by Renee Lawson | Oct 20, 2025 | Tax Preparation, Tax Resolution
Cryptocurrency has gone from niche hobby to mainstream investment in just a few short years. Millions of Americans now buy, sell, and trade digital assets like Bitcoin, Ethereum, and countless altcoins. But along with explosive growth in crypto markets comes a less glamorous reality: the IRS wants its share of your profits—and it’s getting better at finding out when you haven’t paid.
If you’ve traded crypto and failed to report your gains, or if you’re unsure whether you calculated your taxes correctly, you could be facing back taxes, penalties, and interest. The good news? With the right strategy and timely action, you can resolve crypto-related tax issues before they spiral out of control.
In this blog we will discuss what you need to know about how the IRS treats cryptocurrency and what steps to take if you owe back taxes on crypto gains. At Action Tax Relief we specialize in helping businesses and individuals in resolving their tax debt. You can contact us at www.ActionTaxRelief.com or call 937-268-2737.
How the IRS Views Cryptocurrency
First, it’s important to understand the IRS’s position: cryptocurrency is treated as property, not currency, for federal tax purposes. This classification has been in place since IRS Notice 2014-21, and it means that every time you sell or exchange crypto—whether for U.S. dollars, another cryptocurrency, or goods and services—you trigger a capital gain or loss.
Key implications:
- Capital Gains Taxes: If you sell crypto for more than you paid, you realize a capital gain. Short-term gains (held for one year or less) are taxed at ordinary income rates, while long-term gains enjoy lower capital gains rates.
- Capital Losses: Losses can offset other gains and up to $3,000 of ordinary income annually.
- Income from Mining or Staking: Rewards earned through mining, staking, or airdrops are treated as ordinary income at their fair market value when received.
This means crypto activity can create multiple taxable events throughout the year—not just when you “cash out” to fiat currency.
How the IRS Is Tracking Crypto Activity
Some investors assume crypto is anonymous and hard to trace. That’s no longer true. The IRS has ramped up enforcement significantly:
- Exchange Reporting: Major U.S.-based exchanges (like Coinbase, Kraken, and others) issue Form 1099 to the IRS and account holders for certain transactions.
- Blockchain Analysis: The IRS partners with blockchain analytics firms to track transactions on public ledgers.
- Tax Return Question: Every individual tax return now asks whether you engaged in any digital asset transactions during the year.
The IRS’s message is clear: crypto transactions are visible, and failing to report them can lead to serious trouble.
Common Reasons People Owe Back Taxes on Crypto Gains
Crypto taxes can get complicated fast, and even well-intentioned investors can end up with a tax bill. Some common scenarios include:
- High Volume Trading: Day trading crypto across multiple exchanges can generate hundreds or thousands of taxable events—easy to underreport.
- Failure to Track Cost Basis: Without accurate records of purchase price and dates, it’s difficult to calculate gains or losses correctly.
- Not Reporting Mining or Staking Rewards: These are treated as income when received and can create tax obligations even if you don’t sell the coins.
- Price Volatility: Selling crypto after a big run-up may result in large taxable gains, even if the market crashes later.
If you’ve made any of these mistakes, you may already owe the IRS back taxes.
Consequences of Owing Crypto-Related Back Taxes
The IRS treats unpaid crypto taxes the same way it treats any other unpaid taxes. Possible consequences include:
- Penalties and Interest: Failure-to-file and failure-to-pay penalties can add up quickly, along with daily interest charges.
- Tax Liens and Levies: If you don’t address your balance, the IRS can file a federal tax lien against your property or levy (seize) your bank accounts, wages, or other assets.
- Criminal Charges in Extreme Cases: Deliberate tax evasion—such as hiding crypto holdings—can lead to criminal prosecution.
The longer you wait, the more severe and costly these consequences become.
Steps to Take if You Owe Back Taxes on Crypto Gains
If you discover or suspect that you owe taxes on your cryptocurrency activities, here are the steps to take:
1. Gather All Transaction Records
Collect data from every exchange or wallet you’ve used, including trade histories, purchase dates, amounts, and fees. Tools such as crypto tax software can help consolidate this information.
2. Calculate Your Tax Liability
You’ll need to determine your cost basis and capital gains or losses for each transaction. If you’ve received mining or staking rewards, calculate the fair market value when received.
