We sometimes have taxpayers who come into our Richardson, TX tax office who have not filed a tax return for all years or many years and who are confused when the IRS is attempting to collect tax from them in a year that they know they never filed.
How Does This Happen?
Often what has happened is that the IRS has filed a Substitute for Return (SFR) on behalf of the taxpayer. Section 6020(b) of the Internal Revenue Code authorizes the IRS to take this action when a return is not filed voluntarily by the Taxpayer. The IRS does this simply to allow them to begin collection action. A completed SFR allows the IRS to begin collections and also starts the 10 year collection statute of limitation (CSED) to collect the income tax.
The IRS does not file an SFR on April 16th if the taxpayer didn’t file on time. The goal of the government is to have every taxpayer voluntarily file their return. Only after not receiving a voluntarily filed return will the IRS move forward. Before the IRS files the returns, the taxpayer is sent the proposed assessement requesting a response. If the taxpayer still does not respond, the SFR will become the assessed tax and the IRS will begin collections. The IRS is not required to file an SFR but is permitted to under the code. You will not see the IRS file an SFR if it results in a refund.
The Bad News
If the IRS files an SFR on behalf of the taxpayer, it will most likely not be to the taxpayer’s benefit. The IRS will create the return using information it has received from employers, banks, and other payers. Generally, when filing an SFR, the IRS will complete returns as follows:
- An SFR is filed with a filing status of either single or Married Filing Separately. They will not file Married Filing Jointly or Head of Household status.
- The IRS will use the standard deduction for the filing status even if the taxpayer qualifies to itemize.
- There will be no credits.
- If the taxpayer has business income, the IRS will not report any business expenses.
- The SFR does not stop any late filing or late payment penalties of the taxpayer.
- The SFR is not a filed return for bankruptcy purposes.
Can a Taxpayer still file a tax return once an SFR has been filed?
Sure, the taxpayer can still file a tax return and they should do so to take advantage of a better filing status along with all allowed credits and deductions. It will also trigger your ASED, which is the time the IRS has to complete and audit of your return. You would file an original return; it is not an amended return.
Do You Need Help?
If you need help with a late tax return filing, and SFR filing, or any IRS tax issue, I’d be happy to talk with you. Please give me a call at (972) 821-1991 or email me at bob@jablonskyandassociates.
