What to do if notified by IRS about missing capital gain

File an amended tax return (Form 1040X) to reflect whatever discrepancy the IRS advises you exists with your current tax return.

If they sent you a notice with a proposed correction, no need for you to file a 1040-X. On the form they sent you indicate whether you agree with their proposed correction or not. If you agree you simply indicate as much and send along whatever you owe in additional taxes, interest and penalties. If want to dispute their proposal you can indicate that and submit supporting documentation.

Thank you for all your answers. I called IRS today and was told to send in all the supported document for I disagreed with the proposed tax difference. IRS assumed that the missing capital gain's cost basis is zero. If I agreed, I gave them all the missing reported stocks plus a fine and interest without appreciation of any. If you use the tax return software, make a duplicate copy and rerun it with the correction. You should be able to spot the error.