Why Did I Receive IRS Letter 1862?
The IRS sends letter 1862 for a Substitute for Return (SFR) to individuals who are at least 12 months late filing federal tax returns. This letter is an official notice that the IRS prepared an SFR tax return on your behalf. By using your taxpayer identification number (SSN or EIN), the IRS can file a return for you and calculate how much tax you owe.
The income information on a substitute return comes from your employers, payers (if self-employed / freelance), and financial institutions (if you have capital gains or earned interest).
Note that when the IRS files an SFR you won’t get the benefit of deductions and credits you’d claim if you filed the tax return yourself. This can mean you’ll owe the IRS taxes plus penalties and interest.
How Late Can My Taxes Be Before the IRS Prepares a Substitute for Return?
In most cases, the IRS will wait a year before filing an SFR and mailing an 1862 letter to individuals with a past due federal tax return. However, if you haven’t filed on time in the past, owe the IRS back taxes, or committed tax fraud, they may do it sooner than one year.
What Is Form 4549 the IRS Included With Letter 1862?
Typically, Form 4549 (Income Tax Examination Changes) informs taxpayers about the changes proposed by the IRS resulting from an audit of an individual’s tax return. This form lists the adjustments made by the IRS, such as disallowed credits, refunds due, or additional taxes owed.
If you haven’t filed a return, an ITEC may also be included with your 1862 letter to show how the IRS calculated taxes you owe for the SFR.
Is Letter 1862 a Tax Bill From the IRS?
No, an SFR letter isn’t a formal IRS tax bill. Although letter 1862 may contain information about taxes owed for the substitute return, you will receive a separate IRS balance due notice in the mail for tax debt.
For starters, you’ll be sent a CP14 notice when you owe the IRS. If you don’t pay, the IRS will follow up with a series of reminder letters. If you still don’t pay, you risk a federal tax lien, wage garnishment, and/or bank account levy.
Can I Get a Tax Refund If I Have an SFR?
If you did not file a tax return and the IRS files one for you, your 1862 letter may notify you that a tax refund has been issued. However, this is very uncommon. In many instances when the IRS files an SFR the individual owes taxes for the year they failed to file a tax return.
Is It Possible to File My Tax Return or Amend the Substitute Return If the IRS Sent Me Letter 1862?
If you receive letter 1862 because the IRS filed an SFR, you can always file an original tax return after you have the letter to maximize deductions and credits you may be entitled to take. The IRS won’t do this for you with a substitute return.
You filing your return instead and taking advantage of the tax breaks can lower the taxes you’d owe for an SFR. You may even be eligible for a refund.
If I Can’t Afford My Substitute Return Tax Balance, How Do I Pay Back Taxes I Owe?
If you received an 1862 notice and a tax balance due notice, the IRS offers payment relief programs to help taxpayers who cannot afford to make a lump sum payment for the substitute return taxes.
These tax relief programs include:
Installment Agreements (IA)
A monthly payment plan for individuals who owe taxes but need more time to pay the full amount. These IRS payment plans are short-term or long-term based on total tax debt and additional time needed to pay.
Offer in Compromise (OIC)
An Offer in Compromise allows eligible taxpayers to settle a tax debt for a fraction of total taxes owed and to pay the “offer” amount over time. The IRS considers a person’s income, expenses, and asset equity when determining whether the taxpayer qualifies for an OIC.
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