A friend filed electronically this month, and then a few days later got an amended 1099-B from his broker. When he ran the numbers, he saw that filing his tax would have him getting a larger refund by about $40. In other words, by _not_ amending his return, he's paying about $40 more in tax than the law requires.
Is he in fact obliged to file an amended return in such a situation, or can he say "the pain of printing and mailing paper returns isn't worth $40 to me"? My understanding is that understating your income or overstating your deductions is illegal, but the other way around is not.
And if he's legally allowed to skip the amended return, is the amount a factor? Suppose it was $4000 instead of $40? (As a practical matter, I don't know anyone who would forgo an extra $4000, but I'm curious about what the law says.)
You are never required to amend your return, even if it leads to increased tax due. (That doesn't mean the IRS might not correct your return and charge you both interest and penalties if you don't). I'm not sure I understand the "pain of printing and mailing paper returns" when Form 1040X can be e-filed. But, the decison is his.
Maybe a better way of asking this is, is a person legally required to take all required deductions and incomes deductions to which he/she is entitled?
For example, can a taxpayer elect to itemize deductions and take zero deductions, even though the standard deduction would clearly be more beneficial? Or can a taxpayer legally declare zero dependents, even if the truth is that he/she has one or more dependents? Can a taxpayer legally elect not to take advantage of credits like the child care credit?
As Stan said, I have no idea why anyone would choose to do this, other than perhaps to make some kind of statement about the tax system or perhaps to try in a small way to reduce the national debt.
Thanks, Ira. I guess by "Form 1040X can be e-filed" you mean that the IRS is set up to accept 1040X electronically. I'm not sure which software he uses, other than that it's PC-based and not Web-based, but he says it won't do amended returns. He's pretty computer savvy, so I doubt he would have missed that opportunity in his software if it exists.
Anyway, thanks for confirming that the option is his, and no legal penalties are to be feared.
Not to beat this to death, but I was looking for citations, and this is the best I could do on short notice. Interesting that, though the taxpayer is not required to amend, the practitioner must advise him or her that he or she should amend.
"The Supreme Court held that, despite these and other references to amended returns in the Treasury regulations, "[n]one of these provisions, however, requires the filing of [an amended return]" (Badaracco, at 397). Similarly, the Tax Court held that taxpayers are not required by statute to file an amended return when an originally filed tax return is discovered to be incorrect and that the failure to file an amended return in this context does not, by itself, establish an intent to evade tax (Broadhead, T.C. Memo.
1955-328).
CIRCULAR 230 AND SSTS CONCERNS
While taxpayers are not required, by statute or otherwise, to file amended returns to correct errors or omissions, tax practitioners are held to a higher, albeit different, standard. Practitioners authorized to practice and represent taxpayers before the IRS are bound by Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10). Section 10.21 of Circular 230 requires any practitioner who knows or discovers that a client has not complied with the federal tax laws or that a client has made an error or omission on any return, document, affidavit, or other paper submitted or executed under the federal tax laws must advise the client promptly of the noncompliance, error, or omission and its consequences. However, nothing in Circular 230 requires correction of the noncompliance, error, or omission or disengagement when the client refuses to make the correction. Ultimately, the option to correct is at the client's discretion."
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