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IRS Automatic Substitute for Return (ASFR) Program

The ASFR Program targets individual taxpayers with apparent significant tax liability who have not filed income tax returns. This program allows the IRS to assess a tax bill based on 3rd party reporting (1099s or other documents) if a taxpayer does not file a tax return.

Last year, the Treasury Inspector General for Tax Administration (TIGTA) evaluated the effectiveness of the program on nonfiler compliance and enforcement yield. The program focus moved to “Refund Hold” cases, but overall collections have declined.

In the period of June 2010 to July 2011 the total ASFR Program collections were $3 billion. By June 2015 to July 2016 that amount dropped to about $430 million.

Refund Hold & potential tax liability

One part of the ASFR program withholds tax refunds when it appears there is a tax liability on an unfiled return. Refunds are generally only held for six months, so these cases receive priority.

TIGTA analyzed the cases between June 2011 and November 2016 finding 60 percent of the cases were not resolved in six months. It estimated that holding onto to the refunds until the cases were resolves would have equated to about $45 million applied to taxpayer accounts.

Reduction in high net tax due cases

High net tax due cases are those when estimates of tax liability are over $100,000.TIGTA addressed the reduction in high net tax due cases and recommended replacing about 10 percent of the Refund Hold cases with high net due cases.

These types of matters are hard to automate. And often require an auditor’s attention. These tax estimates easily overstate balances, because they do not account for expenses or deductions. The Taxpayer Advocate has criticized the program for inefficient use of resources in the past as well.

TIGTA made seven recommendations. IRS management will implement five, but disagreed with two. Limited resources led to suspension of the ASFR Program and they will not agree to reassess this decision. They also refused to extend the refund hold period, which they argued is generally sufficient.

With shifting IRS priorities, if you find yourself in the cross hairs, seek sound legal tax counsel. You may have more options than you realize to solve problems caused by unfiled tax returns.

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