Link to special CCH Tax Briefings on key topics from 2003:
 

• Year-End Tax Legislation Update (Dec. 10)
• Corporate Income Tax and 'Bonus' Depreciation
  (Dec. 4)
• Military Family Tax Relief Act (Nov. 11)
• Jobs and Growth Tax Relief Reconciliation Act of 2003 (May 28)

CCH can assist you with stories, including interviews with CCH subject experts. Also, the CCH Whole Ball of Tax 2004 is available in print. Please contact:
 
Leslie Bonacum
(847) 267-7153
mediahelp@cch.com
 
Neil Allen
(847) 267-2179
allenn@cch.com

Amended Returns Offer Taxpayers a Second Chance

(RIVERWOODS, ILL., January 2004) – Some things are better the second time around, and that can be true of taxes if a change in the law or an overlooked deduction can put cash in your pocket. Even if you’ve filed your return, or already spent last year’s refund, all may not be lost, according to CCH INCORPORATED (CCH), a leading provider of tax law information and software. You can usually put things right again by filling out and filing an amended return on Form 1040X. Even if a change to your return costs you, paying a few dollars of extra tax voluntarily with an amended return is preferable to having the IRS on your tail.

Amended returns not only correct mistakes but can open up previous years’ taxes for adjustment, according to John W. Roth, JD, federal tax analyst for CCH.

"An amended return is the taxpayer’s way to correct an error, add something that’s been left out, change a previous return to reflect a loss or change a choice that the taxpayer made on a return. If the change is in the taxpayer’s favor, the amended return also acts as a request for a refund," Roth said.

Some mistakes and omissions don’t require you to file an amended return, however. The IRS will usually correct any math errors and either send you a refund or a bill for any resulting difference in your tax. If you forgot to attach a form or schedule, the IRS will ask you for additional information.

Amended Returns Undo Mistakes

A forgotten deduction or piece of income is one of the most common reasons for filing Form 1040X, but an amended return also can be used to clear up a tax picture that wasn’t previously certain. Suppose you’re filling out your Form 1040 in January. You figure that if you make a $2,000 IRA contribution by April 15, you will get a hefty tax refund – but until you get the refund, you won’t be able to make the contribution. You speedily file your return, but by the time your refund check arrives, you have unexpected medical expenses and won’t be able to afford the full IRA contribution. Filing an amended return before April 15 will undo the transaction. Sometimes, too, it may take a while to determine that a stock actually became worthless – or a debt became uncollectable – in a previous tax year. These also are situations that can be addressed through amended returns.

Use Amended Returns to Make, Change Elections

Amended returns are also a common way of making or changing a tax election – a choice of tax treatment. Dozens of elections are available relating to business, farming, foreign income, residency status and other special situations.

For example, if one spouse is a nonresident alien, a couple normally cannot file jointly, but they can elect that status for a year in which the spouse becomes a U.S. resident. If they do not do so on their original return, they can do so on an amended return.

"Taxpayers will have to do some research or consult a qualified tax advisor to learn how long they have to make or change an election by filing an amended return," Roth noted. "Sometimes they have up to three years from the original due date of the return, sometimes up to the original due date plus extensions, sometimes only up to the due date without extensions."

Retroactive Tax Breaks Lead to Amended Returns

Some people have a special reason to file amended returns because of the Military Family Tax Relief Act, signed into law last November, which changed some tax laws retroactively, according to Roth.

"The military death benefits for deaths occurring after September 10, 2001, are now totally tax-free. Survivors who received benefits in 2001 or 2002 would have included half the amount of the benefits in their income and figured their taxes accordingly. Amending their returns for those years allows them to realize the benefit of this change in the law," Roth noted.

The Act also may benefit members of the armed forces who sold their homes after May 6, 1997, and who were unable to take advantage of the special home sale exclusion that became effective on that date.

If they were called to extended duty and as a result couldn’t meet the requirement that they owned and used their principal residence for at least two years out of the five-year period leading up to the sale, they may be able to amend their return, excluding any time on qualified extended duty in figuring their entitlement to the exclusion. The scope of the law is unusual in that it "opens up" tax years prior to 2000, which is beyond the normal three-year limitation.

"It’s not likely that this new provision will affect a great number of people," Roth said, "but Congress felt that it was wrong to make people lose a valuable tax benefit as a result of military service and that it had been wrong from the time the exclusion was first written into law. This is a chance to undo any harm that has been caused. However, those amending returns that would normally be closed by the three-year limit only have until November 11, 2004, to take advantage of it."

Changing Filing Status

Amended returns are often required when a couple has their marriage annulled. Unlike a divorce decree, an annulment looks backward and undoes a marriage from its beginning. Since unmarried couples don’t qualify for joint filing status, any joint returns filed for prior tax years have to be "undone" by the filing of amended returns as single filers.

"This is a rare circumstance in which people who have filed a joint return can change their filing status," Roth said. "Normally, after a joint return has been filed, the filing status can’t be changed – for example, to married filing separately – unless the amended returns are filed before the due date for that year."

If a couple has filed jointly but wants to change to married filing separately and the filing deadline hasn’t passed, the two spouses must take two different paths. The spouse whose Social Security number appears first on Form 1040 files a Form 1040X. The other spouse files a new Form 1040.

Amended Returns for Losses

Amended returns can also come into play if casualty losses occur in an area determined by the President of the United States to be a "disaster area." In this case, a property owner can elect his or her losses in the year immediately before the tax year when the disaster occurs. This allows some taxpayers who suffered losses in 2003, for example, to get some quick relief by applying the loss to their already-paid 2002 tax bill and getting a refund check.

By contrast, taxpayers with 2003 casualty losses outside of presidentially designated disaster areas have to wait until they file their 2003 returns to see any tax relief as a result of their losses. Business losses can also give rise to amended returns. A net operating loss can be carried back to the previous two tax years, and carried forward to be applied against income in the succeeding 20 years. Carrying the loss back can produce a refund.

"If you carry back a loss, you also have to recompute any deduction you took that was tied to adjusted gross income, such as the deduction for medical expenses," Roth observed.

Amended Returns Not Electronic

While an amended return allows you to bring your tax status up to date, the actual process of filing takes you back to an earlier era of IRS processing and service. Form 1040X is one of the few that can’t be filed electronically. Your tax software may allow you to fill out and print the form, but you’ll have to send a paper copy to the IRS. It can take the IRS 12 weeks to process the form, and don’t bother calling the automated tax line for a quick check on the progress. You must call the live-answer, 1-800-829-1040, instead. If you’re due a refund, look for your check in the mail. Electronic deposit is not available when you file an amended return.

"There’s certainly a benefit to getting things right the first time around, but it can be worth the wait when an amended return puts money back in your pocket," Roth noted.

About CCH INCORPORATED

CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served more than four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, accounting, legal, securities and small business markets. CCH is a Wolters Kluwer company. The CCH Federal and State Tax group, CCH Tax Compliance and Aspen Publishers Tax and Accounting group comprise the new Wolters Kluwer Tax and Accounting unit. The unit’s web site can be accessed at tax.cchgroup.com.

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