The IRS cannot assess a tax on you without a filed return. This puts them in a difficult spot. If the taxpayer does not file a return, what can they do to get a balance due on their books? The answer is the “Substitute for Return”. Basically, they file one for the taxpayer using the information on hand as to what the income was likely to be. This is where all those 1099s and W-2s come into play. Once the IRS computers have officially filed a Substitute for Return, tax due notices can start.
Here are a few things to understand about the Substitute for Return:
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- The IRS is not out to minimize your taxes. They will file the return using single or married filing separate along with the standard deduction. No credits, no additional deductions.
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- You can still file your return voluntarily and correct any errors in the tax accessed.
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- You are not required to file any additional returns if say the IRS calculations of the tax were lower than your own calculations.
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- The big disadvantage to not filing and letting the IRS do the work is that taxes due from an assessment from a Substitute for Return are never dischargeable in bankruptcy.
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- Finally, the IRS only files a Substitute for Return when they think there are taxes due. Non-filers who have a refund due will eventually lose that claim once the 3 years have run out.
