Decision to amend ultimately falls to the client.

AuthorLardinois, Ryan

As long as a human element is an integral part of the tax return preparation process, errors and omissions on tax returns will happen. Whether an error or omission is merely typographical, a product of flawed interpretation of a complicated body of tax law, or the result of a misconstruction of the underlying facts, tax practitioners are frequently confronted with issues regarding the accuracy of a previously filed tax return. The decision to file an amended return to correct one or more errors or omissions involves a variety of considerations.

Practitioners and clients must determine whether the cost of making the correction, i.e., the professional fees, justifies the anticipated result. An amended return that represents a large prospective refund claim, for example, is often worth the time and expense to prepare. On the other hand, correcting a transcriptional error or minor omission that would result in only a small change in tax liability may be unjustifiable, given the cost involved.

Practitioners and clients must also determine their respective levels of risk averseness. An amended return can protect a client from accuracy-related penalties imposed by Sec. 6662 for an understatement of tax shown on an originally filed return. The comfort level of practitioners and clients with respect to the risk of these penalties plays a large role in the decision to file an amended return. While some practitioners are content to "play the audit lottery," others are determined to correct an error or omission of any magnitude, no matter the cost of doing so.

In addition, practitioners may be reluctant to inform a client of an error discovered on an originally filed return if the error was the result of the practitioner's misinterpretation of the facts or law or was otherwise attributable to the practitioner's actions. Though practitioners are generally required to notify clients of any errors they discover, practitioners may nonetheless be inclined not to disclose these errors, to limit exposure for professional malpractice or to maintain an image of infallibility with the client with respect to the practitioner's work product. All of these factors play a role in deciding whether to file an amended return to correct errors or omissions on an originally filed return.

Because errors and omissions on tax returns are so common, many practitioners consider amended returns to be an integral component of the tax compliance process. Despite this, the term...

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