Quick overview

An IRS Substitute for Return (SFR) occurs when you don’t file a required tax return and the IRS prepares one for you using information it already has (W‑2s, 1099s, third‑party reports). An SFR often assumes the taxpayer took no deductions or credits, so it can result in a higher tax assessment than you actually owe. The fastest, most effective response is to file a complete and signed return for the missing year(s), attach supporting documents, and send a clear statement explaining differences.

This article outlines step‑by‑step actions, timing expectations, documentation to include, options if you can’t pay, and when to consider appeals or professional help. It draws on IRS guidance (see Understanding SFR and Publication 556) and more than 15 years of practical experience handling SFRs for clients.

Sources: IRS — Understanding Substitute for Return (SFR) (https://www.irs.gov/individuals/understanding-substitute-for-return-sfr) and IRS Publication 556 (Examination of Returns, Appeal Rights, and Claims for Refund) (https://www.irs.gov/pub/irs-pdf/p556.pdf).

Step 1 — Read the notice carefully and calendar deadlines

When the IRS prepares an SFR it will send a notice or assessment. Read that notice closely — it lists the tax year, the information used, the assessed tax, penalties, and interest. Put the key dates on your calendar: many notices include time frames for responding or appealing. If the notice shows a bill, the IRS will also provide payment options and instructions.

In my practice I’ve seen clients delay because the notice felt overwhelming; acting within the IRS timeframes reduces collection activity and preserves appeal rights.

Step 2 — Gather the documents you need

Create a file for the year(s) affected. Typical documents:

  • W‑2s, 1099s and other income statements for the tax year
  • Bank statements that support reported income
  • Receipts, invoices, and canceled checks for deductible expenses
  • Prior years’ tax returns (useful for carryovers and context)
  • Records of estimated tax payments or withholding amounts
  • Identification documents and any prior correspondence from the IRS

If you need IRS transcripts to reconcile amounts, you can request them using Form 4506‑T or by accessing your account online at IRS.gov (transcripts show what third parties reported) (IRS: Get Transcript and Form 4506‑T).

Step 3 — Prepare and sign a correct, complete return

Prepare the proper return(s) for the year(s) covered by the SFR (Form 1040 for individuals, or the applicable business return). Important points:

  • Use the same year’s forms and schedules for accuracy.
  • Claim all eligible deductions and credits — don’t assume the IRS will adjust them automatically.
  • Attach supporting schedules and documentation where required (for example, Schedule C for self‑employment income).
  • Sign and date the return. An unsigned return is not considered filed.

If you owe tax, the IRS will calculate penalties and interest from the original due date. Filing the correct return replaces the SFR and generally triggers the normal appeal and refund procedures described in IRS Publication 556.

Step 4 — Include a cover letter explaining differences

Send a short, fact‑based cover letter with your return explaining the key differences between your figures and the SFR. Include:

  • The tax year and IRS notice number
  • A brief explanation of why the SFR is incorrect (missing deductions, incorrect income totals, identity theft, etc.)
  • A list of attachments (W‑2s, 1099s, receipts)
  • A return mailing address and phone number

A clear cover letter helps the IRS route and process your corrected return faster.

Step 5 — How to send the return and documentation

  • Mail your signed return and copies of supporting documents to the address on the IRS notice or the address for returns for that tax year. Use certified mail or a delivery service with tracking if you want proof of submission.
  • If you’re represented by a tax professional, submit a Form 2848 (Power of Attorney) authorizing them to communicate and negotiate with the IRS on your behalf.

Do not submit original documents unless requested; provide copies and keep the originals safe.

Timing: what to expect after you file a corrected return

Processing times vary. Small, clear corrections can be processed in 30–60 days; more complex cases or those needing verification can take several months. If your submission creates a refund claim, the IRS typically follows standard refund procedures. If the SFR resulted in an assessment and you file a return that shows less tax due, you may get a refund or the assessment will be adjusted, subject to review. Publication 556 explains appeal and refund claim timelines.

If you can’t pay the assessed balance

Filing the correct return does not eliminate the tax due; it corrects the liability. If you cannot pay in full:

  • Request an installment agreement (monthly payments) directly at IRS.gov or by contacting the IRS.
  • Consider an Offer in Compromise if you can show your ability to pay is limited (see Offers in Compromise guidance).
  • Explore temporary relief or hardship programs if you face immediate financial distress.

For penalty relief, you may qualify for abatement for reasonable cause; prepare documentation showing events that prevented timely filing (illness, natural disaster, serious family emergency). See our guide on requesting penalty abatement for more on building a reasonable‑cause case: How to Request Penalty Abatement from the IRS.

When to appeal or dispute the SFR assessment

If the IRS issues a formal notice that you disagree with, you generally have administrative appeal rights. Follow the notice instructions to file a protest or appeal; keep copies of everything you submit. If you receive a statutory notice of deficiency (a 90‑day letter) you must file a petition with the U.S. Tax Court or otherwise respond within the time limit specified.

Our article on appealing IRS penalties explains preparation and evidence strategies that also apply when disputing SFR assessments: Appealing an IRS Penalty: Procedure and Evidence.

Common scenarios and practical tips from practice

  • Missing deductions: The IRS’s SFR often assumes zero deductions. Itemize or claim business expenses where supported and attach proof.
  • Identity theft: If an SFR shows income you didn’t earn, treat it like a potential identity theft case. File Form 14039 (Identity Theft Affidavit) and follow IRS identity‑theft procedures.
  • Prior returns missing: If multiple years are unfiled, prioritize filing returns for the most recent years first (see our timeline for filing back returns) to reduce penalties and collection risk: Prioritizing and Filing Back Tax Returns: A Practical Timeline.

In my work, filing accurate returns and a concise explanation often resolves SFR disputes without prolonged appeals. Timely, well‑documented submissions reduce penalties and stop automated collection steps.

Document checklist (bring to the IRS or your preparer)

  • Signed corrected federal tax return(s)
  • W‑2s, 1099s, K‑1s and other income records
  • Receipts and records supporting deductions/credits
  • Proof of estimated payments or withholding
  • Copies of the IRS SFR notice and any other IRS correspondence
  • Completed Form 2848 if using representation

When to hire a tax professional

Consider professional help if:

  • The SFR claims large amounts of income you don’t recognize
  • Multiple years are unfiled
  • You face potential criminal referral (suspicious omissions or fraud)
  • You need help negotiating payment plans or Offers in Compromise

A qualified CPA, enrolled agent, or tax attorney can prepare returns, gather documentation, submit appeals, and represent you before the IRS.

Final practical checklist

  1. Read the IRS notice and note deadlines.
  2. Gather income statements and expense records.
  3. Prepare and sign complete returns for the affected year(s).
  4. Attach copies of supporting documents and a concise cover letter.
  5. Mail via tracked delivery and keep copies.
  6. If you owe, arrange payment or apply for relief.
  7. If necessary, file appeals or engage a tax pro.

Disclaimer

This article is educational and reflects general procedures current as of 2025. It does not replace personalized tax advice. For decisions tied to your specific facts, consult a licensed tax professional or attorney.

Author’s note

With over 15 years in financial services helping taxpayers respond to SFRs, the clearest lesson is promptness: file the correct, signed return with supporting documents as soon as possible. That step both restores your control of the case and opens the procedural avenues (appeals, refunds, payment options) that the IRS provides.

Further reading and resources