Should You Amend Your Tax Return

Should You Amend Your Tax Return?

When a U.S. Taxpayer has filed a prior year tax return that may not be correct, they have the opportunity to amend the prior return fix the return, and resolve their mistakes. With that said, not every mistake on a previous year’s tax return requires that the taxpayer go back and amend the return. That is because there are statutes of limitations, which limit the amount of time the Internal Revenue Service has to go back and audit or issue penalties for previously filed tax returns. Typically, the statute of limitations is three (3) years but that is not always the case. As a side note, it is important to know there is a distinction between the amount of time that the IRS has to audit a tax return and how much time they have to collect which is typically 10 years although they may be able to renew that 10 year enforcement when it has been reduced to judgment. Let’s look at four (4) key questions when determining whether or not you should amend your tax return. Here are some examples to help illustrate the point.

When Minimal Income was Missed

David is a U.S. citizen who has no foreign accounts or assets. He follows his regular tax return but forgot to report ten dollars worth of interest income. The tax return is five years old and the failure to report the income was not fraudulent. In this type of situation, it is not always the best idea to go back and amend the return because it could open Pandora’s box when the return statute of limitations may have already expired — since most of the time the statute of limitations is 3 years.

Significant Foreign Income Was Missed

Jennifer is a high-income earned who has filed her tax returns for the past several years timely — but about four years ago she missed reporting $9,000 of foreign income — and the income was generated from foreign accounts that fall under the guise of FATCA. In this type of situation, the statute of limitations may not be closed because. That is because when there is more than $5,000 worth of income generated from certain foreign assets the statute of limitations is automatically extended to six years. Thus, the taxpayer is not out of the woods yet. Technically, the tax return is not yet fully closed, although most of the time the IRS does not go back more than three years to initiate an audit. In this type of situation, the taxpayer should assess the pros and cons of not going back to amend the return.

Missed Foreign Assets (Non-Willful)

Danielle has $300,000 in foreign bank accounts that she did not report on Form 8938. Even when there is no unreported income, the reason this can be a problem is because the IRS created very lopsided rules that benefit the IRS and not the taxpayer on these types of issues. More specifically, the Taxpayer who does not report certain foreign accounts on forms such as Form 8938 and Form 8621 falls into the situation in which the returns are not considered closed. In other words, even five to 10 years after the fact, the IRS could feasibly go back and try to audit a taxpayer even though there is no unreported income and the tax returns are more than three years old because there are missed foreign international reporting forms that were not filed this could lead to an audit situation. 

International Tax Return Fraud

Where it can become a much more serious situation for some taxpayers when they are fraudulent and fail to report certain foreign accounts and assets. In this type of situation, the taxpayer may become subject to significant fines and penalties including both a fraud penalty and a willfulness penalty for non-compliance with foreign accounts and assets. Moreover, there is no statute of limitations in civil fraud cases, which means the IRS could feasibly go back five, 10, or 20 years to audit a taxpayer if they believe civil fraud is involved. For example, let’s say Peter is a lawful permanent resident who has millions of dollars overseas. He knowingly fails to report foreign accounts and income to the IRS. This would be an example of tax fraud and willful non-disclosure in which the IRS has the right to issue fines and penalties.

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.