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I'll tell you how I know -- many years in the IRS salt mines.

What you are discussing is called a "Substitute for Return" and is ONLY done when the IRS computer system calculates you would owe them if you filed OR if you filed a schedule C (and maybe an E now that they are matching K-1's) the last year you filed prior to the one in question.

The SFR is calculated at single or married filing separately if you filed jointly on the last year you filed prior to the one in question. They only look back for filing status, not forward.

wtam is correct they add up all income from W-2's, 1099's and now maybe K-1's and tax it. You can ALWAYS file your own return at any point even after the three year refund statute. You won't get a refund but a balance due will go away.

If the IRS has already done an SFR for someone, there are special addresses to send the taxpayer's return to. The account has to be adjusted manually. It cannot go through processing because a return has already been posted to the account and the account now must be changed like an amended return is done. DO NOT send a 1040X in this situation.

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