Well, your first impulse should be to
1. file an Amended Return 1040-X to show the IRS that your original tax return wasn't filed correctly. However you have only three years from the due date of filing the return for the IRS to accept the return. For example, to amend the 2007 tax year, you have until April 15, 2011 (or longer if you filed an extension) to do it. That is the last year, technically, that you can amend successfully and get refunds. (However, from time to time, you can try to amend older years; but don't expect the IRS to accept them. They may reduce a balance due or give a credit towards another year but never expect a refund.)
If you missed the 3 year statute, your best option is
2. Audit Reconsideration or Offer in Compromise - Doubt as to Liability (OIC-DAL).
Here are a couple of active cases we have where we are utilizing this procedure:
A. We have a client in Orange County, California, who erroneously filed her 2006 tax return - by claiming IRA money that she rolled over into another IRA as income. However, she missed the opportunity (April 15, 2010 - 3 years after the tax return was due) to amend the return. The IRS doesn't have to comply with this OIC- DAL request, but it is the only avenue, save Tax Court, that can be used to get them to correctly calculate the liability.
B. A client in Napa Valley who was given an inaccurate 1099 by a company he contracted for. He tried to amend this 2004 tax return, but was delayed due to the company not fixing the 1099 they sent him. That company is no longer in business and unable to fix the 1099. The IRS subsequently rejected the claim in his amended return to fix this, due to the three-year rule. There are $50,000 in credits available to this taxpayer for this tax year 2004 that we are trying to pursue thru Offer - DAL.
C. A client in North Carolina (true story) whose drug-addicted wife had her boyfriend do the husband's and wife's tax returns for 1997 and 1998 -- with massive errors -- having the client owe thousands of dollars that they shouldn't have owed.