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HUGE Omission Realized From 2021 Return

gjb1024

IF you just realized you accidentally omitted a HUGE IRA withdrawal on a tax return from 2021, should I immediately file an amended return? Or wait? I actually received a small refund, but by reporting this distribution, I would owe over $35,000. Also, will they add penalties, and interest? Is it best to juts see if it is caught, or go ahead and voluntarily send in an amended return ASAP. I'm nervous on the best way to proceed.

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Accepted answers

KristineS

Hi gjb1024,

You must use your best judgment on filing an amended return or not.

It's generally better to submit an amended return to the IRS if you realize there was an error on your tax return, rather then wait for the IRS to find the error. Penalties and interest will be back dated starting with April 15, 2022.

Most IRA withdrawals are taxable, but not all. It may be worth double checking with a licensed tax professional before amending.

All comments

KristineS

Hi gjb1024,

You must use your best judgment on filing an amended return or not.

Most IRA withdrawals are taxable, but not all. It may be worth double checking with a licensed tax professional before amending.

gjb1024

Thabnks Kristine. Oh . . . it is FULLY taxable; I just forgot to include as it was from 15 months earlier. I heard IRS only goes back 3 years, so wondering if I should chance it. I read they will charge penalty and interest anyway, so not much to be gained b y coming forward, the way to sounds.

kiarab

Hi again,

The final decision is yours. The law requires you to file an honest and complete tax return. And while generally, the IRS does have 3 years or so to access tax, there are exceptions to that rule.

The 3-year rule you are referring to is the Assessment Statute Expiration Date (ASED).

You might like to read more about the ASED here. (And this site refers to 26 USC 6501 and specifically references Individual Retirement Plans extending to 6 years.)

If the amount you withdrew is 75% or more of total income for that year, the time they can assess tax on it increase to 6 years.

And if they believe you filed a false or fraudulent return with the intent to avoid tax, there is no limit to when they can assess taxes.

Also, the three year rule is from either the filing deadline or from when you actually filed the return, whichever is later. Based on what you said, it sounds like you might have filed your 2021 return late, so the three years starts from then if that is the case.

If you do decide that you need to pay, it is generally better to do it soon as the penalties accrue interest.