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56 MoldMaking Technology —— AUGUST 2016 THE BOTTOM Correcting Errors on Income Tax Returns By Michael J. Devereux II, CPA, CMP Any company can make mistakes when filling out a tax return, and that includes mold build- ers. However, mistakes are not always to the detriment of the company. Sometimes they can be beneficial. There are numer- ous reasons why a mold builder may need to correct a tax return or its methods of computing tax liabilities. and correcting these errors may allow the mold build- er to request refunds or credits. However, these corrections also may also be costly and require the mold builder to pay addi- tional tax, and perhaps interest and penalties as well (see sidebar on page 57). Here are three com- mon ways to correct items on a tax return: 1. File an amended tax return. Requesting refunds/credits or assessing additional tax liabili- ties is accomplished by filing a revised return along with a schedule summarizing the difference between it and the originally filed return (or the last revision thereof). Companies that find errors in prior tax years should amend their returns to report the errors, whether or not correcting those errors will be beneficial to them. However, if the tax liability does not change as a result of amending the items on the return, companies are not required to file the amended return. For instance, if a com- pany had a net operating loss in its first year of operation and it failed to properly deduct a travel expenditure, it may revise its net operating loss carried forward into the subsequent tax year without fil- ing an amended return. It may be advised to attach a sched- ule showing the adjustment to the loss in order to show why the loss is different from what was originally reported. 2. Change the accounting method. Generally, companies have adopted a specific method of accounting once they have Companies may not file a claim for credit or refund after the statute of limitations has expired, and the IRS may not assess a tax liability after the statute of limitations has expired. used the method for two tax returns (see "A Method to the Tax Madness" in the March issue). In order to change this method, a company must file a Form 3115, the application for change in accounting method. There are two types of accounting-method changes: auto- matic and non-automatic, in which permission must be requested. For automatic changes, a company may file Form 3115 with its "timely filed" tax return (including extensions). For non-automatic changes, a company must file Form 3115 by the end of the tax year and pay a significant user fee. Many of the changes in accounting method are often a reflection of timing. That means many accounting methods reflect when revenue is recognized and when expenditures may be deducted. A company may change from one permis- sible method to another permissible method. Generally, this change reflects a benefit to the company, such as when an adjustment to the current tax year's income is equal to the difference between taxable income under the old method of accounting and the new method of accounting. Also, a company may change from an impermissible meth- od of accounting to a permissible method of accounting for calculating taxable income. This change may reflect a benefit or cost to the company. For example, if a mold builder is not complying with the uniform capitalization requirements (the requirement for companies to capitalize indirect costs into ending inventory), it may change its method of computing its