Tax Relief and IRS Resolution FAQs
Find practical answers to questions about tax debts, IRS notices, penalties, collection actions, settlement, and taxpayer rights. Kennedy Tax Solutions provides representation through Dale R. Kennedy, J.D., CPA. These general answers explain common issues; the right response depends on your notices, records, and circumstances.
Content updated: September 14, 2026. Sources are linked alongside the relevant answers.
Jump to: Working with KTS · Taxpayer rights · Penalties · Payroll taxes · Offers in compromise · Bankruptcy · Liens and levies · Privilege · Collection time limits
Working with Kennedy Tax Solutions
Who is Kennedy Tax Solutions best suited to help?
KTS focuses on complex tax matters for businesses of any size and individuals with tax liabilities generally of $25,000 or more. Audit defense, collection defense, and federal or state tax appeals are considered case by case, including matters below that general balance guideline.
What happens during an initial consultation?
The conversation begins with your tax problem, the agency involved, and any urgent deadlines. Have recent notices, the tax years involved, and an approximate balance available. KTS can discuss the next steps and the records needed to evaluate your options.
How does working with a tax attorney who is also a CPA help?
Dale R. Kennedy combines legal and accounting experience. That allows him to examine the records behind a tax assessment while evaluating representation, defenses, deadlines, and appeal options. The appropriate strategy depends on what the records and applicable law support.
Can KTS help if I do not live near an office?
KTS assists with federal tax matters nationwide, and you can begin with a phone consultation. State tax representation depends on the jurisdiction and specific issue. A city listed as a service area does not by itself mean that KTS has an office in that city.
What determines whether settlement, payments, or an appeal is appropriate?
The first question is whether the tax assessment is correct. A disputed assessment may call for a challenge; a correct but unaffordable balance may call for a payment arrangement or another collection alternative. Income, expenses, assets, filing compliance, and procedural deadlines affect which options are available.
Learn about Dale Kennedy, explore our services, or call 877-767-1325 to schedule a consultation.
What rights do I have as a taxpayer?
The IRS Taxpayer Bill of Rights includes the rights to be informed, receive quality service, pay only the correct amount, challenge an IRS position, appeal in an independent forum, and retain representation. Privacy, confidentiality, finality, and a fair tax system are also protected. The procedure and deadline for exercising a right depend on the issue.
What should I do if I receive an IRS CP504 notice?
Read the notice promptly, check the balance and tax period, and contact the IRS if you disagree or cannot pay. CP504 warns of intended collection action. It does not establish that you deliberately ignored earlier correspondence. If you already paid or arranged payments, ask the IRS to verify the account. Other notices, including CP523, address different circumstances and must be reviewed separately.
How does the IRS calculate late-filing and late-payment penalties?
For many income tax returns, the failure-to-file penalty is generally 5% of unpaid tax per month or partial month, up to 25%. The failure-to-pay penalty generally starts at 0.5% per month, up to 25%. When both apply for the same month, the filing penalty is reduced by the payment penalty; they are not simply added to make 5.5%. Minimum penalties and special rules depend on the return and due date. Interest is separate.
What should a business owner do about overdue payroll taxes?
Address current deposits and filing obligations promptly while evaluating the overdue balance. KTS can review payroll records, notices, and cash flow to identify the business’s options. Collection action is possible, but immediate closure is not an automatic result of every payroll tax debt. The analysis must also consider whether any individual faces a Trust Fund Recovery Penalty.
Can I be personally liable for my company’s payroll taxes?
Yes, in some circumstances. The IRS may assess a Trust Fund Recovery Penalty against a person responsible for collecting, accounting for, or paying over trust fund taxes who willfully fails to do so. Liability is not determined by job title alone. Review any proposed assessment and its appeal deadline promptly.
Can I settle state taxes as well as federal taxes?
Possibly, but each state has its own rules and available programs. An IRS settlement does not automatically resolve a state balance. KTS can evaluate the agencies involved, their separate requirements, and the effect of proposed payments on your overall financial position. Do not assume the two agencies will accept matching terms.
Why can a tax balance become too large to pay?
