Author: Jim Payne

Jim Payne, a Florida Certified Public Accountant (CPA) since 1976, offers candid insights on getting square with the IRS — with the least pain, and at the lowest cost — with (or without) the help of a tax representative. Mr. Payne is a former IRS agent and expert in business profitability, IRS audits, IRS payroll tax, and IRS non-filer issues. As a Tax Representative, his goal is clear: " I will speak on your behalf to all IRS agents, so you never have to, and I'll guide you in executing a strategy to resolve your IRS problem so you can get back to enjoying life."

How to Settle IRS Debt with an Offer-in-Compromise (OIC)

Owe the IRS more than you can afford? An Offer in Compromise (OIC) might let you settle for less than the full amount. Sounds great, right? Well, the IRS doesn’t make it easy. Most OICs get rejected because people don’t understand the process or submit unrealistic offers. Here’s how to do it right and boost your approval chances.

What Is an Offer in Compromise?

An OIC is a deal with the IRS where they agree to take less than what you owe. But they’ll only accept it if they believe they won’t be able to collect your full debt.

To qualify, you need to prove one of these:
✔ Doubt as to Collectibility – You can’t afford to pay the full amount before the debt expires.
✔ Doubt as to Liability – You believe the IRS made a mistake and don’t owe the tax.
✔ Effective Tax Administration – You technically could pay, but it would cause severe financial hardship.

➡ Want to see if you qualify? Check out the IRS Offer in Compromise Guide.

How to Submit an Offer in Compromise

1. Make Sure You’re Eligible

Before applying, make sure:
✅ You’ve filed all required tax returns.
✅ You’re current on estimated tax payments (if required).
✅ You’re NOT in bankruptcy.
✅ If you own a business, you’ve made all required payroll tax deposits.

➡ Use the IRS OIC Pre-Qualifier Tool to check if you’re a good candidate.

2. Figure Out Your Offer Amount

The IRS expects a reasonable offer, meaning they look at:
💰 Your income and expenses (monthly disposable income times 12 or 24 months).
🏡 Your assets (home equity, bank accounts, etc.).

Lowballing them? They’ll reject your offer fast.

3. Fill Out the Forms & Pay the Fees

You’ll need to submit:
📄 Form 656 – The actual Offer-in-Compromise form.
📄 Form 433-A (OIC) – A detailed look at your financials.
💰 $205 application fee (unless you qualify for a low-income waiver).
💰 First payment (either lump sum or first of 24 monthly payments).

4. Wait (and Be Patient)

The IRS usually takes 6–12 months to decide. While they’re reviewing your case:

They pause most collection efforts (but can still file a tax lien).
If they accept your offer, you must stay tax-compliant for five years, or they’ll reinstate the full debt.
If they reject it, you’ve got 30 days to appeal using Form 13711.

Should You DIY or Hire a Pro?

You can file an OIC independently, but most taxpayers mess up the paperwork or offer too little, leading to rejection. A tax pro can help:
✔ Make sure your financials are correct.
✔ Structure an offer the IRS will consider.
✔ Negotiate the best possible deal for you.

At TaxRepGainesville.com, I help people reduce their IRS tax debt and navigate the OIC process. If you’re thinking about submitting an offer, contact me today, and let’s see if you qualify.

Prediction: IRS Delays Could Lead to More Automatic Tax Debt Settlements

Here’s one of my predictions for the next few years—thanks to recent IRS layoffs and ongoing staffing shortages, more Offers in Compromise (OICs) are going to slip through the cracks. And when that happens, some taxpayers might see their tax debt automatically settled without the IRS ever reviewing their case.

Sound too good to be true? It’s not. There’s a little-known rule that works in your favor:

The Two-Year Rule: A Potential Loophole for Taxpayers

Under IRC § 7122(f), it’s automatically approved if the IRS doesn’t accept, reject, or return your OIC within 24 months. If they miss the deadline, your tax debt is settled, no questions asked.

Here’s why I think this will be happening more often:

The IRS recently laid off all probationary employees, meaning fewer people are handling OICs.
IRS backlog issues have already caused massive delays in processing tax relief requests.
If staffing shortages continue, some OICs will likely remain untouched long enough to qualify for automatic acceptance.

For taxpayers, now is the time to be aggressive with your offers—since the IRS might approve them without any negotiation if they miss the deadline.

