Tax Controversy and Defense: Frequently Asked Questions

The IRS lost about a quarter of its workforce over the past year, and the units that run audits and enforcement absorbed the steepest cuts, while the staff who answer calls and process correspondence were reduced and only partly backfilled. The practical result is that routine matters that once took weeks now sit for months. Penalties and interest do not pause while your file waits, so the burden has shifted onto you to push your matter forward and protect your own deadlines.

The two main routes are first-time abatement, for taxpayers with a clean recent compliance history, and reasonable cause relief, where circumstances outside your control caused the failure. You request abatement in writing or by phone, supported by facts and documentation. When a penalty is reduced or removed, the statutory interest may also be reduced or removed as long as it is related to that penalty. Interest on the underlying unpaid tax, however, is different and normally continues until paid. First-time abatement is an administrative waiver limited to the failure-to-file, failure-to-pay, and failure-to-deposit penalties. It is not available for accuracy-related, estimated-tax, or fraud penalties. It generally requires that you have filed the same type of return, if required, for the prior three tax years, have filed or extended all current returns and paid or arranged to pay any tax due, and had no disqualifying penalties during that three-year compliance period.

An Offer in Compromise lets you settle a federal tax debt for less than the full amount when you cannot pay in full and the IRS agrees the offered amount reflects your reasonable collection potential. There are threshold rules first: you must be current on required filings and on estimated payments or federal tax deposits, and a taxpayer in an open bankruptcy generally cannot submit one. If those are met, eligibility turns on your income, expenses, assets, and future earning capacity, not on a hardship narrative alone. Many people who ask about an offer are better suited to another collection alternative, so the financial analysis has to be right before you file. An offer is submitted on the Form 656 booklet with Form 433-A (OIC) and/or Form 433-B (OIC), or online where the IRS allows it, with a $205 application fee unless you qualify for the low-income waiver, which can also waive the initial payments. One caution that is easy to miss: filing an offer suspends the 10-year collection clock while the IRS reviews it, so a rejected offer can leave the agency more time to collect than it had before you filed.

Yes, through a levy, but generally only after it has sent notice and given you the chance to respond. Before most levies the IRS must issue a Final Notice of Intent to Levy and inform you of your right to a Collection Due Process hearing, which you can request within a limited window. Acting inside that window is often the difference between stopping a levy and reacting after the funds are gone. The request window is generally 30 days from the date printed on the face of an LT11 or Letter 1058, not the date you get around to opening the envelope. Missing that window can drop you to an equivalent hearing and cost your right to Tax Court review, so act fast.

Yes, and the New York standard is harsher than the federal one. Unlike the federal trust fund penalty, which requires a showing of willfulness, New York imposes personal liability on a responsible person for sales tax the business collected and failed to remit without any willfulness requirement, under NY Tax Law §§ 1131(1) and 1133(a). Owners, officers, and others under a duty to collect and remit can be reached individually, and corporate title alone can create exposure. Certain minority LLC members and limited partners may qualify for partial relief, but the exposure is serious and fact-specific.

Source: NY Tax Law §§ 1131(1), 1133(a)

You do not have to keep waiting. There are escalation paths, including the IRS Office of Appeals (if the taxpayer is in an appealable posture) and the Taxpayer Advocate Service, that can move a stalled matter when ordinary correspondence has gone silent. The right path depends on the notice you received and whether a deadline is running. A tax attorney can build the record, reach the agency through practitioner channels, and press for a response instead of leaving you on hold.

Yes. Interest and most penalties continue to accrue by statute regardless of how backlogged the IRS is, and agency delay is generally not by itself a defense to the underlying liability. A matter left unattended during a backlog can therefore cost significantly more by the time it resolves. Reasonable cause may abate certain penalties, but statutory interest generally continues unless a narrow exception applies, for interest attributable to an unreasonable IRS error or delay in performing a ministerial or managerial act and only after the IRS has contacted you in writing about the liability, under IRC § 6404(e)(1). Interest on underpayments is imposed under IRC § 6601, the rate is set quarterly under IRC § 6621, and it compounds daily under IRC § 6622.

