Wednesday, February 28, 2018


Sometimes, when a person has not filed a tax return in a while, the IRS will prepare a tax return based on the information they have available. It is called a substitute for a tax return. The IRS does this so they can assess tax and begin collection activities.

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For example, suppose Joseph is a self-employed graphic designer. He works for various companies as an independent contractor, and they send him 1099-MISC forms to report the income paid to him.

Joseph forgot to file his 2010 and 2011 tax returns (he was really busy those years). Eventually, the computers at the IRS noticed Joseph had not yet filed for those two years. What the computers do is they pull all the tax documents regarding his income (all those 1099-MISC forms), and the computers use that to calculate Josephs tax. Then the computer mailed him a letter saying, essentially, based on what we know so far here's how much tax you owe. All the IRS wants, it seems, is the tax money. Just how do we go about solving this problem?

"It's always in the client's best interest to file an original return," Noah Daniels EA of Advance Tax Relief says. Now, let's try to be a little more precise. An individual faced with this situation has two possible courses of action they can take:

They can petition the Tax Court, which must be done within 90 days of receiving their statutory notice of deficiency.
Or they can file an original tax return.

It's usually better to just go ahead and file an original tax return. The reason is that if the original tax return could be filed and processed, the client could receive any refund money due to them within the same amount of time as it takes to get an appearance before the Tax Court.


Usually, people find out that the IRS has prepared a substitute tax return when they get a letter in the mail. The IRS will mail an assessment letter.

Basically, this letter says that the IRS will propose to assess tax based on the information that the IRS is aware of – typically this consists of W-2 and 1099 forms and other tax documents that the IRS has on file. In fact, the letter will summarize the sources of income that the IRS used to calculate the tax.

The IRS gives people 30 days from the date of the letter to take one of the following actions:

1) Send in a signed, completed tax return;
2) Send in a signed and dated Content to Assessment and Collection form; or
3) Send in a statement explaining that the person isn't required to file a tax return (and why).
4) After the Assessment Letter Comes the Statutory Notice of Deficiency
If a person does not respond the assessment letter within 30 days, the IRS mails out a second letter. This second letter is sent by certified mail, which requires that the person sign to receive the letter. This second letter is called the Statutory Notice of Deficiency.

Here's a sample Notice of Deficiency in pdf format. (It's also called Letter 3219-B).

The IRS mails this notice of deficiency letter when they are prepared to act as if their proposed tax assessment (detailed in the first letter) is correct, and they are prepared to begin collecting any unpaid tax, penalties, and interest.

Be sure to read a notice of deficiency carefully. This letter advises the person of his or her right to dispute the assessment in Tax Court. The IRS gives the person 90 days to take one of the following actions:


File a Consent to Assessment and Collection (basically agreeing to the IRS's calculations)
Explain that the person doesn't have a filing requirement
Sometimes, however, the person did not receive either of these two notices. In that case, the substitute tax return is discovered when the client decides to file their unfiled tax returns.

As part of that process, their tax professional reviews transcripts from the IRS and realizes that the IRS has already filed a substitute return and made an assessment of tax.


Congress authorizes the IRS to prepare tax returns based on information available to it in situations where a person has not filed a return (Internal Revenue Code 6020).

Situations Where the IRS Will File a Substitute for a Return

The typical situation is when the IRS notices that a person hasn't filed for a few years, yet that person has income documents on file with the IRS, such as W-2 and 1099 forms. The IRS will then file substitute returns for all the unfiled years based on the information on those tax documents. If the taxpayer hasn't filed over a course of, say, four years, its possible the IRS can and often will "go ahead and file a substitute return."

How Does the IRS Calculate Tax on a Substitute for a Return?

The IRS will prepare a substitute return in the best interest of the government. In other words, a substitute return has "no deductions, no credits, [and] could result in the taxpayer having a balance owed."

Think about that for a second. If a tax return is prepared without any deductions, without any tax credits, it's quite likely that the IRS's calculation of tax is much higher than it should be. And in most cases, that's just what happens and in some cases the IRS owes the client a refund.


Providing the time limit hasn't passed, you can still get refund or have that refund applied to any outstanding balance due they have with the IRS.

The time limit is three years from the original filing deadline. So, for example, the filing deadline for individual returns for the tax year 2014 is April 15, 2015. Three years from that date is April 15, 2018. People have until April 15, 2018, to file an original return for the tax year 2014 to claim a refund from the IRS.

