The information below applies to amending your Minnesota Individual Income Tax Return in the following situations (covered in detail below):
- Divorce: Amending a joint tax return if you and your spouse are now divorced.
- Ponzi scheme: Amending your return because you were a victim of a “Ponzi scheme.”
- Protective claims: Amending your return to protect your right to a potential refund in the future.
Note: Amending your tax return in these situations can be complex and you may want to consult a tax professional.
If you and your spouse divorce after filing a joint tax return, you may file an amended return or refund claim if the change is attributed to you and affects your tax liability. For refund claims, calculate the refund amount as follows:
1) Re-compute the joint tax liability for the original return.
2) Re-compute each spouse’s separate tax liability by completing “married filing separate” returns for them (but these won’t be filed).
3) Determine each spouse’s share of the joint tax liability (because neither spouse can receive a refund that exceeds his or her share). Based on the results from steps 1 and 2 calculate each spouse’s share using the formula below:
||Joint tax liability = Spouse A's share|
|Total of Spouse A and B’s separate tax liabilities
4) For the spouse claiming a refund, subtract their share of the joint liability from their own withholding or estimated tax payments to determine the amount of their refund. File the amended return as “married filing joint” (because you must use the same status as the original return).
Mary and Bill filed a joint return with a Minnesota taxable income amount of $110,000. Of that amount $75,000 belongs to Bill and $35,000 belongs to Mary. Their tax liability was $11,000. The next year, they get a divorce.
Mary later realizes she failed to claim a $10,000 deduction on their joint return. She files a refund claim showing her taxable income for that year is now only $25,000 ($35,000 - $10,000). To calculate Mary’s refund, we follow the steps outlined above:
1) Re-compute their joint tax liability based on $100,000 in taxable income (after taking Mary’s deduction). For this example, the recomputed liability is $10,000.
2) Re-compute the separate tax liability by completing “married filing separate” returns for both Mary and Bill. For this example, Mary’s recomputed liability is $2,250 and Bill’s is $8,250.
3) Determine Mary’s share of the recomputed joint tax liability:
||$2,100 (Mary’s share, |
|$10,500 (total of Mary’s and Bill’s separate
||joint tax liability)
||that is 21% X $10,000) |
|tax liabilities, that is $2,250 + $8,250)
4) Determine Mary’s refund amount. The $1,000 change in liability was due to Mary’s deduction, and the amount doesn’t exceed her share of the joint tax liability ($2,100). Mary can claim the entire $1,000 as a refund when she files an amended return, if she had at least that much in withholding and/or estimated tax. (She must file as “married filing joint.”)
A Ponzi scheme is an illegal investment arrangement that pays fraudulent returns to investors from their own money or that paid by other investors (as opposed to actual profits).
If you’re a victim of a Ponzi scheme, you’re allowed to deduct your investment losses on your tax returns. The Minnesota Department of Revenue follows the same rules as the IRS, as outlined below.
Federal Revenue Procedure 2009-20 provides an optional “safe harbor” treatment for taxpayers who are affected by a Ponzi scheme. This procedure allows the loss as a “theft loss” deduction and taxpayers may file an amended return for the years affected.
To amend your Minnesota return, file Form M1X, Amended Income Tax Return, based on the Federal Revenue Procedure 2009-20.
It can take four to six months for the department to process your amended return. Be sure to follow the federal procedure to avoid delays in processing your return. You should also submit a copy of any action taken by the IRS action once your amended federal return has been processed. Send it to:
Attn: Ponzi Scheme Amends
Mail Station 4122
St. Paul, MN 55146-4122
You may file a protective claim by amending your tax return if you anticipate a refund, but it depends on something that won’t be resolved until the deadline for claiming a refund has passed. That could be a pending lawsuit or an expected law change, for example. A protective claim preserves your right to claim a refund once the situation is resolved.
To file a protective claim in Minnesota, you must first amend your federal tax return. Then file state Form M1X, Amended Income Tax Return. Select the box at the top under “Reason for amending – Claim due to a pending court case.” Include a copy of your amended federal return.
The department keeps these amended returns until the court case or other matter is resolved. At that point, you should file a new Form M1X showing all changes related to the claim. Include a copy of the IRS audit report, notice of adjustment or refund check that shows your federal claim has been accepted. (If your first Form M1X showed all the correct changes, you only need to submit the documentation from the IRS.)