What Is An IRS Substitute For Return (SFR)?

Sometimes, when a person does not file a tax return on their own, the IRS will prepare one based on the information they have available.  This is called a substitute for a tax return or SFR. The IRS does this so they can assess tax and begin collection activities.  But just how does a SFR get filed and what are the ramifications?  Read on to find out.

Situations where the IRS will file a SFR
A SFR is typically filed when the IRS notices that a person hasn’t filed for a few years, but that person has income documents on file with them (e.g. W-2, 1099-MISC). The IRS will then file SFRs for all the unfiled years based on the information on those tax documents.

How does the IRS calculate the tax on a SFR?
The SFR is always prepared in the best interest of the government.  What this means is that they will use the filing status of Single and they will not include any deductions or credits.  Typically this can result in the taxpayer having a balance owed.  Now let’s think about that for a second.   If a tax return is prepared without any deductions, without any tax credits, it’s quite likely that the IRS’s calculation of tax is much higher than it should be.  Thus, in most cases, that’s just what happens. There are even instances that had the taxpayer filed the return themselves, the IRS would owe them