Quick Answer Box

What is an IRS Substitute for Return (SFR)?
If you don’t file a tax return, the IRS may file one for you using income information from employers, banks, and third parties. This is called a Substitute for Return (SFR). It usually results in a much higher tax bill because the IRS doesn’t include deductions, credits, or exemptions you’re entitled to. You can and should replace an SFR with an accurate tax return to reduce penalties and the amount you owe.

Understanding IRS Substitute for Return (SFR)

When taxpayers fail to file their required tax returns, the IRS doesn’t simply let the matter slide. Instead, they take action through a process called Substitute for Return (SFR).

An SFR is essentially a tax return filed by the IRS on your behalf. But unlike your own return, which includes deductions, credits, and adjustments, the IRS return only accounts for:

  • Your reported wages (W-2)

  • Interest and dividends (1099-INT, 1099-DIV)

  • Miscellaneous income (1099-NEC, 1099-MISC)

The IRS doesn’t go looking for deductions like mortgage interest, medical expenses, dependents, or business expenses. As a result, the IRS-calculated tax bill is almost always much higher than it should be.

👉 This makes an SFR one of the most costly consequences of not filing your tax return.

For a broader look at unfiled returns, visit our cornerstone page: Help with Back Taxes & Unfiled Returns.

Why Does the IRS File a Substitute for Return?

The IRS issues an SFR because:

  1. Filing taxes is mandatory. If you don’t file, they’ll do it for you.

  2. They want to collect as much tax as possible. Without deductions or credits, your taxable income looks inflated.

  3. They need to enforce compliance. Filing an SFR is a way to pressure taxpayers into filing their own accurate returns.

In other words, the IRS isn’t helping you — they’re protecting their bottom line.

What Happens After an SFR Is Filed?

Once the IRS creates an SFR for you, here’s what happens:

  1. You’ll get a Notice of Deficiency (CP3219A). This tells you what the IRS thinks you owe.

  2. Your tax debt becomes official. Penalties and interest start accruing immediately.

  3. Collections may begin. This can include liens, levies, or wage garnishments if the balance goes unpaid.

If you don’t respond, the IRS assumes their version of the return is correct — even though it likely overstates your tax liability.

How to Fix an IRS Substitute for Return

The good news: an SFR is not final. You can replace it with a correctly filed tax return.

Here’s how:

  1. Gather Your Records. Collect W-2s, 1099s, and other tax documents. If you’re missing something, you can request transcripts from the IRS.

  2. Prepare the Correct Return. File the missing year’s return using accurate information, including deductions and credits you’re eligible for.

  3. Submit to the IRS. Send it to the IRS even if they already filed an SFR. The IRS will accept your return as long as it’s more accurate.

  4. Adjust Your Balance. Once processed, your tax liability is reduced, often significantly.

  5. Resolve Remaining Debt. If you still owe, consider an IRS payment plan, Offer in Compromise, or other resolution strategy.

This is where a tax professional is essential. At Polaris Tax & Accounting, we specialize in replacing SFRs with accurate returns — and in many cases, saving our clients thousands of dollars.

Example: How an SFR Overstates Your Taxes

Let’s say you earned $70,000 in wages and $2,000 in interest income.

  • The IRS’s SFR shows taxable income = $72,000.

  • No deductions. No dependents. No credits.

  • Tax bill: $11,800 (plus penalties and interest).

But with the correct return:

  • Standard Deduction (Single) = $15,750

  • Two dependent credits = $4,000

  • Adjusted taxable income = $56,250

  • Tax bill: $6,200

That’s a difference of $5,600 in your pocket, just from filing correctly instead of letting the IRS decide.

Common Questions About Substitute for Return

Can the IRS file an SFR for multiple years?
Yes. If you haven’t filed in years, the IRS can prepare SFRs for each year they have income records.

Does replacing an SFR erase penalties?
No. Penalties and interest still apply. But you can often request penalty relief through programs like First-Time Penalty Abatement.

What if I ignore the SFR?
The IRS will treat it as final, begin collections, and may garnish your wages, freeze bank accounts, or seize assets.

Why You Need Professional Help

Fixing an SFR isn’t just about filing late returns. You need to:

  • Ensure accuracy and compliance

  • Reduce your liability with legitimate deductions

  • Stop IRS collection actions

  • Settle outstanding balances strategically

At Polaris Tax & Accounting, we don’t just file — we strategize. Our team of Enrolled Agents has national IRS representation rights, meaning we can advocate directly with the IRS on your behalf.

For many clients, replacing an SFR has resulted in:

  • Lower tax bills

  • Removed penalties

  • Halted garnishments and levies

  • Peace of mind

Take Control Before the IRS Does

If you’ve received notice of a Substitute for Return, don’t wait. The longer you delay, the higher your tax bill grows — and the harder it becomes to reverse.

📌 Learn more about your options here: Back Taxes & Unfiled Returns Help.

Or take action now: Schedule a Consultation with Polaris Tax & Accounting and let us replace your IRS-filed return with one that actually works in your favor.