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Responding To IRS

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Responding to an IRS letter

Proposed Assessments

When you haven’t filed a tax return, the IRS sometimes makes an educated guess as to what your tax liability might be. The IRS does this in order to figure out if you might owe, and how much you might owe. For some of these situations, the IRS will send you a letter, called a Notice of Proposed Assessment. “Proposed Assessment” is another way of saying “educated guess.”

Substitute Tax Returns

If you do not respond to the IRS’ notice of proposed assessment, the IRS may file a tax return on your behalf. This is called a Substitute for Return. In IRS jargon, this is called an “SFR.” An SFR is a formal way for the IRS to make an educated guess about how much taxes you might owe. The whole purpose of an SFR is to arrive at a definite dollar amount, so that the IRS can begin collection efforts. If the IRS has issued a proposed assessment, and you don’t respond, that assessment may become final. Once the assessment becomes final, the IRS can now legally collect on the tax for a period of ten years.

Action Plan Item

The fastest and easiest way to remove an IRS assessment is to file a tax return. The IRS is legally obligated to accept your tax return instead of their own Substitute for Return. That’s because your tax return has your signature on it, and that means you have agreed to a definite tax liability. According to an IRS press release of Jan. 16, 2001, a total of $2.4 billion in refunds is owed to people who failed to file U.S. federal income tax returns in 1997. If that’s you, the IRS wants you to have your money, but to get it, you must file a return

  • Correct Postal Mailing Address: Use a friend or a relative. Primary reason observed is most clients whom travel internationally on visas do not receive the correspondence from IRS, and are not aware of the issues.
  • Consult with a Tax adviser before making payment to IRS; because once payment is made, IRS will approach the case differently as oppose when payment is not made.
  • Supporting tax documents should be retained for a minimum of 3 years.
  • File your tax returns when they are due, for state and federal income taxes and payroll taxes. Late filing can be a trigger to an audit.