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Old 10-11-2014, 05:02 PM
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Substitute for return (SFR)

So here's my question. I've read conflicting information on this topic so I'd greatly appreciate some insight.

Lets say a return is 12 years old, never filed by taxpayer, but the IRS filed a substitute for return 4.5 years ago (from today). The amount owed is really zero, but the SFR billed/levied $15000.

Here is my question. Normally, there is a 3 year limitations on refunds, but I have read that an SFR does not really constitute a "return" in the sense that it starts the limitations count down.

So my question is, can I file that old return, even though a SFR was filed and levied, and receive a refund? Thanks very much, because I'm completely lost/confused. If i'm able to, it would be fair and make sense, since I didn't exactly owe anything on the year.



Here is an excerpt of what I mean, but I don't fully understand:

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"1.The Service has authority to prepare and process a tax return when a person fails to file a required return or files a false or fraudulent return under authority of IRC Section 6020(b). If the Service processes a tax return prepared under the authority of IRC Section 6020(b), 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.


2.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. If the taxpayer signs a waiver of restriction on assessment (Form 870, 4549, etc.), it does not constitute a return under IRC Section 6020 (a), in accordance with Rev. Rul. 2005–59. If the Service has processed an unsigned Substitute for Return (SFR), the taxpayer may still file a signed tax return for the same tax year as the SFR return. The assessment statute period for that tax year will begin with the received date of the taxpayer’s signed return. See IRC Section 6501(a)(b)(3)."



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Old 10-12-2014, 06:19 AM
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Quote:
Originally Posted by george29 View Post

#1;Lets say a return is 12 years old, never filed by taxpayer, but the IRS filed a substitute for return 4.5 years ago (from today). The amount owed is really zero, but the SFR billed/levied $15000.



#2;Here is my question. Normally, there is a 3 year limitations on refunds, but I have read that an SFR does not really constitute a "return" in the sense that it starts the limitations count down.




#3;So my question is, can I file that old return, even though a SFR was filed and levied, and receive a refund? Thanks very much, because I'm completely lost/confused. If i'm able to, it would be fair and make sense, since I didn't exactly owe anything on the year.



Here is an excerpt of what I mean, but I don't fully understand:

---------------------------------------------------------------------
"1.The Service has authority to prepare and process a tax return when a person fails to file a required return or files a false or fraudulent return under authority of IRC Section 6020(b). If the Service processes a tax return prepared under the authority of IRC Section 6020(b), 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.


2.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. If the taxpayer signs a waiver of restriction on assessment (Form 870, 4549, etc.), it does not constitute a return under IRC Section 6020 (a), in accordance with Rev. Rul. 2005–59. If the Service has processed an unsigned Substitute for Return (SFR), the taxpayer may still file a signed tax return for the same tax year as the SFR return. The assessment statute period for that tax year will begin with the received date of the taxpayer’s signed return. See IRC Section 6501(a)(b)(3)."
#1;Basically, the substitution for return principle allows the IRS to file a tax return on your behalf as you fail to do so for yourself. So, the SFR done by them is usually inaccurate and incomplete. So, it is really crucial for you to submit your tax return every year by the deadline; for rexample, whether you are an EE or an IC, your ER or client will report to the IRS the compensation it paid to you during the tax year. Hence the IRS would have a record of all your income reported to them in such ways. This record is what they will use to determine if your tax return is accurate. What the IRS does not have, however, would be records of your expenses and therefore your actual profits or losses and tax credits or deductions and claims for which you are eligible. So, aslongas you fail to submit a tax return of your own that would contain a record of your expenses, tax credits, deductions and claims, then the IRS will send you several letters instructing you to file. If you still do not do so, the IRS has the right to file a tax return on your behalf (the substitute solely based on the records of income they receive). This will not augur well for you because the IRS has no way of knowing the deductions, losses or credits you may have had that would reduce that income. And, because you did not file, you cannot claim those credits or deductions.
The only way to get around a substitute for return is to file your own tax return which will be treated as a request for audit reconsideration by the IRS. Provided the audit reconsideration examiner accepts your return as filed, the IRS will replace the SFR with your voluntarily filed return. If not, then sorry, you have to pay the amount in the substitute for return.
So the best thing to do would be to pre-empt the substitute for return by filing your tax returns each year before the deadline.


#2; Once the substitute for return is filed by the IRS, there is no customary 10 year SOL which normally applies to tax returns submitted by a taxpayer. However, the IRS has forever to collect the amount including penalties and interests in the SFR from a taxpayer. And the IRS ALSO will launch collection efforts once the substitute has been filed on your behalf.





#3;One of the most critical tax related issues is whether tax debts can be discharged in bankruptcy. Although the rules are complex, tax debts can often be discharged but usually only if the taxpayer filed a return for himself and not if the IRS has filed a SFR for him. The IRS will file a substitute for return aslongas they cannot get a taxpayer to voluntarily cooperate and can find sufficient information about the taxpayer's income. Nedelss to say, the SFR is prepared in the best interest of the government and is only an estimate of tax liability and will often be greater than the actual tax liability. In an SFR, the IRS gives the taxpayer only one personal exemption, zero dependents and a standard deduction of zero.So, even if you have received a notice, you still may to send your past due return to the the irs. For example, say the irs will send you a Notice of Deficiency CP3219N ,90-day letter, proposing a tax assessment. You will still have 90 days to file your past due tax return or file a petition in Tax Court.



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