The IRS Substitute for Return (SFR)

We have all heard the saying “if you want something done right, do it yourself.” Let’s explore the applicability of that phrase in the context of filing tax returns. It all depends on how we define “yourself.” We have explained in previous articles that you cannot escape the requirement to pay taxes by not filing, and failing to do so may lead to serious consequences. And if you fail to file one or more tax returns, you run the risk of the IRS filing taxes for you in the form of a “Substitute for Return.” The IRS will prepare an estimate of what should be owed based only on information reported to them via third party information returns (W-2, 1099). The tax due on a SFR is almost always overstated because it does not take into account the correct credits, deductions & exemptions. The IRS generally allows only one exemption, the standard deduction, and a filing status of “single,” or “married filing single.” In other words, the IRS is not going to make sure it is “done right.” They will overstate the tax and “round up,” essentially placing the burden of claiming exemptions, credits, and deductions on the taxpayer. Once the SFR has been completed and the taxpayer has been given an opportunity to respond (including the opportunity to file their own return instead of relying on the SFR), the tax is officially assessed, and then the IRS can go into collections mode with enforcement tools such as liens and levies.

Even though filing yourself is best, we don’t always recommend that the taxpayer personally do the heavy lifting. In other words, when we say that filing “yourself” is best, what we mean is it is better to take care of it yourself with the help of a tax preparer as opposed to leaving it in the hands of the IRS SFR. If you have a very simple tax return, there is no reason why you couldn’t use self-file tax software, or even the IRS Free File program if you qualify, to knock it out in a few minutes. However, for most of our clients, we really prefer that they hire a tax professional to prepare their returns. That doesn’t always mean an accountant is necessary. For many taxpayers, an experienced preparer is sufficient. You just want to spend some time getting to know the preparer and their experience level and attention to detail. So, yes, if you want something done right, do it yourself, but only if you truly know what you’re doing. If you need help or have questions, don’t hesitate to contact Montgomery & Wetenkamp.

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