3. File or Amend Your Tax Returns
If you failed to report crypto transactions on previous tax returns, file amended returns (Form 1040-X) for those years. This is often a critical step in demonstrating good faith to the IRS.
4. Pay What You Can
Paying the full amount immediately will stop penalties from accruing. If you can’t pay in full, send as much as possible to reduce interest and penalties.
5. Explore IRS Resolution Options
The IRS offers programs to help taxpayers resolve back taxes, including:
- Installment Agreements: Monthly payment plans that spread out your tax debt.
- Offer in Compromise (OIC): Settle your debt for less than the full amount if you qualify.
- Currently Not Collectible Status: If you’re in financial hardship, the IRS may temporarily suspend collection.
A tax resolution professional can help you evaluate which option fits your circumstances.
6. Respond Promptly to IRS Notices
If you’ve received IRS letters regarding unreported crypto income or unpaid taxes, respond immediately. Ignoring notices will only escalate the problem.
How to Stay Compliant Going Forward
Once you’ve addressed your back taxes, put systems in place to avoid future problems:
- Use Reliable Crypto Tax Software: Track every transaction throughout the year.
- Keep Detailed Records: Maintain records of purchase prices, dates, and any fees.
- Make Estimated Tax Payments: If you trade frequently, consider quarterly estimated payments to avoid surprises at tax time.
- Consult a Tax Professional: Work with a CPA or tax resolution specialist experienced in cryptocurrency taxation.
Don’t Wait for the IRS to Catch Up
Crypto is no longer the Wild West. The IRS has the tools and partnerships to track digital asset transactions, and enforcement is increasing each year. If you owe back taxes, it’s far better to come forward voluntarily than to wait for the IRS to contact you. Voluntary disclosure often results in reduced penalties and demonstrates good faith.
Final Thoughts
The IRS treats cryptocurrency just like other property—and failing to report your gains can lead to significant back taxes, penalties, and potential legal action. Whether you traded Bitcoin once or are an active DeFi participant, the time to address unreported crypto gains is now.
Need Professional Help With Crypto-Related Tax Debt?
Action Tax Relief specializes in helping individuals and businesses resolve tax debt—including issues related to cryptocurrency gains. Contact us at 937-268-2737 or visit our contact page at www.ActionTaxRelief.com to schedule a confidential consultation and take the first step toward putting your crypto tax problems behind you.
by Renee Lawson | Oct 6, 2025 | Tax Preparation, Tax Resolution
When people think of the Internal Revenue Service (IRS), they often picture audits, liens, or wage garnishments. But many are surprised to learn that the IRS can also impact your ability to travel internationally. Under a federal law passed in 2015, the IRS can ask the U.S. Department of State to deny, revoke, or limit your passport if you have a “seriously delinquent tax debt.”
For anyone who travels for business, visits family overseas, or simply enjoys international vacations, this is more than an inconvenience—it’s a serious risk that can disrupt your life and livelihood. In this blog we will cover everything you need to know about how the passport revocation process works, how to protect yourself, and what steps to take if you receive a notice. At Action Tax Relief we specialize in helping both individuals and businesses resolve their tax debt. If you need help you can contact us at www.ActionTaxRelief.com or call 937-268-2737.
What Is “Seriously Delinquent Tax Debt”?
The key trigger for passport action is a “seriously delinquent tax debt,” which is defined by law under Internal Revenue Code Section 7345. As of 2025, this means:
- You owe more than $59,000 in unpaid federal taxes (including penalties and interest), AND
- A federal tax lien has been filed or a levy has been issued.
This threshold is indexed for inflation and can change each year, but it represents a significant amount of debt. Importantly, not every large tax bill counts. If you’re actively working with the IRS on a resolution, you may be exempt.
How the Passport Revocation Process Works
- IRS Certifies the Debt:
The IRS identifies taxpayers who meet the “seriously delinquent” criteria and sends their names to the U.S. Department of State. At the same time, the IRS sends you a written notice—Notice CP508C—to your last known address.
- Department of State Action:
Once the IRS certifies your debt, the State Department can:
- Deny your application for a new passport or renewal.
- Revoke your existing passport.
