Despite all your best efforts—and those of your tax professional if you use one, your original tax return may not be the final word on tax liability for the year. Things happen and you may want or need to file an amended return. There’s considerable uncertainty about aspects of amended returns. Here are some questions and answers to help settle matters.
1. What’s the difference between an amended return and a superseding return?
A second return for the same year may be a superseding return or an amended return. A superseding return is a return filed after the original return has been filed but is also filed within the filing period (including extensions). There’s actually a checkbox to indicate a superseding return when filing electronically, but there’s no checkbox on a paper return.
In contrast, an amended return is filed after the original or superseding return and after the expiration period (including extensions). Use the correct form when amending a return:
- For amending Form 1040 or 1040-SR for owners of pass-through entities, use Form 1040-X
- For amending Form 1065 for partnerships and multi-owner limited liability companies, use Form 1065-X if not filing electronically or are making an Administrative Adjustment Request (AAR). If you are filing electronically and it’s not an AAR, complete Form 1065 and check box G(5) to indicate that you are filing an amended return. Attach a statement that identifies the line number of each amended item, the corrected amount or other treatment of the item, and an explanation of the reason(s) for each change.
- For amending Form 1120 for C corporations, use Form 1120-X
- Form 1120-S for S corporations: Form 1120-S and check box H(4) on page 1. Attach a statement that identifies the line number of each amended item, the corrected amount or treatment of the item, and an explanation of the reasons for each change.
2. Will an amended return trigger an audit?
There are no statistics or reports showing whether the filing of an amended return raises the risk of being audited. Most tax professionals say there is no reason to believe there’s an increased audit risk. As with filing an original return, just be sure to retain all documentation supporting positions taken on the amended return.
Caution: Some “employee retention credit mills” urge business owners to file amended employment tax returns to claim a COVID-19-related tax credit even where the businesses likely don’t qualify. The IRS has warned business owners to beware and expect the IRS to look closely at amended returns claiming this credit.
3. How much time do I have to file an amended return?
There are strict time limits for filing an amended return. Once the time has lapsed, the claim on an amended can’t be addressed, even if it is legitimate had it been filed on time. The general rule for seeking a credit or refund by an owner of a pass-through entity is 3 years (including extensions) after the date the original return was or within 2 years after the date the tax was paid, whichever is later. The same time periods apply to amended corporate returns on Form 1120-X.
There are other time periods for filing amended returns in special situations:
- 7 years for claiming a bad debt or worthless security
- 10 years for claiming a foreign tax credit
Also watch for law changes, which may include the opportunity to file amended returns outside the usual time frame. For example, when the pandemic hit, the carryback period for net operating losses arising in 2018, 2019, and 2020 was extended to 5 years and the IRS provided guidance on the extended periods for filing.
4. Does the amended return have to be filed electronically?
If you e-filed an original return and need to file an amended or superseding return, you must also e-file that return. For owners of pass-through entities who filed their 1040s on paper, amended returns must also be filed on paper.
5. Should I file an amended return or not?
As with any business decision, there should be a cost-benefit analysis. If you believe you’re owed a tax refund but that amount is less than the fee you’d pay your tax professional to prepare an amended return, it probably doesn’t make sense to proceed. On the other hand, if you’ve omitted income or claimed write-offs you shouldn’t, filing an amended return will minimize interest and penalties you face if the IRS finds the error. And you’ll sleep better at night.
And if you have a disaster loss that isn’t covered by insurance, you can opt to claim the loss on the return for the year prior to the year of the disaster. If you’ve already filed the return for the prior year, then file an amended return to take the write-off and get a tax refund.
If you have other questions or concerns about a return you’ve already filed, be sure to discuss the matter with a tax professional. And watch the clock!