Source: IRC §§ 6404(e)(1), 6601, 6621, 6622

It can affect the timing of all three. With fewer revenue agents, service representatives, and processing staff, audits open and close more slowly, appeals sit longer, and paper-based refunds and amended returns face larger backlogs. It does not change your legal rights or your statutory deadlines, which still run on schedule. The main lever you control is staying organized and represented.

Escalation usually runs through one of several channels: a request to the Office of Appeals, a case with the Taxpayer Advocate Service where you face hardship or significant delay, or contact through the practitioner priority line. Which one fits depends on the notice type and the posture of your case. We assess that first, then route the matter to the channel most likely to produce a result.

Read the letter for its deadline and the tax years at issue, do not ignore it, and do not call the examiner to talk through your situation off the cuff. An audit notice starts a clock, and what you say and provide early shapes the entire examination. Before responding, have a representative review what is being requested and control the production of documents and communications.

A lien is a legal claim against your property to secure a tax debt; a levy is the actual seizure of property or funds to satisfy it. A federal tax lien, often recorded as a Notice of Federal Tax Lien, attaches to your assets and can affect credit and the sale of property, while a levy takes bank funds, wages, or other assets. Each has separate notice rules and separate ways to challenge or release it.

Yes. The Trust Fund Recovery Penalty, which is governed by IRC § 6672, allows the IRS to assess the unpaid trust fund portion of payroll taxes personally against responsible persons who willfully failed to pay them. A responsible person can include owners, officers, and sometimes bookkeepers or others with authority over which bills get paid. If the IRS proposes the penalty, it sends Letter 1153 with Form 2751, and that stage carries a short protest window that is often the best time to fight liability before assessment. The assessment is personal and survives the business, which is why early defense matters.

Source: IRC § 6672

A CPA or enrolled agent can represent you in many IRS matters, but an attorney adds attorney-client privilege and litigation judgment that a return preparer cannot provide. Where there is potential personal liability, an allegation of willfulness, possible criminal exposure, or a dispute heading to Appeals or court, that privilege and adversarial posture matter. The two roles often work together, with counsel leading when the matter is contested.

A New York State tax warrant is a public filing by the Department of Taxation and Finance for unpaid state tax that, once docketed, has the force and effect of a money judgment and creates a lien against your property. It is removed by paying or otherwise resolving the underlying liability, after which the state files a satisfaction, or by successfully challenging the assessment behind it. Because a warrant is public and affects credit and property, resolving the underlying debt early is usually the priority.

New York commonly audits people who change their domicile away from the state, split time between New York and another state, or keep a home in New York while claiming residency elsewhere. Under NY Tax Law § 605(b)(1)(B), a nondomiciliary is still taxed as a New York resident if they maintain a permanent place of abode in the state, which requires actual residential use of the home and not mere ownership or maintenance, and spend more than 183 days in New York. Domicile, your true permanent home, is a separate test. These audits are document and day-count intensive.

Source: NY Tax Law § 605(b)(1)(B)

New York's convenience of the employer rule can tax a nonresident assigned to a New York office on days worked remotely from another state, unless those days are worked outside New York for the employer's necessity rather than the employee's own convenience. Relocating therefore does not automatically end your New York tax exposure on that income. Whether your out-of-state days qualify as necessity rather than convenience is fact-specific and frequently disputed.

For a simple notice with a clear, correct adjustment and no money in dispute, you can often respond yourself. Bring in counsel when there is a meaningful amount at stake, a deadline you cannot afford to miss, potential personal liability, any hint of willfulness or fraud, or a matter likely to go to Appeals or court. The cost of waiting or mishandling the early response is usually higher than the cost of advice.

An installment agreement spreads full payment of what you owe over time, while an Offer in Compromise settles the debt for less than the full amount when you genuinely cannot pay it. If you can pay over time, the IRS will generally expect an installment agreement rather than an offer. An offer fits when your finances show you cannot realistically pay the full liability within the remaining collection period, which depends on your assets, income, and how much time is left on the collection statute. The collection expiration date is generally 10 years from assessment under IRC § 6502, but that period can be suspended or extended by law.

Source: IRC § 6502