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How Does the IRS Assess Tax On an Unfiled Return?

A tax assessment is the official step the IRS must step to legally declare that you owe tax. Once this step is completed (and after you’ve had the chance to dispute the assessment), the IRS can move your case to collections.

Typically, tax is assessed when a return is filed. So how does the IRS assess tax if the taxpayer never files a return?

Unlimited Time to Assess Tax

If you file your return, the IRS generally only has three years to assess additional tax. There are some exceptions that can extend this period.

The IRS has unlimited time to assess tax on an unfiled tax return. Your unfiled return could be from 10, 20, or 40 years ago, and the IRS would still be permitted to assess a tax liability.

The way the tax is assessed is by filing a Substitute for Return (SFR) on your behalf.

Substitute for Return

An SFR is filed using whatever information the IRS has about your income. For example, the IRS may have received a copy of the W-2 filed by your employer. This income can be included in your return and used to calculate your tax liability.

What about your deductions, expenses, and credits? The IRS doesn’t know about these, so they won’t be included on your SFR. This usually causes the SFR to result in a higher tax liability than what the taxpayer would owe if they filed voluntarily.

Before the SFR is filed, you should receive one or more notices from the IRS. You are better off filing on your own because you can take advantage of all the deductions and credits you’re entitled to.

Even if the SFR has already been filed, it’s often a good idea to file your own tax return.

Notice of Deficiency

The Notice of Deficiency is the letter the IRS sends to a taxpayer once tax has been assessed. This notice gives you 90 days to dispute the amount of the tax assessment by petitioning the Tax Court.

If you receive a Notice of Deficiency or an SFR notice, act quickly to make sure you aren’t assessed an improper tax liability. Contact a tax attorney for help with tax problems caused by unfiled tax returns.

Get help with delinquent tax returns by calling The Gartzman Law Firm at (770) 939-7710. We can listen to your concerns and help you find the best tax resolution strategy for your case.