If the taxpayer fails to file a return for a year in which W-2s and 1099s received by the IRS show a tax liability, the matter will be referred to the Examination Division or an Automated Substitute For Return can be created by the Service under the authority of section 6020(b). If the Service prepares a Substitute For Return strictly from the information in its computer, it is likely that the tax liability will be greater than if the taxpayer filed the return. This is because in preparing substitute returns, the Service generally does so in a manner that yields the greatest liability for the taxpayer. For example, the IRS will include the gross proceeds of a sale without considering the basis of the asset, or they will give the taxpayer the standard deduction rather than itemizing deductions. If the taxpayer is married or has children, the IRS will classify the taxpayer as Single or Married Filing Separately, and will not give the taxpayer the benefit of a Head of Household or Married Filing Jointly classification.
However, the Automated Substitute For Return does not have to be the end of the story. Because the return is prepared by the IRS, the taxpayer can often reduce a substantial amount from the liability. Contact Insight Law, and let us assist in reducing your tax liability. Don't pay more than you owe simply because the IRS calculated your taxes in the manner most advantageous to them.
Author: Christopher Larson