A balance can grow through unpaid taxes, penalties, interest, audit adjustments, or assessments for missing returns. Businesses may also face unpaid payroll taxes. The first step is to establish what created the balance and whether it is correct. Owing a large amount does not by itself mean that an offer in compromise is the appropriate solution.
Can an offer in compromise include penalties and interest?
An accepted offer can resolve the covered tax liabilities, including related penalties and interest, under its terms. A separate penalty-relief request may be more appropriate when the penalty itself is the issue. The two procedures have different requirements; an offer is not necessary for every penalty dispute.
How long does an offer in compromise take?
There is no reliable approval date that applies to every case. The IRS must review the application, financial information, and any additional documents it requests. Incomplete submissions or an appeal can add time. Ask about the current status of your specific offer, and keep required payments and filings current while it is considered.
Will an offer in compromise affect my credit?
Do not assume that settling taxes leaves every aspect of borrowing unaffected. A federal tax lien is a separate issue and can affect your ability to sell property or obtain financing. Review the lien status and the lender’s requirements rather than relying on a promise about a credit score.
What is currently not collectible status?
Currently not collectible status can temporarily pause most IRS collection when paying would prevent you from meeting basic living expenses. The IRS may require financial information. The debt is not forgiven: interest and penalties generally continue, refunds may be applied to the debt, and collection may resume if your finances improve.
Can my spouse’s finances affect my offer if my spouse does not owe the tax?
The IRS may need household income and expense information to determine your share of necessary living costs. A nonliable spouse’s separate assets and income are generally excluded, but joint ownership and community-property rules can change the analysis. Marriage alone does not answer which property is available for collection.
Are accepted offers in compromise public information?
Certain information about accepted offers is available through the IRS public inspection process. That does not make another taxpayer’s settlement a reliable estimate for your case: the amount depends on that taxpayer’s circumstances and the basis for the offer.
Can bankruptcy discharge tax debt?
Some tax debts may be discharged, while others survive bankruptcy. The result depends on the bankruptcy chapter, tax type, return and assessment history, and other legal requirements. A simple three-year, two-year, or 240-day checklist is not enough to establish eligibility. Late-filed returns, fraud, and existing liens can materially change the result.
Can a federal tax lien survive bankruptcy?
Yes. Discharging personal liability for a tax debt does not necessarily remove a valid tax lien from property. Whether the IRS can collect against a particular asset after bankruptcy depends on the lien, the property, and the court proceedings. A home should not be assumed safe or inevitably subject to seizure based on equity alone.
Can I apply for an offer after bankruptcy leaves unpaid taxes?
An offer may be considered after the bankruptcy proceeding has ended if you meet the applicable requirements. You cannot qualify for an IRS offer in compromise while in an open bankruptcy proceeding. Remaining tax debt and your post-bankruptcy finances need a fresh review; bankruptcy does not automatically establish eligibility for settlement or hardship status.
How are taxes handled in a Chapter 13 payment plan?
Chapter 13 uses a court-approved repayment plan, generally over three to five years. Treatment depends on whether a tax claim is secured, priority, or general unsecured, along with the debtor’s circumstances. A plan must satisfy bankruptcy law and court requirements; it is not simply a payment arrangement negotiated with the IRS.
What if I find an error in my offer application?
Tell your representative promptly and provide accurate corrected information to the IRS through the appropriate channel. Keep copies of the correction and supporting records. Do not deliberately leave an inaccurate statement in place to avoid delay. The form or explanation needed depends on what changed and the stage of the application.
What can I do about an incorrectly filed tax lien notice?
Gather the notice, account information, and evidence of the error, then request the appropriate correction and review available appeal rights. Release, withdrawal, discharge, and subordination serve different purposes. Challenging a lien filing is also different from disputing the underlying tax assessment, so the correct procedure matters.
Can the IRS levy without the usual advance hearing notice?
Exceptions exist to the usual pre-levy notice and hearing procedure, including certain jeopardy, state-refund, and other statutory situations. A post-levy hearing may still be available. Do not assume that the absence of a notice you remember receiving makes a levy invalid; have the notice history and applicable exception reviewed.
What property is exempt from IRS levy?
Federal law protects specified categories of property and income, with conditions and value limits. Examples include certain necessary clothing, household items, work tools, public benefits, and a minimum amount of wages. Exemptions vary by the property and payment involved; they do not mean that all wages, retirement funds, or benefits are protected.
