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When a taxpayer does not
file a tax return the IRS
punitively files a “SFR”
(Substitute for Return). It effectively punishes the
taxpayer by not affording
the taxpayer deductions. This can be detrimental to a
taxpayer since this would
consequently inflate your
tax liability, and increase
the corresponding penalties
and interest.
For example, if your
business had gross receipts
of $300,000 reported to the
IRS on From 1099-Misc, your
tax would be predicated upon
income of $300,000, rather
than $300,000 less your
business expenses
incurred. Even if your
business sustained a loss,
the SFR would be calculated
on a profit of $300,000
rather than a loss with no
tax. You could still owe
over $100,000 in taxes (not
even including interest and
penalties that you would
also have to pay).
In addition to the
aforementioned, the Statute
of Limitations will not
begin when an SFR is
processed by the IRS. The
actual return itself must be
filed in order for the
statute to begin. We can
preclude this from
happening by filing a
reconsideration return that
reports your business
expenses, and subsequently
reduces your taxable income,
tax, penalties and
interest. Similar
situations occur when you
sell stock (the IRS will
presume that your taxable
gain is commensurate with
the amount of the sale
rather than deducting the
cost of your stock).
When returns get filed on
time, they typically fall
under a three year Statute
of Limitations. This means
that the IRS will have 3
years to audit, assess any
additional taxes and/or
bring a court order to the
taxpayer, if deemed
necessary. So, if you file a
2008 return in April, 2009,
the IRS generally has until
April 2012 to adjust for
additional taxes. In May,
2013 the IRS is usually
stopped from collecting
additional taxes for 2008.
Also, a 10 year statute for
collecting taxes has
simultaneously started to
run and only has 7 years of
life left. Therefore, if
your 2008 return hasn't been
filed then the statute will
not begin until you have
filed it. With that said,
the taxpayer will still be
susceptible to an adjustment
of additional taxes, audit
and the IRS trying to
collect taxes owed. Call us
right now and any one of our
tax professionals will
explain the entire process
to you. They will give you
a free and private
consultation about your
specific situation at hand.
Feel free to ask them about
any questions or concerns
you may have. |
