|Fixing tax return errors
Suppose you discover a mistake or omission of an item on the 2007 federal tax return you recently filed. Should you ignore the error? Although it can depend on the nature and significance of the item, the answer is generally “no.” But the matter may be resolved by filing an amended 2007 return.
Clearly, you should file an amended return right away if you’ve paid less tax than the amount you actually owe for 2007. If the IRS eventually detects the mistake, it can require you to pay the difference in tax liability plus substantial interest and penalties. As a general rule, the IRS has three years in which to audit a return, but the statute of limitations is extended to six years if you underreport income by more than 25 percent. And there’s no time limit if fraud is involved.
When a change works in your favor, consider all the ramifications. If you stand to receive only a few extra dollars back, it’s probably not worth the effort. This also gives the IRS another chance to scrutinize your return. On the other hand, if you expect a sizable refund in return, it usually makes sense to pursue this action.
One of the common reasons for amending a return is to change your tax filing status or dependency exemptions. For instance, there could be some confusion over claiming exemptions for children following a divorce. Similarly, you may have overlooked special deductions or credits available on 2007 returns.
David J. Fisher is a Certified Public Accountant (CPA) licensed in 1986 by the State of California. He started his own firm in Rohnert Park in 1998. He can be contacted at 588-9700.