Notice of an IRS audit can be scary, especially if you’ve never been audited before. But there are multiple types of IRS audits, each varying in intensity. However the audit is conducted, it may lead the IRS to ask you whether you're willing to accept its changes to your tax return. When you start to review your tax paperwork, you may wonder if you can simply amend your tax return for that year and resubmit it.
Generally once you are in the process of an audit, you must update your tax return through the audit itself, not by separately filing an amended return
Does Filing an Amended Return During an Audit Make Sense?
Even if you have your return prepared by an experienced tax professional, mistakes happen. On their end, the IRS can catch small things like accounting errors, but there are some things that lead to questions. One area of your tax return might need supporting documentation, for instance, which the IRS can only obtain through either contacting you or scheduling a field audit.
Many taxpayers will simply receive a letter in the mail asking a few clarifying questions – this is known as a correspondence audit. In this case, you’ll merely return the information in the mail, whether it involves copies of receipts or a short letter. In more serious cases, the IRS will either come to your home or call you to a local office, where you’ll go over your tax return with an auditor.
Although audits are designed to prevent deceptive returns, in most cases you were either randomly selected or someone you’ve done business with is being audited. Auditors can go back as far as three years unless there is a substantial error. Even then, though, the IRS likely won’t go back more than six years. The audit process could reveal that your original return had enough errors that you’re interested in submitting an amended return.
At any time after filing your return with the IRS, you can submit an amended return if you're made a mistake on a tax return. You have three years from the time you've filed or two years from the time you paid the taxes on a return, whichever is later, so if you filed an extension, the clock starts then.
If you rush to file an amended return after you’ve been sent a notice of audit, though, chances are you’ll merely confuse the IRS. The auditor likely won’t be watching for a return from you and will proceed to the meeting without considering what you submitted. If it’s a correspondence audit, the IRS will simply want the documentation it requested, so sending an amended return could also lead to confusion.
When you are audited, you are given two choices: agree or disagree with the findings. If you agree, you sign and pay the taxes. If you disagree, you start an appeal process. The only reason for filing an amended return at that point would be if you discovered that taxes you filed in the previous or following year had a similar error. If you do choose to amend a return that wasn’t part of the audit, you’ll need Form 1040X, Amended US Individual Income Tax Return.
Audit Disputes and Changes After Your Audit
If you agree with the results of your audit, there will be nothing more to do. You’ll simply sign any documentation and remit the payment you owe, then move on with your life. But if you disagree, you’ll need to state that at the conclusion of the audit and file an appeal. The IRS also offers mediation to allow someone to take a look at the findings and make a decision based on the facts.
One reason you might consider amending your return is if you discover information after agreeing to the audit findings. In that case, though, an amended return isn’t the appropriate next step. Instead, the IRS will direct you to file an audit reconsideration request. This allows you to present the new information you’ve found in the hopes that the IRS will adjust its audit findings as a result.
2018 Tax Law Changes
Tax law changes in 2018 don't affect the IRS's audit procedure, but they do change what tax brackets, standard deductions and opportunities to itemize deductions available to you when you file. Make sure you understand the tax laws in effect when you file so you're less likely to have a mistake that triggers an audit or forces you to file an amended return.
The 2017 Tax Law
Under 2017 tax law, standard deductions are smaller and marginal tax rates are generally higher than for years on or after 2018. Remember that if you update your tax filings as the result of an audit or amended return, you generally still need to follow the rules for the tax year in question, even if laws have subsequently changed.
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