- Limit your passport to allow only direct return to the United States.
The process is not instantaneous. Typically, the State Department gives you 90 days after receiving the certification to resolve your tax issue before revoking your passport. However, if you are applying for a passport or attempting to renew, they can deny your application right away.
Situations That Are NOT Considered “Seriously Delinquent”
The IRS does not certify taxpayers to the State Department if:
- You are in a valid installment agreement or offer in compromise.
- You have a pending request for either of the above.
- You have filed for innocent spouse relief.
- You are a victim of tax-related identity theft.
- You live in a federally declared disaster area, or the debt is currently uncollectible due to hardship.
These exceptions mean that if you are proactive about working with the IRS, you can avoid passport problems entirely—even if you owe more than the threshold.
Warning Signs You Could Be at Risk
The IRS doesn’t certify debt without sending notices. But many taxpayers miss these warnings because they:
- Moved without updating their address.
- Ignored IRS mail out of fear or confusion.
- Thought they had more time to respond.
If you’ve been receiving IRS collection letters (such as CP14, CP501, or CP503) and your tax debt is climbing, you could be on the path toward a CP508C notice.
Consequences of Passport Revocation
Having your passport denied or revoked can be far more than an inconvenience:
- Business Travel: If your work requires international travel, losing your passport can jeopardize contracts and income.
- Family Emergencies: You could be unable to visit sick relatives or attend important events abroad.
- Leisure Travel: Planned vacations may need to be canceled, often at significant financial loss.
And while the State Department usually provides a 90-day window to resolve the debt before revocation, it can deny a pending passport application immediately. That means you may not even be able to leave the country for a planned trip.
How to Avoid or Stop Passport Revocation
If you receive a CP508C notice or suspect you’re close to the threshold, take action quickly:
1. Verify the Notice
Double-check that the IRS’s certification is correct. Sometimes payments or credits have not yet posted. You can contact the IRS directly or have a tax professional request your account transcript.
2. Pay the Debt in Full
Paying the entire balance—including penalties and interest—will cause the IRS to reverse the certification, usually within 30 days. While this is the fastest path, it’s not realistic for everyone.
3. Enter Into an Installment Agreement
If you can’t pay in full, set up a formal installment agreement with the IRS. Once approved, the IRS will withdraw the certification and notify the State Department.
4. Submit an Offer in Compromise
If you qualify for an Offer in Compromise (OIC) to settle your debt for less than the full amount, the IRS will reverse the certification once your OIC is pending and again if it’s accepted.
5. Request Currently Not Collectible (CNC) Status
If you can prove financial hardship, the IRS may place your account in CNC status, which also stops passport revocation.
6. Appeal the Certification
If you believe the IRS certified your debt in error, you can request a judicial review in U.S. Tax Court or federal district court.
What to Expect After You Resolve the Debt
Once you’ve paid or made arrangements, the IRS will notify the State Department within 30 days to remove the certification. The State Department will then reinstate your passport privileges.
However, this process is not instantaneous. If you have imminent international travel, inform the IRS and the State Department of your travel plans. In rare emergencies, the State Department may issue a limited passport for direct return to the U.S., but only in very specific situations.
Conclusion
International travel is a privilege many people take for granted until it’s at risk. If you have significant tax debt, don’t wait until you’re at the airport to find out there’s a problem. Address your tax situation early and get professional help if needed.
Need Professional Tax Debt Help?
Action Tax Relief specializes in helping individuals and businesses resolve tax debt and avoid consequences like passport revocation. Contact us at 937-268-2737 or visit our contact page at www.ActionTaxRelief.com to schedule a confidential consultation and take the first step toward resolving your IRS problems today.
by Renee Lawson | Sep 22, 2025 | Tax Preparation, Tax Resolution
Dealing with the IRS collection process can feel overwhelming and intimidating, especially if you’re unfamiliar with how it works. Whether you owe back taxes or have received a notice from the IRS, understanding the steps in the collection process can help you make informed decisions. This blog will break down the process, explain what to expect, and highlight some ways to resolve tax issues before they escalate.
Step 1: The IRS Notice
The IRS collection process begins when the agency identifies that you owe taxes. They will send a written notice, often referred to as a “CP” notice, explaining the amount owed, the tax year in question, and any applicable penalties and interest. The notice will also provide a deadline for payment or response.
