Why did the IRS make up my tax return?

Services for Real Estate Pros with Serna Tax Solutions, LLC

What happens with the IRS sends you a tax bill for a year that you did not file a tax return?

This is what happens when the IRS has documentation that indicates that you made money (it could be a W2, 1099, or any other document issued to your social security number), but you did not file a return claiming that income.  The IRS can then create was is called a "Substitute for Return" (or SFR) in which they create a tax return for you based on the information they have, and then send you the bill that they calculated.

There are many issues that come along with an SFR, and one of them is that the IRS does not go out of its way to find you deductions.  For example, say someone issued you a 1099-MISC saying they paid you $5,000 to help them build their back patio.  During that job, you incurred $2,000 in lumber costs, and $500 in other building supplies.  On a return you create, you will indicated those expenses and be taxed on the net profit of $2,500.  

Well, the IRS does not have documentation (nor are they going to come as for it) about your $2,500 in expenses, so they are just going to tax you on your $5,000 total. 

This is one of the many reasons that it is beneficial for YOU to control the filing of your tax returns, rather than waiting for the IRS to do it for you. 

Need help managing a tax assessment?  Feel free to reach out and we can discuss your issue, or set up a consultation so that we can establish the best plan of attack. 

Sabrina Santos-Serna

Serna Tax Solutions, LLC



(559) 512-1012

Madera and Fresno, CA

Disclaimer: Nothing in this article is to be considered tax advice. You should always consult with your personal tax and finance team to determine how these issues may or may not apply to you, and what your personal best plan of attack is.

Comments (1)

Gwen Banta
Sotheby's International Realty - Los Angeles, CA

WOW! This is jolting information. I never knew they could do such a thing. Great post!

Sep 17, 2020 02:51 PM