Automated Substitute for Return (ASFR) Program Suspended

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Thanks to frequent guest blogger Carl Smith for this news from a tax conference this morning. Keith

On September 26, at a New York County Lawyers Association seminar entitled “Nontraditional Tax Advocacy”, Matthew Weir, the Assistant Inspector General of the office of the Treasury Inspector General for Tax Administration (TIGTA) spoke. Among other things, he announced that the IRS had, for lack of sufficient financial resources, suspended its Automated Substitute for Return (ASFR) program. This is shocking news!

Mr. Weir said that TIGTA internally debated whether to disclose to the public the ASFR program’s suspension because, normally, TIGTA does not like to disclose information that taxpayers could use to evade enforcement. But, TIGTA decided that the suspension of the ASFR program was too important to keep from the public. He said a TIGTA report on the suspension would be issued shortly.

The ASFR program was employed for individuals who did not file an income tax return but who had enough gross income reported by third parties to the IRS on information returns (such as on Forms W-2 and 1099) to have had an obligation to file an income tax return. In the ASFR program, computers (without human involvement) (1) detected the need to file and the lack of filing, (2) prepared substitutes for returns under section 6020(b) based on the third-party gross income information, and (3) issued a letter to the taxpayer showing the proposed deficiency and balance due based on that substitute for return (essentially, a 30-day letter). The computer would automatically tack on late-filing and late-payment penalties to the tax balance due. A taxpayer who did not respond to the computer’s letter or who did respond, but did not convince the IRS that no tax or penalties were due, would later get a notice of deficiency – a ticket to the Tax Court.

Under the ASFR program, many taxpayers wrote back to the IRS and pointed out either errors in the gross income calculation or claimed entitlement to fully- or partially-offsetting deductions or credits that the IRS had no knowledge about, such as dependency exemptions and earned income tax credits. Human IRS employees needed to respond to such taxpayer letters. Although Mr. Weir did not say so, I assume that the big expense in running the ASFR program was employee time responding to the taxpayer correspondence. I also assume that, given the frequently-available offsetting deductions and credits, the ASFR program may not have generated enough enforcement revenue to justify the use of the scarce resource, human IRS employee time.

Comments

  1. WOW! This is shocking indeed! Plenty of LITC cases come from taxpayers who are in collections because of the ASFR program. This should stop a decent amount of liens and levies. I wonder how long the suspension will last. I’m guessing for the foreseeable future given the state of the IRS’ budget these days.

    I can see how it could be that the program didn’t bring in much revenue. I’m guessing many of the people who didn’t file had low to moderate income–candidates for CNC and OIC.

  2. This is not the first time the ASFR program has been halted, according to the September 11, 2017 report from TIGTA, “Trends In Compliance Activities Through FY 2016.” According to the report,

    “IRS management halted ASFR issuances completely from September 2015 through May 2016 due to resource constraints and the assignment of resources to other collection activities that were deemed a higher priority. Although the ASFR is one of the IRS’s primary tools used to enforce filing compliance, the IRS reported in the FY 2016 Data Book that there were $542.8 million of additional assessments in FY 2016. This represents a substantial decline compared to the $6.7 billion of additional assessments that were reported for FY 2012.”

    The program seems to be more effective at assessing, rather than collecting tax.. The TIGTA report’s Figure 6 on Page 14 shows that more than 28% of unpaid assessments in FY 2016 are from ASFR/Section 6020(b) returns. That compares to about 29% of unpaid assessments from returns filed with a balance due.

    The decline in ASFR assessments appears to be part of a five-year strategy:

    “IRS officials attributed the significant decline in the CSCO TDAs [Compliance Services Collection Operations Taxpayer Delinquent Accounts] to the decline in Automated Substitute for Return assessments that are issued as part of the nonfiler program, which have decreased 86 percent since FY 2012.”

    The TIGTA report (76 pages) is at

    https://www.treasury.gov/tigta/auditreports/2017reports/201730072fr.pdf

  3. So the program would be judged a success if the targets simply accepted the faulty IRS calculations of their tax liability? Keep in mind that the methodology used in calculating the SFR means that there is absolutely NO WAY the IRS would make a mistake in the taxpayer’s favor.

  4. Robinson Lloyd says:

    Matthew Weir, AIG at TIGTA, does not mention that under Treasury Delegation Order 5-2 (Rev 2), IRS is authorized to perform an IRC 6020(b) Substitute For Return for the following IRS Forms: 940, 941, 943, 944, 720, 2290, CT-1, and 1065.

    Reflecting TDO 5-2 (Rev 2), the IRM restricts a SFR under 6020(b) to “employment, excise, and partnership tax returns because of constitutional issues”.

    How refreshing it would have been for Mr. Weir to have instead announced that “Because of constitutional issues IRS will no longer perform any Substitute For Return as regards IRS Form 1040”.

    • Do you have a copy of this Delegation Order?
      I would like to have a copy

      • Robinson Lloyd says:

        Hello Mike – The TDO is in the IRM here:
        5.1.11.6.7 (04-23-2014)
        IRC 6020(b) Authority
        The following returns may be prepared, signed and executed by revenue officers under the authority of IRC 6020(b):
        Form 940, Employer’s Annual Federal Unemployment Tax Return
        Form 941, Employer’s Quarterly Federal Tax Return
        Form 943, Employer’s Annual Tax Return for Agricultural Employees
        Form 944, Employer’s Annual Federal Tax Return
        Form 720, Quarterly Federal Excise Tax Return
        Form 2290, Heavy Highway Vehicle Use Tax Return
        Form CT-1, Employer’s Annual Railroad Retirement Tax Return
        Form 1065, U.S. Return of Partnership Income
        Per Delegation Order 5–2 (Rev 2), effective October 21, 2013, GS-09 Revenue Officers, GS-09 Bankruptcy Specialists, and GS-11 Bankruptcy Advisors have the authority to prepare, sign and execute returns under IRC 6020(b).

  5. Joseph Ingoglia says:

    My question is, other than someone who has clear American National status, why wouldn’t someone who is “obligated” to file, not do so? Because as it says, if you don’t file but have suffecient 1099/W-2 income, you’ll get the substitute for return notice and have to pay fines & fees and a whole lot of hassle to go along with it. So, who would be motivated not to file all the while knowing they had suffecient income to be obligated to file?

    • Robinson Lloyd says:

      Mr. Ingoglia, It is clear from TDO 5-2 (Rev 2) that an IRS SFR under IRC 6020(b) is restricted to “employment, excise, and partnership tax returns because of constitutional issues”.

      The unauthorized entry of a SFR onto systems of records maintained by IRS is a false government record. The use of a false government record is a crime under 18 USC 1001.

      The key term in your question is “obligated to file”. A rejoinder question is this: How can the vast majority of Americans be “obligated to file” if IRS must commit felonies to collect ?

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