How Far Back Should You Amend Taxes After Finding Mistakes?

How Far Back Should You Amend Taxes After Finding Mistakes?

How Far Back Can You Amend Taxes 

No matter how hard most people try, mistakes will occur in their tax return filings. In fact, the IRS does not require taxpayers to submit perfect tax returns but rather returns that are correct and accurate. In other words, if a taxpayer does their best to reasonably prepare and submit a tax return to the IRS then unless there are some glaring errors, oftentimes the return will be accepted and life will go on. If the IRS finds any mistakes they would typically just let the taxpayer know by way of one of various different CP notices or letters and the taxpayer can either accept the changes or dispute them. But if a taxpayer goes through their tax returns and finds more serious errors such as missed income and unreported international reporting and foreign accounts compliance forms, this situation is a bit different because there can be significant fines and penalties if the IRS discovers the mistakes. The question then becomes how far back should taxpayers amend their returns after finding a mistake. Let’s take a look at a few important factors to consider when considering how far back to amend returns.

Omission or Misrepresentation

It is important to note, that a mistake may be either an omission or misrepresentation in the tax return. For example, if the taxpayer misrepresented their income — so possibly they reported $2000 worth of income instead of $20,000 of income — that would be a misrepresentation type of mistake. Conversely, if the taxpayer had $20,000 of unreported income that they only realized wasn’t included in a subsequent year (possibly because they never received a 1099 or K-1) then that too would be considered a mistake that may warrant filing an amended return.

Is the Statute of Limitations 3-Years or 6-Years?

Presuming that there are no criminal or civil tax fraud issues, then typically the statute of limitations will close in either three years or six years after the return is filed. Therefore, most of the time taxpayers do not go back more than three years — and sometimes six years — unless they may have committed a civil tax fraud and have many years of returns that they are looking to amend and get into compliance. Noting, civil tax fraud would not qualify for reasonable cause or any of the non-willful programs and taxpayers would want to consider a voluntary disclosure.

Extended Statute for International Income

When a person has a significant amount of income that was undisclosed from certain foreign accounts and assets come with the IRS has additional time to go after the taxpayer for an audit, examination, penalties, etc. Therefore, if the taxpayer missed certain foreign income, they may want to consider amending their returns for three years or more depending on the value of the unreported income.

Open SOL for International Reporting

If a person fails to report certain foreign accounts and assets on the required IRS international information reporting forms, the IRS reserves the right to keep the tax return open beyond the ordinary statute of limitations timeframe. This could lead the taxpayer to an audit in future years that would not have occurred had they properly filed their international forms. Therefore, taxpayers with missed international reporting forms will want to assess how many years they missed the reporting, if they have a continuing reporting requirement in the current year, so they can determine how far back they may want to go to amend returns that had the mistakes in them.

Quiet Disclosures are Dangerous

Some taxpayers who find mistakes in their tax returns are (understandably) concerned about the fines and penalties that may result, especially in the realm of international tax and compliance and/or listed transactions. Some taxpayers may even consider simply filing forward or fixing past returns without properly getting into compliance under one of the approved amnesty programs. The IRS may deem this to be a quiet disclosure which could lead to more significant fines and penalties so taxpayers will want to speak with a Board-Certified Tax Law Specialist before considering this type of strategy.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.