Did you know that if you are required to file a tax return and fail to do so, the IRS will prepare a return for you? If your failure to file a tax return continues after being notified by the IRS that you have not filed, they will prepare what is known as a “Substitute for Return” (SFR).

The SFR is prepared based upon information submitted to the IRS by third parties including your employer, bank, and companies for which you have received compensation for your services.

In most instances the tax calculated by the IRS is substantially greater than your correct tax liability. This is a result of the IRS not considering your business deductions and/or itemized deductions. In addition, the IRS may not correctly determine your filing status or the number of your allowable dependents.

If the IRS is attempting to collect back taxes from you based upon a SFR we can help by preparing your tax returns using your allowable expenses and deductions and submitting the return to the IRS for reconsideration. After reviewing your correctly prepared tax return, the IRS will reduce your outstanding back taxes to the amount actually owed, which should be significantly less than the amount assessed by the IRS.

The following illustration is taken from an actual case we recently handled.

The taxpayer was a Doctor who had not filed his 2007-2011 tax returns and was assessed more than $150,000 by the IRS for the years 2007 and 2008 based upon SFRs prepared by the IRS. They had not yet prepared SFRs for 2009-2011. We gathered all the taxpayer’s relevant tax information in his possession, which included documentation for significant business deductions. We also obtained IRS transcripts detailing his wages, other income and deductions such as mortgage interest. Based upon all this data we prepared his returns for the years 2007-2008 and it showed he did not owe the IRS any taxes. We submitted these returns to the appropriate IRS personnel and within 45 days the IRS reversed the $150,000 assessment and he owned them nothing. Unfortunately for the taxpayer, the three-year period for obtaining a refund had expired and he was not entitled to the overpayments reported on his 2007-2008 tax returns. However, we were able to get the taxpayer his refunds for the years 2009-2011.

Another reason to file all your back returns is that you will not qualify to request an installment agreement or submit an offer in compromise for unpaid taxes unless you are current with your tax filing obligations.

The Certified Public Accountants at East Coast Tax Consulting Group are ready to prepare your unfiled tax returns and provide you with advice and representation regarding your unpaid taxes. Call us today at 866-550-7655 for a free-no obligation consultation.