Most Serious Problem #9: Amended Returns
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Most Serious Problems
FIGURE 1.9.4, Processing Steps for Audited Amended Returns, FYs 2017-2019
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1. Amended Returns Routed to Accounts Management
The IRS Submission Processing (SP) function receives individual taxpayers’ amended returns. SP either (1) evaluates the
requested adjustment and makes (or declines to make) the requested changes or (2) routes the amended return to the
AM function, a process that took an estimated two to four weeks.
1
Corporations’ amended returns are routed directly to AM
for processing (SP records the receipt of amended returns but does not process them further).
2
2. Amended Returns Selected for Audit
AM evaluates some amended returns but is required to refer some amended returns, known as
CAT-A returns, to the Examination function (Exam).
3
Exam then selects some of these amended
returns for examination. This process, which applied to about three percent of the individual
amended returns and about 1.3 percent of corporations’ amended returns AM received in Step 1,
took an estimated median of five to six weeks for individual amended returns and less than a
week for corporate amended returns.
3. Amended Return Assigned to Auditor and Audit Opened
Some amended returns selected for audit are assigned to an examiner (who contacts the
taxpayer), and an audit is opened. This step, which applied to between 27 percent and 56 percent
of individual amended returns and between 8.5 and 44 percent for corporations’ amended returns
selected for audit in Step 2, took an estimated median of three to nine weeks for individual amended
returns, and 14 to 16 weeks for corporate amended returns.
4. Amended Return Audit Closed
The examiner concludes the audit and closes the case, which took an
estimated median of 17 to 20 weeks for individual amended returns, and
35 to 41 weeks for corporate amended returns.
4
Thus, the median exam
time alone took just as long or longer than all the preceding steps 1-3.
1 The applicable IRM during FYs 2017-2019 provided for a timeframe of 12 calendar days (20 days during the March-June peak filing
season) to route amended returns from SP to AM. See, e.g., IRM 3.11.6.2(8), General Form 1040-X Information (Nov. 21, 2019). The
decision to route the individual’s amended return to AM is “based on the issue, the dollar tolerance, computer program capabilities
(e.g., Blocking Series), and other various reasons.” IRM 3.11.6.4.15 (1), Accounts Management Cases (Jan. 2, 2019). This processing
step is automated for electronically filed Forms 1040X, which is expected to reduce delays. IRS response to fact check
(Nov. 24, 2020). Due to the COVID-19 pandemic, as of September 26, 2020, there were over a million Forms 1040X in SP inventory,
of which about 974,000 were more than 21 days old. IRS, JOC, Customer Account Services Form 1040X Consolidated Inventory
Report, Submission Processing (Sept. 26, 2020).
2
IRM 21.7.4.4.4.11.13, Form 1120-X, Amended U.S. Corporation Income Tax Return (Oct. 1, 2020). As of Sept. 26, 2020, there were more
than 230,000 Forms 1120X in AM inventory, of which about 89,000 were more than 120 days old. IRS, JOC, AMIR National Inventory
Age Report (Sept. 26, 2020). The 120 days begins on the date the IRS received the amended return, as recorded by SP; thus, the
delays in SP processing described above overflowed into AM.
3 IRM 21.5.3-2, Examination Criteria (CAT-A) – General (Aug. 7, 2020). CAT-A criteria were established based on past examinations that
identified characteristics indicating a high degree of noncompliance.
4 The maximum time it took to close a case in FYs 2017-2019 was 99 weeks for an individual amended return case and 101 weeks for a
corporate amended return case, i.e., once opened, these audits alone took almost two years to conclude.