Via Procedurally Taxing comes news that the IRS has suspended the Automated Substitute for Return (ASFR) program. This doesn’t sound like much, but this is huge news.
First, for those who aren’t tax geeks, the ASFR program is an automated program to prepare substitutes for tax returns if you don’t file one. Let’s say you have five 2016 1099-MISC’s received totaling $100,000. You foolishly decide not to file a tax return. The IRS will prepare a return for you, making assumptions about your marital status (you’re single) and your business and itemized deductions (none). The IRS then sends you a copy of the return demanding money, adding in penalties (late filing, late payment) and interest. Many people who get ASFRs file tax returns to replace the ASFR; others write the IRS. All of these have to be reviewed by humans. Others simply ignore the IRS and then get a notice of deficiency (which can be appealed to Tax Court).
Presumably the IRS has concluded that the money raised by the ASFR program has not offset the costs of the program. That’s the conclusion of Carl Smith on Procedurally Taxing and my conclusion, too.
Does this mean that you don’t have to file tax returns? Definitely not. If you don’t and the IRS catches you, you will still be subject to all the possible penalties; additionally, non-filing of tax returns is a crime.
As a tax professional, I’m not a fan of the suspension. Sure, this program may have been overall a cost center; however, it likely forced noncompliant individuals in to compliance—and that’s the goal of the IRS (current compliance). Overall, this change seems to me to be a shocking mistake.
PS: California Franchise Tax Board has their Substitute for Return Program alive and well.