Do you need to file a return after paying IRS notice?

Hi,

If a taxpayer doesn't file a return, and the IRS sends them a notice - a year or so later - saying they owe X amount plus penalties and interest.

And then the taxpayer pays the amount on the notice. Do they still need to file a return? Would you recommend that they do?

Please assume that the taxpayer agrees with the amounts reported by the IRS.


Thanks!

The main question is why no return was filed. Yes, you need to file a return ... if you're over the filing threshold. Does the client live in state with state income taxes? If so, expect another notice.

Is it an SFR or CP2000? If you agree with the notice you just pay it. No return required.

Hard to say whether or not they should file. Hardly any facts were presented.

Is it an SFR or CP2000? If you agree with the notice you just pay it. No return required.

Hard to say whether or not they should file. Hardly any facts were presented.

"no return required" and "hard to say whether or not they should file"?

I don't understand your confusion. Yes they are inconsistent. But you've created that inconsistency by taking snippets out of context and juxtaposing them.

I said essentially, "if this, then this". Then I went on to say essentially, "no one can give you a definite answer as you haven't provided enough info".

What’s an SFR?

Substitute for Return - IRS prepared a return based on the info they have on file.
I believe it doesn't count as an actual return, so the statute of limitations never starts to run.

Would it say "SFR" on the notice? How would you know that it is an "SFR"?

I'm not sure, but in your fact pattern what else could it be?

Would it say "SFR" on the notice? How would you know that it is an "SFR"?

If the notice was related to an SFR, it would likely be a CP2566. But if no tax return was filed, how could the IRS assess tax, interest and penalties unless it created a Substitute for Return (SFR)?

Would you recommend that they do?

Please assume that the taxpayer agrees with the amounts reported by the IRS.

order a transcript if curious

If a taxpayer doesn't file a return, and the IRS sends them a notice - a year or so later - saying they owe X amount plus penalties and interest.

And then the taxpayer pays the amount on the notice. Do they still need to file a return? Would you recommend that they do?

Please assume that the taxpayer agrees with the amounts reported by the IRS.

I think a tax return should be filed. Just because the taxpayer agrees with the amounts reported to the IRS does not mean the tax calculated by the IRS on a Substitute Return is correct. For example, the IRS calculated tax could be too high if (1) there were 1099-B proceeds, (2) there were 1099-DIV amounts that contained qualified dividends, or (3) the IRS default filing status was incorrect and unfavorable. There could be other reasons.

Also, a state tax return may need to be filed.

In addition, having a copy of an actual tax return might be useful at some point in the future.

The IRS will generally assume the worst possible treatment with the numbers they have and assume that anything they don't have won't benefit the TP. If you have any 8949 sales without reported basis they'll assume 0 basis, no business expenses, taxable treatment of HSA distributions, standard deduction etc. I don't know if they treat qualified dividends correctly.

If it is a simple W-2 return there may not be much point, although the state may take notice eventually. The IRS makes odd mistakes sometimes too, although if the TP agrees with the balance it is even less likely than normal.

The TP has a duty to file. Paying tax is not the same as filing.

Okay, thanks for the responses, a lot of good information. I appreciate it!