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Do you have a legal obligation to file an amended income tax return?

Posted by Brandon Keim | Nov 18, 2018 | 0 Comments

You've recently discovered an error on your income tax return. Do you have a duty to notify the IRS? Generally, no, you have no legal obligation file an amended income tax return, but in some circumstances, it may be beneficial to file an amended income tax return. However, taxpayers should carefully consider whether to file an amended income tax return, and if they decide to file one, they should time the filing carefully.

What is your duty to file an income tax return?

Every individual, with some exceptions, is required to file an income tax return each year. Section 6001 of the Internal Revenue Code requires every person liable for tax to make a return and comply with the rules and regulations issued by the IRS. Section 6011 of the Tax Code requires every person liable for tax imposed by title 26 to make a return according to the forms and regulations prescribed by the IRS. Anyone that willfully fails to file an income tax return is guilty of a misdemeanor and may be fined up to $25,000 ($100,000 in the case of a corporation) and imprisoned for up to one year. I.R.C. § 7203.

Income tax returns are required to be filed under penalties of perjury. Section 6065 of the Tax Code and Treasury Regulation § 1.6065-1(a) require any return made under any provision of the internal revenue laws or regulations to contain or be verified by a written declaration that it is made under penalties of perjury. If a taxpayer fails to comply with section 6065 by submitting a return without the executed penalties of perjury statement, that return is a nullity. Lucas v. Pilliod Lumber Co., 281 U.S. 245 (1930).  For example, in Hettig v. United States, 845 F.2d 794 (8th Cir. 1988), the Eighth Circuit found that the taxpayer's return was a nullity because striking the words “under penalties of perjury” negated the penalties of perjury statement.

Any person that willfully files a return under penalties of perjury and does not believe it to be true and correct as to every material matter is guilty of a felony, and may be fined up to $100,000 ($500,000 in the case of a corporation) and imprisoned for up to 3 years. I.R.C. § 7206.

What are your options if you learn of a mistake on your income tax return?

If you filed an income tax return and believed it to be true and correct when originally filed, you have no obligation to file an amended income tax return. There is no statute or caselaw that requires you to notify the IRS of your error. Indeed, the concept of an amended income tax return is not recognized in the Tax Code—taxpayers have no obligation to file them, and the IRS has no obligation to accept them. The Supreme Court, in Badaracco v. Commissioner, 464 U.S. 386 (1984), noted that amended returns are "a creature of administrative origin and grace." Indeed, even if you did not believe your return to be true and correct when you originally filed it, you still have no duty to file an amended income tax return, and filing one will not help you undo criminal exposure from your previously filed return. See Badaracco, 464 U.S. at 397.

Treasury Regulation 1.451-1(a), at first blush, appears to provide an obligation to file an amended return:

If a taxpayer ascertains that an item should have been included in gross income in a prior taxable year, he should, if within the period of limitation, file an amended return and pay any additional tax due.

Amended returns are also mentioned in Treasury Regulation §§ 301.6211–1(a), 301.6402–3(a), 1.461–1(a)(3)(i). Section 6213(g)(1) of the Tax Code itself also mentions an amended return. The Supreme Court, however, noted in Badaracco that “none of these provisions, however, requires the filing of such a return.” Accordingly, you have no obligation to file an amended return despite any error that you may find in your original income tax return.

If you have no obligation to file an amended return, should you file one?

Although you have no obligation to file an amended return, there are several reasons to do so: avoiding criminal prosecution, avoiding accuracy-related penalties. The IRS has a policy of encouraging voluntary disclosure. Although voluntary disclosure creates no substantive or procedural rights for taxpayers, taxpayers may avoid criminal prosecution and penalties. A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended. If the error discovered on the return is material, taxpayers should discuss the potential benefits and hazards of filing an amended return with a tax controversy attorney. A taxpayer that is already under audit or part of a criminal investigation should generally avoid filing an amended income tax return since it is considered an admission of the taxpayer, and it may be used as evidence to convict a taxpayer or uphold an adjustment to taxpayer's tax liabilities.

A taxpayer that decides to file an amended return, reporting additional tax due, should carefully time the amended return. Filing an amended return close to the statute of limitations on assessment may limit a client's exposure because the IRS has special procedures that apply to “imminent assessment statute cases.”

Why is your return preparer telling you that you need to file an amended income tax return?

Although you have no duty to file an amended income tax return, your return preparer will likely tell you that you should.

Circular 230 governs accountants, tax lawyers, return preparers that are authorized to practice and represent taxpayers before the IRS. Circular 230 contains rules that these persons are required to follow to avoid sanctions, which includes disbarment from practice before the IRS.

Circular 230 provides that tax professionals must advise the client promptly of the error and the consequences of the error when they learn that a client has made an error on an income tax return. Many accountants and return preparers believe that this rule requires that they advise clients to file an amended return. That is not the rule. A return preparer must notify the client of the error and the consequences, but they have no duty to require the client to file an amended return. The decision to file an amended return or not file an amended return remains with the client, and the client should be properly advised as to the potential consequences of each course of action.

About the Author

Brandon Keim

A Certified Tax Law Specialist, CPA, partner at Frazer Ryan Goldberg & Arnold LLP, and former Senior IRS Trial Attorney, Brandon Keim holds an LL.M. in Taxation from Georgetown University Law Center.

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