What Happens if They Find Mistakes on Your Tax Return?

Once you file your income taxes, it’s typical to breathe a huge sigh of relief. But you're not out of the woods yet. The Internal Revenue Service puts each submitted return through a computer screening process, however. And if the IRS finds mistakes on your tax return, you will receive communication from the agency to alert you to the problems.

When the IRS finds an error on your tax return, one of your first indications of the error might be a refund that is more or less than you were expecting. If the mistake resulted in a bigger refund, you will get a larger refund amount from the IRS. If the mistake results in a smaller refund, you’ll get a smaller amount. If the mistake results in a larger tax amount due, you will get details about the adjustments the IRS wants to make to your income tax return.

The IRS sends a detailed letter to a taxpayer whenever it makes adjustments to an income tax return. It’s common for this letter and an adjusted tax refund to arrive at different times, though. The letter will include complete information about the mistakes, including the information from your filed income tax return and the modified return completed by the IRS. The letter also includes a response page for you to use to follow up with the IRS.

Once you get notice of an error, look over your income tax return and the IRS’s proposed changes so you understand how and why you made the mistake. You might find that you agree with the IRS’s findings and you accept the adjustment to your refund or the additional tax amount due. You could also conclude that you disagree with the IRS’s assessment of your income tax return. If this is the case, you have recourse.

If you accept an adjusted refund, there’s no need to do anything. If you accept that you made a mistake that requires you to pay additional taxes, in many cases you'll send in the response page that indicates your acceptance of the IRS notice, along with a check for the additional amount due. If you dispute the error, follow up with the IRS immediately by calling the telephone number provided in the letter you received. If the situation is complicated, write a detailed letter that explains why you believe your tax return was correct. Make copies of documentation that proves your calculations and send the letter and documentation to the IRS at the address provided in the letter.

If your IRS notice says you’ve underpaid your tax liability, you have a few options to handle the situation. The IRS will accept immediate payment from your bank account, debit or credit card, wire transfer, check, cash or money order. If you need time to pay your unexpected tax bill, the IRS offers a monthly installment plan with payments submitted online. If the amount is more than you can likely pay in the foreseeable future, you can work with the IRS to make an offer in compromise. If you qualify, you could settle your tax debt with the IRS for less than you currently owe. If you intend to pay but have a current financial hardship, you can request that the IRS temporarily delay their collection efforts until you can improve your finances.

Generally, the IRS reserves an audit for more complex or serious situations. The initial computer screening happens automatically with every return. The computer will assign a score to each return. A higher score increases the possibility of the IRS selecting a return as an "audit candidate." Possible audit triggers include hefty itemized deductions, investment income that doesn’t match the 1099 in your IRS file, charitable deductions missing required verification or an incomplete tax return, which leads the IRS to question what you may have forgotten. The highest-scoring tax returns in the audit candidate pool often proceed on to an actual audit examination.