Unfiled Tax Returns
If you haven’t filed tax returns, the IRS can file a substitute for return (SFR) on your behalf to assess a tax liability and begin enforced collections. Third parties submit tax information pertaining to you to the IRS, and the IRS can use this information to recreate a tax return for you. For example, the IRS receives 1099s and W-2s on your behalf and will use that to calculate your income. If you receive a 1099, the IRS could calculate your gross receipts on your schedule C and will assess the resulting tax without any valid deductions. If the IRS prepares a tax return on your behalf, you will receive a letter outlining the proposed assessment. Upon receiving this letter, you are given an opportunity to appeal the proposed assessment.
The proposed IRS-prepared tax return generally only gives the standard deduction, one exemption, and a filing status of single or married-filing separately. The IRS has prepared a PDF discussing unfiled tax returns and IRS SFRs.
Penalties Arising from Unfiled Tax Returns
If you don’t file a returns, the IRS can assess penalties and interest. The IRS can assess penalties for failure to timely file a tax return and failure to pay the tax. In addition, you could lose your ability to claim a refund. In addition, if you do not file a tax return, the statute of limitations for audit and assessment never begins to run.
The IRS will Begin Enforced Collections After Preparing an SFR
Once the IRS has prepared an SFR for you for one or multiple years, the IRS can attempt to levy and place liens. You will begin receiving notices that you have a tax liability even though you haven’t filed any returns. If this is the case, it is important that you conduct an analysis to determine which years have a tax liability and which tax years have a tax return filing requirement.
Contact a Los Angeles Tax Attorney
If you have unfiled tax returns, contact a Los Angeles IRS collection defense tax attorney at Disparte Tax Law today for a free consultation.