IRS Suspends Automated Substitute for Return Activity

Automated Substitute Suspended for Return Activity in Fairfax, VA

Carl Smith, a tax attorney and frequent contributor to the excellent tax procedure and controversy blog, Procedurally Taxing (“PT”), reported to PT on September 26 from a New York County Lawyers Association seminar entitled “Nontraditional Tax Advocacy,” where Matthew Weir, the Assistant Inspector General of the office of the Treasury Inspector General for Tax Administration (TIGTA) spoke. Among other things, Mr. Weir announced that the IRS had, for lack of sufficient financial resources, suspended its Automated Substitute for Return (ASFR) program.

Internal Revenue Code Section 6020 gives the IRS the authority to make assessments, called “Substitute for Return assessments,” against taxpayers who do not file tax returns. For some taxpayers, this is simple if the IRS has W-2 or 1099 information on file for the taxpayer. Such cases were handled by the Automated SFR function, where the IRS computer would compare W-2 or 1099 information against filing records, identify taxpayers with income over the filing threshold but no return on file, and prepare an assessment with the available data.

For years, this ASFR function has been an important component of the Service’s efforts to monitor and enforce filing requirements. But it turns out that while ASFR is good at identifying unfiled returns and making assessments, such assessments go uncollected a third of the time and the amount of such assessments fell in the last filing cycle. Due to continuing budgetary constraints, the IRS is being forced to select which of its enforcement functions continue to receive funding and ASFR was identified as one function that could be cut. Although much of the leg at ASFR was computerized, the deficienciy procedures require taxpayer notification and provide the taxpayer with an opportunity to respond to proposed assessments. While the IRS computer could issue proposed assessments, it could not read and respond to taxpayer correspondence, and there simply isn’t enough money in the budget to pay the employees needed to do so.