Background

The IRS may prepare a substitute for return (SFR) when it receives income reports but no timely tax return from you. The authority comes from IRC §6020(b); the IRS reconstructs income using third‑party forms and issues an assessment. See the IRS Substitute Return Scenarios page for examples and the basics of how the agency prepares these returns (IRS).

Why you should act fast

An SFR typically ignores deductions, credits, and exemptions that lower your tax. That produces higher tax, plus failure‑to‑file and interest penalties. If left unchallenged, the assessment can lead to liens, levies or enforced collection. The IRS penalty for failure to file can be up to 5% of unpaid tax per month (capped at 25%), plus interest (IRS).

Step‑by‑step: How to respond

  1. Read the IRS notice immediately. Note the type of notice, the deadline shown, and any appeal or response instructions. If the IRS issued a Notice of Deficiency (CP3219A), you generally have 90 days to petition Tax Court; other notices have different deadlines—follow the one on the notice.

  2. File an accurate return for the year the SFR covers. Prepare and file the correct Form 1040 (or applicable return) with all supporting schedules, W‑2s/1099s and documentation. Filing the correct return replaces the SFR and is the primary way to reverse an incorrect assessment (IRS About Form 1040).

  3. Include a clear explanation and copies of supporting documents. Attach an explanation letter summarizing differences from the SFR and copies (not originals) of receipts, invoices, and third‑party forms that support deductions or credits. Keep proof of mailing or e‑file confirmation.

  4. If you can’t pay, arrange a payment option quickly. The IRS will accept installment agreements, short‑term extension, or other relief in many cases. Consider negotiating an installment plan or exploring other relief options — see our guide on how to negotiate an installment plan for back taxes and our step‑by‑step guide to filing back taxes for practical next steps.

  5. Contact a tax professional when the situation is complex. If multiple years, large assessments, possible identity theft, or collection actions are involved, a CPA, enrolled agent, or tax attorney can prepare returns, represent you before the IRS, and negotiate terms.

  6. Monitor processing and follow up. After you file a corrected return, the IRS will process it and adjust the SFR assessment if warranted. Processing times vary; keep copies of all submissions and check IRS transcripts or your IRS online account for updates.

What to include when you file a corrected return

  • Signed Form 1040 or applicable return and all required schedules.
  • Copies of W‑2s, 1099s, receipts, invoices and canceled checks that substantiate deductions.
  • A statement explaining the differences between your return and the SFR.
  • Proof of prior tax filings if you filed but the IRS didn’t process them.

Common pitfalls to avoid

  • Don’t ignore the notice. Silence makes the SFR assessment stand and increases penalties and interest.
  • Don’t assume the SFR is final. You can replace it by filing a correct return.
  • Avoid filing incomplete corrections. Omitting documentation makes it harder to reverse an assessment and slows processing.

When appeals or court petitions matter

If the IRS sends a Notice of Deficiency, you can petition the U.S. Tax Court within 90 days (150 days if you live outside the U.S.) instead of filing a return to have the matter decided before paying. For most SFR situations, filing an accurate return is the simpler correction route. If collections begin, you may have additional administrative appeal rights (IRS).

Practical tips from practice

  • Send paper filings by certified mail with return receipt if you are providing original documentation or disputing an assessment—this creates a record.
  • Obtain an IRS account transcript to confirm what the IRS used to prepare the SFR (IRS Get Transcript tool).
  • If identity theft is suspected, use the IRS Identity Theft PIN program and contact the IRS Identity Protection Specialized Unit immediately.

Related resources

Authoritative sources

Disclaimer

This article is educational and does not replace tailored tax advice. For help specific to your situation, consult a licensed tax professional or attorney.