How to Take Advantage of This Potential IRS Slowdown

If you owe taxes and think you qualify for an Offer in Compromise, now might be the best time to submit one. Here’s how to maximize your chances of benefiting from this rule:

Submit a complete and accurate OIC – The IRS can return incomplete applications, which resets the two-year clock.
Keep proof of when they receive it – The 24-month countdown starts the day the IRS gets your OIC, so hold onto that confirmation.
Stay patient – If you haven’t heard back, don’t push for an answer too soon. The longer they take, the better.
Don’t withdraw your offer – If you pull it yourself, the two-year rule doesn’t apply.

Final Thoughts

With IRS staffing issues piling up, I predict that more taxpayers than ever will get their OICs automatically approved because the IRS won’t process them in time. If you’re struggling with tax debt, now might be the perfect time to use the system’s delays to your advantage by submitting an Offer.

IRS Audits Are Changing—And How You Can Use That to Your Advantage

No one wants to deal with an IRS audit, but here’s the good news: the chances of facing one are shrinking. Traditional IRS audits will become rarer due to recent layoffs and a shift toward automation. And with the right strategy, you can make tax season even easier for yourself.

Why Field and Office Audits Are Disappearing

In February 2025, the IRS laid off about 6,700 employees, including many revenue agents responsible for auditing high-income taxpayers and businesses. With fewer auditors, the IRS doesn’t have the resources to conduct as many in-person audits.

Field audits (where an IRS agent visits your home or business) will happen far less often.
Office audits (where you go to an IRS office to clear up tax issues) will also decline.

So, unless you have a seriously complicated tax situation, the odds of sitting across from an IRS agent are lower than they’ve been in years.

The Shift to Mail Audits & Automated Enforcement

Instead of in-person audits, the IRS will focus on correspondence audits—tax checks done through mail or electronic communication. These usually target:

Mismatched income reports (W-2s or 1099s that don’t match your return).
Missing tax forms.
Unusual deductions or credits.

While these audits are less stressful, they can still be a hassle if you don’t respond quickly. With fewer audit people available, resolving issues could take longer.

A Smart Strategy: Filing an Extension & Checking Transcripts

One of the main reasons taxpayers get audited is mismatched income reporting—when what you report doesn’t match what the IRS has on file. The best way to avoid this? Wait until your IRS Wage and Income Transcript is available before filing.

Here’s why it works:

The IRS releases these transcripts in May or June, showing all W-2s, 1099s, and other reported income.
By filing an extension until October, you can check your transcript before submitting your return.
This ensures everything matches, reducing the risk of an audit or correction notice.

Filing an extension doesn’t increase your audit risk, giving you extra time to ensure accuracy. Remember: if you owe taxes, you must pay by the April deadline to avoid penalties.

What This Means for You

With fewer IRS agents, in-person audits are less likely, but automated enforcement is still in play. To stay out of trouble:
✔ File an extension and check your Wage and Income Transcript before submitting.
✔ Keep records of deductions and credits in case of a mail audit.
✔ Respond to IRS letters quickly if you get one—ignoring them won’t make them go away.

Final Thoughts

The IRS will be changing its audit strategies. By filing smart—waiting for your income transcripts and ensuring everything matches—you can reduce your audit risk and avoid unnecessary headaches. A little patience and accuracy can save you big down the road.

How Final is the IRS Final Notice of Intent to Levy?

If you’ve received an IRS Final Notice of Intent to Levy (Letter 1058 or LT11), you might be wondering just how “final” it actually is. The short answer? It’s pretty serious, but you still have options—if you act fast.

Let’s break it down.

What Is the Final Notice of Intent to Levy?

This letter means the IRS is getting ready to seize your assets—that could be your bank account, wages, Social Security benefits, and even your retirement accounts (yes, including your IRA!).

It’s not just a warning; it’s the last official step before they start taking action. But here’s the key: You have 30 days to respond before they can actually move forward with the levy. That means you still have time to stop it—but you can’t just ignore it and hope it goes away.

What Are Your Options?

If you act within the 30-day window, you can:

Request a Collection Due Process (CDP) hearing – This is your right to dispute the levy, propose an alternative, or challenge the tax liability itself (if you haven’t done so before). The IRS will put the levy on hold while they review your case.
Set up a payment plan – If you can’t pay in full but want to work something out, an Installment Agreement can stop the levy process.
Submit an Offer in Compromise (OIC) – If you qualify, you might be able to settle your tax debt for less than what you owe.
Request Currently Not Collectible (CNC) status – If you’re struggling financially, proving hardship to the IRS can temporarily halt collections.
Pay the tax debt – If you can afford it, paying off the debt (or at least making a good-faith payment) can make the levy go away.

What Happens If You Ignore It?

If you don’t take action within 30 days, the IRS can and will start levying your assets. That means they can:

Empty your bank account
Garnish your wages
Take your Social Security payments
Seize other assets (in rare cases, even property)

And once the levy is in place, it’s much harder to undo.

