If a person has taxable income but doesn’t file a tax return, the IRS can prepare one under its “Substitute for Return” program. In one case, the operator of a real estate consulting firm received gross income of nearly $368,000 in one year but didn’t file a tax return or pay estimated tax. The IRS prepared a return for him and sent him a bill, which included substantial penalties. The man claimed that the IRS’s analysis was erroneous because it failed to exclude nontaxable real estate proceeds. The U.S. Tax Court disagreed. The IRS showed with sale records and closing documents that it properly subtracted nontaxable amounts. (TC Memo 2022-114)
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