Are Amended Returns More Likely to Be Audited?

Federal income tax returns are a yearly obligation for most individuals, where financial information is reported to the Internal Revenue Service (IRS). The IRS reviews these submissions to ensure accuracy and compliance with tax laws. Sometimes, despite careful preparation, taxpayers discover errors or omissions on a previously filed return, necessitating a correction. This process involves filing an amended return, a mechanism provided by the IRS to address such situations.

The Purpose of an Amended Return

Taxpayers may find it necessary to file an amended return for various reasons. Common scenarios involve correcting errors, such as misreported income or incorrectly claimed deductions and credits. For instance, an individual might receive a corrected Form W-2 or 1099 after their original return, requiring an adjustment to their reported income. Taxpayers might also discover they overlooked certain deductions or credits they were eligible for, or that their filing status was incorrectly chosen.

The IRS provides Form 1040-X, Amended U.S. Individual Income Tax Return, for this purpose. This form allows individuals to make changes to a previously filed Form 1040, Form 1040-SR, or Form 1040-NR, modifying income amounts, deductions, credits, dependents, or filing status. Amending a return ensures that the taxpayer’s financial records with the IRS are accurate and complete, reflecting the true tax liability or refund.

How Tax Returns Are Selected for Audit

The IRS employs a multifaceted approach to select tax returns for audit, aiming to ensure compliance with tax laws. One primary method involves computerized scoring systems, such as the Discriminant Function (DIF) system. This system assigns a score to each return based on statistical analysis, comparing it against norms from similar returns. A higher DIF score indicates a greater potential for error or non-compliance, increasing the likelihood of further review.

Another significant selection tool is information matching. The IRS cross-references data reported by third parties, such as employers (Form W-2) and financial institutions (Form 1099), with the information provided on a taxpayer’s return. Discrepancies between these sources, such as unreported income, can trigger an audit or a notice from the IRS.

Tax returns can also be selected for audit through related examinations. If a business partner, investor, or an entity with whom a taxpayer has transactions is audited, the taxpayer’s return might also be selected. Additionally, some returns are chosen through random selection as part of research programs designed to update the IRS’s audit selection models. The IRS may also target specific issues or industries that have shown patterns of non-compliance in past audits.

Amended Returns and Audit Selection

Filing an amended tax return can bring a previously processed return to the IRS’s attention, though it does not automatically trigger an audit. The IRS provides a formal process for correcting mistakes. Many amended returns are processed without issue, but the nature and significance of the changes made are important factors in whether a return receives additional scrutiny.

Significant changes, such as claiming large new deductions, substantial changes to reported income, or adjusting filing status, are more likely to be scrutinized. These amendments can alter the tax liability considerably, prompting the IRS to examine the underlying reasons. The IRS is interested in understanding the justification for the amendment. If the original return already contained elements considered red flags based on audit selection criteria, an amended return might simply highlight these existing issues.

The act of amending a return is generally less of a risk than the specific changes being made. For instance, amending a return to report omitted income or correct a mathematical error may be viewed differently than claiming a large, unclaimed deduction. While the IRS does not disclose audit criteria, consistently amending returns over multiple years or filing amendments close to the statute of limitations might draw attention. However, the IRS does not automatically audit every amended return due to resource limitations.

Preparing an Amended Return

Accurate preparation of an amended tax return is important for proper processing by the IRS. The process begins with gathering the original tax return for the year being amended, along with any new or corrected documents. This includes items such as updated W-2s, 1099s, or receipts for deductions not originally claimed.

Completing Form 1040-X, Amended U.S. Individual Income Tax Return, requires detailing the original amounts, the net changes, and the corrected amounts for each affected line item. Part III of Form 1040-X is dedicated to explaining the reasons for the changes. Providing a clear and concise explanation in this section is important, as it helps the IRS understand the nature of the adjustments. A brief, specific description of each correction, referencing relevant line numbers, is generally sufficient.

Attaching all relevant supporting documentation for the changes is also an important step. This can include copies of corrected information forms, new schedules, or receipts that substantiate the amended figures. Send copies of these documents, not the originals, as the IRS does not return submitted materials. Maintaining personal copies of the completed amended return and all attached supporting documents is also a good practice for future reference.