IRS Proposed Return

[LSmith33]

My clients received a letter from the IRS for their 2003 return which they did not file. The IRS assessed the tax based on the wife's W2 only. The husband is self employed (his first year in 2003) so the IRS did not have any data on that income. The wife paid the assessment from the notice but now they want to file the actual return with the IRS (they owe more money based on his income). My question is do I need to file an amended return since my client's accepted the proposed return prepared by the IRS?

Any input is appreciated.

Thanks,

~Laura Smith

[lbbwest]

My clients received a letter from the IRS for their 2003 return which they did not file. The IRS assessed the tax based on the wife's W2 only. The husband is self employed (his first year in 2003) so the IRS did not have any data on that income. The wife paid the assessment from the notice but now they want to file the actual return with the IRS (they owe more money based on his income). My question is do I need to file an amended return since my client's accepted the proposed return prepared by the IRS?

Any input is appreciated.

Thanks,

~Laura Smith

[/quote

I would file a 1040X using the assessed return, and listing the amount paid with assessment. lbb

[TAXBILLY]

Concur with Ibbwest.

taxbilly

[LSmith33]

Thank you both!

[TAXBILLY]

You're welcome.

taxbilly

[Pacun]

No. Your clients have not filed and therefore you just need to file 1040. Remember that the IRS does not file for clients. In order to file you must file the main form (1040, etc) and that form must be signed by your clients. No matter how many letters or other forms you sign with the IRS, you still have NOT filed if no main form was signed.

[Evan S. Golar]

I agree with Pacun.

A SFR-substitute for return (which is what IRS sent) is NOT an actual filing.

So you have to file an original return before filing an amended return.

I would attach a copy of the documentation of payments on the SFR to take credit for the amount already paid for the year.

[Winnie in NC]

I have had one that has been a huge ordeal over the last few years. Client came to me with three years old returns due. Wife is a realtor with 1099 income (substantial expenses with commissions, mileage, etc) and husband with retirement and misc side job income.

I file a joint tax return for 2002, 2003, 2004 and 2005. (This takes a while, as client has to get all records together) IRS does not seem to see the returns, despite payments that were enclosed and that they deposited. IRS leaves husband alone and "prepares" a single return for wife on 100% of her 1099 income for two of the years. This has been the biggest mess I have ever had to clear up. I would send letters, I would speak to IRS agents and it was supposed to be all cleared up. Then another letter (based on the wife's single return) would come about the tens of thousands of tax dollars my client owed. I would recommend that you include cover letters with the tax return explaining the sequence of events with the new returns you are filing. Not that they will read the letter, but when you are trying to clear up the problems that may follow, at least you can refer to that letter.

By the way, with my client, we finally ended up with an OIC and the IRS agent that was working with us on the OIC was finally able to stop the collection letters on the "single" tax return generated by the IRS. After lots of back and forth, we thought the OIC was accepted in early June. On Friday, I had a message that IRS agent needed to talk to me one more time! Last discussion I had before that was that we would be getting a letter with acceptable terms!

[Daune/CA]

No. Your clients have not filed and therefore you just need to file 1040. Remember that the IRS does not file for clients. In order to file you must file the main form (1040, etc) and that form must be signed by your clients. No matter how many letters or other forms you sign with the IRS, you still have NOT filed if no main form was signed.

If your client accepted the IRS assessment, and paid accordingly, that becomes the original filing and any change would require a 1040X.

[Pacun]

If your client accepted the IRS assessment, and paid accordingly, that becomes the original filing and any change would require a 1040X.

So you think the statue of limitations will be 10 years after the IRS assessment. I think you are wrong. I know we are NOT taking about the statue of limitations here but always keep in mind that the statue of limitations starts at the original filing if no more income or tax is added.

[kcjenkins]

If your client accepted the IRS assessment, and paid accordingly, that becomes the original filing and any change would require a 1040X.

I think you are wrong, although it would be logical to see it that way. Tax law is not always logical, of course. The law is pretty darn clear that the SOL does not start until a return is 'filed', and also that at SFR is NOT considered a 'filing'. It is a 'substitute for return', NOT a 'return'. And thus it can not be treated as if they have already filed.

I would file an original return, if it were my client, and I would put the amount paid after the notice on the return on Line 65. Whether the SOL is an issue or not, at the moment, I want to start that clock!

[Daune/CA]

I would file an original return, if it were my client, and I would put the amount paid after the notice on the return on Line 65. Whether the SOL is an issue or not, at the moment, I want to start that clock!

[LSmith33]

Well, it seems that we have had conflicting views on this subject. I went ahead and filed it with a 1040X. Here's hoping it goes through.

[jainen]

>>we have had conflicting views on this subject<<

"File Form 1040X only after you have filed your original return."