It is crucial to read this notice carefully and respond promptly. Ignoring IRS notices will not make the problem go away; instead, it may lead to more severe consequences, such as additional penalties or enforcement actions.
Key Takeaway: Always open and read letters from the IRS. Ignoring them will only worsen your situation.
Step 2: IRS Billing Notices
If you don’t respond to the initial notice, the IRS will send additional billing notices. These notices will outline the increasing balance due, including interest and penalties. Typically, you will receive three to four notices over several months before the IRS escalates collection efforts.
The final billing notice, known as a “Final Notice of Intent to Levy,” is particularly critical. This notice informs you that the IRS intends to seize your assets if you do not take action. The IRS is required to provide you with 30 days to appeal or resolve the issue before moving forward with enforcement actions.
Pro Tip: If you receive a Final Notice of Intent to Levy, don’t wait. Contact a tax resolution expert immediately to explore your options.
Step 3: Collection Actions Begin
Once the IRS determines that the debt is unresolved, they may initiate collection actions. Here are some of the most common methods:
- Tax Liens: A tax lien is a legal claim against your property (real estate, personal property, or financial assets). While it doesn’t involve immediate seizure, it can harm your credit score and make it difficult to sell or refinance property.
- Wage Garnishment: The IRS can contact your employer and require them to withhold a portion of your paycheck to satisfy your tax debt. This is often referred to as a “wage levy.”
- Bank Levies: A bank levy allows the IRS to seize funds directly from your bank account. Once the levy is issued, the bank freezes your account and forwards the funds to the IRS after 21 days unless you resolve the debt.
- Seizure of Assets: In rare cases, the IRS may seize physical assets, such as your home, car, or other valuables, to satisfy unpaid tax debt.
Important Note: The IRS’s ability to collect through liens, levies, and asset seizures is powerful, but you have rights and options to protect yourself.
Step 4: Options for Resolving Tax Debt
Fortunately, the IRS offers several programs to help taxpayers resolve their debts. Here are some of the most common solutions:
Installment Agreements
An installment agreement allows you to pay your tax debt in monthly installments over time. This can help make large tax bills more manageable. Depending on your situation, you may qualify for a streamlined agreement that requires minimal financial documentation.
Offer in Compromise (OIC)
An Offer in Compromise allows you to settle your tax debt for less than the full amount owed. To qualify, you must demonstrate that paying the full amount would create a financial hardship. The IRS considers factors such as income, expenses, and asset equity when evaluating OIC applications.
Currently Not Collectible (CNC) Status
If you can’t afford to pay your tax debt due to financial hardship, you may qualify for “Currently Not Collectible” status. While in CNC status, the IRS temporarily suspends collection efforts. However, penalties and interest will continue to accrue on your balance.
Innocent Spouse Relief
If your tax debt is the result of errors or omissions made by your spouse (or former spouse) on a joint tax return, you may qualify for innocent spouse relief. This program can relieve you of responsibility for the tax debt associated with your spouse’s mistakes.
Tip: Each of these options requires specific qualifications and documentation. Working with a tax resolution professional can help ensure your application is accurate and complete.
Step 5: Your Rights as a Taxpayer
The IRS must follow strict rules when collecting taxes, and you have rights throughout the process. These include:
- The Right to Be Informed: The IRS must provide clear explanations of your tax obligations and any actions they intend to take.
- The Right to Challenge the IRS: You have the right to appeal IRS decisions, such as liens or levies, if you believe they are incorrect or unfair.
- The Right to Retain Representation: You have the right to work with a tax professional to help resolve your case.
- The Right to a Fair and Just Tax System: The IRS must consider your financial situation and ability to pay when taking collection actions.
Why You Should Act Now
Ignoring tax debt won’t make it disappear. In fact, delays can lead to increased penalties, interest, and enforcement actions. By addressing the issue early, you can explore options to reduce your debt, prevent aggressive collection actions, and regain financial stability.
If you’re unsure where to start, don’t worry. Action Tax Relief specializes in helping individuals and businesses resolve their tax issues quickly and efficiently. Contact us at 937-268-2737 or visit our contact page at www.ActionTaxRelief.com to schedule a consultation today.
