When Good Tax Returns Go Bad

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Even on your tax return, a mistake won't mean the end of the world. If you realize that your return has an error in it, you probably won't be hunted down and punished by the IRS -- provided you amend that return in time.

To fix a flub on your 2009 1040 form, you can amend it with a Form 1040X. Realize you goofed up on that one, too? You can amend your amended return, and keep right on amending, for three years after the due date of your original return.

Corporate corrections
If you need to file a restatement, don't feel too embarrassed. Even major corporations sometimes need to call a "do-over" on their finances -- and sometimes, their oversights are a lot bigger than yours. Here's just a sampling of companies that needed to amend their financial reports over the past few years:

  • (Nasdaq: OSTK  ) management announced a forthcoming restatement in 2008, saying, "We have called a penalty on ourselves" after discovering some accounting errors. CEO Patrick Byrne explained, "Our 1st Commandment is 'Maintain a bullet proof balance sheet,' but while the spirit is strong, the flesh made a mistake." Five-and-a-half years' worth of numbers were affected.
  • Verisign (Nasdaq: VRSN  ) restated its financials from 2001 to 2006. In the company's words, the restatements would "record additional non-cash, stock-based compensation expense related to past stock option grants."
  • Krispy Kreme (NYSE: KKD  ) determined in 2004 that it needed to adjust pre-tax income for fiscal 2004 downward by between $6.2 million and $8.1 million. The company explained that it had "identified certain errors in its historical financial statements," with some of them relating to its "accounting for the acquisitions of certain franchisees."
  • Juniper Networks (Nasdaq: JNPR  ) restated two quarters of earnings in 2006, following a review of its stock-option accounting.
  • Fannie Mae (NYSE: FNM  ) shrank earnings from 2001 through first half of 2004 by $6.3 billion, correcting accounting errors. CFO Robert T. Blakely noted, "The restatement process has put this company on a stronger financial foundation," thanks to new and improved processes and policies. (We all know how that worked out, alas.)
  • Spectrum Pharmaceuticals (Nasdaq: SPPI  ) restated its recent financial filings, reclassifying common stock warrants from 2005 and 2009 as liabilities instead of equities.
  • McKesson (NYSE: MCK  ) , while known as McKesson HBOC, restated financials from the late 1990s, because of improperly booked sales at its HBO & Company acqusition. This actually led to a class action suit by shareholders, and eventually a $960 million settlement.

While many of these companies skated by with minor corrections, some of them involved huge sums of money. The same can hold true for your tax returns. Whether you forget to include one of your sources of income, or neglect to take advantage of money-saving credits, tax mistakes can leave a vast dent in your bottom line.

Some errors are better than others
Not every goof requires an amended return. Straight from the horse's mouth, the IRS itself might correct some math mistakes, and may even accept your return if you've neglected to include certain forms or schedules. The kinds of errors that definitely require an amended return usually involve your filing status (single, married, etc.), your income, your deductions, or your credits.

You also might not need to amend your return if the IRS ends up not accepting it, which can happen with e-filed returns. (Mailed returns are considered accepted on the date of the postmark.) In such cases, you can just correct it and re-file it as your regular return, not an amended one.

Timing matters
If you have a refund coming to you, based on your already-filed return, wait for it to arrive before filing an amended return to claim an additional refund. You can even go ahead and cash the check.

If your amended return says you'll owe more taxes to Uncle Sam, you'll have until April 15th of the following year to file your amended return and pay whatever you owe. If that's the case for you this year, you'll have until April 15, 2011, to file the 1040X form and pay the additional tax. But the sooner you pay, the less you'll have to pay in any interest and penalties that may apply.

If you're amending more than one year's return, each year requires its own 1040X form, mailed separately. And if any of your changes affect your adjusted gross income, you'll probably want to amend your state return, too. Contact your state tax department for the appropriate forms.

Amend or extend?
If you anticipate that you might have to amend your return within a few months of filing it, consider filing for an extension instead. That will delay your filing deadline by six months, helping you avoid an amended return. Sometimes, you may prefer to get things right the first time -- even if it takes a bit longer to do so.

Visit our Tax Center to get lots of money-saving tips and practical guidance.

Dan Caplinger explains how you can still save thousands on your taxes.

Longtime Fool contributor Selena Maranjian owns shares of no company mentioned in this article. McKesson is a Motley Fool Stock Advisor pick. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.

Read/Post Comments (7) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 14, 2010, at 6:32 PM, mountain8 wrote:

    Could you possibly list the approved accounting firms that said their balance sheets and income statements were accurate. They are obviously as bad as the regulators were/are.

  • Report this Comment On April 14, 2010, at 10:56 PM, cordwood wrote:

    Mountain 8.............don't be too elitst here ?////The daffy duck congress can't evision the unintended consequences of their "loophole" legislation,and neither can the IRS bureaucrats understand the "catch 22" rulings they make....Thus it is hard to say "they are OBVIOUSLY as bad as the regulators were/are"...tough to keep up w/ nincompoops in "guvmint"!!

  • Report this Comment On April 15, 2010, at 12:30 PM, mountain8 wrote:

    I agree, my 'obviously' was probably a bit too much, but it seems middle men, supporting services (accountants), and regulators are at least part of the problem to different degrees.

    I know, without a doubt that congress has no idea what they are doing. I understand the difficulties accounting persons have with all the constant tinkering with laws. You have my sympathy.

    I am just concerned a bit because financial statements are a primary source of information when making an investing decision. It's the approval by prestigious accounting firms that give them weight. It seems that an 'independent' accounting firm may/might/should have seen some of the problems that caused the recent world wide disaster.

    You must be a part of one of these accounting firms and I apologize for the insult as I know there are honest accountants out there doing their best in the environment they work in. The opposite side is also possible.

    Just as I believe most congressment are bought and paid for by business and lobbies, I have to at least point out that these accounting firms are paid for by the same businesses they are auditing. So though independent, they are also employees of the businesses who are paying the bills. That, at least, opens the door for somewhat questionable practices by some accounting firms. If we can't believe the financial statements, what do we have to believe in?

    Perhaps I am not understanding what the firms are verifying about the statements. I'm more than willing to learn.

  • Report this Comment On April 15, 2010, at 12:31 PM, mountain8 wrote:


  • Report this Comment On April 15, 2010, at 3:28 PM, cordwood wrote:


    Nope no connection w/ accounting/accountants.

    The independence issue,re A/C firms, is not the issue I feel is of more concern. I'm more concerned w/ the independence / quality of the Board of Directors of the company hiring the A/C firms...they are the ones that should be questioning /verifying financial statements -they are the shareholders' representitives.

  • Report this Comment On April 16, 2010, at 7:07 PM, mountain8 wrote:

    Again I agree.

    I think there is a part of all we have discussed that should be held responsible. For every one bought, there was someone buying: congress, regulators, boards, a/c firms, even investors. There are too many ways this could have been seen, reported, and most important acted upon at many levels. I just hope, in the long run this all changes into something I can believe in and trust again.

    Thanks for the discussion. Good luck in whatever part you play.

  • Report this Comment On April 16, 2010, at 7:07 PM, mountain8 wrote:


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