If you have not filed an income tax return for at least one year, the IRS may issue a letter inquiring about the omission.
If you haven’t filed the tax return for a number of years, the IRS may prepare a “Substitute For Return” (SFR) using third-party information — such as your Form W-2 (wages) and Form 1099 (interest, dividends, rents, royalties, and similar compensation) to prepare the return for you. SFR’s never do you any justice and it is almost always worth going back and preparing the return. The SFR will not take into account any deductions or expenses of which you may have been entitled to elect or receive.
If you do not respond to non-filing inquiries and they prep an SFR, you will received a Notice of Deficiency CP3219N with a proposal of your tax assessment. This gives you 90 days to either file your overdue tax return or file a petition in Tax Court. If you do nothing, the IRS will proceed with the proposed tax assessment, which will trigger the collection process.
If an affected taxpayer allows enough time to pass without addressing these notices, it is very possible that the IRS will end up collecting far more than the taxpayer legally owed had he/she filed a correct tax return. Furthermore, if you are due a tax refund, you must file within 3 years of the return due date in order to receive your money.
Keep in mind, the statute of limitations involved may vary depending on certain factors, such as whether or not the taxpayer has filed a timely request for an extension of time to file (there is rarely an extension of time allowed to pay), when the IRS last credited a payment to the taxpayer’s account, and other conditions. So it is important to file a timely tax return each year, and/or file a tax extension request if you need more time to prepare your return.
Contact our Attorneys if the IRS prepared an SFR on your behalf to see whether we may be able to help you.