Do You Need to Amend Your Tax Return? When to Amend and When to Respond to the IRS

You may need to amend a tax return if you discover an error after filing the return. The presence of an IRS letter or a revised tax form doesn’t mean that you should amend your return right away. Often, a notice needs to be responded to, or further research into a payment discrepancy needs to be conducted.

The deadline to file your federal tax return is generally October 15, for those of you who obtained a valid extension to file, although some exceptions apply. You need to determine what changed and then decide what needs to be done to remedy the situation. Generally, an extension to file your tax return doesn’t give you an extension to pay your tax.

You First Need to Determine What Changed

You should put together your tax return, the document or notice from the IRS, and your records related to the return.

Next, you need to decide what your next course of action should be. You can talk to a representative of the IRS, call a tax professional, or use the IRS’s resources online.

After that, ask: What has changed? What have I reported already? What, if anything, is the tax authority asking of me?

Just because a new document was issued doesn’t mean that the government is treating that as new income. An example is provided here: You reported $8,000 of freelance income on your filed tax return using your bookkeeping records. You then received a Form 1099-NEC reporting that same $8,000. Assuming the income was already reported correctly, does the form require you to amend your return? No, not simply because the Form 1099-NEC arrived. You can find more information regarding 1099s and side-gig income here. At White Sands Tax Services, we have helped many clients who have encountered issues such as these.

When receiving a corrected statement, it is often best to compare the corrected statement to the previous statement. You should ask the entity that issued the statement to explain the changes if it is unclear. The question you should be asking is, “Is there something on the return that requires me to change my previously filed return?”

When Amending Your Tax Return Is Necessary

According to the IRS, there are multiple scenarios that could require the filing of an amended return. These include changes related to income, filing status, deductions, credits, and/or dependents. Examples of situations that may require the amendment of a return include failing to report all of the income you received during a tax year, claiming an incorrect credit, or taking a deduction you were not entitled to.

Form 1040-X is generally used to report these changes to a previously filed federal individual income tax return. Depending on the changes you are reporting, you will need to include various schedules and forms along with your amended return. Your amended return is not simply a copy of your original return.

The IRS may adjust your return to reflect corrections it has determined are appropriate and may request additional information from you. You should review any communications you receive from the IRS prior to sending them an amended return.

There are strict time restrictions. A corrected return filed by the applicable filing deadline, including a valid extension, may replace the originally filed return. Generally, to claim a refund, an amended return must be filed within three years of the date the original return was filed or two years after the tax was paid, whichever is later. Special rules and exceptions may apply. If the correction means that you owe additional tax, you should address it promptly because interest and possible penalties may apply. The IRS provides additional information on amended returns, including the deadlines for claiming a refund.

After the IRS Has Contacted You, Additional Analysis Is Warranted

Start with the notice number, tax year, explanation, and response deadline. Simply filing an amended return may not address the issues raised in the notice or satisfy the deadline for responding.

What Is a CP2000 Notice?

Generally speaking, when a CP2000 notice is sent, information reported by a third party (for example, an employer or bank) is different from information reported on a tax return. The notice proposes an adjustment and is not a bill.

Instructions for CP2000 notices give examples. For instance, if the notice shows an understatement of your tax and you agree with the IRS, but there are other items, like income, deductions, or credits, that you need to report, you may need to amend your return and include those items. If you agree with the notice and have no other income, credits, or expenses to report, the IRS says you do not need to amend your return. You should still follow the instructions provided in the notice.

If you disagree, you should send an explanation with any evidence you may have, following the notice's instructions. Just because the IRS takes a position on your tax return, that doesn’t mean the position is correct.

What if you think the IRS is correct but you have other return items to address? The IRS says you should complete Form 1040-X for the year in question, write “CP2000” at the top of the form, and submit it along with your notice response form. You should also explain any additional changes you are making to the return. The IRS provides specific instructions for responding to CP2000 notices.

What About Missing Payments?

Missing payments are a separate problem from errors in your tax return.

The change you are requesting may need to be made elsewhere, perhaps to payment information, rather than to income or deductions. For instance, if a taxpayer has received a CP60 notice from the IRS indicating that a payment has been removed, and the taxpayer believes the payment was incorrectly removed, the IRS instructs the taxpayer to mail proof of payment to the address on the notice.

Keep the response deadline in mind while the case is investigated.

Information to Gather Before Your Case Is Reviewed

You do not need to determine the correct adjustment before asking for help. However, having the right documents available can make the review easier. Useful information to gather before speaking with the IRS or a tax professional includes:

• Copies of tax returns. These returns should include all schedules and should be as complete as possible, including copies of any amended returns.

• The records used to prepare the return. These should include the income and/or expenses for the year in question and all relevant supporting documentation, including original and corrected tax forms.

• Correspondence from the IRS. This should include all letters, copies of the taxpayer’s responses, payment confirmations (if any), and an explanation of the circumstances surrounding the issue.

To retrieve available IRS records, see our IRS Online Account setup guide, which explains account access, transcripts, payment history, and digital notices.

Prior-year returns should also be available if there is information on those returns that relates to the adjustment being questioned. “This is the reason I questioned the adjustment” would be a good starting point. You do not need to know the answer in order to ask the IRS or a tax professional for help.

If you are responding directly to an IRS notice, follow its instructions regarding which documents must be submitted. You do not need to send every document you have gathered unless it is requested or relevant to your response.

California Taxpayers, Make Sure to Check Your State Return

An amendment of your federal return will not automatically change your California return. For additional information on amending California returns, please see the Franchise Tax Board website. Generally, a corrected California individual income tax return and Schedule X will be required when amending returns for tax years 2017 onward.

The Franchise Tax Board (FTB) requires that if the IRS changes a federal return and the change results in an additional California income tax liability, the taxpayer report the change to the FTB within six months of the final federal determination. If the federal change results in a California refund, the taxpayer generally must claim that refund within two years of the final federal determination.

An IRS change does not automatically amend the California return. If the federal changes do not affect your California tax liability, an amended California return is not required, although you should still review the applicable notification requirements. The FTB provides different ways to report federal adjustments, depending on the circumstances. You can review the Franchise Tax Board’s page related to adjustments by the IRS for additional information.

The FTB also provides assistance to taxpayers who have questions regarding the procedures to amend returns for previous tax years.

Get the Most Appropriate Assistance to Address Your Questions and Concerns

At White Sands Tax Services, our tax services include assisting clients in addressing questions and concerns related to tax notices, amended returns, and other filing issues.

You can schedule a free 15-minute consultation to discuss your situation. To help us prepare, indicate what issues you would like to discuss, the tax years impacted, and any deadlines that apply. You do not need to collect all the tax documents before scheduling an appointment. If additional documents are needed, we can explain what to provide through our secure client portal.

Understanding what needs to be corrected should be your first priority. Knowing the right way to correct it comes next.

Disclaimer: This article is intended for general educational purposes only and does not constitute individualized tax, legal, or accounting advice. The appropriate filing or response procedure depends on your specific circumstances, tax year, filing history, and applicable federal and state requirements. Tax laws, deadlines, and IRS procedures may change. Consult a qualified tax professional regarding your individual situation.