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The institutions or individuals that you transacted business with or hired you are required by law to send a copy of every applicable tax documents to you, the Social Security Administration, and the Internal Revenue Service.

Do you know that after taxpayers failed to reply to the IRS requests to file a return that the IRS could contact your neighbors, employers, and others to gather information on your potential tax liability?

The IRS has authority under the law to prepare a substitute tax return, called Substitute for Returns (SFRs), on your behalf when you did not file. When that is the case, you lost any deduction and credit that you may be entitled to. The statute of limitation rules does not exist in cases of 1) taxpayers fail to file a return and 2) assessment and collection of taxes on SFRs.

When taxpayers continue to not file a return and do not respond to IRS requests for a return, there are a variety of enforcement actions that the IRS could take, including penalties and criminal prosecution. Generally, after the fourth notice is ignored, the IRS would take action. Taxpayers could always make arrangements with the IRS to avoid criminal prosecution.

If you have a business and you hire an individual as a contractor/vendor and paid a total of $600 or more, you, the payee, must have the contractor fill out Form W-9 to provide the tax identification or social security number and address to send a Form 1099-MISC as required by IRS. If you could not get the W-9 or the contractor refuses to provide the required information, you are required to withhold 24% (prior law 28%) from payments to the contractor/vendor. You could be subject to a penalty for not collecting the W-9 or not withholding 24% of the payments made to the contractor. For business owners or self-employed, the IRS would allow almost any deduction for the production of the income that could be proven, as long as it is ordinary and necessary, including tax consultation, tax planning, bookkeeping, payroll, and accounting services. 

Be advised that you could not claim a business expense for the amount paid to the contractor without providing proper documentation.

Ensure that your tax preparer includes All your income when you have multiple W2, 1099, and other forms. A contractor must also ensure he or she receives all the required Form-1099-MISC before filing.

You could still file your return and claim the deductions and credits even after the Internal Revenue Service had already prepared a substitute return on your behalf.

Prepare your tax return! If you need more time, request an extension by the filing deadline, July 15, 2020.

Further reading: IRC sec. 6020(b); IRC sec. 6501 (c)(1)(c)(3); Reg. 301.6501 (b)(1)(c), (c)(1)(c). IRC sec. 6212.
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