IRS Made a Mistake on My Taxes. What Should I Do Next?

Errors on your tax return can be stressful, particularly when they come from the IRS. Whether it’s a miscalculated refund or incorrect income reporting, addressing the issue promptly helps prevent complications. Fortunately, you have options to correct mistakes and ensure your tax records are accurate.

Identifying Tax Return Discrepancies

Tax return issues often surface when the IRS sends a notice, such as a CP2000, indicating a mismatch between your reported income and what the agency has on file. These discrepancies usually stem from third-party reports like W-2s or 1099s that don’t align with your submission. Even minor differences, such as rounding errors or omitted income, can trigger an adjustment.

Errors can also involve deductions, tax credits, or IRS miscalculations. For example, the Earned Income Tax Credit (EITC) has strict eligibility rules, and if the IRS applies outdated income limits, your refund may be lower than expected. Similarly, if the IRS misinterprets a tax treaty exemption, you could be taxed on earnings that should have been excluded.

Most returns are processed by automated IRS systems, but mistakes happen. A software glitch might misclassify a payment or fail to apply a tax credit correctly, leading to an unexpected balance due. Manual errors, such as miskeyed Social Security numbers or misapplied estimated tax payments, can also cause confusion.

Gathering Supporting Records

Before disputing an IRS error, verify your own records. Compare your tax return with financial documents like bank statements, brokerage reports, and payroll records. If the issue involves income, cross-check your W-2s or 1099s with what was filed. Employers and financial institutions sometimes issue corrected forms, such as W-2c or 1099 corrections, which may clarify discrepancies.

For deductions or credits, locate receipts, invoices, or other proof of qualifying expenses. If a charitable donation deduction was reduced, obtain acknowledgment letters from the nonprofit organizations. If a business expense was disallowed, review mileage logs, business receipts, or home office calculations. IRS Publication 463 outlines documentation requirements for travel and business-related deductions.

Tax payments are another common source of discrepancies. If an estimated tax payment or withholding hasn’t been credited, check payment confirmations from your bank or employer. The IRS online account portal allows taxpayers to view their payment history, which may reveal whether a payment was misapplied. If you paid by check, obtain a copy of the canceled check from your bank as proof.

Filing a Corrected Return

If an error affects your tax filing, submitting a corrected return may be necessary. If the mistake results in an underpayment, addressing it quickly can prevent penalties and interest from accumulating. The IRS allows taxpayers to file an amended return using Form 1040-X to correct the original submission. This form requires a clear explanation of the changes and supporting documentation.

Not all errors require an amended return. If the IRS has already adjusted your tax liability and the correction is accurate, no further action is needed. However, if you disagree with the adjustment, filing Form 1040-X allows you to present the correct figures. For example, if the IRS incorrectly recalculated depreciation on rental property, revising the return with proper cost basis and depreciation schedules can prevent long-term reporting issues. If a tax treaty provision affects your liability, referencing the appropriate section of the treaty in your amendment can clarify the discrepancy.

Tracking Changes in Refund or Taxes Owed

Once a correction is submitted, monitoring its status ensures it is processed correctly. The IRS typically takes up to 20 weeks to review an amended return, though this varies depending on the complexity of the changes and the volume of filings. Taxpayers can track their Form 1040-X using the “Where’s My Amended Return?” tool on the IRS website, which updates status changes in three phases: received, adjusted, and completed. Since amended returns are processed manually, delays are common, especially during peak tax season.

If the correction results in an additional refund, the IRS will issue payment by check or direct deposit, depending on the method chosen in the original filing. If the adjustment is not processed within 45 days of the original due date or filing date, whichever is later, interest may be included in the refund. This interest is taxable income and must be reported on the following year’s return using Form 1099-INT.

If the adjustment increases tax liability, penalties and interest accrue from the original due date of the return. The failure-to-pay penalty is 0.5% of the unpaid tax per month, up to a maximum of 25%, while interest is calculated daily based on the federal short-term rate plus 3%.

Communicating with the IRS

Resolving an IRS mistake often requires direct communication with the agency, especially if the issue remains unresolved after submitting a corrected return. The IRS provides multiple channels for taxpayers to seek clarification or dispute an adjustment, but response times vary.

Phone calls are useful for time-sensitive matters like impending penalties or collection actions. The IRS has dedicated phone lines for different tax issues, including individual accounts, business taxes, and international tax matters. When calling, have a copy of your tax return, IRS notice, and supporting documentation on hand. Due to long wait times, calling early in the morning or midweek often results in shorter hold periods. If the issue involves a more technical tax matter, requesting to speak with an IRS examiner or escalation specialist may be necessary.

Written correspondence is often required for formal disputes, especially when additional documentation is needed. If responding to an IRS notice, send a letter with a clear explanation, copies of relevant records, and a reference to the notice number. Using certified mail with return receipt provides proof of submission. For more complex cases, filing a formal appeal through the IRS Office of Appeals may be an option. The appeals process allows taxpayers to challenge adjustments without going to court, and cases are typically handled by an independent officer who reviews the evidence and applicable tax laws.