What if the tax return is being filed outside of this three-year time limit? The refund expires. The IRS cannot issue the refund back to the client. Nor can the IRS apply the refund to an outstanding balance on another year. Nor can the IRS apply the refund as an estimated payment to a future tax year. The refund money simply disappears. "They [are] just giving IRS money," Griffin says.


"Could be several weeks to several months, sometimes as long as 10 months to a year," Griffin said.

However, while the IRS is processing these original tax returns, they will hold off on trying to collect money from the taxpayer. "As long as the IRS has noticed they received the original returns and being worked on," Griffin said, "they put it on a temporary hold for the IRS to review everything."

If the client has outstanding balances owed for other years, Griffin advises that the client "continue any payment plans they have set up with the IRS."

You Have Rights During This Process
Clients have the right to go to Tax Court to contest the IRS's tax assessment, which is related or our right to appeal an IRS decision in an independent forum.

The "client has the right to file an original tax return themselves," Griffin says.

The client has the right to pay the correct amount of tax.

The client has the right to retain representation. Attorneys enrolled agents, and certified public accountants can all represent clients in matters before the IRS.

If You Find Yourself in This Situation, Here is Your To-Do List
Gather as much documentation as you can, such as:

Any notices or letters from the IRS
Any tax forms or documents
Such as W-2s, 1099s, mortgage interest statements, interest income
If you are self-employed, tally up your business income and expenses
The last tax return you filed.
Gather up all these documents, or as many of them as you can find, and make an appointment with a tax professional, preferably one who specializes in these kinds of situations.
Call ADVANCE TAX RELIEF - (800)790-8574


Fortunately, some documents can be obtained from the IRS such as W-2s, 1099s. Theses documents can be acquired from the IRS via the  wage and income transcript.

The important thing is to gather as many documents as you can and then meet with a tax professional to sort through everything.


Noah Daniels EA suggests that clients ask these four questions of any tax professional when they are trying to deal with substitute returns:

How many years of unfiled tax returns should be filed?
If the IRS does owe me money, will I receive it?
Should I mail in the tax returns or hand-deliver the returns to an IRS walk-in location?
Who will be working with me from start to finish? Who is the person who is going to be working on my problem? Is it going to be passed off to someone else?
When working with any tax professional, it's a good idea to build some common ground. Ask them what licenses they have. Ask how they price their services. Ask them to put together a project plan with deadlines. And ask them what their preferred method of communication is. Some people are better by phone, others are better at email, and still, others prefer that you drop by for an in-person meeting.

Technical Details: Effect of a Substitute for a Return on the Statute of Limitations
A Substitute Tax Return that is not signed by the individual

Does start the collections statute of limitations
Does not start the audit statute of limitations
Has no effect on the refund statute of limitations
From the Internal Revenue Manual, "the assessment date will start the period for the statute of limitations for collection per IRC Section 6502(a)(1), but does not start the period of limitations for assessment."

However, if a person agrees with the substitute return, then signing the substitute return does start the audit statute of limitations. From the same section of the Internal Revenue Manual, "If the taxpayer signs a SFR return prepared from income information received from the taxpayer, it becomes the taxpayer’s return per IRC Section 6020(a) and starts the assessment period of limitations."

Advance Tax Relief offers an experienced team of tax professionals who specialize in working directly with the IRS to solve difficult tax issues for businesses as well as individuals with back taxes or other tax issues. Contact us today at 800-790-8574 for more information or to schedule a consultation.

Call us now at 800-790-8574 or email

Calls and emails are returned during our regular business hours 8:30am - 5:00 pm EST.
So, if you have IRS Problems, Owe Taxes, have Past Due UnFiled Tax Returns – Take action today! You should work with a local tax relief firm. Call Advance Tax Relief (800) 790-8574


If you think that you may need help filing your 2017 tax return and past due tax returns, you may want to partner with a reputable tax relief company who can help you get the max refund.

Advance Tax Relief has a offices in Houston, TX and Los Angeles, CA and helps many individuals just like you work with the IRS to solve a wide variety of issues, including penalty waivers. Our Top Tax Attorneys, Accountants and Tax Experts are standing by ready to help you resolve or settle your IRS back taxes.

Call our team today at 800-790-8574 for more information. For a free consultation, schedule an appointment with us online.

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