Unfiled Tax Returns in Riverside: Why the “Substitute for Return” (SFR) is Your Worst Enemy

Life in the Inland Empire moves fast. Between rising mortgage rates in Riverside and the daily grind of commuting, falling behind on administrative tasks is common.

However, there is a massive difference between paying your taxes late and not filing a return at all. If you have unfiled tax returns from previous years, you are sitting on a ticking time bomb known as the Substitute for Return (SFR).

What is a Substitute for Return (SFR)?

The IRS does not wait forever for you to file. Eventually, their Automated Substitute for Return (ASFR) system will file a tax return for you. This is not a favor. When the IRS files an SFR, they:

• Include all income reported by third parties (W-2s, 1099s).
• Grant ZERO deductions or credits. No mortgage interest deduction, no child tax credits, and crucially for business owners, no business expense deductions.
• File as “Single” or “Married Filing Separately,” which usually results in the highest possible tax rate.

The result? A tax bill that is often 2x or 3x higher than what you actually owe. Once this assessment becomes final, the IRS can legally begin collecting this inflated amount through wage garnishments and bank levies.

The Risk to Riverside Homeowners

Riverside County has seen significant property value appreciation. This equity is a target. If you ignore an SFR assessment, the IRS can place a Federal Tax Lien on your home. This does not mean they will seize your house tomorrow, but it does mean:

• You cannot refinance your home to access equity or lower your rate.
• You cannot sell the home without the IRS taking their cut from the proceeds first.
• Your credit score will be severely impacted, affecting your ability to buy cars or secure business loans.

The Solution: Audit Reconsideration and Original Filing

The good news is that an SFR is not set in stone. At Kugelman Law, we help Riverside residents “replace” the government’s inflated return with an Original Return that tells the true story.

Step 1: Gather Your Documents

We start by pulling your “Wage and Income Transcripts” from the IRS to see exactly what they know about your income. Then, we work with you to reconstruct your valid deductions. For our business clients, this is where we save you thousands by properly documenting expenses the IRS ignored.

Step 2: File the Correct Return

We prepare and file your compliant tax return. This typically replaces the SFR assessment. We have seen clients whose “IRS-calculated” debt of $100,000 dropped to $15,000 simply by filing a correct return that included their valid business expenses and family credits.

Step 3: Negotiate the Balance

Once the correct (and lower) tax balance is established, we don’t just leave you to pay it. We negotiate a tax debt resolution plan, which could be an Offer in Compromise (settling for less than you owe) or a Partial Payment Installment Agreement based on your current ability to pay, not your past mistakes.

Do not let the fear of the unknown stop you from acting. The IRS is much more lenient with taxpayers who come forward voluntarily than those they have to hunt down. Contact the Kugelman Law tax experts today to get back into compliance.