Herb Smith at smithff33[at]aol.com wrote:

- quote -

I have had a situation where a client sold stock over a 5
year period, and screwed up the basis beyond belief. The
stock had been purchased over a long period of time with
dividend reinvestment and multiple splits. Because the
issues were all related to the same stock, I filed 5 amended
returns, 3 in the open years and 2 in the closed years and
sent them all in under a cover letter explaining the
relationship between them.

The two returns in the closed years owed the Treasury a
total of about $7,000 (basis had been understated and refund
issued instead of balance due). My request for amendment
was "denied" citing the fact that they returns were outside
the statute of limitations.

The earliest open year was accepted along with a balance due
of a few hundred dollars. This resulted from counting the
LTCL carryover against ordinary income.

The two remaining open years were due a refund of about
$3500. They were accepted and the check was issued.

My client wanted to get "straight" with the IRS. I felt
that the most optimistic scenario would have been that she
would avoid the extra tax in the closed years but lose the
refund on the basis that it was caused by earlier mistakes.
Not so, the IRS wrote off the amount she owed and gave her
the refund she was due in the open years.

This is the most graphic demonstration I have seen that they
are serious about the 3 year statute of limitations, no
matter who it favors. None of these mistakes were
fraudulent.

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

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Herb Smith wrote:

SNIP

- quote -

The IRS has 3 years to assess additional tax on a filed
return; 6 years if enough income is omitted. After that,
they cannot assess more taxes and claim you owe more money.

They have 10 years to collect the tax ONCE IT IS ASSESSED.
If they do not assess the tax within the 3 year limitation,
the 10 year collection period does not apply.

Lanny K. Williams, CPA
Nawarat, Williams & Co, Ltd.
Income Tax Services for Expatriate Americans

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- quote -

Why do you think the "problem" would go away in three years?
The three-year statute of limitations only applies to
REFUNDS, not tax owed. That is more like 10 uears (if no
fraud is involved).

I'm sure a lot of tax scofflws would be glad to hear of your
3-year statute of limitations :-)

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- quote -

Legally, yes, you should. Practically, I am not sure you
are doing the IRS a favor. If you are in the highest tax
bracket 35%, you will owe the U.S. Treasury $8.98, in the
lowest, $2.57. I am sure it costs the IRS more than that to
open the envelope and process the return.

I think I would sit tight for 3 years and the problem will
go away on 15 April 2007. If the IRS does send you a
letter, they will want about 4-5% interest on the amount due
since 15 April 2004.

All freely provided advice guarantee correct or double your
money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA

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I filed my taxes few weeks back and got my refund also. Now
I recd a 1099-INT from one of my bank for US$25.66.

Question is do I need to do an amendment? What are the
consequences of not showing this amount in my tax return.

Any help or advise is highly appreciated.
Thanks

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