Why did I get a bill from the IRS? I haven’t filed a tax return in years!
Have you ever wondered “Why did I get a tax bill from the IRS when I haven’t filed a tax return in years?” I’ll tell you.
Hi, I’m Jeff Fouts, a tax attorney located in metro Atlanta, with a nationwide law practice helping clients who have serious IRS problems.
So, “Why did you get a tax bill when you haven’t filed a tax return in years?” Learn about IRS Substitute Tax Returns that the IRS files for you when they find unreported income from Form 1099’s and other sources
We hear this comment from concerned taxpayers on a regular basis. Let’s talk about how this can happen and what some potential solutions might be.
Every year, the IRS receives information on you. This information may include W-2 earnings, or it may include Form 1099 items such as interest or dividend income, contractor income, mortgage interest paid, or even the year-end value of your retirement accounts! This information is referred to as ‘Wage and Income Transcripts’ or ‘Payor’ data. This information is accumulated your file based on the social security number on the documentation received. You should have received copies of all the documents sent to the IRS. Occasionally we discover that income information was sent to the IRS using an incorrect social security number or that the amount on the document itself was incorrect.
CP2000 IRS Letter
The IRS computer systems review this information periodically and compare the information against filed tax returns. If the computer finds a filed tax return that does not appear to have included all reported income, the computer issues a CP2000 matching letter. If the IRS computer system does not find a filed tax return and the income reported is sufficient to generate taxable income for a single taxpayer, a letter is generated requesting that the taxpayer file a tax return for that year.
IRS Substitute Tax Return
If you fail to file the requested tax return, the IRS computer system will prepare a return for you which assumes a filing status of either single or married filing separately. This return is referred to as a substitute for return or SFR. Substitute tax filings are prepared strictly on the basis of the wage and income transcripts. This means that the IRS is not going to give you credit for any deductions you may have had that year. It also means that if you have children, the IRS will not allow you any deduction for dependents because it has no way of knowing that you can still claim these dependents on your tax return. Needless to say, these Substitute filed tax returns generally create the highest possible tax liability for you.
When IRS prepares this Substitute tax return, they issue a Notice of Deficiency to you giving you 90 days to respond to their plan to file the proposed Substitute tax return. The expected response is usually an original tax return. If you don’t respond to this notice, the IRS will assess the Substitute tax return tax debt against you once the 90-day period expires. Once there is a tax debt on the books, IRS begins collection procedures. These collection actions can include wage levies and bank levies.
One of the most common scenarios where the IRS creates Substitute tax returns involves taxpayers who move and do not notify the IRS by either filing a tax return which would show their correct mailing address or by filing an IRS Form 8822 change of address notice. Since the IRS doesn’t see the taxpayer’s correct mailing address in their system, the taxpayer never receives the IRS notices that say they are about to file substitute tax returns on them, so the taxpayer isn’t able to respond, and in a couple of months or years when the IRS finally catches up with the taxpayer and starts collection against them the taxpayer is shocked because they never actually received any letters saying they even had a tax debt, and now the IRS is on their door step taking their money away from them. It can be financially devastating.
I hope this important video tip has helped you understand the IRS a little better and about how tax problems are solved. Chances are you have questions or concerns about your own particular tax problem. What I encourage you to do is pick up the phone and call me. I can answer your questions. Over the past 20 years I’ve represented clients in all 50 states and 29 foreign countries, and I welcome your call. I’m Jeff Fouts and thanks so much for watching. Have a wonderful day.
TaxHelpAttorney.com Tax Law video No. 113426