When can an IRS levy be released?
A release may be appropriate when the debt is paid, the collection period has expired, or other legal grounds apply, including qualifying economic hardship. Contact the IRS promptly and provide the facts supporting release. An offer application does not automatically release an existing levy, and release does not necessarily cancel the tax debt.
Do I have to provide information requested by the IRS?
Your obligations depend on the request, the law authorizing it, and any applicable privilege. An informal request and an administrative summons are not the same. Do not assume you may disregard a demand until a court orders compliance. Have the request and deadline reviewed, and provide accurate information when required.
Can a congressional office help with an IRS problem?
A congressional constituent-services office may help you inquire about an unresolved federal agency problem, but it cannot guarantee a tax reduction or override tax law. Follow that office’s authorization process. The Taxpayer Advocate Service is another possible resource for qualifying hardship or unresolved IRS problems.
What is the difference between a revenue officer and a special agent?
An IRS revenue officer generally handles civil collection and filing-compliance matters. A special agent works on criminal investigations. If you are contacted about a possible criminal tax matter, seek legal advice promptly so you understand the nature of the inquiry and your rights before a substantive interview.
What happens if I continue to ignore demands for an overdue return?
The IRS may prepare a substitute return, assess tax and penalties, and pursue collection. A substitute return may omit deductions or credits you could properly claim. Other enforcement consequences depend on the circumstances. KTS can review the notices and records needed to address the missing filings.
Should I file my return if I cannot pay?
Yes. File a required return on time, or obtain an available filing extension, even if you cannot pay the full balance. An extension to file generally does not extend the payment deadline. Pay what you can and evaluate payment options; late-payment penalties and interest may still apply.
Does the IRS share tax information with state agencies?
Federal law permits specified disclosures to state tax agencies for tax administration, subject to confidentiality safeguards. An IRS adjustment may therefore lead to a state tax issue, and state amended-return requirements must be considered separately. Tax return information is not freely available to every agency or member of the public.
Are conversations with my accountant or tax attorney privileged?
Some confidential tax-advice communications with a federally authorized practitioner receive limited protection in noncriminal federal tax matters. That protection is not a blanket privilege for accounting records or criminal matters. Attorney-client privilege also depends on the communication’s purpose and circumstances. Having an attorney retain an accountant does not automatically protect every record or conversation; discuss the scope with counsel.
What is innocent spouse relief?
Spouses who file jointly are generally each responsible for the joint tax liability, even after divorce. Innocent spouse relief and related forms of relief may reduce that responsibility when their specific requirements are met. The rules differ for understated and unpaid taxes. Relief is not an automatic exemption from criminal liability or a general shield for family assets.
How long does a bank hold money after an IRS levy?
A bank generally holds the affected funds for 21 days before sending them to the IRS. This creates a limited opportunity to address an error, ownership issue, or grounds for release. Contact the IRS or your representative promptly; waiting until the end of the holding period can make relief more difficult.
Will I normally receive a warning before an IRS levy?
Generally, the IRS first assesses the tax, sends a payment demand, and provides a final notice of intent to levy and notice of hearing rights at least 30 days before levy. Exceptions apply. Read the exact notice and its deadline rather than assuming that every collection letter gives the same hearing rights.
Can the IRS take a home, car, bank account, or Social Security benefits?
Federal collection powers can reach several kinds of property and income, but exemptions, limits, and procedural protections apply. A principal residence has additional protections, and different rules govern bank funds, wages, and federal benefits. The fact that an asset has value does not by itself establish that it can immediately be seized.
What is the IRS Automated Collection System?
The Automated Collection System, or ACS, is an IRS collection operation that handles accounts through notices and telephone contact. A case assigned to ACS can still require a timely response or involve enforcement action. Use the instructions on the notice and keep records of communications and agreed next steps.
Will I receive a tax refund while an offer is pending or after acceptance?
It depends on the refund, the timing, other debts, and the offer terms. Refunds may be offset while an offer is pending, and an accepted offer contains specific refund provisions. Do not assume that every refund for the acceptance year is automatically forfeited or that a retained refund counts as an offer payment. Review the current agreement.
How can I claim a tax refund or challenge its denial?
