2023 CA Counselor Reference Manual

• The deadline for getting a refund by filing an amended federal return is generally the later of (a) three years from the date the tax return was filed (if filed timely), or (b) two years after the date the taxpayer paid the tax on the originally-filed tax return.
• Note for CA state returns: For CA returns, the statute of limitations for getting a refund is generally four years after the regular filing deadline, or four years after filing the original tax return, whichever is later, if the tax return was filed on time. (FTB Claim for Refund) 
• Per page 85 of Pub 5683, VITA/TCE Handbook for Partners and Site Coordinators, Tax-Aide sites may prepare an amended return for a taxpayer even if they did not prepare the original return.

• The original return can be out-of-scope if the amendment brings it back into scope.

• An adjustment letter (CP2000) is not automatically a reason to amend a return.

• If there are no changes other than those proposed by the IRS, the taxpayer only needs to tell the IRS that they accept the proposed changes; no 1040-X is needed.
• Note for CA state returns: Even if the federal adjustment proposed is correct and is acceptable to the taxpayer, a CA amended return may be necessary so that CA information agrees with the IRS-adjusted 1040 amounts.

• CA policy: If a taxpayer discovers $200 or less of missed income, after filing, don’t amend the return. Instead, the taxpayer should wait for a letter from the IRS. (As noted above, the taxpayer may have the option of simply accepting the IRS calculation of how much additional tax is owed, as stated on an adjustment letter from the IRS, and mailing a check for that amount.)

• A taxpayer should not file an amended return until the IRS has had time to process the original return.
• If the taxpayer has filed a return for which a refund is due, an amended return should not be e-filed until that refund is received.
• The taxpayer should cash/deposit the refund check. (If the taxpayer expects to have to repay some or all of that refund, he/she shouldn’t spend it, of course.)
• If no refund is due, and the return was e-filed, the amended return can be prepared at any time, but should not be e-filed until at least four weeks after the date that the original return was e-filed to give the IRS time to fully process the original return.
• Exception:  If tax will be due with an amended return, file the amended return by the tax filing deadline.
• Taxpayers with newly issued SSNs or ITINs cannot retroactively claim certain credits if/when they file an amended return, or a return for a prior year. See page M-9 of Pub 4012, “Prior Year Returns”, for details.
• Note for CA state returns: When amending a federal return, it’s best to start with the assumption that the related CA return also needs to be amended.
• Use the TaxSlayer refund monitor to determine if the CA refund amount changes as you modify the federal return. If not, then an amended CA return doesn’t need to be prepared, printed, and mailed.
• All amended state returns must still be paper-filed because e-filing amended returns is not supported by TaxSlayer software.
• If a taxpayer is submitting multiple years’ amended returns by paper, each amended paper return should be mailed separately.
• An amended federal return can be e-filed, if the original return was e-filed, and only for years where the IRS is accepting regular e-filed returns. Otherwise, the amended return must be paper filed.
• If the original return wasn’t prepared at your site, see page M-8 of Pub 4012.
• Note that you can e-file an amended return not originally prepared at your site, if the original return was e-filed. 
• Taxpayers can track the status of their amended tax return three weeks after they file, by going to irs.gov/filing/Where's-My-Amended-Return. The IRS tool can track the status of an amended return for the current year and up to three previous years.

Process

• The first 6 or 7 pages of tab M of Pub 4012 discuss the process for amending a previously filed federal tax return. The recommended steps in the process are listed below.

• Note: If you mistakenly tell TaxSlayer that you want an amended return, you can tell TaxSlayer you don’t in fact want a 1040-X. On the Amended Tax Return – Form 1040X menu, select "Delete Amended Return".

• Note for CA state returns: Amending a CA return is a different process, because Form 540X has been discontinued. Instead, after data entry (discussed below in detail), the result will be a revised Form 540 (at the top of the form, the box for “Amended” will be checked), plus a CA Schedule X, California Explanation of Amended Return Changes. 

Step 1: Start with the Original Return

• If the original return is on TaxSlayer, including a prior year return, you can open that return.