--page 1, Instructions for Form 1040X

I expect it will work for you, as long as you aren't concerned about the statute of limitations. Remember that amending a return is simply an administrative convenience with little authority in the tax code. The IRS is perfectly free to accept, reject, or ignore Form 1040X whatever the circumstances.

[veritas]

Some years back the service was running a project for non-filers. We dealt with several who had returns assessed by the IRS. These are not returns for statute of limitations. The instructions were file an original return and write "SFR" at the top of page one of the tax return. They don't have to accept it but most likely they will.

[BJM]

I believe it was around 1988 or so that examination division was thrown into the non-filer program. At first it went to the newer agents, GS5-9 then to GS11 and there were so many GS 12's & 13's started getting these cases, and nobody wanted these PIA cases, but they had to be done. Being finally forced to worked these cases, I can tell you a SFR is not accepted as the filing of an original return, if you want to file a correct return you need to file the 1040, not the 1040X. You technically can not change a substitute return, you can change an original filed return signed by the tax payer under the penalties of perjury.

[MAMalody]

You might want to read Internal Revenue Bulletin: 2005-36. This seems to indicate that an IRS prepared return is considered to be the original by the TP. That would seem to indicate that a Form 1040X would be required to change that data.

Mike

[BJM]

You might want to read Internal Revenue Bulletin: 2005-36. This seems to indicate that an IRS prepared return is considered to be the original by the TP. That would seem to indicate that a Form 1040X would be required to change that data.

Mike

This Revenue Bulletin was written long past from my retirement. But it refers to returns prepared by the Secretary, or agent there of, to perpare a return under IRC 6020. The code says that if a person fails to submit a return, but contsents to disclose all information for return preparation and then that person signs the return, it is considered a return, even though it was prepared by the IRS.

My experience with the non-filer program was not to just receive a case file and immediatly prepare a SFR, but to make reasonable efforts to contact the person more than once to prepare the return. In many cases the person responded and brought in all their information, some of which we didn't have of course, such as itemized deductions, Sch E, Sch C and so forth. The person assigned to the case would prepare the tax return for the person, using their documentation, and then, if agreed, the person would sign the return. This was not a SFR, this was a return prepared on the regular 1040's and schedules for that tax year(s). SFR's were prepared when there was no response or a refusal by the person to file or bring in thier documentation for us to prepare their return after many attempts to contact them or after having contacted them.

What make sense of this is that many people were not avoiding filing and some were. I had sympathy for those that had mental blocks and could not file, a few had close love ones that they shared the experience of preparing and filing thier returns, that loved one died and they could not bring themsleves to do their return because of the memories it brought back. I had a couple that had their return half done before they could not go on. I prepared thier return(s) for them and some would even break down crying during that, (and not for what the owed, many got refunds). I did feel good bringing them up to date, but wondered what would happen the next year, I did tell them to bring it in to the service desk the next year for

help. But then there were the dope dealers, pimps, gamblers, etc who gladly took a SFR rather than their real income. Why should the SFR prepared for them start the statute clock?

Ok, I rambled on long enought, maybe I am wrong, but I don't think that bulletin refers to SFR's.

[jainen]

>>Why should the SFR prepared for them start the statute clock?<<

The bulletin makes it clear that the statute of limitations is not started by an SFR. The purpose of the ruling is to allow the IRS to assess penalties and interest and take collection actions as if an actual return had been filed. I don't think it expands the delinquent taxpayer's rights in any way.

[MAMalody]

Ok, I rambled on long enought, maybe I am wrong, but I don't think that bulletin refers to SFR's.

While you may be right, it is listed on the IRS web site as directly pertaining to SFRs and example #3 is clearly an SFR.

Personally, I never had one while I was an IRS auditor (formerlly or informally) and only have had one while a practitioner, which we handled with a Form 1040X with no additional questions. So this is really out of my league.

Mike

[kcjenkins]

While a 1040X may do just fine, when there are no issues relating to the unfiled year, it still does not 'start the clock'. That is why I prefer to go with filing an original return, even if I do not actually know that there are issues. Too often, when a year was not filed, there do turn out to be at least some issues. I'd hate to find out several years later, that the clock had never been started, and there really are issues that are going to bite the client.

[BJM]

>>Why should the SFR prepared for them start the statute clock?<<

The bulletin makes it clear that the statute of limitations is not started by an SFR. The purpose of the ruling is to allow the IRS to assess penalties and interest and take collection actions as if an actual return had been filed. I don't think it expands the delinquent taxpayer's rights in any way.

That is exactly what I meant. Maybe I stated it wrong, I meant that they should not have, and do not have, that privilege and common sense would dictate that. I wasn't asking a question, I guess it may have appeared that way, I was making a statement.

[SCL]

Well, it seems that we have had conflicting views on this subject. I went ahead and filed it with a 1040X. Here's hoping it goes through.

i think it will. you have tried to present the correct position, whether on a 1040x or original return (and esp since you are sending more money).