Unrepresented taxpayers often fail to replace the SFR returns or quickly (and carelessly) prepare and file tax returns due to IRS pressure. They overestimate the task of resolving their tax problem. A tax professional can research the taxpayer’s record and win additional time to prepare and file proper tax returns which benefit the client.
A qualified tax professional can help you by handling all contact with the IRS. IRS representatives will frequently tell you that you do not need to file an actual return of your own if an SFR return has been filed. Do not take this advice from the IRS. A taxpayer loses many rights, and money, by failing to replace the SFR tax return.
In fact, I recommend that you always prepare and file your own tax return – even if it does not reduce the amount that you owe. Here is why:
1. The IRS can collect the balance on a Substitute for Return forever.
IRS Code §6501(b)(3), Return Executed By Secretary: “The execution of a return by the Secretary pursuant to the authority conferred by such section shall not start the running of the period of limitations on assessment and collection.”
2. SFR returns will almost always be inaccurate or missing key information.
3. The tax due on a SFR return is usually much higher than a return filed by you.
4. The tax due on these SFR returns cannot be eliminated through bankruptcy.
5. You may lose your right to a refund if you fail to replace an SFR return.
Finally, a tax professional will allow you to avoid unnecessary contact with the IRS and give you the time to pull together your documentation so a package can be prepared by you and your attorney and submitted to IRS before the situation accelerates and spins out of control.
In short, a situation with unfiled returns has too many pitfalls for you to try to go it alone.