How is an SFR, a Substitute For Return also known as a Service Filed Return, prepared?

A Substitute For Return is a tax return that is actually prepared by the IRS.

The reason that the IRS prepared this tax return for the taxpayer is because they have no record of a a tax return being filed.

They’ve asked you to file a tax return, it never happened, so they prepared it for you.

How is it that they prepared a tax return?

Generally, the IRS will take all of the information that is reported to them on what’s known as the wage income transcript.

What’s on the wage income transcript? This will be all the W-2s, 1099s, everything that was reported to them. This includes money that you earn that was reported to them.

Then the IRS generally treats you as a single person. The IRS gives you an allowance for a personal exemption and a standard deduction.  This is how they prepare your return..

Generally, this results in tax liability and making an assessment. The reason that’s the case, is because the IRS generally doesn’t prepare tax return, if in doing so, that will result in a tax refund for you.

So they’re generally only going to prepare a SFR, substitute for return, if there is going to be tax due.