What Effect Does Filing An Amended Return Have on the IRS's Time to Audit?
Section 6501(a) of the Internal Revenue Code provides the general rule:
Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) or, if the tax is payable by stamp, at any time after such tax became due and before the expiration of 3 years after the date on which any part of such tax was paid, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period. For purposes of this chapter, the term “return” means the return required to be filed by the taxpayer (and does not include a return of any person from whom the taxpayer has received an item of income, gain, loss, deduction, or credit).
This means that, generally, the IRS has only 3 years to audit and assess a return from the April 15 due date or the actual filing date of the return if later. IRS Sec. 6501 has other exceptions to this rule, e.g., allowing additional time where there is a substantial understatement (six years) or an indefinite period where there is fraud on the return. The rule that an amended tax return does not change the period of limitations has been well-established through several court cases which principally based their decisions on the statutory phrase “the return.”
“The phrase the return has a definite article and a singular subject; therefore, it can only mean one return, and that the return contemplated by the act under which it was filed.” FN1. Thus, once the statutory return commencing the statute of limitations has been filed, a subsequent amended return has no effect on the statute of limitations. FN2.
As a result, the general rule is that the filing of a Form 1040X does nothing to change the ordinary statute of limitations for the IRS to complete its audit and assess taxes. That means that, if the original return was subject to a 3-year statute of limitations, then the time for the IRS to audit and assess still ends 3-years from the date of the filing of the amended return or the ordinary April 15 due date, whichever was later. However, if the original return was subject to an exception to the ordinary 3-year time period, that exception would still apply even if the amended return corrects the issue. E.g., if the original return is found to be fraudulent, an amended return correcting the misstatements does not revert the limitations period back to the 3-year period in lieu of the indefinite period otherwise applicable. A minor exception is found in Section 6501(c)(7) of the Internal Revenue Code, which allows 60 additional days from the filing of an amended income tax return for the IRS to assess the additional income on the amended return, if the amended return was filed within the applicable statutory period but with less than 60 days left.
Daniel Layton, the author of this post, is a former IRS trial attorney and former DOJ tax attorney, now in private practice in Newport Beach, Orange County, California. He may be contacted at (949) 301-9829 or https://taxattorneyoc.com.
FN1. Goldring v. Commissioner, 20 T.C. 79, 82 (1953) (quoting National Refining Co. of Ohio v. Commissioner, 1 B.T.A. 236, 240 (1924); Philadelphia v. Commissioner, 8. B.T.A. 864, 865 (1927) (same).
FN2. See Badaracco v. Commissioner, 486 U.S. 386, 394-396 (disagreeing with Dowell v. Commissioner, 614 F.2d 1263 (10th Cir. 1980), and noting that “courts consistently had held that the operation of § 6501 and its predecessors turned on the nature of the taxpayer’s original, and not his amended, return”); Goodwin v. Commissioner, 73 T.C. 215, 234 (1979) (“amended returns are not the statutory return, although recognized by [the Commissioner’s] regulations…”); Zellerbach Paper Co. v. Helvering, 293 U. S. 172, 180 (an amendment or supplement reporting additional tax does not toll a limitations period that has already begun); Kaltreider Construction, Inc. v. United States, 303 F.2d 366, 368 (3rd Cir., 1962) (“the date of the original return governs”); Mabel Elevator Co. v. Commissioner, 2 B.T.A 517, 519 (1925) (“the filing of an amended return does not toll the period of limitations”).