I focus my practice on tax resolution, representing taxpayers in Colorado, Florida, and across the United States.
The IRS Substitute for Return (SFR) is a program that the IRS uses when a taxpayer fails to file a return or owes taxes but fails to respond to IRS correspondence and other attempts to get them to comply. The SFR program allows the IRS to create a tax return for the taxpayer in the absence of them filing their own return.
When the IRS creates a substitute return, they estimate taxes due based on the limited information they have. This estimate is usually higher than the actual tax liability and the penalties and interest increase the amount even further. Often under these circumstances, the taxpayer will not be aware of the tax debt until they receive a collection notice in the mail.
When a taxpayer receives an SFR notice from the IRS, it is important that they take immediate action. The taxpayer should file their original return as soon as possible in order to reduce the amount of additional interest and penalties that the IRS is assessing. The taxpayer should also contact a qualified tax professional who can help them identify additional deductions or credits that may reduce their overall tax liability. In addition, the taxpayer should contact the IRS to negotiate payment arrangements if they can not afford to pay the full amount of the liability.
In some cases, the IRS may be willing to waive some or all of the interest and penalties associated with an SFR. To qualify for this forgiveness, the taxpayer must demonstrate that they acted in good faith by filing any late returns, paying any taxes due in a timely manner, and communicating with the IRS throughout the whole process.
The IRS substitute for return program is complex and the amount of taxes due can often be significantly higher than the taxpayer’s original liability. To avoid this situation, taxpayers should always make sure to file their returns and pay taxes on time. If they do find themselves facing an SFR notice, they should take steps to reduce the amount due by filing any late returns, seeking the help of a qualified tax professional, and negotiating repayment arrangements with the IRS.