The IRS aggressively uses the “Refund Refund” (SFR) program to file tax returns on behalf of those who fail to file. In the past, the IRS would simply mail or send someone to your home or office asking you to file. The SFR program has been around for a long time. However, due to better computers at the IRS, it is now being used more than ever to get people to comply with filings. Basically, if you don’t file on time, the IRS sends you a letter and may call you asking you to file. If someone ignores the papers, the IRS takes the information reported to them by a third party and files a Form 1040 for you.
In most cases, the tax owed on these IRS-prepared returns is far more than they would have to pay if they filed the original return. This is especially true if the sale of stock or real estate is involved. Why are SFR taxes so high? Well, the IRS doesn’t know who lives with you so they usually file a single return or Separate Marriage File (worst tax table). A person may have 3 or 4 dependents, but they will not be in the SFR. Also, if you work on a contract basis and get a 1099, you most likely have deductible business expenses. Again, the IRS doesn’t know what your expenses are and will cost you a total of 1099s. Also, if you sell the stock, the IRS will tax 100% of the sale price because they don’t know your basis in the stock. Under these circumstances, you could lose money on the stock and have a deduction, but would owe taxes due to the SFR.
For business owners who do not file payroll taxes 941 or unemployment taxes 940, the IRS uses section code 6020(b) to file payroll returns for non-reporters. These returns can also be for more than one debt if they filed the original.
Once the IRS has filed SFR 1040 or 6020(b) 941, they can charge it as if it was filed by the taxpayer. I have one client who had a Federal Tax Lien filed against him for over $100K because of the SFR in 1996. We went ahead and filed a valid tax return in 2004 and his actual debt was only about $10K. The reason is because the IRS taxs all of his stock sales as 100% gain when he incurs a heavy loss.
There is good news for someone caught in the SFR trap. You can always apply for an original return! Tax laws apply and the IRS is a legitimate government agency. Don’t be fooled by fake websites or people telling you that there is no law that requires a person to file a tax return. If you get an SFR, hire a tax professional to prepare correct returns and work with the IRS to cancel the SFR. You may be audited, but if you are correct then you will owe far less than the amount on SFR.
A good CPA, Registered Agent, or Tax Attorney can help you with IRS collection issues. DON’T IGNORE THE IRS LETTERS. GETTING HELP.
Here is the IRS Address List for submitting the correct return for processing if it was originally an SFR:
Wages & Interest/Dividend Earning Case
Fresno Campus
ASFR 81304 . Unit Termination
PO Box 24015
Fresno, CA 93779
Form 1040 with Schedule C, E, F, or Form 2106
Brookhaven Campus
ASFR 654 . Unit Termination
PO Box 9013
Holtsville, NY 11742-9013
International Returns
Brookhaven Campus
ASFR 654 . Unit Termination
PO Box 9013
Holtsville, NY 11742-9013