Final Thoughts
The IRS collection process can be stressful, but understanding how it works is the first step toward resolving your tax issues. From responding to notices to exploring resolution options, taking proactive steps can help you avoid unnecessary financial strain and protect your assets.
Remember, you don’t have to navigate this process alone. With the right help and guidance, you can overcome your tax challenges and achieve peace of mind.
by Renee Lawson | Sep 8, 2025 | Tax Preparation, Tax Resolution
Dealing with tax debt can feel overwhelming, especially when you’re trying to stay afloat financially. Fortunately, there are effective strategies to address your tax obligations without draining your bank account. The IRS offers several programs and relief options, but knowing which one works best for your situation is crucial.
In this blog, we’ll cover 10 strategies to settle your tax debt in a way that’s manageable and financially feasible. At Action Tax Relief we specialize in resolving tax debt and you contact us at www.actiontaxrelief.com or call 937-268-2737 to take steps today to resolve your tax debt.
1. Understand Your Tax Debt
Before diving into solutions, it’s important to understand the full scope of your tax debt. Request a transcript from the IRS to review how much you owe, including interest and penalties. This step helps you make informed decisions about the best resolution strategy.
2. Set Up an Installment Agreement
An installment agreement allows you to pay your tax debt in manageable monthly payments. The IRS offers two types of plans:
- Short-term plans (under 180 days) for smaller balances
- Long-term plans for larger balances, often requiring a setup fee
While interest and penalties continue to accrue, spreading payments over time makes it easier to manage your finances.
3. Apply for an Offer in Compromise (OIC)
An Offer in Compromise allows you to settle your tax debt for less than the total amount owed. To qualify, you must demonstrate that paying the full amount would create financial hardship. The IRS considers factors like your income, expenses, and assets when evaluating your eligibility.
An OIC can be a game-changer, but it requires thorough preparation and documentation. You should know that are strict requirements and not everyone qualifies. Working with a tax resolution specialist can significantly increase your chances of approval.
4. Request a Penalty Abatement
Penalties can make up a significant portion of your tax debt. If you’ve faced circumstances beyond your control—such as a medical emergency or natural disaster—you may qualify for penalty abatement. The IRS offers relief through:
- First-Time Penalty Abatement
- Reasonable Cause Penalty Relief
Submitting a well-documented request can lead to substantial savings.
5. Consider Currently Not Collectible (CNC) Status
If paying your tax debt would leave you unable to cover basic living expenses, you can request to be placed in “Currently Not Collectible” status. This temporarily halts IRS collection efforts, including wage garnishments and levies.
While interest continues to accrue, CNC status gives you breathing room to stabilize your financial situation.
6. File All Missing Tax Returns
If you have unfiled tax returns, the IRS may assess your tax debt based on estimates, which often overstate your actual liability. Filing your missing returns can reduce the debt and open the door to resolution options.
Failing to file can also disqualify you from programs like Offers in Compromise or installment agreements.
7. Protect Yourself From Collection Actions
If you’re struggling with tax debt, it’s crucial to understand your rights and how to protect yourself from aggressive IRS collection actions like liens, levies, and wage garnishments.
- Request a Collection Due Process Hearing: If you’ve received a Final Notice of Intent to Levy, you have the right to request a hearing to appeal the action. This can halt collections temporarily while your case is reviewed.
- Submit Form 911: The Taxpayer Advocate Service (TAS) can intervene if you’re experiencing significant financial hardship due to IRS actions. Submitting Form 911 can help protect you while working on a resolution.
Understanding your rights and acting proactively can prevent financial devastation while you work toward resolving your tax debt.
8. Challenge the Debt Through Audit Reconsideration
If your tax debt arises from an IRS audit and you believe the findings were incorrect, you can request an audit reconsideration. This involves submitting additional documentation to dispute the audit results.
While this process doesn’t guarantee a reduction in debt, it’s worth pursuing if you have strong evidence to support your case.
9. Negotiate a Partial Payment Installment Agreement (PPIA)
A Partial Payment Installment Agreement allows you to pay less than the full amount owed over time. Unlike a regular installment agreement, a PPIA reduces your total liability.
