Under the mitigation provisions (§§1311–1314), when a determination in a later year establishes that property basis was misstated in a closed earlier year, an adjustment is authorized to correct the effect of that error even though the year in which the error occurred is closed. The adjustment mechanism recomputes the tax in the closed year as if the item had been treated correctly, then applies the resulting increase or decrease to the year of determination.

Key requirements:

The error must involve an item whose treatment in the closed year is now inconsistent with a position maintained (by either the taxpayer or the IRS) in the later year. The determination must relate to basis of property, and the error must have been made in a prior transaction upon which that basis depends. The recomputation corrects only the specific item(s) in error, but gives due regard to the effect that correction has on other computations (e.g., depreciation, gain/loss) that depend on the corrected basis. **Practical application: ** If the prior years are closed and you cannot amend them, you adjust the current-year basis to reflect the correct figure. The adjustment effectively "catches up" the basis to what it should have been had the prior years been correct, without requiring formal amendment of those closed returns. If the prior years remain open, amending them is the standard approach, but when they are closed, prospective correction under the mitigation rules is the authorized method.

In short, you are not required to amend closed prior-year returns to fix basis — the current-year return can reflect the corrected basis, and the mitigation provisions authorize the corresponding adjustment to tax liability.