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IRS Pre-Collections | What Can Be Done

Updated: Sep 21


Coast to Coast - IRS Help

IRS Tax Relief - Tax Debt Help

When you owe the IRS, or haven't filed returns and might owe, what can done for you? In our 25 plus years, we’ve found that nothing gets non-filers’ attention more than when the IRS notifies them of a balance due. Without returns, the IRS will file a SFR (“Substitute for Return”) to create a balance, and this type of case is one of our most frequent. There is nothing to collect if there is no balance due. FOR MORE INFORMATION REGARDING SFR'S, CLICK HERE.

How is an SFR (#SubstituteforReturn) created? Here’s an example:

1. Let's use the year 2008 as an example. In 2008, you didn’t file your tax return. The IRS, however, received a 1099-MISC for your IT business. It was for $50,000. That’s the only document they received where income was reported for you.

2. The IRS requires you to file a tax return.

3. The IRS has no tax return for you. The agency has been notified that you have unreported income. Because there is no tax return, there is no tax debt. That's where the Substitute for Return kicks in. A SFR is the mechanism to create a tax assessment. The IRS files a return (SFR) on your behalf for the entire $50,000. There are no business deductions, no dependents, no spouse—just a straight tax on that unadjusted amount.

4. Your total is $50,000, minus the standard deduction ($5,450), minus exemption of $3,500. The remaining $41,050 is your taxable income, which yields a taxable amount of $6,613. You work for yourself, so you have the 13.65% self-employment tax on that $50,000: $6,825. Add your taxable income and the self-employment tax, and you owe a total of $13,438 without any penalties or interest.

5. Add a "Failure to File Penalty" and suddenly you have a whopper of a tax debt.

6. A Substitute for Return gives the IRS all the authority needed to enforce collection (liens, levies, seizures).

7. It is against the law to not file your tax returns. IT IS NOT against the law to owe money for the return. The IRS requires the previous 6 years of tax returns to be filed. Should you have non-filed tax returns, you have "waived" your rights. You cannot enter into any of the tax relief options available. You will be at the mercy of the IRS and they have no mercy.

If you had filed your tax return with all of your deductions you’d owe a lot less, but the IRS can’t guess deductions for you and now you’re stuck with a greater tax liability.

The first question we’ll ask in every SFR case: should we replace the SFRs with returns and reduce the balance, or let the SFR numbers stand and try to get a settlement (#OfferinCompromise) around those unfiled returns?

To start, our experienced staff will need to research your IRS record and file Power of Attorney (IRS Form 2848) to stop collections. Further work will involve preparing the unfiled returns (if replacing SFRs), filing an Offer in Compromise, declaring Uncollectible Status (#CurrentlynotCollectible), or negotiating a livable payment plan.


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