The IRS reviews your financial situation every two years to determine if you’re still eligible, so it’s important to keep your finances in order.
10. Seek Professional Help
Navigating IRS programs and negotiations can be complex and time-consuming. A tax resolution specialist can analyze your financial situation, determine the best strategy, and negotiate on your behalf.
Professionals have the expertise to handle IRS communications and ensure your case is presented in the best possible light.
Tips for Success When Settling Tax Debt
- Act Quickly
The sooner you address your tax debt, the more options you’ll have for resolution. Delaying action can lead to additional penalties and interest.
- Stay Organized
Keep all financial records, IRS notices, and correspondence in one place to streamline the resolution process.
- Be Honest and Transparent
Accurate and truthful communication with the IRS is essential for resolving your debt effectively.
- Understand Your Rights
Taxpayers have rights during the resolution process, including the right to representation and the right to appeal IRS decisions.
Conclusion
Tax debt can feel like an insurmountable burden, but you have options to address it without breaking the bank. From installment agreements to Offers in Compromise and penalty abatements, there’s a strategy for every financial situation.
Remember, seeking professional help can make a significant difference in the outcome. Contact Action Tax Relief www.ActionTaxRelief.com or call 937-268-2737 to connect with experienced tax resolution specialists who can guide you through the process and help you achieve financial peace of mind.
Take the first step toward resolving your tax debt today!
by Renee Lawson | Jul 28, 2025 | Tax Preparation, Tax Resolution
Learn the Requirements
Tax penalties can significantly increase the amount you owe to the IRS or state tax agencies, turning an already challenging financial situation into an overwhelming one. However, you might not have to pay those penalties in full. The IRS offers penalty abatement programs that can reduce or eliminate penalties in certain situations.
In this blog, we’ll discuss what penalty abatement is, the eligibility requirements, and how to determine if you qualify. If tax penalties are adding to your stress, this blog will help you explore a potential solution. If you need further assistance with your tax debt, please reach out to Action Tax Relief by calling 937-268-2737.
What is Penalty Abatement?
Penalty abatement is a relief option provided by the IRS to reduce or eliminate certain penalties imposed on taxpayers. While the IRS charges penalties for late filing, late payment, and non-compliance with tax laws, they recognize that there are legitimate reasons why taxpayers may fail to meet their obligations.
Common penalties that may qualify for abatement include:
- Failure to File penalties for not submitting your tax return on time.
- Failure to Pay penalties for not paying the full amount of tax owed by the due date.
- Accuracy-Related penalties for underreporting income or other tax inaccuracies.
If granted, penalty abatement can significantly reduce the financial burden, but you must meet specific criteria to qualify.
Eligibility Requirements for Penalty Abatement
The IRS evaluates penalty abatement requests based on specific criteria. Here are the most common scenarios under which taxpayers may qualify:
1. Reasonable Cause
The IRS may grant penalty relief if you can show that your failure to comply was due to a reasonable cause. Acceptable reasons include:
- Serious illness or injury affecting you or a family member.
- Natural disasters, fires, or other unforeseen events.
- Inability to obtain necessary financial records.
- Reliance on incorrect professional advice.
You’ll need to provide documentation to support your claim, such as medical records, insurance reports, or legal documents.
2. First-Time Penalty Abatement (FTA)
If you’ve been compliant with your tax filings and payments in the past, you may qualify for First-Time Penalty Abatement. To be eligible, you must meet the following criteria:
- No penalties for the prior three tax years (except estimated tax penalties).
- All required returns filed for the current year.
- Any outstanding tax due has been paid or arrangements made to pay.
FTA is one of the most commonly granted forms of penalty abatement because it rewards taxpayers with a history of compliance.
3. Administrative Waivers
In some cases, the IRS may issue administrative waivers when penalties are incorrectly assessed or if there are systemic issues with tax agency operations. If this applies to you, the penalties can be removed without significant documentation requirements.
Steps to Request Penalty Abatement
If you believe you qualify for penalty abatement, here’s how you can take action:
1. Assess Your Eligibility
Review your circumstances and determine whether you meet the criteria for reasonable cause, First-Time Penalty Abatement, or an administrative waiver.
