What to Do About an IRS 6020(b) Substitute for Return

When a required tax return is not filed, the Internal Revenue Service (IRS) has the authority under Internal Revenue Code section 6020(b) to prepare one for the taxpayer. This is known as a Substitute for Return (SFR). The creation of an SFR is not a courtesy; it is a procedural step the IRS takes to establish a tax liability and begin the process of collecting unpaid taxes. The resulting tax calculation is often significantly higher than what the taxpayer might actually owe. This process ensures that a tax liability can be officially recorded, even in the absence of a taxpayer’s voluntary filing.

The IRS Process for Creating a Substitute for Return

The process for a Substitute for Return begins when the IRS receives information indicating a person had a requirement to file but did not, which often starts about a year after a tax return was due. The IRS will first send notices, such as the CP59 and CP516, to remind the taxpayer of their unfiled return. If these reminders are ignored, the agency proceeds with creating the SFR using income data reported by third parties, like Forms W-2 and Forms 1099.

A defining feature of the SFR calculation is what it omits. The IRS prepares the return using a filing status that results in a higher tax, such as Single or Married Filing Separately. It does not include any deductions or credits the taxpayer might be entitled to claim. For example, the SFR will not account for itemized deductions like mortgage interest or charitable contributions, nor will it include credits such as the Child Tax Credit.

For self-employed individuals, the SFR includes all income from Forms 1099-NEC but allows for none of the associated business expenses. Once the SFR is prepared, the IRS issues a notice, often a Letter 2566, which details the proposed tax assessment. This letter gives the taxpayer a 30-day window to respond by either agreeing, providing information on why they were not required to file, or filing their own original tax return.

Information Needed to File an Original Return

To counteract an SFR, a taxpayer must file their own accurate tax return for the year in question. The goal is to reconstruct your financial picture for that year to properly calculate income, adjustments, deductions, and credits. You will need to use the correct version of Form 1040 for the specific tax year, as historical tax forms and their instructions are available on the IRS website.

Key documentation and information to gather includes:

• Income documentation, such as all Forms W-2 and Forms 1099. A free Wage and Income Transcript can be requested from the IRS if documents are missing, and you should also account for any income not reported on these forms.
• Records supporting adjustments to income, like contributions to a traditional IRA or student loan interest paid.
• Documentation for itemized deductions, including records of medical expenses, state and local taxes paid, mortgage interest (Form 1098), and receipts for charitable contributions.
• Complete records of all business expenses for those with self-employment income, as these were not included in the SFR calculation.
• Personal information, including full names, dates of birth, and Social Security numbers for yourself and any dependents who will be on the return.

How to Submit Your Original Tax Return

Once the tax return for the year in question is accurately prepared, it must be properly submitted. The method is specific and designed to ensure it is processed correctly in response to the Substitute for Return. You should not file this return electronically; it must be mailed as a paper return.

The completed, signed, and dated Form 1040 should be mailed to the specific IRS service center indicated on the notice you received, such as the CP3219N or CP2566. It is advisable to send the return using a mail service that provides tracking and proof of delivery, such as certified mail. This creates a record that the IRS received your filing.

To help the IRS connect your submitted return to the existing SFR case, include a copy of the notice you received with your tax return and write “6020(b) Response” on the front of the envelope. After mailing the return, be prepared for a processing time that can take several months for the IRS to manually review your submission and adjust your account.

Tax Assessment and Collection Procedures

The creation of an SFR is a precursor to a formal tax assessment. After the initial 30-day response period expires, the IRS issues a Statutory Notice of Deficiency, also known as a CP3219N or a “90-day letter.” This notice is sent via certified mail and informs the taxpayer that they have 90 days to either file a petition with the U.S. Tax Court to dispute the liability or file their own tax return. If the taxpayer takes no action within this 90-day window, the tax liability proposed in the SFR becomes legally assessed.

Once the tax is assessed, the IRS’s 10-year period for collection begins. An assessment officially establishes a legal debt, allowing the agency to use its collection tools. These actions can include filing a Notice of Federal Tax Lien, which is a public claim to your property, and issuing levies, which authorize the seizure of assets. Levies are placed on wages, bank accounts, and other financial assets to satisfy the tax debt.

Filing an original return, even after an SFR has been created, is the most effective way to address the situation. When the IRS accepts your return, it will adjust your account and assess the corrected, and typically much lower, tax amount. The original assessment from the SFR is abated, but you are now responsible for paying the new tax liability. If you cannot pay the full amount immediately, you can explore payment options with the IRS, such as an installment agreement or an offer in compromise.