You can replace their version of the 2010 return with your return which will invariably show less tax due. But, in the meantime the SFR is fully collectible if reduced to judgment via the running of a 90 day letter. You will have to request audit reconsideration. If an Revenue Officer has been assigned maybe a representative can beg and plead on your behalf. There will no getting back the funds they have already taken but you can claim the amounts taken against the liability on your 2010 return.
"SFR" stands for "substitute for return." The IRS filed a tax return for you because you refused to file. You first step is to file a tax which legally reverses the SFR. If you do not owe taxes on the your corrected 2010 return, then your tax liability will be terminated. Generally the filing of a tax return can suspend a levy pending the processing of the return. Have your 2010 tax return prepared filed immediately. This is the price you are paying for not doing what you should have done in the first place.
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Licensed in the United States Tax Court
Main: 323-292-4116 ❘ Cell: 562-505-1004
THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is firstname.lastname@example.org.
Messrs. Klasing and Smith have given you good advice. In short, you must file your own return as soon as possible. I do not understand why "Proving financial hardship will be very hard to do" if you are unemployed, your unemployment benefits have run out, and your savings are zero. You should consider filing an installment agreement or offer in compromise depending upon what your return shows as owing. Did you receive a notice of deficiency (90 day letter)? Go hire Mr. Smith or Mr. Klasing.
File the return immediately. Make sure 2011 is filed also and that 2012 is filed on time. Call IRS collections at 1-800-829-7650 and tell them you have a levy and that you want to complete your financial statement and request currently not collectible status. Tell them your income and expenses. Even if you cant prove all of your expenses there are some amounts they automatically allow. Tell them you want the levy released and have the fax number for the department at your bank that handles levies ready so that the IRS can fax over the release. If you are lucky you may be able to avoid money being taken from your account.
The 2010 return you file may replace the substitute the IRS filed. If the IRS issued a notice of deficiency on 2010 (90 day letter) then technically they don't have to process the 2010 return and can stick with their substitute return numbers. However, they might process your 2010 return to replace their substitute return even when a notice of deficiency was issues. If they don't you will need to request audit reconsideration.