Suppose that for one year, the Schedule C in question reported income of $5,000, ordinary and necessary expenses of $5,500 and a Schedule C loss of $500.
If, after review, the IRS viewed the income as hobby income, the IRS would report the $5,000 in income as other income and no expenses would be allowed to be reported against the income.
So one tax year would lose the $500 loss and an additional $5,000 in taxable income would be added to the tax return. Penalties could be added. Interest certainly would be added.
The tax return would be reviewed by the IRS and, after examination, would 'correct' the tax return. You are correct. They would send a bill. You would not be amending the tax return.
@jwpinkney
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