• You will be able to find a return, to open and amend it, only if it was prepared in TaxSlayer at your site. 
• If done at your site, you can generate a copy of the return as accepted by the IRS and by CA computers, even if the return has been changed:

• From the Client Search (Office Client List) page, find the taxpayer’s return [make sure you have the right year].
• From the Tools drop-down list, select “Client Status.”
• In the section of the page showing transmissions, you’ll see print icons on the far right for the federal and state transmissions.

• If you have access to the original return, and the taxpayer does not have a printed copy of the return, then print a copy. (This copy isn’t needed for filing an amended return but is needed during the process of creating the amendment.)

• If you do not have access to the original return, then a new return must be created to match the original printed return provided by the taxpayer.

• Make sure that you start the new return in the correct year, which usually will not be the current year.
• From the Main Menu, use “Change Tax Year” (upper right) to select a prior year.
• Enter information from the printed original return into TaxSlayer
• If contact information (address, phone number) in the Basic Information section has changed from what it was on the original return, enter the current information rather than what was on the original return.
• When the amended return will be paper-filed, the underlying detail entered in TaxSlayer is irrelevant as long as (a) the resulting, printed Form 1040 (two pages) is identical to the originally filed return, and (b) any schedules that have changed are correct at the detail level. However, generally you want to e-file an amended federal return, which means entering tax forms individually.

• You need to paper-file an amended return only (a) if it’s a current-year amended return and the original return was paper-filed, or (b) an amended return has already been e-filed (the IRS allows three e-filed amended returns, but TaxSlayer only handles one). Otherwise, e-filing is better.
• For amended federal returns that are going to be paper-filed, see “Original Return Not Created by the Site Preparing the Amended Return”, on page M-8 of  Pub 4012, for suggestions on consolidating information to minimize input to TaxSlayer. 

• Regardless of whether the original return is available in TaxSlayer or is recreated, confirm that all amounts on Form 1040, and supporting schedules, and on CA Form 540, in the PDF in TaxSlayer, exactly match the amounts on the printed (original) federal return and California return before doing Step 2. Also make sure that any schedules or forms you need to amend match the original schedule or form.

Step 2: Create the Federal Amended Return

• From inside the return, click  the “20__ Amended Return” link on the left navigation bar, which opens the menu page Amended Tax Return - Form 1040X.
• Click “Original Federal Return Information.”

• If the original return was e-filed at your site, then TaxSlayer will automatically fill in the original amounts using the data transmitted to the IRS, except for the amount paid or amount refunded.
• If the original return was not e-filed at your site, enter the dollar amounts from the taxpayer’s Form 1040 into TaxSlayer.
• It is critical to enter either the amount the taxpayer has paid (“Amount of tax paid with original return plus additional tax paid after it was filed”), or the amount refunded (“Overpayment, if any, as shown on original return or as previously adjusted by the IRS”), in order for the figures at the bottom of page 1 of Form 1040-X to be correct when the 1040-X is created.
• If the IRS adjusted the return, then change the (summary) amounts of the original return to take into account the IRS adjustment. (This is adjusting column A on the Form 1040-X.)
• When all the required information has been entered, click “Continue.”

Step 3: Make Changes to the Original or Adjusted Return

• If the IRS adjusted the return, then update the return, print it, and mark the printed return, at the top, “Revised by the IRS”. (This sets the return to match what will be in column A on the Form 1040-X.)
• Make all necessary changes to the return, based on the new information from the taxpayer. 

• Note: TaxSlayer has no way to revert changes that you make, should you want to go back to the original version of the return. As you make changes, the only place where the information on the original (filed) tax return is available is the printed copy that the taxpayer has, unless (see Step 1, above) a copy of the e-filed return is available via Client Status.

Step 4: Explain Changes 

• Click “Explain Changes”, enter text, and click “Continue.”
• The explanation entered in TaxSlayer will appear on page 2 of Form 1040-X. 
• The explanation should contain line numbers and/or schedule information; for example: “Line 1: A missing W-2 was added to the return” or “Sch A line 1: Amount of medical and dental expenses was increased.”
• Note that the maximum number of characters that can be entered is 100.

