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Posted On November 15, 2018
Did You Receive a Substitute Tax Return from the IRS?

Did You Receive a Substitute Tax Return from the IRS?

Nevadans who have failed to file tax returns for a few years may be sent letters from the IRS notifying them that the agency is filing substitute tax returns and should respond quickly by filing their own original returns. When the IRS notices that taxpayers have not filed income tax returns for a couple of years, it may file its own returns based on the information that it has from W-2s and 1099s. When the IRS files substitute returns, the taxpayers do not receive deductions and credits for which they might otherwise be entitled, meaning that they will likely owe more taxes if they do not file their own returns. Once the missing returns are filed, there are a couple of ways that taxpayers can address the balances that they owe if they are unable to pay them off immediately.

Substitute Tax Returns

The IRS is allowed to file substitute tax returns for taxpayers who have failed to file their income tax returns. When the IRS files these, they do not include any deductions or credits, which means that the taxpayers may owe tax balances. The IRS will also assess penalties and interest dating back to when the original returns should have been filed. The IRS sends letters to taxpayers notifying them of the substitute tax returns, and the taxpayers may then file their original returns, explain why they did not have to file returns or request appearances in tax court. However, it often makes the most sense to file original returns for the missing return years rather than wait to appear in tax court. If refunds are owed, the taxpayers will only receive them if the tax returns were due within the previous three years. However, refunds will be applied to any balances that are owed.

What to Do if People Owe Balances

If people file several years’ worth of returns and discover that they owe substantial tax debts, there are a couple of things that they can do. If they owe less than $50,000 and can pay off the balance within 72 months, they can request an installment plan from the IRS. If they cannot pay off the balances that they owe within that time period, they can make offers in compromise. However, this is more complicated and might require the help of a professional. Taking care of back taxes is important to avoid tax liens and tax levies.