Do I have to file a correction if I receive a corrected 1099 that results in a small increase in my return?

Question

I filed my taxes electronically. Immediately after doing that I read my email, which included a message from my investment company saying that they had made a mistake on my 1099 and were sending me a correction.

Aside from the "argh! if only I had waited one more day to file my taxes" factor ...

The correction would result in the Feds owing me an additional $2, and the change to my state taxes is zero. (The difference gets lost in the rounding.)

Do I need to file an amended return? It seems like the hassle of doing the paperwork isn't worth $2. Or would the discrepancy result in me being audited? Is the "safe" thing to do to file an amended return? Or does doing the amendment up my chances of being audited.

(Okay, I'm nervous about being audited. Not that I'm trying to cheat, but I worry that I might have made an honest mistake. I once made a mistake that was like $20 and when they caught it I not only had to pay the $20 but several hundred dollars in interest and penalties.)

Answer 1

Being audited is probably not as bad a thing as I think it is, but it's also not the first option that the IRS uses when they find a mistake.

Often when a form is missing, the IRS will send a letter with a proposed change to your taxes. They will make the correction to your form, and you can either respond to that letter with a check (if you owe money) or with documentation to dispute their correction. I received one such letter this year for my 2014 taxes. They proposed two corrections, one of which was my mistake, and the other was a misunderstanding on their side. I ended up writing a check for $72 after a few letters were exchanged, and only $11 or so was interest. They ended up sending me a check for $8 a while later.

It's more time than it's worth certainly, but if you file the 1040X, they will probably just accept it and send you another tiny check. If you don't file your correction, they may or may not send you a tiny check anyway.

Answer 2

This is very unlikely to trigger an audit. The most likely scenario is that the IRS will send you a correction letter, stating that there was a discrepancy between the amount you reported and the amount reported to them. They should also either send you a refund or request payment if you owe them more money -- they will calculate the tax due based on the correct numbers. I don't know if there is a threshold below which they just ignore the discrepancy.