You generate tax problems when you don’t file your income tax returns on time with the IRS. After ignoring many notices to file a tax return, the IRS may choose to generate a tax return(s) for you, called a Substitute For Return (SFR).

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The IRS uses income that has been reported to them, such as wages, interest income, subcontractor payments, sale of property, etc., and then assumes you are single, have no dependents, and uses the standard deduction.

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Now you have a larger tax bill, even though you didn’t actually file a tax return. You also have created other problems. In some cases you can’t get an installment agreement without filing the missing returns. You can’t submit an Offer in Compromise if there are missing returns. Bankruptcy may not include old years if those returns were not filed. And the IRS may continue to collect on the SFR balances.

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While there are many reasons why a taxpayer may not file a tax return, you need to be aware of the following:

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• Failure to file tax returns may be construed as a criminal act by the IRS

• This type of criminal act can be punishable by one year in jail for each year not filed

• Needless to say, it’s one thing to owe the IRS money, but another thing to potentially lose your freedom for failure to file a tax return

• The IRS may file “SFR” (Substitute For Return) Tax Returns for you. This is when you fail to file a return and the IRS does so for you

• Because SFR returns are filed in the best interest of the government, the only deductions you’ll see are standard deductions and one personal exemption

• You will not get credit for deductions which you may be entitled to such as exemptions for spouses, children, interest and taxes on your home, cost of any stock or real estate sales, and business expenses, etc