SFR Substitute for Returns: IRS Action on Non-Filers

In the latest Star Wars episode, the evil empireowe tax on it due to the SFR.For business owners
executes a brutal revenge on the Jedi. While the IRSwho do not file 941 payroll tax or 940 unemployment
is not an evil empire (and due to the Revenuetax, IRS uses code section 6020(b) to file payroll
Reform Act of 1998 not very brutal anymore); it tooreturns for non-filers. These returns can also be for
is executing revenge on those who do not complymore than one would have owed if they filed the
with filing their tax returns.The IRS is agressivelyoriginals.Once IRS files an SFR 1040 or a 6020(b) 941,
using the "Substitute for Return" (SFR) program tothey can collect on them just as if they were filed
file tax returns on behalf of those who fail to file.by the taxpayer. I had one client who had a Federal
The SFR program has been around a long time.Tax Lien filed on him for over $100K due to an SFR
However, due to better computers at IRS, it is beingon 1996. We went ahead and filed a correct tax
used now more than ever to get people into filingreturn in 2004 and his true debt was only about
compliance. Basically, if you do not file on time, the$10K. The reason was because IRS taxed all his
IRS sends you letters and may call you on the phonestock sales as 100% profits when he had many
requesting that you file. If one ignores the letters,losses.There is good news for someone caught in
IRS takes the information reported to them by thirdSFR trap. You can always file an original return! The
parties and files a Form 1040 for you. In most cases,tax laws are valid and IRS is a legitimate government
the tax owed on this IRS prepared return is faragency. Don't be fooled by bogus websites or folks
more than one would owe if they filed an originalwho tell you that there is no law requiring one to file
return.Why is the tax so high on an SFR? Well, IRSa tax return. If you get SFR'd, hire a tax professional
does not know who lived with you so they usuallyto prepare a correct return and work with IRS to
file the return single or Married Filing Separate (theoverturn the SFR. You may be audited, but if you
worst tax table). A person might have had 3 or 4are right then you will owe much less than the
dependents, but they won't be on the SFR. Also, ifamount on an SFR.A good CPA, Enrolled Agent, or
you worked contract labor and got a 1099, it is veryTax Attorney can help you with IRS collection issues.
likely you had deductable business expenses. Again,DON'T IGNORE IRS LETTERS. GET HELP.
IRS does not know what your expenses were andHere are some websites that can help you get info:
will tax you on the total of 1099s. In addition, if you
sold stock, IRS will tax you on 100% of the sales
price because they do not know your basis in the
stock. In this circumstance, you could have lost
money on the stock and had a deduction, but willRobert Coleman, E.A., A.T.A.