Atlanta tax expert,

When I filed my 1040 - 2009 return I forgot to include $ 80 in interest income. When I recalculated my taxes I found that I still owe $ 12.00 additional tax to IRS. So should I file form 1040 X. If yes, how do I know if I owe any interest panalty to IRS. I would really appreciate a response.

Lalji:

If you want to file the Form 1040X and add the interest income, and you can do it yourself, file the amendment and pay the added $12 in tax. The IRS will accept the amendment and the check and probably not even bother to calculate the interest or penalty, since the amount is so small.

However, if you need professional help to amend the return, then it is my advice that you do NOTHING, because the fee charged for an amendment will ranged from $50 to $150 dollars, between 4 to 11 times the cost of the extra tax.

Given this rather large fee, it is best to do nothing at this point in time. If you choose this course of action, one of three things will happen:

1) The IRS will not notice the absence of the $80 in interest, in which case you are home free after three years have passed.

OR

2) The IRS WILL notice the missing $80 in interest, in which case they may decide to NOT BOTHER collecting the tax due to the low amount under the de minimus rule (the amount of tax collectible is so small as to not be worth the effort). If this happens, it will be transparent to you; the IRS will not even notify you of the decision-making process.

OR

3) The IRS WILL notice the missing $80 in interest, and decide to collect the tax due plus penalties and interest.

If they DO choose Option #3, the tax ($12) plus penalty (25%, or $3) plus interest (maybe $5) will total maybe $20, at most $25, which is considerably less than what you would pay in fees to have a tax professional prepare the amendment.

It is your decision on how to proceed, but it is nothing to lose sleep over, whatever you decide, because there is NO CRIMINAL INTENT implied by your failure to report this interest, and the worst that can happen is you pay the interest and penalties, which will be, at most, $13.