Discussion:Required to amend after SOL has expired?
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Discussion Forum Index --> Tax Questions --> Required to amend after SOL has expired?
| 4 February 2008 | |
| Tax only client, Partnership return. Accrued Liabilities have been consistently around $45,000. This year we investigated this balance further and discovered that in 2003 there was an error - this account includes $20,000 of accrued payroll taxes that were expensed again when paid in 2003, so the 2003 payroll tax deduction was doubled. We should amend 2003 return. But Statute of Limitations has run. (it's not a gross understatement.) I had a similar situation a few years ago, and IRS rejected the amendment, saying it was not timely filed. How should we resolve? Is client off the hook due to SOL? | |
| 4 February 2008 | |
| Did the error reverse itself? Inother words, was it really fixed already in 2004? | |
| February 4, 2008 | |
| Tough Call. You clealy need to recommend to the client, in writing, that they should amend. They might want to know that unless it's fraud or intentional, which it doesn't sound like, it's a dead issue. And let their conscience be their guide. I have clients who would file and fix it, and others who would say, "You think I'm crazy enough to file that?" | |
| 4 February 2008 | |
| It never reversed, it has been carrying forward in Accrued Liabilites. Discovered it now, and so we need to correct. But as I said, in a similar situation (1040) a few years ago the IRS rejected our amendment due to SOL, so we just dropped it. I disagree w/IRSFIXER - the IRS is barred under Section 6501 from changing this old return, unless there is a gross understatement. So how could we fix it if we want to? We could report in current return, although that would not technically be correct either. What is technically correct? Just let it go through M2? | |
| 4 February 2008 | |
| 4 years go by and no one is asking why an accrued expense has not yet been paid? Come on!!
Obviously it needs to be reversed in some year, every year since 03 has been wrong because of it. I'd correct it now, at a minimum. | |
| February 4, 2008 | |
| Actually, Kevin, you'd be surprised at how often the accruals are the same. Retirement and taxes can often just carryover from year to year if the salaries are the same. That doesn't sound like the case here, but who knows? Somebody changed how they booked the expenditures, tho'. I'm laying money on a client using QB. How about you? | |
| 4 February 2008 | |
| Hi lets not make a mountain out of a mole hill. correct the accrued liability and reverse into income for the year of discovery. bye | |
| 4 February 2008 | |
| PS I need someone to get me a picture of a mountain and a mole hill to put on half our questions. :) bye | |
| 4 February 2008 | |
| When a return is filed the three-year assessment period begins. An assessment may be made any time if (1) false/fraudulent return, (2), wiilful attempt to evade tax, and (3) failure to file a return. An assessment may be made within six years if the return omits in excess of 25% of gross income.
Sounds like an honest error took place. You don't fall under any of the above. No requirement to amend. | |
| 5 February 2008 | |
| OK, but the following year the payables were not reversed, so that is within the SOL. | |
| 5 February 2008 | |
| Yes, 2004 is still open, and it can be amended. I guess the beginning of the year accrual would be adjusted to reflect the correct expensing in 2004. Sucks when you can't benefit from an honest mistake:) | |
| 5 February 2008 | |
| JR1 got it right. No duty to amend but appropriate to advise client to amend and let them decide. The fact that the IRS cannot make an assessment does not mean an amended return cannot be filed. The 3 year SOL on amended returns only applies to claims for refunds. | |
| 5 February 2008 | |
| The 1065, if non-TEFRA, is a relatively meaningless document (an information return), and it has no statute of limitations. Assessment statutes are with reference to the partners. Any partner whose 3-year statute has expired can amend 1040, but any payment with 1040X needs to be designated as a voluntary payment, or IRS cannot accept it. IRS can't assess interest either, but will accept voluntary payment of that also.
In light of this reality, I don't see anything wrong with inclusion in income in the year of discovery, that is, reversing the payable. IRS can't legally force that result, so it cannot object to it. | |
| 5 February 2008 | |
| Thanks all.
Didn't need to reverse the entry in 2004. 2004 income and expenses are correct. Needed to remove duplicated expense in 2003. Yes JR1 it is in QB, and in the first year QB accrued the payables with the payroll. When the 941 deposits were made, they were expensed again. Client discovered the error in their method and did payroll correctly thereafter, but didn't fix the Accrued Liability account. Note that this was not the default Payroll Liability account that QB uses (hate that!), which might have trigerred our investigation sooner. Other activity goes in and out of the account too, so it wasn't like the same number sat there year after year. I asked and client said yes they reconciled all their balances. (except for that one apparently.) I'm guessing you all don't audit those accounts for all of your tax clients either. :-) | |
