Why can’t IRS just file my return for me?

Over the years as a tax professional I have seen what happens when the IRS files a return for you. They will only do this for you, if the end result will be a balance due to them, the IRS.

When a taxpayer hasn’t filed a return, and income documents have been received by IRS for that taxpayer, IRS will file a return on your behalf. This is a called a “substitute return”. IRS will only use the data they have, they will not afford you any deductions, and they default to the highest taxed filing status, single.

https://www.irs.gov/businesses/small-businesses-self-employed/filing-past-due-tax-returns

Most taxpayers will just pay on the bill they receive, the amount IRS calculated, due to fear and lack of representation to correct the return. If you have not claimed all the applicable deductions this is not the proper amount of tax due, the return is not complete or accurate, event though IRS was the one who filed it.

When looking at a self employed individual, who is not taking their reasonable and applicable expenses associated with running their business, the taxpayer will pay thousands more in taxes then are actually due.

For example a self employed person who makes $200,000 gross income before expenses, and has deductible expenses in his business of $100,000 would pay $50,000 of taxes if IRS filed the return for them. IRS will tax them on the full $200,000 with no consideration for the expenses. This results in $28,000 more tax due then the actual accurate tax that should be due on net income $100,000 after deducting applicable expenses, which would have an accurate tax due of $22,000.

A self employed person who makes $500,000 before expenses would pay $141,000 in federal income taxes, if expenses of $200,000 we claimed the tax would reduce to $76,800, that is a $64,000 difference.

It pays to file your taxes on time, to claim all necessary and applicable business expenses, and to hire a professional if IRS files a return for you.

When the IRS does file a “substitute return” you can amend the return to correct the final results, claim expenses, and pay the correct tax.