Earlier, I mentioned a new practice by IRS to instigate full audits of people who file amended tax returns requesting refunds of erroneously overpaid taxes.  Since then, I have had one on one discussions with various IRS personnel, including auditors and even an audit manager; so I am confident that this is a very real issue here in Arkansas.  It is also one that makes me angrier each day as I see more and more people victimized by it and forced to pay thousands of dollars in fees to defend themselves, as well as lose thousands of dollars in overpaid taxes that we are now too afraid to claim. 

Everyone at IRS claimed that this is in fact a national policy and not just isolated in this state.  Not that I don't trust every single word from IRS employees, but I would appreciate some input from other practitioners around the country as to whether or not they have seen the same practice in their parts of the country.  

According to one auditor, IRS was so embarrassed by their sending out huge checks for people who claimed the bogus slavery tax credit that they decided to scrutinize every amended return requesting a refund.  That was then expanded to incorporate a fishing expedition into everything else on that year's tax return, as well as on all other years that are still open under the three year statute of limitations, plus occasionally closed years, in an effort to scrounge up more tax dollars.  Rather than train their own employees to be more careful in doing their job, IRS is making all of us suffer. 

I have already held off preparing several amended tax returns, and warned others not to do so, that would have been no-brainers a year ago just to avoid having IRS put us through the hassle of full blown audits.   

I have also been holding off finishing several 2002 and 2003 1040s so that we can be certain of not needing to file amended returns later.  I sent this email to a client this morning who was concerned about not having her 2003 tax info in to me yet.

There's no rush unless you expect to owe money with the tax return.

It's much better to take your time to make sure everything is as accurate as possible.  IRS has recently changed its policy on handling amended tax returns.  If we were to whip out a fast tax return with a lot of things that need to be changed, we would be asking for a mess with IRS.  They have recently started a policy of running full blown audits of anyone who files amended tax returns requesting a refund. 

This means that we essentially have only one chance to file an income tax return; so we need to be sure it is as accurate as possible, even if it's several months late.  I actually have some 2002 tax returns in process, as well as several 2003, that I am holding off finishing until I am as confident as possible that there will not need to be any changes made later on.

I think this new practice by IRS stinks.  Actually, my feelings warrant some stronger language than is appropriate for this family-friendly blog.  I have been raising hell with the Arkansas IRS offices over this, as have some other CPAs in this state.  I am very interested in hearing from practitioners around the country as to your experiences in regard to IRS auditing clients who file amended tax returns requesting refunds. 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 12/05/2004 08:55:00 PM Send this post: