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By Michael S. Anderson of Anderson Tax Law logo for Arizona tax attorney Michael S. Anderson P.C.
  • Unfiled Tax Returns – Two problems IRC Section 6020(b) can cause

    Unfiled Tax Returns

    What can the IRS do if you don’t file a tax return?

    IRC Section 6020(b) provides the IRS the authority to create the tax return for you.

    Specifically:

    (b) Execution of return by secretary

    (1) Authority of Secretary to execute return

    If any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefor, or makes, willfully or otherwise, a false or fraudulent return, the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise.

    The primary problem with this code section is that it provides the IRS the authority to create the return for you from information it has on hand.  In most cases this means that it will use the income reported and that is all.   No deductions are used in creating the returns other than the standard deduction for the individual filer.  No mortgage interest, no basis amounts, no business expenses, no children, no charitable contributions, nothing, nada.

    This usually results in tax returns that grossly overestimate the amount of the tax due.    The assessment of this overestimated tax is than used to levy wages and bank accounts.

    The secondary problem…if the tax debt is assessed prior to the date the taxpayer files his or her own correct returns, any debt from the return, whether the correct amount or not, is likely never dischargeable in bankruptcy.   That was a long “run on” sentence that really stood for the idea that the taxpayer needs to file their own returns before the IRS does.  This must be done where bankruptcy may end up being the best solution.

    The good news is that in many cases the incorrect substitute return can be “challenged” via the audit reconsideration process with the correct tax return.