Q:

Subject: Amended returns causing an Audit

Hello Kerry,

Fellow CPA here from CA.  Earlier in the year you mentioned anecdotal evidence of increased audits for amended returns.  I searched through the last few months of posts and didn't see any more information.  Is there any new news? 

I have a new client that would benefit to the tune of $2-3k if I amend a prior self-prepared 1040, but I want him to be aware of the potential risks.....

A:

In other words, is the coast clear yet? 

Honestly, I don't know if it is because I haven't prepared any amended tax returns since this IRS program came to light.  This has cost a number of clients several thousands of dollars in lost refunds; but we figured that was better than having to undergo the time consuming process of a full blown IRS audit.  It is quite a dilemma. 

I have yet to hear from IRS personnel that this policy has been dropped; but I will make some low key inquiries on this when I next speak with them. 

We would all be very interested in hearing from other practitioners around the country as to their recent experiences with amended returns with refunds over $5,000.  Hopefully some will write in and let us know if their clients were able to actually receive those refunds without an audit.  Any feedback would be appreciated and quite helpful for those of us who want to know if the water is safe from the IRS sharks.

Kerry Kerstetter

 

Follow-Up:

Kerry,

Thanks for the quick reply.

I know that another CPA in our office had a client file a 2003 1040X with a large (>$10k) refund earlier this year; it has now turned into an audit case. 

However, extrapolating from that incident may not be 100% legitimate. From what I understand, there were plenty of unusual items on both the original and amended return that could've triggered/flagged for an audit without the added help of the amendment

My Reply:

Although that may be a coincidence, it doesn't sound like it.  If that audit was started after the 1040X was filed, and a notice was received from the Service Center that it was being sent to the local field office, it sounds exactly like what happened with my two clients.  The auditors then go nuts on their fishing expedition, trying to find enough things that were not even changed on the 1040X in order to convert that refund into a tax due.

Hopefully, we will receive some input from other tax pros, which I will post on my blog.

Kerry

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 8/08/2005 02:37:00 PM Send this post: