CAN THE IRS PREPARE A TAX RETURN FOR ME IF I HAVEN’T FILED ONE?

If you don’t file your tax returns, the IRS could file a return for you and begin enforced collection activities. The IRS preparing a tax return on your behalf is called a substitute for return, or SFR. The IRS typically has three years from the date of filing to examine your return and assess additional tax liabilities. However, if you don’t file, the statute of limitations for assessment never begins to run. Even when the IRS files an SFR return for you, the statute of limitations for assessment does not begin to run because you have not filed a return. However, the IRS will begin enforced collection actions after it files a substitute return for you. The general rule that the IRS has 10 years from the date of assessment to collect a tax liability still applies. The IRS has promulgated helpful information regarding SFRs at https://www.irs.gov/businesses/small-businesses-self-employed/filing-past-due-tax-returns.

How does the IRS make an assessment?

The IRS collects various tax information and documents pertaining to taxpayers that have been reported to the IRS by third parties. These documents could include a W2 or a 1099 from an employer, or a K-1 from a business or trust. The IRS will use this information and use it to prepare a basis tax return for you. The IRS will not give you all of the deductions that you could be entitled if you had filed the return. The IRS will give you the standard deduction, however. For example, the IRS could use a 1099 to create a schedule C for you without giving you any deductions you were entitled to if you had filed the return. In addition, the IRS often uses 1099s forms that report the sale of property and insert the sales price without any basis adjustments. This has the effect of grossly overstating a taxpayer’s income. Therefore, it is often the case that if the taxpayer files the return, the tax liability would be reduced significantly.

What are my options if the IRS has prepared SFRs for me?

If you have SFRs, you should consider filing your tax returns as soon as possible for a few reasons. First of all, if you are entitled to a refund, you should file so that you timely claim your refund. If your refund claim is untimely you will not be able to obtain a refund. Second, if you have a tax liability that is too high based on the IRS information that doesn’t include appropriate basis or deduction adjustments, if you file the return, the liability may be reduced. Third, if tax returns are not filed, bankruptcy will not be an option. Filing a late return could possibly allow that tax liability to qualify for a discharge in bankruptcy. Finally, filing a return will start the IRS audit statute of limitations. A tax attorney can conduct a background analysis on your tax account to review all information necessary for you to decide whether to file outstanding tax returns or not.

Contact US

If you have unfiled tax returns, contact a tax attorney at Disparte Tax Law today for a free consultation. We have extensive experience in tax law and procedure and can explain your rights and options so that you can resolve your tax issues.