Are you one of the thousands of taxpayers who didn’t file a federal tax return last year? If so, you might be surprised to learn that the IRS can file one for you, whether you like it or not. Under Internal Revenue Code § 6020(b), the IRS has the authority to prepare a return on your behalf through what’s known as the Substitute for Return (SFR) program. But beware: an IRS-prepared return is rarely in your favor.
What is a Substitute For Return?
A Substitute for Return (SFR) is a tax return created by the IRS using third-party data it receives from sources like your employer, banks, and other financial institutions. This usually includes your W-2s, 1099s, and other income documents. However, it does not include important elements that could significantly reduce your tax liability, such as:
- Tax credits (e.g., Child Tax Credit, Earned Income Tax Credit)
- Itemized deductions (e.g., mortgage interest, charitable contributions)
- Dependents
- Head of Household filing status (which often lowers your tax rate)
Instead, the IRS uses the least favorable filing status – either Single or Married Filing Separately – and only applies the standard deduction. The result? A tax bill that’s often much higher than what you’d owe if you filed the return yourself.
If your return is more than 12 months overdue, the IRS may initiate the SFR process to assess your tax liability, adding penalties and interest. It can then move forward with collection actions.
How the Substitute For Return Process Works
The SFR process typically begins when the IRS has income information suggesting you had a filing requirement but never filed a return. Here’s what usually happens:
- IRS Notices Begin. The IRS will start by sending notices urging you to file voluntarily.
- SFR is Filed. If you ignore those notices, the IRS will create an SFR for you.
- IRS Notice CP2566. This notice alerts you that the IRS has calculated your taxes based on the information it has. You’ll see your estimated tax, interest, and penalties.
- 30-Day Response Window. From the date on the notice, you have 30 days to:
- File your original tax return
- Contact the IRS to explain why you weren’t required to file
- Or sign and return the Consent to Assessment and Collection form
If you don’t act within those 30 days, the IRS will escalate the matter.
What Happens Next? The Notice of Deficiency
Failing to respond triggers a more serious notice: the CP3219N, Notice of Deficiency, also called the 90-day letter. This certified letter outlines your tax liability and gives you three options:
- File your return within 90 days from the date of the letter
- Dispute the IRS findings by filing a petition with the U.S. Tax Court
- Agree to the assessment by signing the consent form
Important: Ignoring the CP3219N can result in the IRS moving forward with collection efforts such as wage garnishments, bank levies, or tax liens. At this stage, the situation becomes much harder – and more expensive – to resolve.
Why You Should File ASAP (Even If You Can’t Pay)
Once you know the IRS is preparing or has prepared a Substitute for Return, the best move is to file your own return as quickly as possible. Doing so can:
- Reduce your overall tax liability
- Restore your eligibility for tax credits and deductions
- Prevent or delay IRS collection efforts
- Preserve your right to a tax refund (you only have 3 years from the original filing deadline to claim it)
Even if you can’t afford to pay your tax bill right away, filing your return is still crucial. The IRS offers options such as:
Filing your own return shows good faith and opens the door to more flexible resolution options.
Don’t Go It Alone – Talk to a Tax Professional
Dealing with the IRS can be intimidating and confusing, especially when you’re already behind. A licensed tax professional can:
- Review and reconstruct your income and deductions
- Prepare and file accurate back tax returns
- Communicate with the IRS on your behalf
- Help you apply for tax relief or payment plans
A professional can also ensure your return is prepared in a way that minimizes red flags and maximizes your chances of a favorable outcome.
Get Help Today
If you’re facing an IRS Substitute for Return or have received any of the notices mentioned above, it’s not too late, but time is critical.
Call Tax Defense Network at 855-476-6920 for a free, no-obligation consultation. Our experienced team has helped thousands of clients resolve their tax problems, reduce their liability, and get back on track with the IRS.
Don’t wait until the IRS takes action. Take the first step toward resolving your tax issue today.