2. Submit a Request
Requests for penalty abatement can be made in writing or over the phone. If you’re submitting a written request, you’ll need to send Form 843, Claim for Refund and Request for Abatement, to the IRS, along with supporting documentation. For simpler cases, you can call the IRS directly to make your request.
3. Gather Supporting Documents
If you’re applying under reasonable cause, collect the evidence needed to support your claim, such as medical bills, repair invoices, or a letter from your tax professional.
4. Wait for a Decision
The IRS will review your request and notify you of their decision. This process can take several weeks or even months, depending on the complexity of your case.
Common Mistakes to Avoid When Requesting Penalty Abatement
Submitting a request for penalty abatement can be challenging, and mistakes may lead to delays or denials. Here are some common pitfalls to avoid:
1. Failing to Provide Sufficient Documentation
Your request must be backed by evidence. Without proper documentation, the IRS is unlikely to approve your claim.
2. Overlooking the First-Time Penalty Abatement Option
Many taxpayers don’t realize they qualify for First-Time Penalty Abatement. Review your history to see if you meet the criteria.
3. Ignoring the Importance of Compliance
You must be current with all tax filings and payments before the IRS will consider your request. Ensure your current tax obligations are up to date.
4. Procrastinating
The sooner you address penalty abatement, the better. Delays can lead to additional penalties and interest accumulating on your tax debt.
When Should You Apply for Penalty Abatement?
The ideal time to apply for penalty abatement is as soon as you’re aware of the penalties. Prompt action can prevent additional interest and penalties from accruing. Common scenarios where you should consider applying include:
- Receiving a penalty notice from the IRS or state tax agency.
- Experiencing a life event or hardship that prevented timely compliance.
- Discovering errors in penalties assessed by the IRS.
- Learning about your eligibility for First-Time Penalty Abatement.
The Role of a Tax Resolution Specialist in Penalty Abatement
Navigating the penalty abatement process can be complex, especially if your case involves significant penalties or multiple years of non-compliance. A tax resolution specialist can:
- Assess Your Eligibility: Evaluate whether you qualify for penalty abatement and recommend the best course of action.
- Prepare Your Request: Draft a compelling request with all necessary documentation to support your case.
- Communicate with the IRS: Act as your representative, handling all correspondence and negotiations with tax authorities.
- Advocate for You: Protect your rights as a taxpayer and ensure you receive fair treatment throughout the process.
Conclusion
Tax penalties can create significant financial stress, but penalty abatement provides a pathway to relief. Whether you qualify due to reasonable cause, First-Time Penalty Abatement, or an administrative waiver, taking action can reduce your financial burden and help you regain control of your tax situation.
If you’re unsure of your eligibility or need help navigating the process, a tax resolution specialist can guide you every step of the way. Don’t let penalties hold you back Action Tax Relief www.ActionTaxRelief.com or call 937-268-2737 to start resolving your tax issues today.
by Renee Lawson | Jul 14, 2025 | Tax Preparation, Tax Resolution
Can You Settle for Less?
If you’re overwhelmed by tax debt and struggling to see a way out, the IRS has a program that might be the lifeline you need. It’s called an Offer in Compromise (OIC), and it allows taxpayers to settle their tax debt for less than the full amount owed. While this program can offer significant relief, not everyone qualifies, and the application process can be complex.
In this blog, we’ll break down everything you need to know about Offers in Compromise—how they work, eligibility criteria, and how to determine if it’s the right option for you. If after reading this you need further assistance please contact Action Tax Relief by calling 937-268-2737.
What Is an Offer in Compromise?
An Offer in Compromise is a program offered by the IRS that allows eligible taxpayers to resolve their tax debt for less than the total amount owed. The IRS agrees to accept a lower amount if it believes the taxpayer cannot reasonably pay the full debt through traditional means, such as a payment plan or asset liquidation.
This program provides a fresh start to taxpayers who are experiencing financial hardship, allowing them to settle their debt and move forward without the looming burden of back taxes.
How Does the Offer in Compromise Process Work?
The Offer in Compromise process involves several key steps:
1. Submitting Your Application
Taxpayers must submit Form 656, Offer in Compromise, along with Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. These forms provide the IRS with detailed financial information, including income, expenses, and assets.
2. Paying the Application Fee
Most applicants are required to pay a $205 application fee. However, this fee may be waived for taxpayers who qualify as low-income.
