Substitute for Return on Your Transcript: The Zero-Dollar TC 150 You Did Not File

Picture someone who never filed for a particular year. The transcript shows a TC 150 anyway. They swear it is not theirs. They are right. It is the IRS's.

When you do not file, the IRS can make a return for you. On the transcript, that return looks almost like a real one, with a few telling differences.

The legal authority

IRC 6020(b)(1) says that if any person fails to make a required return, "the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise." IRC 6020(b)(2) says a return so made "shall be prima facie good and sufficient for all legal purposes."

The IRS runs this through two channels. The Automated Substitute for Return program, described in IRM 5.18.1, handles a large volume of individual non-filer cases. Examination also prepares substitute returns in other cases.

How to spot an SFR on the transcript

The giveaway is a TC 150 for zero dollars on a year you did not file. IRM 5.18.1 describes how ASFR responses are routed, and in doing so describes the ASFR module: a "TC 150 showing $.00 tax and the TC 150 DLN shows tax class 2, document code 10, and Julian date 887." The same IRM adds: "If the TC 150 DLN has a Julian date of 888, the module is an Examination SFR, and not an ASFR."

IRM 5.18.1 calls this a "dummy" return and explains that it is generated by the ASFR system. Document 6209 adds another marker: TC 971 action code 141, which it defines as "an ASFR return was generated." A TC 972 with the same action code means an ASFR return was generated in error.

So the typical signs are a zero TC 150 you did not file, a DLN with Julian date 887 or 888, and a TC 971 AC 141. Reading the DLN is covered in The Document Locator Number.

Where the tax actually shows up

The zero TC 150 does not assess any tax. The tax comes later, through the deficiency process, and posts as an adjustment.

IRM 5.18.1 describes the ASFR program's statutory notice of deficiency, the ASFR 90-day letter, and its closing statuses. When a taxpayer agrees to the proposed assessment, the IRM says ASFR "will systemically request a TC 290 tax assessment" along with a TC 599. Document 6209 defines TC 599 as a satisfying transaction meaning "Return secured." Where no tax is ultimately due, the IRM describes closing the case with a TC 290 for $.00.

On the transcript, then, an SFR year commonly reads: zero TC 150, TC 971 AC 141, then a notice of deficiency marker such as TC 494, then a dollar TC 290 with penalties and interest. The deficiency process matters. Under IRC 6213(a), the IRS generally cannot assess a deficiency until the notice of deficiency is mailed and the 90-day petition period runs, and the notice opens the door to Tax Court.

What the IRS uses to build the SFR

IRM 5.18.1 says that when a module is sent to ASFR, the master file also sends supplements that include Information Returns Program data, taxpayer entity data and, when available, information from the last return filed. In plain English, the substitute return is built largely from the same third-party reports that appear on your wage and income transcript.

The IRM also states that ASFR "only uses filing statuses of single or married filing separately when preparing a proposed assessment for the 30-Day Letter." If you would have been entitled to file jointly or as head of household, the SFR will not reflect it.

Put those two facts together and you see why an SFR is a starting point for the IRS, not a careful return. It reflects the income the IRS knows about. It does not reflect the filing status, deductions or credits only you can establish. IRC 6020(b)(2) makes it prima facie good and sufficient for all legal purposes, which is why you answer it with a real return rather than a complaint.

SFR years and the statutes

Three statutory rules make SFR years different from years you filed.

Assessment. IRC 6501(c)(3) says that in the case of failure to file a return, the tax may be assessed at any time. And IRC 6501(b)(3) says the execution of a return by the Secretary under IRC 6020(b) "shall not start the running of the period of limitations on assessment and collection." An SFR does not start the IRS's clock to assess. Your own return does.

Penalties. IRC 6651(g) says an SFR is disregarded for purposes of determining the failure-to-file penalty under 6651(a)(1), but treated as the return filed by the taxpayer for purposes of the failure-to-pay penalties under 6651(a)(2) and (a)(3). In practical terms, an SFR does not stop the late filing penalty from being computed as if nothing were filed, and it does start a failure-to-pay penalty computation.

Collection. Once the SFR tax is assessed, IRC 6502(a) gives the IRS 10 years after that assessment to collect. The relevant date is the assessment of the tax, the dollar TC 290, not the zero TC 150.

What happens when you file your own return

You can still file. In most SFR cases you should. An SFR is built from the information the IRS has, which typically means income without the deductions, credits and filing status details only you can supply.

On the transcript, your late original return will usually post as a duplicate, TC 976, because the module already has a TC 150. IRM 5.18.1 notes that a CP 36Z is generated and sent to files when a TC 976 posts on a module where an ASFR dummy return has posted, and that the return is routed to the ASFR operation. Document 6209 also lists TC 971 action code 282, "Delinquent Return Secured by Examination after the posting of an SFR TC 150," which it says will not set the duplicate return freeze and will set the assessment statute expiration date.

If your return shows less tax than the SFR assessment, the reduction posts as an abatement, typically a TC 291, after the IRS processes it. See TC 291 and TC 301.

A practical sequence

• Confirm the SFR. Zero TC 150, Julian date 887 or 888, TC 971 AC 141.
• Find the notice of deficiency date, if any, and check whether a Tax Court window is still open.
• Pull the wage and income transcript to see what income the IRS used. See Account Transcript vs. Wage and Income Transcript.
• Prepare an accurate original return with the deductions and credits you are entitled to.
• Watch for the TC 976 when it posts and the TC 291 that should follow if the tax goes down.

Timing matters in two directions. If the notice of deficiency has been issued and the petition window under IRC 6213(a) is still open, your options include contesting the deficiency in Tax Court. If the window has closed and the tax has been assessed, the return you file becomes the vehicle for asking the IRS to reduce what it assessed. Either way, the return is the document that replaces the IRS's estimate with your actual numbers.

Also check the years around the SFR year. Non-filing is rarely limited to one year, and a refund on a later return can be offset against the SFR balance under IRC 6402(a). If you are expecting a refund on a current return and you have an SFR year outstanding, read the offset codes before you count on the money.

If you have several unfiled years, the main firm site has a general overview of unfiled tax returns. The transcript tells you where each year stands; the returns are how you fix it.