SFR Substitute for Returns: IRS Action on Non-Filers
In the latest Star Wars episode, the evil empire executes a brutal revenge on the Jedi. While the IRS is not an evil empire (and due to the Revenue Reform Act of 1998 not very brutal anymore); it too is executing revenge on those who do not comply with filing their tax returns.
The IRS is agressively using the "Substitute for Return" (SFR) program to file tax returns on behalf of those who fail to file. The SFR program has been around a long time. However, due to better computers at IRS, it is being used now more than ever to get people into filing compliance. Basically, if you do not file on time, the IRS sends you letters and may call you on the phone requesting that you file. If one ignores the letters, IRS takes the information reported to them by third parties and files a Form 1040 for you. In most cases, the tax owed on this IRS prepared return is far more than one would owe if they filed an original return.
Why is the tax so high on an SFR? Well, IRS does not know who lived with you so they usually file the return single or Married Filing Separate (the worst tax table). A person might have had 3 or 4 dependents, but they won't be on the SFR. Also, if you worked contract labor and got a 1099, it is very likely you had deductable business expenses. Again, IRS does not know what your expenses were and will tax you on the total of 1099s. In addition, if you sold stock, IRS will tax you on 100% of the sales price because they do not know your basis in the stock. In this circumstance, you could have lost money on the stock and had a deduction, but will owe tax on it due to the SFR.
For business owners who do not file 941 payroll tax or 940 unemployment tax, IRS uses code section 6020(b) to file payroll returns for non-filers. These returns can also be for more than one would have owed if they filed the originals.
Once IRS files an SFR 1040 or a 6020(b) 941, they can collect on them just as if they were filed by the taxpayer. I had one client who had a Federal Tax Lien filed on him for over $100K due to an SFR on 1996. We went ahead and filed a correct tax return in 2004 and his true debt was only about $10K. The reason was because IRS taxed all his stock sales as 100% profits when he had many losses.
There is good news for someone caught in SFR trap. You can always file an original return! The tax laws are valid and IRS is a legitimate government agency. Don't be fooled by bogus websites or folks who tell you that there is no law requiring one to file a tax return. If you get SFR'd, hire a tax professional to prepare a correct return and work with IRS to overturn the SFR. You may be audited, but if you are right then you will owe much less than the amount on an SFR.
A good CPA, Enrolled Agent, or Tax Attorney can help you with IRS collection issues. DON'T IGNORE IRS LETTERS. GET HELP. Here are some websites that can help you get info:
www.irs.gov
www.naea.org
www.nsacct.org
www.exirsman.com
www.etaxes.com
www.ifixirs.com
James Robert Coleman, E.A., A.T.A.
Enrolled Agent & Accredited Tax Advisor
Member: National Association of Enrolled Agents
Former IRS Revenue Officer, GS-11
Warning: include(inc/ads-body.inc) [function.include]: failed to open stream: No such file or directory in /home/accounta/public_html/36931_business_personal_taxes.php on line 69
Warning: include(inc/ads-body.inc) [function.include]: failed to open stream: No such file or directory in /home/accounta/public_html/36931_business_personal_taxes.php on line 69
Warning: include() [function.include]: Failed opening 'inc/ads-body.inc' for inclusion (include_path='.:/usr/lib/php:/usr/local/lib/php') in /home/accounta/public_html/36931_business_personal_taxes.php on line 69
MORE RESOURCES:
 Globe and Mail | Tax staff to be paid $25M in severance, rehired National Post An agreement signed by the Liberals and the Canada Revenue Agency will see the provincial tax workers become employees of the federal government, ... Ont. tax collectors looking at $45000 severance but won't lose jobs |
NB increases property tax rebate CBC.ca The New Brunswick government is going to offer more money to more low-income people who are hit hard by property tax increases, says the finance minister. ... Province to tackle tax hikes New Brunswick government helping low-income earners with rising property taxes New property tax formula coming: Minister |
 Globe and Mail | 10% soda pop tax, 7% fewer calories Globe and Mail Based on the US study, an 18-per-cent tax on pop would result in a decline of 56 calories per person per day. Published on Friday, Mar. ... |
 Washington Post | Friday News Roundup: Week of March 8-12 New America Foundation (blog) Legislators are less eager to increase taxes, especially in an election year, and fear that increased corporate taxes would discourage businesses from ... In Ill., choice is higher taxes or education cuts Quinn Defends Plan to Fund Schools with Tax Hike Green Party's Whitney calls for income tax hike, legalized pot |
 NewsOXY | Free printable federal income tax form 1040 for filing 2009 income tax returns ... Healthy Financial Habits Almost one month from today, millions of Americans will be scrambling to file their 2009 federal income taxes. If you need free printable federal income tax ... Tax breaks can help when you lose your job Tax Tip: 4 places to find free tax help Record number of tax filers paid no federal income taxes in 2008 |
 CBC.ca | WALT COBB: Taxes a necessary evil Williams Lake Tribune NDP energy critic John Horgan has said that the tax will be eliminated, “but we have to find revenue to offset that from other taxes.” None of us like taxes ... Doubts remain after HST report The BC government sneaks another tax hike in through the back door |
Gov. Lingle signs state law reducing large business tax increase for Hawaii ... CanadianBusiness.com HONOLULU (AP) - Businesses in Hawaii are getting immediate relief from the nation's largest increase in unemployment taxes after Gov. ... Lingle signs bill lowering unemployment tax increase |
 CBC.ca | 'Soda tax' movement gains steam Vancouver Sun New York state is the latest American jurisdiction eyeing a "soda tax" to curb the obesity ... Editorial: Nickels and dimes of new taxes just add to the toll Soda Tax: Is New York Soaking the Poor? Study: Taxing junk food could alleviate obesity |
Vodafone Sends Final Submission To India Tax Body Wall Street Journal "Vodafone is confident that no tax is payable on this transaction. All of the taxation and legal advice we have received remains consistent with this view," ... |
 TopNews United States | Tax fallout Pueblo Chieftain DEMOCRATS DIDN'T know there would be fallout from their dozen tax increase bills this year? Gov. Bill Ritter and his fellow Democrats who control the ... The Tax War Goes Online Local affiliates here axed by Amazon.com Colorado's feud with Amazon puts focus on national online tax efforts |
How to Donate Your Car to Charity and Get Tax Deduction
Donating your used car to charity is a win-win situation; the charity gets your gift and you get tax deduction. Below are some simple steps to make a car donation.
