The taxpayer refuses to file a return. The IRS records of 1099s and W-2s show that the taxpayer probably owes taxes, so they file a return for the taxpayer. This is called a ‘Substitute for Return’ and it is a legitimate tax return for all legal purposes.
Eventually, as the pressure from the IRS grows, the taxpayer realizes that the easiest path in life is to get into compliance. They prepare the missing returns and discover that their calculations show a higher tax than the IRS’s assessment. Are they required to correct the IRS? If they fail to do so, are they open to a fraud charge?
The answer is NO! The IRS has made a legal assessment. If the lower amount is what the government wants to use, the taxpayer’s only legal requirement is to pay the tax assessed. You are only in trouble if you provide false information to the government. The fact that 3rd parties did not report all of your income is not your problem.