§1314 Amount and Method of Adjustment

Summary

When correcting a tax error, first figure the tax that was already decided for the year. That means the tax the taxpayer showed on a return (if any), plus any amounts later assessed or collected as deficiencies, minus any rebates. Then work out how much the tax goes up or down only because that one item is treated correctly, and do the same for any other years affected by a net operating loss (a business loss) or a capital loss carryback or carryover (moving a capital loss to another year). Add any wrongfully collected additions or interest caused by the error. The total for each year is the adjustment amount. That adjustment is handled the same way as a normal deficiency or overpayment — it is assessed and collected, or refunded or credited, just like a regular tax change, and it is treated as if one year remained before the time limits for assessment or refund. If a prior adjustment is changed later, the amount is redetermined and any extra tax or refund is handled the same way. If the change comes from a loss carried back, no interest is charged or paid for periods before the year the loss happened. The adjustment can’t be reduced by credits or offsets tied to other items, and paid adjustments can’t be recovered by refund claims based on other items. These rules do not apply to employment taxes.