Fail to File Your Tax Return = Kiss Your Itemized Deductions Goodbye
Let’s say you never got around to filing your 2006 tax return. By 2010, the IRS is likely to get tired of your tax truancy, and may well file a substitute for return (SFR) on your behalf based on information filed with the IRS by third parties: W-2s, 1099s, and the like.
Now, it’s extremely possible the IRS will assess a tax higher than what might have resulted had you filed your own return.Why? Because the IRS will not make the effort to determine what your itemized deductions might have been in 2006. They’re simply going to add up your income, take the standard deduction, and be done with thecalculation.
Is it fair? Probably. After all, it’s not the Service’s fault you got so caught up in sprucing up your Myspace page and rocking out to your 1st generation iPod that you failed to file your 2006 tax return. But is it the law? Sure is. The Tax Court has held many times — the most recent being yesterday in Murray v. Commissioner, T.C. Memo 2012-213 — that:
“Ataxpayer must file a return to claim an itemized deduction. If a taxpayer does not file a tax return and, as a result, the Commissioner prepares an SFR, then the taxpayer may not claim itemized deductions.”
So be warned: Leave the tax prep to the IRS, and you’re giving up your right to claim itemized deductions.
In other news, Joe Kristan at Roth & Company has an update on the Oregon woman who filed a false tax return claiming a $5.1M tax refund, received it on a prepaid debit card from Turbo Tax, and went on a bit of a spending spree. Spoiler alert: she’s going to jail.
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