2005 overpayment followup

In 2005, I made a mistake on my return using Turbotax which effectively meant I entered a portion of my income twice. Consequently, I overpaid both my Federal and State taxes. Finding the error in 2007, I filed amended Federal and State returns and received refunds from both. Meanwhile, however, in filing my Federal 2006 return, I had taken what subsequently proved (given my error in 2005) to be too large a deduction for State taxes paid in 2005. Also, for 2008, I have received a Form 1099-G related to the refund of my State 2005 overpayment.
Because I was hit very hard by the AMT in 2006, it is to my advantage to file an amended 2006 Federal return rather than to list the value on the 1099-G on this year's Federal return.
So my question is, do I have a choice? Logically it seems that I should have to file the amended return. In principal, I suppose perhaps I should have filed both an amended 2005 and 2006 return at the same time except that would presuppose that the IRS and State tax authorities were going to accept my initial amended return.
Many thanks for any advice.

In 2005, I made a mistake on my return using Turbotax which effectively meant I entered a portion of my income twice. Consequently, I overpaid both my Federal and State taxes.

Did you itemize your 2005 deductions?


Finding the error in 2007, I filed amended Federal and State returns and received refunds from both. Meanwhile, however, in filing my Federal 2006 return, I had taken what subsequently proved (given my error in 2005) to be too large a deduction for State taxes paid in 2005.

Right now, you should ammend your 2006 return to reflect the correct state taxes paid. There is no 1099-G for your refund amount in the IRS 2006 files. Do not include the 1099-G you received in 2008, That is really 2008 income to you.


Also, for 2008, I have received a Form 1099-G related to the refund of my State 2005 overpayment.

Include this on your 2008 tax return. The IRS has this 1099-G information in it's 2008 tax year file, and will be looking for it on your 2008 tax return.


Because I was hit very hard by the AMT in 2006, it is to my advantage to file an amended 2006 Federal return rather than to list the value on the 1099-G on this year's Federal return.

Doing so will really mess up the records.


So my question is, do I have a choice? Logically it seems that I should have to file the amended return. In principal, I suppose perhaps I should have filed both an amended 2005 and 2006 return at the same time except that would presuppose that the IRS and State tax authorities were going to accept my initial amended return.
Many thanks for any advice.

Yes, the 2005 and 2006 ammended returns should have been filed in 2007 as you suggest. It would have been up to the IRS to decide which ammendments were acceptable. Worst case, you would have had to ammend the ammmended returns.

Thanks Clydewolf. Yes I did itemize deductions which is why the AMT I paid in 2006 substantially reduces the extra amount I would need to pay on an amended 2006 return. The only problem I have with your advice is that it sounds like it leads to my paying taxes on the refunded amount twice. Once on the amended 2006 return and again on my 2008 return. That does not quite seem right albeit, since we are dealing with the Tax Code, it may be. you are right that the IRS will probably get upset if the 1099-g amount is not reported on my 2008 return, but it seems that a solution to that is to show them the amended 2006 return if, and when, they flag the 2008 return. As for filing the amended 2005 and 2006 returns together, in hindsight that might have been simpler though I would still have received a 1099-G since that is coming from the State tax authority. Anyway, agin, thanks for your input.

Thanks Clydewolf. Yes I did itemize deductions which is why the AMT I paid in 2006 substantially reduces the extra amount I would need to pay on an amended 2006 return. The only problem I have with your advice is that it sounds like it leads to my paying taxes on the refunded amount twice. Once on the amended 2006 return and again on my 2008 return. That does not quite seem right albeit, since we are dealing with the Tax Code, it may be.

Paying tax 2 times on the same money is not right.
Because of your 2005 data entry error, Your 2005 state tax bill was larger.
You paid this extra state tax in 2006, and then took that extra payment as a deduction on the 2006 federal tax return.

Amending your 2006 federal return showing the correct state tax (a lower amount) paid may increase your federal tax bill for that year because your deduction would be less. You will add this 2006 state tax payment to your state tax deduction for 2009.


you are right that the IRS will probably get upset if the 1099-g amount is not reported on my 2008 return, but it seems that a solution to that is to show them the amended 2006 return if, and when, they flag the 2008 return.


The IRS will find that missing 1099-G either right away or about August of 2010. My guess is right away.

As for filing the amended 2005 and 2006 returns together, in hindsight that might have been simpler though I would still have received a 1099-G since that is coming from the State tax authority. Anyway, agin, thanks for your input.

Thanks again Clydewolf. Just to be clear about what you are suggesting regarding the 1099-G. I am not trying to avoid paying what I owe, but it does seem that if I report the 1099-G as income on my 2008 return, it will be taxed a second time. I suppose I could include the 1099-G with the return along with a letter explaining why I am not including the amount as taxable income and a copy of the amended 2006 return. I may try calling the IRS to get some guidance, but my experience with them regarding my overpayment was not encouraging. In the end, I sent them a big packet detailing the error, heard nothing for over a year and then they sent me a form letter followed by a check.

I am not sure I understand one of your last points:

Amending your 2006 federal return showing the correct state tax (a lower amount) paid may increase your federal tax bill for that year because your deduction would be less. You will add this 2006 state tax payment to your state tax deduction for 2009.

It seems that any extra payment I make with my amended 2006 Federal return is a Federal payment. I don't think that there is any impact on my 2006 State obligation.