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Automated Substitute for Return (ASFR) Program Suspended

Posted on Sep. 26, 2017

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.

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