3. Choosing a Payment Option
When submitting an OIC, you must propose how you plan to pay the offered amount. The IRS offers two main payment options:
- Lump-Sum Cash Offer: Pay 20% of the offered amount upfront and the remaining balance within five months of acceptance.
- Periodic Payment Offer: Make the first payment with your application and continue paying monthly installments while the IRS reviews your offer.
4. IRS Evaluation
The IRS carefully reviews your application, assessing whether the amount you’re offering is the most they can reasonably expect to collect. This evaluation includes a thorough analysis of your financial situation.
5. Decision
If the IRS accepts your offer, you must comply with all tax laws for the next five years to avoid defaulting on the agreement. If the offer is denied, you may appeal the decision or explore other resolution options.
Eligibility Criteria for Offer in Compromise
Not everyone qualifies for an Offer in Compromise. To be considered, you must meet specific eligibility requirements:
1. All Tax Filings Must Be Current
You must have filed all required tax returns before submitting your OIC application.
2. Required Estimated Payments Made
If you’re self-employed, you must be current on estimated tax payments for the current tax year.
3. No Open Bankruptcy Proceedings
Taxpayers in active bankruptcy are not eligible for an Offer in Compromise.
4. Demonstrated Inability to Pay in Full
The IRS evaluates your Reasonable Collection Potential (RCP), which is based on your income, expenses, and assets. If your RCP is less than the total tax debt, you may qualify for an OIC.
Reasons the IRS May Accept an Offer in Compromise
The IRS generally accepts Offers in Compromise under three circumstances:
1. Doubt as to Collectibility
This applies when there is little chance the IRS will collect the full tax debt due to your financial situation.
2. Doubt as to Liability
If there’s a legitimate dispute over whether the assessed tax debt is correct, the IRS may accept an OIC.
3. Effective Tax Administration
Even if you can technically afford to pay the full amount, the IRS may accept an OIC if collecting the debt would create economic hardship or be unfair due to special circumstances.
Benefits of an Offer in Compromise
Settling your tax debt through an Offer in Compromise has several advantages:
- Reduced Financial Burden: You pay less than the full amount owed, freeing up resources for other financial obligations.
- Fresh Start: Resolving your tax debt allows you to move forward without the fear of liens, levies, or garnishments.
- Peace of Mind: Eliminating the stress of unpaid taxes can improve your overall well-being.
Challenges of the Offer in Compromise Process
While the OIC program offers significant benefits, it’s not without challenges:
1. Complex Application Process
Submitting an accurate and compelling OIC application requires extensive documentation and knowledge of IRS procedures.
2. Low Acceptance Rate
The IRS accepts only a fraction of OIC applications each year, typically around 30%.
3. Continued Compliance Requirement
Even after your offer is accepted, you must comply with all tax laws for five years. Failure to do so can void the agreement.
How to Improve Your Chances of Success
To increase your likelihood of having an Offer in Compromise accepted:
- Be Honest and Thorough: Provide accurate and complete financial information.
- Seek Professional Help: A tax resolution specialist can help you prepare a strong application and negotiate with the IRS on your behalf.
- Stay Current with Tax Obligations: Make sure all required filings and payments are up to date before applying.
Is an Offer in Compromise Right for You?
An Offer in Compromise can be a valuable tool for resolving tax debt, but it’s not the best solution for everyone. You may benefit from exploring alternative options, such as:
- Installment Agreements: Spread your tax payments over time.
- Penalty Abatement: Request a reduction or elimination of penalties.
- Currently Not Collectible Status: Temporarily halt collection efforts if you’re facing financial hardship.
Each taxpayer’s situation is unique, so it’s essential to consult with a professional to determine the most appropriate strategy.
Conclusion
An Offer in Compromise provides a potential path to financial freedom for taxpayers burdened by overwhelming tax debt. While the process can be complex and challenging, the rewards of a successful OIC can be life-changing.
If you’re considering an Offer in Compromise, don’t navigate the process alone. Contact Action Tax Relief www.ActionTaxRelief.com or call 937-268-2737 to schedule a consultation with an experienced tax resolution specialist. Let us help you take the first step toward resolving your tax debt and regaining control of your financial future.
