This whole area of law seems utterly absurd.
Only if you don't understand it
> Did they just commit retroactive tax fraud?
That's not how fraud works and that's not what the IRS is trying to do
Fraud: you have to knowingly misrepresent your position aka lie about something. Making a mistake on your taxes is not fraud (source - I am a US citizen and have received letters from the IRS for making a mistake). It is definitely not fraud to be caught in unexpected IP theft.
IRS: they are not trying to get people in "gotcha" situations. They just want to collect the fair amount of revenue that people owe the federal govt and their punishment is proportional.
Presumably understanding it is the basis of its being referred to as absurd.
It's like a tax lawyer saying that computer programming is "absurd". No sir, computer programming is based on sound principles of mathematics and linguistics.
The hypothetical that GP comment posed demonstrated that they didn't understand how tax collection and the IRS works.