It is estimated that five million amended income tax returns are filed with the IRS annually. There are various circumstances why an amended Federal income tax return is filed by an individual taxpayer including:
• To correct an error discovered after filing
• Receipt of a corrected 1099 form, often from brokerage firms
• Receipt of a third-party document such as a K-1 or 1099 form after filing
• Receipt of an amended K-1 from a trust, estate, partnership or S corporation
• To carryback credits in certain situations
• To change one’s filing status – note that one cannot change from married joint to married separate after the due date.
There are circumstances where a Federal amended tax return also leads to the filing of amended state income tax returns. On the other hand, sometimes an amended state income tax return will be filed without the filing of an amended Federal income tax return. Case in point is where a nonresident personal income tax return is audited resulting in an increase in the nonresident tax liability. This often leads to a refund opportunity via the filing of an amended state income tax return for the resident state via claiming an increase in the credit for taxes paid to other jurisdictions.
The general time period for filing an amended income tax return is three years. If the original income tax return was filed prior to April 15 it is deemed filed on April 15. If the original income tax return was filed on extension, the three-year period is measured from the actual filing date. These rules apply not only for Federal purposes but for both New Jersey and New York. To illustrate, if an individual filed their 2022 personal income tax returns without going on extension, those income tax returns are deemed filed April 15, 2023. Thus, the three-year period has just expired. This not only applies to refunds but to tax deficiencies.
The IRS as well as the states have six years to conduct an audit if it is determined that there was an omission of gross income exceeding 25% of the reported gross income. For example, a taxpayer reports $400,000 of gross income. If it determined that there was an omission of income exceeding $100,000 then the statute of limitations becomes six years. Taxpayers cannot use this longer period to file amended tax returns.
