How Should You Address Mistakes on Last Year’s Returns During Tax Season?

What should you do if you discover that you made mistakes on last year’s federal returns when doing your taxes in 2025? Or, what if you already knew that you made mistakes, and you want to address them so that you are not at risk in the event of an IRS audit going forward? The answers to both of these questions depend on the specific circumstances involved. Learn more from Texas IRS lawyer Lawrence Brown.

5 Potential Options for Addressing Mistakes on Last Year’s Tax Returns

Broadly speaking, U.S. taxpayers have five main options for resolving tax controversies with the IRS. These are not the only options—there are other options that are available in specific circumstances (such as submitting a streamlined filing when you need to report undisclosed offshore accounts)—but these are the main options that are generally available when taxpayers are behind on their federal tax obligations:  

1. Wait to Hear from the IRS

In this scenario, one potential option is to wait to hear from the IRS. As the IRS explains:

“Taxpayers usually do not need to file an amended return to fix a math error or if they forgot to attach a form or schedule. The IRS will correct the math error while processing the tax return and notify the taxpayer by mail. The agency will send a letter requesting any missing forms or schedules.”

However, this option can be risky for several reasons. For one, when you are behind on your federal tax obligations, interest and penalties begin to accrue automatically. As a result, the longer you wait, the more you will owe.

For another, waiting for the IRS to uncover a tax mistake on its own is far more likely to lead to additional scrutiny than resolving the issue proactively. Furthermore, if you are aware of a tax mistake and fail to correct it, this can transform your inadvertent tax mistake into intentional tax fraud. If you were to face allegations of tax fraud, this would increase your risk significantly.

2. File an Amended or Delinquent Return

Another potential option is to file an amended or delinquent return. This may be a viable option if you recently discovered an inadvertent tax mistake and can comfortably pay the full amount you owe.

However, it is important to understand that coming into compliance by filing an amended or delinquent return does not insulate you from facing IRS scrutiny. In fact, filing an amended or delinquent return can trigger IRS scrutiny in some cases—particularly for high-income and high-net-worth taxpayers. As a result, if there is a risk that facing scrutiny from the IRS could lead to additional penalties, then you will most likely want to take a different approach that involves working directly with the IRS (or IRS CI) to secure a final resolution that eliminates the risk of enforcement.

3. Seek an Installment Agreement and/or Submit an Offer in Compromise

If filing an amended or delinquent return is your best option, and you cannot comfortably pay the full amount you owe, then seeking an installment agreement when submitting your amended or delinquent return could be a viable solution. This would allow you to pay down your tax debt over time without the risk of facing a tax lien or other means of collection (as long as you make your payments when they are due).

Submitting an offer in compromise is another option for taxpayers who cannot pay the full amount they owe—or for whom paying their full tax liability would “create[] a financial hardship.” To submit an offer in compromise, you must first submit all required tax returns and make all required estimated payments. When submitting your offer in compromise, you must also submit either (i) an initial payment of 20 percent of your offer or (ii) the initial payment under your proposed installment plan. Crucially, the IRS does not have to accept your offer, and if the IRS rejects your offer, it can “[a]pply any offer payment you included to your balance due.”

4. Negotiate a Settlement and Closing Agreement

Submitting an offer in compromise is not necessarily the only way to settle your federal tax debt for less than the full amount you owe. In some cases, negotiating a settlement and closing agreement is an option as well. As stated in Section 301.7121-1(a) of the Treasury Regulations:  

“The Commissioner may enter into a written agreement with any person relating to the liability of such person . . . in respect of any internal revenue tax for any taxable period ending prior or subsequent to the date of such agreement. A closing agreement may be entered into in any case in which there appears to be an advantage in having the case permanently and conclusively closed, or if good and sufficient reasons are shown by the taxpayer for desiring a closing agreement and it is determined . . . that the United States will sustain no disadvantage through consummation of such an agreement.”

As further stated in Section 301.7121-1(c), a closing agreement is “final and conclusive,” and the taxpayer’s case may not be reopened “except upon a showing of fraud or malfeasance, or misrepresentation of a material fact. If you are interested in settling your tax debt with the IRS, this is an option that you will want to discuss with a Texas IRS lawyer before you make any decisions about your next steps.

5. Submit a Voluntary Disclosure to IRS CI

If you are at risk of facing criminal charges due to your tax mistake (i.e., if your tax mistake was intentional or willful or if you have ignored it for a significant period of time), then you may also need to consider submitting a voluntary disclosure to IRS Criminal Investigation (IRS CI). This is specifically an option for resolving willful violations that present risks for criminal prosecution. However, submitting a voluntary disclosure presents risks of its own; so, here too, it is critical to consult with an experienced Texas IRS lawyer to ensure that you are making informed decisions.

Contact Us to Request an Appointment with Texas IRS Lawyer Lawrence Brown

If you need to know more about your options for addressing mistakes on last year’s tax returns, we invite you to get in touch. To request an appointment with Texas IRS lawyer Lawrence Brown, please call 888-870-0025 or contact us confidentially online today.