The Bottom Line

The Final Notice of Intent to Levy is final in the sense that it’s your last warning before the IRS starts taking your money. But you still have options—if you act quickly. If you get this letter, don’t panic, but don’t ignore it either. Reach out to the IRS or a tax professional and take action before the 30-day deadline passes.

Lying About Crypto on Your Taxes Is a Huge Mistake

Many taxpayers assume cryptocurrency is hard for the IRS to track. That assumption is flat-out wrong. The IRS has been aggressively gathering information on crypto users for years. If you lie about your holdings on Form 1040 (your tax return) or Form 433 (used when negotiating tax debts), you’re putting yourself in a very weak position when dealing with the IRS.

The IRS Likely Already Knows About Your Crypto

Since 2016, the IRS has tracked crypto transactions using blockchain analytics firms. It has also issued John Doe summonses to major exchanges like Coinbase, Kraken, and Binance, forcing them to turn over user data. If you’ve ever bought, sold, or traded crypto on a major platform, there’s a good chance the IRS already has records of your activity.

That means the IRS can easily cross-check its database and uncover the truth if you check “No” on the crypto question on Form 1040 or leave out crypto assets on Form 433. Once they catch you in a lie, your credibility is gone.

The Consequences: Civil and Criminal Penalties

Lying on a tax return is a federal offense. If the IRS determines you willfully misrepresented your crypto activity, you could face:

Civil penalties – Up to 75% of unpaid tax for fraud.
Accuracy-related penalties – 20% penalty for underreporting taxable income.
Criminal prosecution – Filing a false tax return (26 U.S. Code § 7206) can result in three years in prison and fines up to $250,000.

Lying on Form 433 Can Destroy Your Negotiating Power

If you owe back taxes and are applying for an Installment Agreement (IA), Offer in Compromise (OIC), or Currently Not Collectible (CNC) status, you must disclose your financial situation on Form 433 (A, B, or F).

Leaving out crypto holdings may seem like a way to look less able to pay, but if the IRS finds out you hid assets, they can:

Reject your payment plan or settlement offer.
Demand immediate full payment of your tax debt.
Refer your case for criminal investigation.

Once the IRS knows you lied, your leverage is gone. Instead of negotiating in good faith, you’ll be threatened by fraud charges. At that point, the IRS isn’t just looking to settle—they may be looking to punish.

“My Preparer Didn’t Ask” Is a Weak Excuse

Some taxpayers think they can blame their tax preparer if they get caught hiding crypto. Wrong. The IRS holds you responsible for what’s on your return—not your preparer.

Since the crypto question is front and center on Form 1040, the IRS won’t accept “I didn’t realize I had to report it” as an excuse. The same goes for Form 433—if you leave out crypto, the IRS will assume it was intentional, and that’s when things get serious.

The Smart Move: Full Disclosure

If you have crypto holdings:

Report them accurately on 1040 and Form 433. The IRS likely already has your data.
Keep detailed records of all transactions—buys, sells, transfers, and staking rewards.
If you failed to report crypto in past years, consider amending your returns before the IRS contacts you.

Final Thoughts: Don’t Gamble With the IRS

Lying about crypto isn’t just a bad idea—it’s a disaster waiting to happen. The IRS is more sophisticated than ever and likely already knows about your holdings. If you lie, you risk massive penalties, criminal charges, and losing all credibility when negotiating tax relief.

And if you think blaming your tax preparer will save you, think again. You are responsible for your tax return.

When it comes to cryptocurrency, lying to the IRS isn’t just risky—it’s a losing game. Once they catch you, penalties, criminal charges, and lost negotiating power could be just the beginning.

What to Do If You Receive a Bad 1099-K

Tax season can be stressful, and nothing makes it worse than getting a Form 1099-K that’s incorrect. Whether the amount reported is too high, too low, or just completely wrong, it’s important to address the issue quickly to avoid headaches with the IRS. Here’s what you need to know if you receive a bad 1099-K.

What Is a 1099-K?

A Form 1099-K, Payment Card and Third-Party Network Transactions, is issued when you receive payments through credit cards or third-party payment networks like PayPal, Venmo, or Stripe. Businesses, freelancers, and even casual sellers may get one if they hit the reporting threshold, which for 2023 remains over $20,000 in transactions AND more than 200 transactions (though some states have lower thresholds).

