Have you received a notice in the mail stating that the IRS has prepared a tax return on your behalf? This is known as a Substitute for Return (SFR), and while it might seem like the IRS did your "homework" for you, it is rarely good news for your bank account.
What is a Substitute for Return (SFR)?
When you fail to file a tax return, the IRS eventually loses patience. Using the information reported to them by your employers (W-2s) and banks (1099s), they use their authority under Section 6020(b) of the Internal Revenue Code to calculate your tax liability.
The Catch: Why the IRS "Help" Costs You More
The IRS is not looking for ways to save you money. When they file an SFR, they typically:
- Use the Single or Married Filing Separately status (the highest tax rates).
- Provide zero deductions or credits. They won't include your mortgage interest, charitable donations, or business expenses.
- Ignore dependents. You lose out on the Child Tax Credit or any other exemptions you may be entitled to.
The result? An IRS-calculated tax bill that is often two to three times higher than what you actually owe.
Is it Too Late to Fix It?
No. One of the most important things to know is that an SFR is not set in stone. You still have the right to file your own original return to replace the IRS’s version.
By filing an accurate return, you can:
- Claim your rightful deductions to lower the principal tax amount.
- Reduce the associated penalties, which are calculated as a percentage of that (now lower) tax amount.
- Start the 10-year Statute of Limitations on collections, which doesn't actually begin until a return is filed.
The Danger of Ignoring an SFR
If you don’t challenge an SFR, the IRS will move forward with Assessment and Collection. This is the stage where "letters in the mail" turn into:
- Wage Garnishments: A portion of your paycheck is sent directly to the IRS.
- Bank Levies: Your accounts are frozen and drained.
- Tax Liens: A public claim against your property that can ruin your credit score.
How Wolf Tax Can Help
Correcting an SFR is more complex than a standard filing. It requires matching IRS records exactly while aggressively finding every deduction you missed.
At Wolf Tax, we pull your official IRS transcripts to see exactly what they have on file. We then prepare an original return that "replaces" the SFR, often wiping out thousands of dollars in unnecessary debt in the process.
Don't let the IRS do your math for you.
Citations
Internal Revenue Manual (IRM) Reference
If you need to cite the IRS's internal operating procedures (which is often helpful when negotiating with a Revenue Officer), the relevant section is:
Key Court Precedent
A frequently cited case regarding the validity and limitations of SFRs is Cabirac v. Commissioner, 120 T.C. 163 (2003). In this case, the Tax Court clarified that for an SFR to be valid under § 6020(b), it must be "subscribed" (signed) by an authorized IRS official and contain sufficient data to calculate the tax liability.
