When you fail to file your return and the IRS determines from documents of income they have received that you owe taxes, the IRS will file a return for you if after repeated requests you fail to do so yourself. This filing is called a Substitute For Return or SFR for short. Believe me, the SFR only takes into account items of income and the standard deduction and exemption for 1 person if single, 2 if married. No additional items of loss, deductions such as interest and taxes on a home, charitable contribution, or even additional dependents are included in the calculation of the tax (plus penalties and interest of course!)
By simply filing the past due returns with all the proper information and claims for allowable deductions, the taxpayer can significantly reduce the amount the IRS claims is owed! This is how tax reduction companies “reduce” what the IRS claims in many cases, and sometimes this results in a significant reduction!
Even worse, in some cases there has been an OVERPAYMENT of taxes and a refund should have been issued from the government. However, if you fail to file, and there is a refund due, after 3 years the refund is forfeited. While you may not owe taxes as a result of the late filing, you will be very upset that you forfeited your refund from the government. In addition, if you owe tax from other years, you cannot offset the forfeited refund against taxes due from the other returns.
So the first step in any claim by the IRS for a tax liability is —-FILE THE RETURNS!