US Taxpayers Can Rewrite Past Tax Returns

by James Leroy, Tax-News.com, New York

09 April 2002

Ever read an article on some tax-saving whizz in a newspaper and wished you'd known about it when you filed your tax return? Well, maybe you can rewrite history: the IRS says that taxpayers who discover overlooked tax-savings ideas from tax returns over the past three years can file an amended return and collect the tax savings.

Amended returns are mostly used for claiming overlooked deductions, reporting accidentally omitted income or correcting mathematical errors, but nothing stops you from changing a return if you find you can structure the return differently to take advantage of a good possibility.

An amended return has to be filed for each year that you think you deserve a refund. The IRS says you can submit an amended return any time within three years after the time that you filed the original return. Worthless securities and bad debts can be deducted up to seven years back on an amended return - but they're deductible only for the tax year in which they become worthless.

Disaster-related casualty losses can be deducted on an amended return filed for the year before the loss occurred. Losses suffered during this year can be deducted, before year-end, on 2001 tax filings. In fact, taxpayers may get a refund faster by claiming the deduction for an earlier year.

The IRS has the same privileges, however, and has three years to nail you for underreporting income by less than 25%, but has six years if it was by more than 25%. But for fraud, there is no time limit.

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