You made a mistake on your tax return. Now what?

Maybe it was a simple mistake: you made a typo or a math error or forgot to report some income. What happens now? Will you get audited? Learn more.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print

The April 18th tax filing deadline is behind us. Your taxes are filed and now you're sitting back waiting for that refund check to hit your account—or trying not to think about that big check you had to write. Then you realize you messed up.

Maybe it was a simple mistake: you made a typo or a math error or forgot to report some income. Maybe you receive a corrected 1099 in the mail after filing your return. Either way, the tax return you just filed is wrong. What happens now? Will you get audited?

If the error relates to a form such as a W-2 or 1099, you will probably receive a Notice CP2000. This means that the income reported to the IRS does not match the information you reported on your tax return. The IRS will generally recalculate the amount of tax you owe and send you a bill for the difference.

Before you pay the bill, make sure the IRS recalculation is correct. Perhaps the difference relates to a stock sale and the IRS has recalculated your tax liability assuming the proceeds of the sale were 100% capital gains. Your basis in the security is not always reported to the IRS and they won't ask whether you sold the stock at a gain or loss.

If you did make a mistake, but the IRS calculation is incorrect, you will need to amend your return. Prepare a Form 1040X Amended Return and send it to the IRS along with a copy of the notice, and an explanation of why your original return was prepared incorrectly and why you disagree with their recalculation of your tax liability. If all goes well, you'll receive another letter from the IRS confirming they've accepted your amended return.

If you agree with their recalculation, pay the difference owed, plus the interest and penalties they've calculated for you, and you are done.

It's unlikely that a small error will lead to an IRS audit, especially if you take steps to correct the error, and make good on the tax owed. According to the IRS Data Book 2014, during the fiscal year 2014, the IRS audited tax returns of about $1.2 million individuals, which is nearly 12% less than the previous year and the lowest number since FY 2005. The overall audit rate for individual taxpayers who did not include a Schedule C (Profit or Loss From Business) with their returns was only 0.9%. Budget cuts and more resources going to Fair and Accurate Credit Transaction Act (FACTA) and Affordable Care Act implementation and identity theft issues have forced the IRS to redirect funding away from enforcement (i.e., audits).

Of course, there are a few situations that can trigger an audit. Claiming the Earned Income Tax Credit (EITC) raises the odds of being audited because the refundable credit has been prone to abuse. You are also more likely to get audited as your income goes up. Individuals with total income between $200,000 and $1 million were audited at a rate of 2.2% and individuals with income of $1 million and more were audited at a 7.5% rate.

If your error doesn't relate to an item that is reported to the IRS, such as a business or medical expense, you should amend your return, even if you haven't received a notice. You may ask, "But how will the IRS find out? Maybe I should just wait and see."

Bad idea. If the IRS does discover the error and you owe more tax than you paid, you will have to pay the tax you owe plus interest and the failure-to-pay penalty. The sooner you file the amended return and pay the tax due, the sooner you'll stop racking up interest and penalties.

The IRS generally has three years after the date the original return was filed to discover errors and omissions and assess additional tax, interest and penalties. However, a longer six-year statute of limitations rule applies if the original return understated gross income by more than 25%. There is no statute of limitations on a fraudulent return.

In short, just file the amended return and pay the amount owed, if only to clear your conscience and avoid looking over your shoulder for the next three to six years.

Topics:
  • Taxes
  • Taxes
  • Taxes
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
This article was written by Janet Berry-Johnson from Forbes and was licensed as an article reprint from April 21, 2016. Article copyright 2016 by Forbes.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
The third-party provider of the reprint permission and Fidelity Investments are independent entities and not legally affiliated.
The images, graphs, tools, and videos are for illustrative purposes only.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917.
760534.1.0
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.

Here's what we suggest you explore next

Taking your wallet on vacation? Here's how to keep it safe

Tourists are often targeted by pickpockets or thieves. Read here to learn how you can keep your wallet safe on vacation.

Like your checking account, but with some useful extras

All ATM fees reimbursed. No minimum balance. Pay bills. Deposit checks.

You might also like

10 smart things you can do with $1,000 right now

It is easy to blow through a decent chunk of cash when you first get it. Instead of spending it recklessly, this article outlines 10 smart financial decisions you can make with $1,000.

What the stuff in your closet can teach you about personal finance

What you spend your money on and never seem to use can teach you a lot about your personal finances. Learn how assessing your spending habits can help your financial planning in the future.

3 ways to turn your closet into cash

Do you have clothes that you never seem to wear? You can use those forgotten items of your wardrobe to generate spending cash.

Start budgeting: Meet Cinch

Introducing CinchSM from Fidelity, a simple way to track your saving and spending. Just answer a couple of questions to get started.