IRS rules for nonfiler who pays when asked

What the letter says in detail really is important here, if you're wanting an accurate answer. One could guess that he is responding to a request for delinquent return(s). If he is just sending a check, he'll not get proper credit for it until he files return(s) or the IRS files for him. Perhaps he is responding to Substitute for Return(s) processing and is paying the amount proposed by the IRS. Too many what-ifs. He's already subject to penalties if he's filing and paying late.

I doubt that I'll ever know what is in the letter, so I guess it will remain one of those unsolved mysteries. I would guess that he's getting a credit for the checks he submits... maybe there is a form in the letter that he sends back... because otherwise he would be experiencing more serious contact from the IRS. I know he is not filing any standard return; it's been described by the person closest to him as pacifying the IRS by throwing money at them only when they send him this correspondance. This has been going on for some years, as I said, so maybe he has figured out some system that satisfies the IRS. I've never heard of the Substitute for Return or who can use this option, so perhaps that is what is happening.

The Substitute for Return program was not designed to be an "option" for taxpayers to use; rather it is an enforcement tool for IRS to deal with non-filers. An good, concise explanation of the program is given Internal Revenue Manual

"SFR Program

In general, the SFR Program and its automated version (ASFR) were developed to deal with taxpayers who have not filed income tax returns voluntarily and for whom income information is available to substantiate a significant income tax liability without costly field investigation. The purpose of the program is to assess the correct tax liability by either:

Securing a voluntary income tax return from the taxpayer, or

Computing tax, interest, and penalties based upon the IRP documents submitted by payers or other internally available information.

When a taxpayer fails to file a return as prescribed by law, they are sent a series of notices advising them of the delinquency condition. If the taxpayer does not respond to the notices, a final notice is sent informing them that the Service is authorized to prepare a substitute return unless they file a correct signed return within the period allowed by the notice. See IRM 4.19.17, Non-Filer Program, at IRM

If the taxpayer fails to voluntarily file, the IRS will process and assess the SFR return. Some disadvantages to the taxpayer of an SFR return include: Returns are prepared with single or married-separate filing status, only one exemption; self-employed income is taxed on the gross amount without regard for costs/expenses; assessment of an SFR return starts the running of the collection statute but not the assessment statute (unreported income discovered years later could be included in a subsequent assessment); an SFR assessment is not dischargeable in bankruptcy.

This sounds close to the scenario. His income doesn't change by much of anything from year to year, and there isn't anything complicated about any return that he could file, so maybe it's just easier to have the govt give him a number and he does some rough calculation to see if it sounds reasonable. I guess I'm just jealous that I have to spend a lot of time and thought into my return (which is much more complicated) and he doesn't have to do anything :( I'm also somewhat concerned that my relative, who is involved with this person, might incur some problems if she ultimately decided to formalize the relationship, although she swears she won't, citing what she considers is irresponsibility, largely stemming from this issue.

Note that an SFR return won't be processed until several years after the due date. If this is what he is doing, he is incurring a substantial amount in penalty and interest - more than it would cost him to file and pay timely.

I'm guessing he's paying more tax than he would have to if he filed his own returns. I can't imagine they're calculating all his available deductions. If he sells any stocks, they're probably using 0 as his cost basis. And since he's paying his taxes late, there are presumably fines and interest being charged.

If his total annual income is only $40K, maybe these things don't amount to much, so he's willing to pay it for the "convenience". But if his taxes are that simple, it would probably take just an hour or two to fill out the forms. It seems as irrational as paying a contractor to change a light bulb for you.

Yes, much simpler for him. And don't overlook the possibility that this approach includes not a small amount of "FU, I am not playing your games". Although, it seems he is loosing by not playing, but that is his business.