What Does a Notice of Tax Return Change Mean and How Should You Respond?

Receiving a notice about changes to your tax return can be unsettling, but understanding why it happened and how to respond is key. The IRS or state tax agency may adjust your return due to errors, unreported income, or ineligible deductions, which can result in owing more taxes, a different refund amount, or no change at all.

Common Reasons for Changes

Tax agencies modify returns when discrepancies arise between reported information and official records. These adjustments often result from miscalculations, unreported income, or ineligible deductions.

Calculation Errors

Arithmetic mistakes or incorrect tax computations frequently lead to adjustments. Even tax software can’t prevent errors if numbers are entered incorrectly or tax tables are misapplied. Miscalculating standard deductions, for example, can lead to an inaccurate taxable income. The IRS automatically checks for mathematical mistakes and recalculates the correct amounts, sending a notice explaining any corrections.

These adjustments don’t always mean you owe more taxes, but they can affect your refund or available credits. Reviewing the notice carefully and comparing it with your original return can clarify whether the correction is accurate. If the adjustment is incorrect, submitting supporting documentation or requesting a review may be necessary.

Omitted or Incorrect Income

Failing to report all sources of income can lead to a tax return modification. Employers, financial institutions, and other entities submit income statements—such as W-2s and 1099s—directly to tax agencies. If your reported income doesn’t match these records, an adjustment is made.

Common oversights include forgetting to include freelance earnings, investment dividends, or rental income. Sometimes, income is mistakenly reported under the wrong category, leading to miscalculations. The IRS cross-references returns with third-party reports, flagging discrepancies for review. If income was unintentionally excluded, additional taxes and interest may apply.

Verifying all income sources before filing can prevent these issues. If an adjustment is incorrect, providing documentation—such as corrected forms or proof of non-receipt—can help resolve discrepancies.

Invalid Tax Credits or Deductions

Claiming tax benefits without meeting eligibility requirements can result in return modifications. Certain credits, such as the Earned Income Tax Credit (EITC) or Child Tax Credit, have strict qualification criteria. Overstating expenses for deductions—such as medical costs, education expenses, or business-related write-offs—can also lead to adjustments.

For example, the IRS may revise a return if a taxpayer claims a deduction for unreimbursed employee expenses that no longer qualify under the Tax Cuts and Jobs Act of 2017. Similarly, overstating charitable contributions without proper documentation can trigger a correction.

If an adjustment removes a claimed credit or deduction, reviewing eligibility criteria and providing supporting records—such as receipts or tax forms—may be necessary to dispute the change.

Adjusted Balance Due

When the IRS or a state tax agency revises a return, the result may be a new tax liability. The notice will specify the revised amount, a breakdown of how it was determined, and any applicable interest or penalties.

Since tax agencies assess interest from the original due date of the return, even a minor underpayment can accumulate additional costs. If the balance due results from underreporting income by more than 10% of the correct tax liability, the IRS may impose a 20% accuracy-related penalty under Internal Revenue Code 6662. A separate failure-to-pay penalty of 0.5% per month—up to 25% of the total unpaid tax—may also apply under IRC 6651(a)(2).

In some cases, penalty relief may be available. If the discrepancy resulted from a reasonable cause—such as reliance on incorrect tax advice from a qualified professional—the IRS may consider waiving penalties. Taxpayers with a history of timely compliance may also qualify for first-time penalty abatement. Submitting Form 843, Claim for Refund and Request for Abatement, along with supporting documentation, can help in seeking penalty reductions or waivers.

Possible Refund Adjustments

Taxpayers expecting a refund may find the amount altered. Refund adjustments occur when tax agencies identify discrepancies that change the refund amount.

One common reason for a reduced refund is the Treasury Offset Program (TOP), which redirects refunds to cover unpaid federal or state obligations. If a taxpayer has outstanding federal student loans, child support arrears, or past-due state income taxes, the IRS may apply all or part of the refund toward these debts. Taxpayers receive a notice explaining the offset, including details on the amount taken and the agency responsible for the debt. If the offset is due to a spouse’s liability, filing IRS Form 8379, Injured Spouse Allocation, may allow the unaffected spouse to reclaim their portion of the refund.

Refund adjustments can also result from corrections to refundable tax credits, such as the Additional Child Tax Credit or the Premium Tax Credit. If supporting documentation is missing or eligibility requirements are not met, the IRS may reduce or disallow these credits. Conversely, if a taxpayer qualifies for a credit that was not initially claimed, the IRS may increase the refund accordingly.

Steps to Respond

Carefully reviewing the notice is the first priority. It contains a detailed explanation of the adjustment, including the revised tax calculation, the specific issue identified, and any interest or penalties assessed. The document will also list a deadline for response.

Comparing the notice with a copy of the originally filed return can help pinpoint the exact changes and determine whether they are accurate. If the adjustment appears unclear or incorrect, requesting an account transcript from the IRS can provide additional details on how the revision was calculated.

If the adjustment is valid, taking prompt action to address any resulting balance can prevent additional penalties and interest. Taxpayers who agree with the changes generally do not need to formally respond unless a payment is required. Ensuring that all future filings correctly reflect income, deductions, and credits can help avoid similar issues. Reviewing tax withholding and estimated payments may also be necessary.

Payment or Appeal Options

Once a tax adjustment has been reviewed, the next step is determining whether to pay the balance or challenge the changes. If the revised amount is correct, settling the outstanding tax as soon as possible can prevent additional interest and penalties. The IRS offers multiple payment methods, including Direct Pay, the Electronic Federal Tax Payment System (EFTPS), and credit or debit card payments. For those unable to pay in full, an installment agreement can be arranged through Form 9465, allowing monthly payments. If the balance exceeds $50,000, additional financial disclosures may be required.

If the adjustment appears incorrect, taxpayers have the right to dispute it. The notice typically provides instructions on how to respond, including a deadline for submitting documentation. A written explanation, along with supporting records such as corrected tax forms or third-party statements, can be sent to the IRS for reconsideration. If the issue remains unresolved, requesting an appeal through the IRS Office of Appeals may be necessary. In cases where the dispute involves a significant amount, consulting a tax professional or seeking assistance from the Taxpayer Advocate Service (TAS) can provide guidance.

Consequences for Non-Response

Ignoring a tax adjustment notice can lead to escalating financial and legal consequences. If a balance remains unpaid past the due date, the IRS will continue to assess interest and penalties. Over time, unpaid tax liabilities may be subject to enforced collection actions, including wage garnishments, bank levies, or the filing of a federal tax lien.

If the adjustment results in a refund reduction and no response is provided, the IRS will finalize the changes and issue the corrected refund amount. However, if a taxpayer disagrees with the adjustment but does not formally contest it, they may lose the opportunity to challenge the decision. Addressing tax notices promptly, whether through payment or appeal, can prevent these complications and help maintain compliance with tax obligations.