Background

A Substitute for Return (SFR) is an administrative tool the IRS uses when it receives information (W-2s, 1099s, third‑party reports) showing taxable income but has not received a filed return from the taxpayer. Because the IRS prepares SFRs using available income data and typically disallows most deductions and credits, the resulting tax calculation is often higher than the amount a correctly prepared return would show (IRS notice guidance) (https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter).

In my practice as a CPA, I regularly see SFR notices where a timely, well-documented response prevents an unnecessary assessment. The single best move is to replace the SFR with your own signed return supported by records.

Step-by-step response to an SFR

  1. Read the notice and meet the deadline
  1. Verify the IRS data
  • Compare the SFR numbers to your W-2s, 1099s and bank records. Common IRS sources: employer W-2s, 1099‑NEC, 1099‑MISC, 1099‑INT/1099‑DIV. If the SFR shows income you don’t recognize, gather documentation to explain or refute it.
  1. Prepare and file the correct return
  • File the missing return(s) exactly for the tax year(s) in question. An official, signed return replaces the SFR for that year. If you expect a refund, file promptly — you may be eligible to reclaim withheld taxes or credits. For how to file, reference the IRS filing page (https://www.irs.gov/individuals/how-do-i-file-a-tax-return).
  1. Include supporting documentation
  • Attach schedules and copies of W-2s, 1099s, receipts, and a brief explanation letter. If you claim deductions not reflected on third‑party reports (e.g., business expenses, dependents, education credits), document them thoroughly.
  1. Request IRS transcripts if needed
  1. Consider representation
  • If the case is complex, file Form 2848 (Power of Attorney) to authorize a tax professional to speak to the IRS on your behalf. Professionals can also help assemble a penalty‑relief package (https://www.irs.gov/forms-pubs/about-form-2848).
  1. Ask for penalty relief when appropriate
  1. Follow up and track your response
  • Keep certified mail receipts or proof of e‑file. Use the IRS contact info on the notice or track responses via IRS tools. If you file electronically, save e‑file confirmations.

Common scenarios and practical tips

  • Missing deductions/credits: SFRs often ignore business expenses, the standard vs itemized choice, and credits. When you file the correct return with substantiation, the tax owed frequently drops substantially.

  • Multiple years unfiled: Tackle the most recent year first, then work backward. The IRS sometimes applies credits or refunds to older SFRs, so prepare all applicable returns.

  • Identity or reporting errors: If income on the SFR is from identity theft, contact the IRS Identity Protection Specialized Unit and follow their process (https://www.irs.gov/identity-theft-central).

When an assessment already exists

If the IRS has already assessed tax based on the SFR, you can still: file an original return (and amend if necessary), file a claim for refund (Form 1040‑X) if the assessment produced an overpayment, or pursue administrative appeals. See the IRS guidance on assessments and appeals (https://www.irs.gov/appeals).

What to send with your response (checklist)

  • Signed Form 1040 (or appropriate return) for each year in question
  • Copies of W-2s, 1099s and other income statements
  • Receipts, mileage logs, invoices and other proof of expenses
  • A concise cover letter explaining discrepancies
  • Form 2848 if you want representation
  • Proof of mailing or e‑file confirmation

Related resources

Common mistakes to avoid

  • Waiting to respond: Delay increases interest, penalties and collection risk.
  • Sending incomplete documentation: Missing receipts or unsigned returns can leave the SFR in place.
  • Assuming the SFR is final: You can replace it by filing the correct return and pursue appeal or penalty relief if needed.

Sources & further reading

Professional disclaimer

This article is educational and does not constitute tax advice for your specific situation. In my 15+ years helping taxpayers, I recommend consulting a qualified tax professional when an SFR, assessment, or collection action is involved.