Nobody likes recieving letters from the IRS, but if you don't file your return you can expect to get one of these letters.  When you earn income, for the most part it is then reported to the IRS. If you do not file your return for a year that you have income, the IRS will prepare a "substitute for return" (SFR).

A SFR is not a good thing as it includes income, determines the tax due, adds interest and a penalty for failure to file and does not include any expenses or deductions, such as mortgage interest, charitable expenses or doctor bills. Once it prepares a SFR, the taxpayer gets a bill and is expected to pay it.

 If you are self-employed and the IRS, you will most often find a major difference between taxable income and how much money you actually received. This is because the IRS does not take into consideration any of your expenses, such as mileage, office supplies, salaries and other expenses.

What to do if the IRS prepared a Substitute for Return for you?

You should file an original return that includes expenses and deductions. In most cases the balance that the IRS shows will be reduced if not eliminated and in some instances you might even get a refund. However, if the return is filed more than three years after its due date the refund will not be paid.

Once you receive a letter from the IRS do not throw it away or ignore it. Make sure to contact them or have someone else contact them on your behalf. Ignoring them will only cause further problems. The sooner you deal with your IRS problem, the quicker it will go away.

 Evan Wolf
Wolf Tax Consultants
1-888-965-3829