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, back taxes, 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 unfiled tax 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 back 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 or contact us right now and any one of our tax professionals will explain the entire process to you for your Unfiled tax returns. 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.
Lefstein-Suchoff CPA & Associates, LLC offers unfiled tax return solutions. Let the CPA staff at Lefstein-Suchoff & Associates help you!