Use the appropriate return or refund claim and observe the applicable filing and payment-related time limits. A denied claim may have administrative or court remedies, each with separate requirements. A refund suit is not interchangeable with a Tax Court petition; the correct forum and prerequisites need review.
Can I obtain my IRS records?
You can request available transcripts and copies of returns through the IRS’s regular procedures. For other agency records, a properly directed Freedom of Information Act request may be appropriate. Access is subject to identity verification and legal exemptions, so a request does not guarantee disclosure of every item in a file.
How does the IRS identify and track taxpayer accounts?
The IRS uses taxpayer identification numbers to associate returns, assessments, payments, and other account information with the correct taxpayer. For many individuals the identifier is a Social Security number; businesses may use an Employer Identification Number. An EIN has nine digits, not thirteen. Account transcripts can help explain recorded tax activity.
How is the minimum bid for an IRS property sale determined?
The IRS follows valuation and sale procedures to establish a minimum bid. The calculation considers the property and the interests being sold; a single percentage formula should not be assumed to apply to every sale. Review the valuation notice promptly if you disagree and obtain advice about the available objection procedure.
What can happen if assets are transferred to avoid tax collection?
The IRS may challenge an improper transfer or pursue property held by a transferee, nominee, or alter ego when the legal requirements are met. Changing the name on an asset does not necessarily remove it from collection. Obtain legal advice before a transfer connected with a tax dispute, and disclose ownership accurately.
How can a business respond lawfully to the risk of IRS seizure?
Address current filing and deposit obligations, respond to notices, and evaluate payment arrangements, appeals, or other lawful relief. Restructuring or placing debt on assets does not guarantee protection and can create additional legal issues. KTS can review the collection stage and financial records to help determine an appropriate response.
Can a corporation apply for an offer in compromise?
A business may apply if it meets the IRS requirements. A corporation’s tax debts and an owner’s personal debts are distinct and may require separate submissions. When the business also owes other creditors, a broader restructuring analysis may be needed. An offer is one possible option, not a universal substitute for reorganization.
How does the IRS value property held as tenants by the entirety?
State property law, ownership rights, debt, and collection circumstances matter. IRS offer guidance generally starts with 50% of net realizable equity when only one spouse owes the tax, with possible adjustments. There is no universal rule valuing each spouse’s interest at 20% of the total property value.
How does the IRS value an interest in a family business?
Valuation depends on the ownership interest, business assets and liabilities, earnings, and the purpose of the analysis. An operating business may require consideration of both ongoing income and asset value. Accurate financial records and, where warranted, an independent appraisal can support a challenge to an unsupported valuation.
Can I choose which tax debts to include in an offer?
The required scope depends on the offer type and who owes the liabilities. Individual and corporate debts may require separate offers, and a dispute over whether tax is owed follows different procedures from an inability-to-pay offer. Identify all liabilities and use the current form instructions rather than selecting tax years solely to obtain a preferred outcome.
Can a criminal investigation or conviction affect an offer?
Yes. An open criminal investigation, continuing unlawful conduct, or other public-policy concerns may affect whether an offer is processed or accepted. A past conviction alone does not establish the outcome of every application. The investigation status, tax compliance, and applicable IRS procedures require case-specific review.
What is a collateral agreement in an offer in compromise?
A collateral agreement can impose additional terms alongside an accepted offer, including terms involving future income in appropriate cases. Whether one is required depends on IRS procedures and the facts. Provide accurate financial information and review the proposed obligations carefully; understating earning capacity or other relevant facts is not a sound basis for an offer.
How long does the IRS have to collect assessed taxes?
The general collection period is ten years from assessment, not simply ten years from the tax return’s due date. Bankruptcy, a pending offer, certain hearing requests, and other events can suspend or extend that period. Each assessment and account history must be reviewed before relying on an expiration date.
Can a taxpayer recover damages for improper IRS collection?
Federal law permits damages claims for certain unauthorized collection actions, subject to strict requirements. Under 26 U.S.C. § 7433, negligence as well as reckless or intentional disregard of tax law can be relevant. Administrative remedies, filing deadlines, proof of loss, and statutory limits apply. Disagreeing with an assessment alone does not establish a damages claim.