return was subject to an exception to the ordinary 3-year time period, that exception would still apply even if the amended return corrects the issue. For example, if the original return is found to be fraudulent, an amended return correcting the misstatements does not reinstate the 3-year period in place of the indefinite period applicable to the civil fraud penalty. A minor exception is found in 26 U.S.C. Section 6501(c)(7), which extends the IRS statute of limitations just 60 days from the filing of an amended return for the IRS to assess the additional income tax on the amended return, if the amended return was filed within the statutory period but less than 60 days left."

  

Or here....

https://www.taxaudit.com/tax-audit-blog/how-long-does-the-irs-have-to-audit-an-amended-return

 

"Mistakes happen, and the IRS is aware of this. When a taxpayer makes an effort to file an honest and accurate return but still makes a mistake, the taxpayer can correct the mistake by filing an amended return. The time the IRS has to audit a filed tax return is called the statute of limitations. Generally, amending an already filed tax return will not extend the time the IRS has to audit the return, which is normally three years from the date the return was originally filed or due, whichever was later. Now, if you prepare and submit an amended return to the IRS within sixty days of the statute of limitations expiring and the amended return shows you owe additional tax, the IRS will have an additional sixty days starting on the day after the amended return was submitted to audit the return."

 

Or here....

https://www.americanbar.org/groups/business_law/publications/blt/2017/08/06_wood/

 

"If you can point to the statute of limitations to head off the trouble and expense of a tax audit, you should. It is not pleasant to have to prove you were entitled to a deduction or to find and produce receipts. If it is too late for the IRS to audit you, the IRS is out of luck.

 

1. The IRS Typically Has Three Years. The overarching federal tax statute of limitations runs three years after you file your tax return. If your tax return is due April 15, but you file early, the statute runs exactly three years after the due date, not the filing date. If you get an extension to October 15, your three years runs from then. On the other hand, if you file late and do not have an extension, the statute runs three years following your actual (late) filing date. There are many exceptions discussed below that give the IRS six years or longer, however."

rjs
Level 15
Level 15

Submitting 1040X Amended Tax Returns after Statute of Limitations has ran out for the purpose of paying off some missing extra income... How does it work? And can the Amended Returns still be Audited?

@harha 

 

You are ignoring "In general," "Generally," "normally," "Typically," etc.


What you missed is that the IRS can audit a tax return for 3 years after the filing date or the due date, whichever is later, or 2 years after the tax is paid. Since you just made the final tax payment now, they have another 2 years to audit the returns. The amended return does not extend the statute of limitations for an audit, but paying the tax does extend it.


The 3-year statute of limitations applies to amended returns that claim a refund. If the amended return shows a payment due you can file it anytime, and the IRS will accept the payment and process the amended return.


The IRS processing backlog doesn't matter. Your 2018 amended return is considered filed on the date they receive it, even if they don't get around to processing it until several months later. So it is within the 3-year limit. But again, there is no limit on how late you can file an amended return with a payment due, so the 3-year limit doesn't really matter.

 

harha
Level 2

Submitting 1040X Amended Tax Returns after Statute of Limitations has ran out for the purpose of paying off some missing extra income... How does it work? And can the Amended Returns still be Audited?

Ok, this seems a little more in line with what I was looking for.  Thank you.

 

I am curious myself however, so I did do some deeper digging on my own and stumbled upon the IRS manual, and found this bit right here in regards to my situation...

 

https://www.taxnotes.com/research/federal/internal-revenue-manual/25.6.1

 

"

(7) If the ASED has expired and the amended return is received showing a tax increase or credit decrease;

  1. After the ASED, do not assess additional tax. Stamp the amended return Form 1040-X, 1120-X, etc., "Statute Expired" and input a TC 290 for a zero amount using the appropriate blocking series for the amended return. This is not a barred case for which a barred statute report is required. You must send the taxpayer Letter 2765C, Assessment Statute Expiration Date (ASED) Expired, stating that the amended return cannot be processed because the statute period for assessment has expired.

  2. With remittance after the ASED, do not assess the additional tax. Stamp the amended return Form 1040-X, 1120-X, etc., "Statute Expired" and input a TC 290 for zero amount to allow the payment to refund back to the taxpayer. "Do not send the payment to Excess Collection File". You must send the taxpayer Letter 2765C, Assessment Statute Expiration Date (ASED) Expired, stating that the amended return cannot be processed because the statute period for assessment has expired and the payment is being refunded to the taxpayer."

So if I am reading this right, they may stamp my 2017 1040X Amendment as "Statute Expired" then refund my check payment and send me a "Letter 2765C, Assessment Statute Expiration Date (ASED) Expired" notice to notify me of their inability to process the Amended Return and accept my payment.  Someone else I asked about this situation told me pretty much the same thing, that they will reject my Amendment and return/refund my check payment, but I found it hard to believe, it looks like it may be true though, assuming I'm reading this correctly.   

 

To be honest, there's so many conflicting answers on this.  No one seems to know absolutely how this situation works.

 

EDIT:  Just did a bit more research and found this here as well...

 

https://www.socialgrep.com/search?query=001r%2CIf%2Cthey%2Creceive%2Cyour%2Cpayment%2Cwill%2Csend%2C....

 

[after clicking the link, click on the header "Comments"- it appears to be an archived post from Reddit]....

 

"Seriously, don't waste your time or the IRS's time.

If you filed your 2017 return on time (by April 15, 2018) and did not under-report your income by more than 25%, the Assessment Statute Expiration Date (ASED) has passed. If they receive your payment, they will send Letter 2765C and return any payment you made.

Your state statute of limitations will vary by state.

And nobody cares about the $20 understatement on your 2018 return.

See IRM 25.6.1.9.9.1:
https://www.irs.gov/irm/part25/irm_25-006-001r

>(7)If the ASED has expired and the amended return is received showing a tax increase or credit decrease;

>a. After the ASED, do not assess additional tax. Stamp the amended return Form 1040-X, 1120-X, etc., "Statute Expired" and input a TC 290 for a zero amount using the appropriate blocking series for the amended return. This is not a barred case for which a barred statute report is required. You must send the taxpayer Letter 2765C, Assessment Statute Expiration Date (ASED) Expired, stating that the amended return cannot be processed because the statute period for assessment has expired.

>b. With remittance after the ASED, do not assess the additional tax. Stamp the amended return Form 1040-X, 1120-X, etc., "Statute Expired" and input a TC 290 for zero amount to allow the payment to refund back to the taxpayer. "Do not send the payment to Excess Collection File" . You must send the taxpayer Letter 2765C, Assessment Statute Expiration Date (ASED) Expired, stating that the amended return cannot be processed because the statute period for assessment has expired and the payment is being refunded to the taxpayer."

 

So just curious if anybody here has any experiences involving Statute expired tax returns showing an increase in tax being rejected and refunded to the taxpayer?  Thanks....

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