Step 5: Create the State Amended Return, IF NEEDED

• Note for CA state returns: It’s possible that a change in the federal tax return won’t affect the balance due or the refund amount on the state return, particularly if the refund amount was originally zero. If the state refund amount, or amount owed, has not changed [compare the refund monitor amount to the amount on the original state return], then don’t prepare, print, or have the taxpayer file a state amended return.
• CONCEPTUALLY, California takes a very different approach to amended its return from the IRS’s with a federal amended return. 
• California basically says “Send us a revised Form 540, and a cover sheet (Schedule X) that states the difference in the amount owed, or to be refunded.” That’s all; there is no (complicated) three-column form, as with a federal amended return.
• If you do need to amend the CA return, and you’re not at the Amended Tax Return - Form 1040X page, click “20xx Amended Return” in the left navigation bar.
• Click “Amend State Return(s).”

• Click “Amend State”. This adds “Amended Return” to the bottom of the California Return page. 
• From the main state menu, use the regular menu items, such as “Credits”, to edit any state-specific information that has changed. (This will be uncommon; normally all changes will have already been made on pages of the federal return.) 
• After making any needed changes to state-specific information, scroll down on the main menu of the State Section to the line “Amended Return”. Click “Begin”. 
• If you clicked on the edit icon, rather than “Edit Amended”, you may not see the “Amended Return” item at the bottom of the menu. If you don’t, click “Exit California Return”, use the left navigation bar to go back into the amended return process, to get back to the Amended State Return page, where you can click “Amend State”. 
• On the first page, select “Yes” from the pull-down menu and click “Begin.” 
• Complete all relevant information – this is what goes on the CA Schedule X. 
• Select “ Yes”, then click “BEGIN”.
• Enter either the amount actually paid, or the refund expected to be received if no amended return was filed.
• Click “BEGIN” for Reasons for Amending. (You normally check the seventh box, “Error on original return(s).” Click “CONTINUE”.
• Click “BEGIN” for Explanation of Changes. (You can enter up to 50 characters on each of six lines.) Click “CONTINUE” three times to get to where you can exit the CA return.

Step 6A: Electronically File the Amended Federal Return

• Federal 1040-X amended tax returns for the current year and two prior years can (and should be) e-filed. Amended returns for three or four years ago can no longer be e-filed.
• The IRS allows three e-filed amended returns for any specific tax year. However, TaxSlayer supports only one e-filed amended return for any specific tax year.
• Note: Unfortunately, amended returns that are e-filed do not have priority over paper-filed amended returns, they simply reduce IRS clerical work. Thus, advise taxpayers that amended returns take several months for the IRS to process.

• Note for CA state returns: Although the FTB does accept e-filed amended returns, TaxSlayer currently can’t do this for any state.

• Once the amended federal information has been entered in TaxSlayer, a new page, “Amended Return Information”, will appear in the E-file section.
• In that section, check the “Yes” box, for the question “Does the taxpayer want to file Form 1040-X electronically?”, then click “Save.”
• Direct deposit can be requested on an e-filed amended return, for tax years 2021 and later. 
• Direct debit can be requested on an e-filed amended return for tax year 2021 and later. If the amended return is filed after the normal filing deadline for that tax year, IRS computers will process the direct debit immediately.
• If the taxpayer owes additional taxes and wants to pay by check, print a 1040-V (from the PDF for the return) for the taxpayer to accompany the check.
• Warning: The amount on the 1040-V is quite likely wrong -TaxSlayer does not adjust the amount for any prior taxpayer payment. Line through the amount on the form and write in the correct amount.
• On the Submission Page page, at the bottom, you’ll see a new button, “Save and Transmit Amended Return.”
• After transmitting the amended return, give the taxpayer their printed information (see “For taxpayers”, in the next section).

Step 6B: Print and Assemble any Federal Amended Return(s) to be Mailed 

• Federal (again, e-filing amended federal returns is preferred
• For mailing by the taxpayer: In addition to printing Form 1040-X, you should print any form or schedule that differs from the return as originally filed, to be attached to the amended federal.

• For example, if the return is being amended because the taxpayer is reporting additional expenses for their business:
1. Federal – print and mail the following to the IRS: the 1040-X, Schedule C, and Schedule SE; and if credits such as EIC were also affected, the related forms.
2. CA: amended 540, CA Schedule X, federal Schedule C, federal Schedule SE
• Write “as amended” at the bottom of each page that is being re-filed as part of the amended return, except the 1040-X and the amended 540.
• .

