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I do not post often on the Motley Fool but I respect the opinions of everyone here. I received an amended 2002 K-1 from my uncle's estate a few months ago and I am interested in how the tax pros here think about the wording of the letter that was sent with the amended K1. It seems like the law office is saying I can ignore this change and not do an amended 1040 for 2002.

The K1 was amended on line 13a (deductions in the final year of trust or decedent's estate, excess deductions on termination) from $459 to $249. This deduction is used on Schedule A if you are over 2% of your AGI, which we were last year and I took the deduction. I still have my 2002 program on my computer and I owe $54 more to the Feds with this change.

The letter from the estate lawyer says:

"If you did use this itemized deduction on your state or federal tax returns, you will have to decide whether amending your return is warranted.... In my opinion, the chances of an audit adjustment are slim. Consequently , I would wait for any adjustment and not amend my tax return. If you decide to pursue this strategy, you must be aware that interest and penalties my apply should the audit adjustment ever come. If you decide to amend your return, you will simply have to reduce your itemized deductions to the appropriate amount based on your amended Schedule K1."

It really is no big deal to amend my return, timewize. Should I just go ahead and send it in? Would you advise someone to ignore it or wait for an audit?

Thanks for you time.

Denise


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The letter from the estate lawyer says:

"If you did use this itemized deduction on your state or federal tax returns, you will have to decide whether amending your return is warranted.... In my opinion, the chances of an audit adjustment are slim. Consequently , I would wait for any adjustment and not amend my tax return. If you decide to pursue this strategy, you must be aware that interest and penalties my apply should the audit adjustment ever come. If you decide to amend your return, you will simply have to reduce your itemized deductions to the appropriate amount based on your amended Schedule K1."


I'm somewhat surprised. The estate lawyer is recommending you play "audit lottery". The practicality of what he says is correct, it isn't very likely that the IRS will take the estate's amended return and cross-check the amended K-1s against the 1040s filed by the beneficiaries.

If the IRS does crosscheck and you haven't filed an amended return, you will get a letter asking you why you haven't filed and proposing the amount of taxes due plus any interest due and possibly penalties. At that time you can pay the amount and all is finished.

Of course, the correct thing to do is to file the amended return now, pay any additional tax due and be done with it.

Ira
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The letter from the estate lawyer says:

"If you did use this itemized deduction on your state or federal tax returns, you will have to decide whether amending your return is warranted.... In my opinion, the chances of an audit adjustment are slim. Consequently , I would wait for any adjustment and not amend my tax return.


Were I you I'd amend my return and send a copy of the letter to the bar association, along with a strongly-worded letter of my own. This "officer of the court" is advising you to break the law. He should be dealt with.

Phil
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Thanks so the feedback. I was thinking that I would not write something like that on my letterhead and sign it. I was curious whether anyone else thought this was unusual.

It also makes me wonder if I amend my return and the other beneficiaries (my siblings and cousins) do not, would the IRS notice? Of course, since someone has to be above the 2% AGI to take the deduction in the first place, most would probably not be affected. I think I will check with my brothers and sisters to see if they used this deduction last year and whether they are amending.

You guys are great!

Denise
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"...Were I you I'd amend my return and send a copy of the letter to the bar association, along with a strongly-worded letter of my own. This "officer of the court" is advising you to break the law. He should be dealt with."...
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I must disagree with Phil on this one. The attorney is advising no such thing. He is advising you to basically sit still and pay the taxes if and when an assessment comes through. I would have given the same advice for a $50 balance due.

You have no legal obligation, though perhaps in your conscience, a moral obligation, to amend your return. It sounds like you can do it yourself, since you still have it on your computer, and therefore you probably should. But if you were one of our clients we wouldn't amend a return for $50 one way or the other. Our fee would be more than that. We'd do it if the client insisted, and was willing to pay us standard rates for it.

There is a cost-benefit issue in tax compliance, as well as all other areas.

Bill



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You have no legal obligation, though perhaps in your conscience, a moral obligation, to amend your return.

Well, I guess we'll just have to agree to disagree on this one. I've never been able to find any de minimus exclusion for the requirement to amend an incorrect return, so given the "you won't get caught" tone of the attorney's letter, I'd report the sucker in a heartbeat.

Phil
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Well said, Phil!

Best regards,
Duane
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