What is a Substitute for Return (SFR)?

In any year when an annual income tax return is not filed, the IRS files a Substitute for Return (SFR) on your behalf to your IRS account.  The IRS does this to estimate the taxes owed and to start the collection process.

For all taxpayers, the IRS establishes an IRS account based upon the following facts or circumstances:

1)    W-2 filed by your employer
2)    1099-MISC issued to an independent contractor
3)    1099-R for pension distributions
4)    1099-SA for social security benefits
5)    1099-S for the sale of your residence

When a taxpayer does not file an annual tax return, the IRS will create an estimate of taxes owed based on all of the information returns reported to your IRS account.  If it is determined that taxes will be owed, then the IRS will likely file a SFR.  Taxes could be owed for a variety of reasons such as, the withholdings are low compared to wages reported; a 1099-Misc was received and no estimates were paid; or a house was sold at a gain and a 1099-S was received.

The estimate of taxes owed according to the IRS SFR may be higher than an annual tax return.  The SFR will not include any additional exemptions or expenses.  For example if you are married, the IRS will file the return as married filing separately.  The SFR will not report exemptions or child tax credits for any dependents you may have.  The SFR will report a standard deduction when you may be able to claim additional itemized deductions.  Any stock sales reported will not include the basis of stock sold.

If a SFR was filed, you can still file an annual tax return.  The annual tax return filed may reduce the taxes owed compared to the SFR providing.  This may be all that is required to get the relief needed.

Call ALG Tax Solutions in you need help to file delinquent annual income tax returns. 855-MI-TaxHelp, (855-648-2943)

IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.

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