IRS Proposed Assessments on Back Taxes

Sometimes the Internal Revenue Service will take educated guesses about how much taxes a person might owe. These educated guesses are called "proposed assessments." If you get a letter from the IRS, and it says "Notice of Proposed Assessment" at the top of the letter, then you have just received a personal invitation from the IRS to file your back taxes.

Because people are free to arrange their financial affairs in such a way to take advantage of any tax benefits, the IRS may not know every tax deduction and credit you might qualify for. The only way for the IRS to really know how much you owe is for you to tell the IRS what your tax liability is. And the only way to do that is to file a tax return.

Proposed Assessments

When you haven't filed a tax return, the IRS sometimes makes an educated guess as to what your tax liability might be. The IRS does this in order to figure out if you might owe, and how much you might owe. For some of these situations, the IRS will send you a letter, called a Notice of Proposed Assessment. "Proposed Assessment" is another way of saying "educated guess." The IRS has no way of knowing your real tax situation until you actually file a return. So many of these assessments will go away if you just file a tax return.

Substitute Tax Returns

If you do not respond to the IRS' notice of proposed assessment, the IRS may file a tax return on your behalf. This is called a Substitute for Return. In IRS jargon, this is called an "SFR." An SFR is a formal way for the IRS to make an educated guess about how much taxes you might owe. The whole purpose of an SFR is to arrive at a definite dollar amount, so that the IRS can begin collection efforts. If the IRS has issued a proposed assessment, and you don't respond, that assessment may become final. Once the assessment becomes final, the IRS can now legally collect on the tax for a period of ten years.

Action Plan Item

The fastest and easiest way to remove an IRS assessment is to file a tax return. The IRS is legally obligated to accept your tax return instead of their own Substitute for Return. That's because your tax return has your signature on it, and that means you have agreed to a definite tax liability.