Qualified Amended Tax Returns

The Internal Revenue Code (I.R.C.) imposes a 20% penalty on any underpayment of tax resulting from negligence, a “substantial understatement of income tax,” a substantial valuation misstatement, or certain other inaccuracies.   The I.R.C. further provides for a 75% civil fraud penalty for any underpayment attributable to fraud.  

In certain situations, a taxpayer may be able to reduce or eliminate accuracy-related penalties by filing a Qualified Amended Return.  If a taxpayer files a Qualified Amended Return, the amount of tax on the new return is treated as if it were reported on the original return and, thus, no underpayment exists for the purposes of calculating the accuracy-related penalty.  

Under IRS Regulations, a Qualified Amended Return is an amended return filed after the due date of the original return and before the earliest of:

  • The date the taxpayer is first contacted by the IRS concern any examination or investigation with respect to the return;
  • In the case of a tax shelter or promoted transaction, the date the promoter is first contacted regarding an examination or investigation with respect to the transaction;
  • In the case of a pass-through item, the date the entity is first contacted by the IRS in connection with an examination of the return to which the pass-through item relates;
  • The date on which the IRS serves a “John Doe” summons with respect to an activity for which the taxpayer claimed any tax benefit on the return, directly or indirectly; and
  • The date on which the Commissioner, by Revenue Ruling, Revenue Procedure, Notice, or announcement, announces a settlement initiative to compromise or waive penalties with respect to a listed transaction.

Certain other limitations apply where the Qualified Amended Return relates to an undisclosed List Transaction.  Moreover, filing a Qualified Amended Return will not protect the taxpayer or limit penalties where the taxpayer’s inaccurate return was due to fraud or criminal misconduct.  In such cases, the taxpayer should seek to come into compliance through the IRS Voluntary Disclosure Program.  

If you have unfiled returns or if you previously filed returns that you know are incorrect, the attorneys and Certified Public Accountants of Daniel Rosefelt & Associates, LLC, can help you navigate your legal options and determine the best course of action.  Contact us at (301) 656-4424 or reach out by completing our ten-second contact form to know your real options.