Posted by Fletcher Accounting and Tax Service Inc.

Didn't File A Tax Return? You Could Be Subject To A Substitute For Return

Didn't File A Tax Return? You Could Be Subject To A Substitute For Return

Under code 6020, the IRS has the authority to prepare and file a tax relief statement for a taxpayer who does not file tax returns promptly. If a taxpayer does not file a return or does not cooperate with the IRS in a replacement return, the IRS may prepare and sign a replacement return based on the information it holds.


A replacement declaration must meet the requirements of 6020 (b). The document must identify the taxpayer with the taxpayer's name and identification number; provide sufficient information to calculate the taxpayer's tax payable and indicate that it is a tax return. The statement ought to be signed by an authorized IRS official to suggest that the IRS has adopted the document as the taxpayer's return.

Use for a LICO

A LICO, according to section 6020 (b) of this section, is considered a valid tax return filed by the taxpayer to set fines for non-filing of the tax return, non-payment of tax on the returned income, and non-payment of estimated taxes. The IRS may use PHI to fulfill its task of presenting evidence in court in support of the penalties imposed. However, the IRS cannot use SFR to impose sanctions on accuracy. Although it is treated as a tax return and a fine, a LICO does not expire the limitation period by not filing a tax return and is not treated in a bankruptcy proceeding as a declaration of tax taxes that the debtor can use to obtain a tax return tax deduction.

Example SFR

In the Tax Court Case 2014, Rader, 143 TC no. 19, CCH, 60-607 December, the IRS also provided Form 13496, IRC Section 6020 (b); Form 4549-A, Adjustments for Tax Gap; and Form 886-A, Explanation of Articles. The IRS did not include Form 1040. The court found that the SPP was valid: the combination of documents submitted by the IRS agent to the taxpayer was sufficient to be a valid LICO.

In Rader, the taxpayer, the installer, did not file a return and did not pay taxes. An IRS officer examined the taxpayer's bank records to determine which deposits could be undeclared income after verifying that the taxpayer continued to make a living. The IRS also reviewed tax returns sent by clients of taxpayers who paid for the services. The IRS concluded that the taxpayer had an income of $ 350,000 or more in those years. The taxpayer did not provide evidence of deductible expenses to offset the revenue, and the court did not receive any deductions.

Situations in which the IRS will file a substitute for return

The typical case is where the IRS realizes that a person did not register a few years ago, but that person has income documents in the IRS file, such as the W-2 forms and 1099. The IRS will then submit replacement statements for all years not shown based on the information contained in these tax documents. In this situation, the IRS can often go ahead and file a surrogate declaration.

How does the IRS calculate tax on the substitute for a return?

The IRS will provide a substitute return in the interest of the government; In other words, a declaration of substitute return does not include any deduction; no credit can give rise to the payment of the balance owed by the taxpayer.

Think for a second. If a tax return is prepared without deductions, without tax credits, the calculation of the income tax will likely be much higher than it should be. And in most cases, that's exactly what's happening. And sometimes disclosed, the IRS owes the customer a refund.

If you have a refund, pay attention to the statute of limitations

As long as the deadline has not expired, they could still receive a refund, or this refund applies to any balance owed to the IRS.

The period is three years from the initial shipping deadline. For example, the deadline for submitting individual returns for fiscal 2018 is April 15, 2019. Three years from this date is April 15, 2022. Individuals have until April 15, 2022, to submit a return original the fiscal year 2018 to request a refund to the IRS.

What happens if the tax return is filed outside this three-year limit? The refund expires. The IRS cannot refund the customer. The IRS can not apply the rebate to a balance waiting for another year. Also, the IRS cannot ask for a refund in the form of an estimated payment for a future year. The refund money disappears. 

You have rights during this process

Clients have the right to appeal to the tax court to challenge the IRS tax determination, which is related to the right to appeal an IRS Decision in a free and independent forum.

The customer has the liberty to file an original income tax return.

The customer has the right to pay the correct amount of taxes.

The customer has the right to retain representation. Lawyers, registered agents, and certified accountants can represent clients in the IRS business.

If you happen to be in this situation, here is your list of things to do.

Collect all possible documentation, such as:

  • Any IRS notice or letter
  • Possible tax forms or documents, such as W-2, 1099, mortgage interest statements, interest income.
  • If you are self-employed, calculate the income and expenses of your business.
  • The last tax return sent

Gather all these documents or whatever you can find and make an appointment with a tax specialist, preferably a specialist in this type of situation.

Technical details: effect of substitute for postponement of the limitation period

A substitute return that is not signed by the individual

  • The collection period begins
  • The status of audit restrictions does not start.
  • Does not affect the status of refund restrictions

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