How To Get An Instant Pay Raise
As a gentleman was leaving my class recently, he wanted me to clarify something I had said. He was making sure that he should take his four or five thousand dollar tax refund and pay off debt.
Correspondence From The IRS - Yikes!
It's a moment every person dreads. You pick up the mail and there is an envelope from the IRS.
Tax Deduction for Alimony Payments? - Yes!
Over 50% of marriages end in divorce in the United States. Many divorce decrees include provisions for the payment of alimony.
State Tax Information
All states also have their own tax system. Typically there is a tax on real estate, and there may be additional income taxes, sales taxes, and excise taxes.
Tax Trap #1 -- Waiting to Incorporate: What A Difference A Date Can Make
NOTE: This is the first in a series of 5 articles: "Small Business Tax Traps and How To Avoid Them"If you're a sole proprietor, perhaps you've considered incorporating your small business or self-employment activity.And so maybe you've been wondering, "When is the best time to incorporate?"From a legal standpoint, any time is the best time.
Know A Tax Cheat? Get Paid To Tell The IRS
According to the IRS, taxpayers underpay their taxes by some $300 billion. If you know someone that is contributing to that deficit, the IRS may be willing to pay you up to $10 million for the information you provide.
Donating Cars To Charity - New Tax Rules
On June 3, 2005, the IRS released guidance on charitable deductions for donated vehicles. The American Jobs Creation Act (AJCA) radically changed the amount of the deduction taxpayers can claim for their donated car.
IRS Statute of Limitations: Do Taxes Ever Expire?
Many Americans believe that an IRS debt is a debt for life and that the tax collector can hound them to the grave. Thankfully, that is not the case and there are statutory time limits on the ability of the IRS to examine and collect taxes.
Hurricane Katrina - How To Use Your Business Loss To Get A Refund on 2004 Taxes
With the massive losses caused by Katrina, the economy of the Gulf Coast region is in extremely bad shape. Fortunately, there is a quirk in the tax code that can help you generate a large refund from your 2004 taxes.
Truly Bizarre Taxes: The Tax on Illegal Drugs
One can never underestimate the enthusiasm that politicians have for trying to hunt up tax revenues. The creativity of some politicians can lead to bizarre taxes and unfortunate results.
What You Need To Know About Taxes If You're Getting Married
It may not be high on the list of wedding planning activities, but there are a few simple steps that can help keep tax issues from interrupting your newly wedded bliss. If you recently married, check out your new tax situation.
Tax Reform, My Way
We need real tax reform and we need it now. Previous attempts have been made at tax reform, but they have only provided band-aid solutions that have still left us with too many quirks, complication, and read tape.
Keeping Your Own Money - NOT Handing It Over To The Taxman
Most people trying to make a crust online (or offline for that matter) are so focused on doing just that, they ignore taking simple steps to ensure that they hang on to just as much of it as they can. Instead, they hand over large lumps of their hard-earned money in tax, usually in one of two mistaken beliefs.
Tax Secrets - How Drew Miles Helped Me
How about a Tax Tip?As we all know Taxes are a necessary evil. While none of us like paying taxes there are many strategists out there that can make your life a lot easier when that dreaded day arrives.
Reducing Taxes Through Dividend-Salary Mix Calculations
Should I take wages or dividends from my privately owned corporation? What is the best way of taking money out of my company? In other words, what will result in the least amount of income taxes?A Canadian accountant will perform a dividend-salary mix calculation to determine the best way of withdrawing money from the corporation.Even though Canadian income tax laws are different from other jurisdictions, some of the same principles of tax planning will still apply.
Are You An Innocent Victim of These Popular Myths?
Misconceptions, misinterpretations and just plain "untruths" are floating about income taxes. Believing them could be costing thousands of tax dollars!Myth: A Professional Tax Preparer knows all there is to know about taxes so you don't have to know anything them.
Furnishing Evidence in E-Tax Compliance
Self-assessment relies on taxpayers voluntarily meeting their tax obligations. This concept is recognised in all tax statutes, which sets out taxpayers' primary obligations, and clearly spells out that taxpayers are required to determine the amount of tax payable correctly and to pay it on time.
Fiscal Deity: Tax Consultant
Strategic planning throughout the year results in a minimal tax balance. The objective of planning your tax payables is not to prevent paying taxes, it is to pay no more than your fair share of taxes, and keep your money where it earns you the most.
How to Maximize Your Home Business Tax Deductions for 2005
Someone once said, 'the best way to calculate your taxes is?Honestly'. For 2005, add 'Smartly' to that and you'll get to keep more than you make.