Amended Return Reason

[geekgirldany]

I'll try to make this short.

I posted on this a while back. Taxpayer went into "partnership" with relative on rental houses. No partnership return and verbal agreement between them. Foreclosure in 2008 on all rental houses. My client came to find out relative did file the correct paperwork to have the houses in their name also. So my client is listed as the only owner.

As a result I am going back to 2004 to amend tax returns. All income and deductions were put on Schedule E. All Income, Expense, and Assets were originally divided 50/50. I am changing it to 100% per my client.

Now my question is how detail do I need to get on the 1040x reason for change? Do I go into detail like above or simply put "Schedule E Income Deductions and Depreciation incorrect on original return"?

Thank you

[erchess]

Details

I do go into details up to the limits of the space on the form but so far in my career I have always shortened my comments to fit the space on the form as opposed to going onto another sheet.

[geekgirldany]

Okay thank you erch. I wasn't sure how detailed to go into. More than likely amending 4 years of tax returns they are going to ask quetions anyways.

[Snaggletooth]

Be Thorough

My approach is different than my esteemed colleague from Weaverville. Of course, that doesn't make it correct. My amended returns rarely fit in the space allocated. More often than not, I enclose an analytical chart.

Biggest reasons:

1) Nearly 80 lines of the 1040 are condensed into only the first 17 lines of the 1040X. Even more dramatic, the entire first page of the 1040, including ALL income and ALL adjustments are condensed into only one line on the 1040X.

2) Changes are nowadays interactive, such as a single change in income could affect several other items, such as medical expense, sales tax deductions, misc itemized deductions, and any number of credits.

3) Claiming certain items often require more documentation on an amended return than on an original return. For example, claiming earned income credit on an amended return might result in a parent having to prove the child lived with them (e.g. a report card from school). Had EIC been claimed on original return, it would not have been questioned.

I find that a complete analysis, often on a separate columnar presentation, is necessary to fully explain changes. Remember an amended actually gets "looked at" and enough explanation should exist so as to not leave any questions, especially if the 1040X is asking for a refund.

And don't forget to:
1) Include any Forms/Schedules where changes were involved.
2) NOT to include another 1040, or Forms/Schedules where changes were NOT involved.

[erchess]

hmmm

I totally agree with what Snags said about including any forms and schedules that changed and not including either a 1040 or any forms and schedules that didn't change. I also agree with including supporting documentation such as school or day care records if EIC based on a child is now being claimed.

It's late and I may be overlooking some case but I can't remember doing an amend for more than one issue such as a W2 left off or a deduction or credit not claimed.

At the beginning of my career my firm's software did not handle amends which were therefore done by hand. I learned that it was necessary on an NC Amend to show my math in a format that I found peculiar at first but eventually learned to do. Basically you started with Federal Taxable Income (which has always been the first line on a NC Return) and show how the additions to and subtractions from were calculated and show the calculation of NC Taxable Income the tax and the withholding and therefore the balance due or refund. However I also learned that both NC and the IRS were less interested in such detail once we started to do amended returns on the computer. I may have become too cavalier about the less detail being needed. It is also undoubtedly true that Snags encounters more complicated situations more frequently than I do..

Probably the most complicated case I have dealt with was a client who had an IRS letter wanting additional tax because the original return had under stated the taxable social security. That was true enough but here's the whole story. The spouse had begun in the taxable year to draw social security for a disability and had naturally received monies for the previous two or three years. The preparer had taxed the couple only on the amount for that year and ignored the others. The preparer had also reported mortgage interest as taxable interest and failed to include in itemized deductions certain medical expenses and the legal fees incurred to collect the social security. It took six rounds of correspondence but I got the IRS to agree that the net effect was that my clients were due more refund.

[geekgirldany]

Thank you both for posting.

This situation my client is in is such a mess. I won't go into details but fraud is possibly involved. Client really did not want me to amend all those years becuase "questions would be raised" by the IRS. I told them that questions would be ask anyways seeing the situation unless they wanted to pay over $70,000 in taxes. So he agreed with the amendments.

For this it will probably be good to include an aditional page of information. Going back and changing all that... maybe it will help later on.