• For taxpayers: 

• Give the taxpayer a copy of all pages being mailed to the IRS or FTB; mark these at the top “Amended – Copy” so that they cannot be confused with the forms submitted with the original return.  Mark “Original—Later Amended” on the original return.
• A copy of the changed Form 1040 should be printed for the taxpayer even though this is not being submitted to the IRS; this should similarly be marked “Amended – Copy.”

• Information on how to generate a PDF, for printing, is in the section Printing Returns, page 128; additional information for printing paper returns is on page 131.
• Federal filing: The taxpayer must sign and mail one copy of the 1040X with all revised supporting forms and schedules.

• Attach (staple) to the front of the return any W-2 or W-2c that supports the changes made on the return; also attach any Form W-2G or 1099-R involved with the change if tax was withheld on such a form.
• Assemble any needed schedules and forms behind Form 1040X in order of the “Attachment Sequence No.” shown in the upper-right corner of the schedule or form (again, these are schedules and forms that support the change, not all schedules and forms in the original return).
• Do not send the IRS the revised Form 1040 (the taxpayer does get a copy of this, of course), even if a change appears only on Form 1040, because the explanation on the 1040-X should specify exactly which lines were changed, and, if only lines on the 1040 were changed, the explanation should include the dollar amounts changed from and to.
• Do not include a 1040-V, payment voucher. If TaxSlayer includes the payment voucher in the PDF, either don’t print it, or – if printed – shred it or give it to the taxpayer to be shredded (clearly marked, or torn, to indicate it is not to be used).
• If the amended return is the result of a letter or notice from the IRS, mail the amended return, with a copy of the letter or notice enclosed, to the address shown on the letter.
• Otherwise, mail the amended return to the address shown on page iv.

Step 6C: Print and Assemble any California Amended Return(s) 

• Print the amended 540 (easiest to do from the state section), plus CA Schedule X, California Explanation of Amended Return Changes (two copies of each – one to mail, one as a taxpayer copy).
• Also print (one copy, to be mailed):
• Documents supporting the changes discussed on the federal Schedule X, such as corrected or previously missing W-2, 1099s, and K-1s
• Any federal (1040) schedules that have changed
• A copy of the federal Form 1040 (amended version), only if something changed.
• The taxpayer must sign (page 5) and then mail to the FTB one copy of the amended 540, together with the documents listed immediately above.
• If the amended return is the result of a letter or notice from the FTB, mail the amended return, with a copy of the letter attached to the address shown on the letter.
• Otherwise, mail the amended return to the address shown on page iv.

Checking the Status of an Amended Return

• A mailed amended return can take up to 3 weeks to enter the IRS system and have its status show up. Full processing takes at least 16 weeks, and six months or longer is unfortunately not unusual.

• Note: Any payment accompanying an amended return is deposited immediately upon receipt, and the payment will therefore show up in the taxpayer’s account quite quickly.

• Taxpayers can check the status of a federal amended return by calling 866-464-2050, or look online at irs.gov/filing/wheres-my-amended-return.
• Note for CA state returns: 
• For California amended returns, there is no online way to check the status.
• The FTB is estimating that amended returns will take 4 to 6 months to process.

Same-Year Amendments Involving Payments

• If a current year tax return is amended before the end of the tax season, the original return showed that the taxpayer owed money, and taxpayer has not submitted a payment for the original return, then:

• The amended return should not show the taxpayer as having paid the original amount due.
• The taxpayer, if still owing money, should pay the corrected/amended amount due, not the original amount due. (If the taxpayer is now due a refund, he/she should pay nothing.)
• If/when contacted by the IRS, because of what appears to be an underpayment, the taxpayer should respond to the letter by sending the IRS a copy of the amended return, stating that he/she paid (or did not pay, if due a refund) based on that amended return. This response should result in the taxpayer case being closed once the amended return has been processed, assuming that the amended return is accepted.

Created with the Personal Edition of HelpNDoc: Transform Your Word Doc into a Professional-Quality eBook with HelpNDoc