Common Issues with 1099-K Forms

Errors on a 1099-K can happen for several reasons, such as:

Income Overreported – The form includes transactions that aren’t yours.
Personal Transactions Reported as Business Income—Money you receive from friends or family as reimbursements or gifts may be incorrectly classified as taxable income.
Wrong Taxpayer Information – The form has an incorrect name, Social Security Number (SSN), or Employer Identification Number (EIN).

Steps to Fix an Incorrect 1099-K

1. Contact the Payment Processor

Since third-party payment networks issue 1099-Ks, the IRS won’t correct the form for you. Instead, contact the payment processor (e.g., PayPal, Venmo, or your merchant provider) to dispute the incorrect amount. They may issue a corrected form if there is an error.

2. Report the Correct Amount on Your Tax Return

If the processor won’t issue a corrected 1099-K, the IRS instructs taxpayers to report the correct amount on their tax return and deduct the erroneous portion.

Per the IRS 1099-K Q&A, you can:

Report the correct income on Schedule C (for sole proprietors) or the applicable business tax form.
Deduct the incorrect amount by entering an offsetting adjustment (e.g., “Other Income” with an explanation).
Attach a written statement if the mistake is significant.

3. Respond to Any IRS Notices

If the IRS sees a mismatch between the 1099-K and your reported income, they may send a notice asking for clarification. Don’t panic—respond promptly with your documentation to show why the reported amount was incorrect.

More Help from the IRS

For more details, check out the IRS 1099-K FAQs.

Final Thoughts

A bad 1099-K isn’t the end of the world, but ignoring it can lead to tax issues. Act quickly by contacting the payment processor, keeping records, and accurately reporting your income on your return. If you need help, consider speaking with a tax professional to ensure you handle it correctly.

How to Calculate an S Corporation Owner’s Basis (and Why It Matters)

Keeping track of your basis is essential if you own an S corporation. It affects whether you can deduct losses, whether your distributions are tax-free, and how much tax you’ll owe when you sell your stock. Unlike C corporations, where stock basis doesn’t change much, S corp owners see their basis go up and down depending on the company’s income, losses, and distributions.

Two Types of Basis: Stock Basis vs. Debt Basis

As an S corp shareholder, you have two types of basis:

Stock Basis – This starts with the amount you paid for your stock or the property value you contributed to the company.
Debt Basis – If you personally lend money to the S corp, you get debt basis. (But just guaranteeing a loan from a bank? That doesn’t count.)

You need stock or debt basis to deduct losses, and your basis also determines if distributions are tax-free or taxable.

How Basis Changes Over Time

What Increases Basis?

Your share of S corp income (both ordinary and separately stated items).
Tax-exempt income (like municipal bond interest).
Additional capital contributions you make to the company.

What Decreases Basis? (In This Order)

Distributions – These are tax-free until you run out of basis. If you take out more than your basis, the extra amount is taxable as a capital gain (usually long-term if you’ve held the stock for over a year).
Nondeductible expenses – Some expenses, like penalties and certain meals, reduce basis even though you can’t deduct them.
Losses and deductions – You can only deduct losses if you have enough basis. Any loss that exceeds your basis gets suspended until you get more basis in a future year.

What About Debt Basis?

If you run out of stock basis but still have debt basis, you can use it to deduct losses.
Loan repayments reduce debt basis first, which can trigger taxable income if you deducted losses against that debt in prior years.

Example: How Basis Works in Real Life

Let’s say you start an S corp and invest $50,000.

Year 1:

The S corp earns $30,000.
You take a $70,000 distribution.

Stock Basis Calculation:

Starting stock basis: $50,000
Add income: +30,000 → New basis: $80,000
Subtract distribution: −70,000
- Since basis is $80,000, you have enough to cover it, and the distribution is tax-free.
- New basis: $10,000

Year 2:

The S corp has a $20,000 loss.
You take another $15,000 distribution.

Stock Basis Calculation:

Starting basis: $10,000
Subtract loss: −10,000 → New basis: $0 (loss limited to available basis).
Subtract distribution: −15,000
- Now you’ve gone below zero! The extra $15,000 is taxable as a capital gain.

Key Takeaways

Distributions are tax-free only up to your basis—anything extra is a capital gain.
You can’t deduct losses beyond your basis—excess losses get carried forward until basis is restored.
Loan repayments can be taxable if you’ve used debt basis to deduct losses in the past.
Keeping good records of your basis will help you avoid unexpected tax surprises!

Basis tracking might not be the most exciting part of owning an S corp, but it’s critical for managing your taxes. Keep an eye on it, and you’ll avoid nasty surprises at tax time.

How to Fix the IRS: Tax Changes to Shrink the Agency

The IRS is losing workers fast. Buyouts and layoffs gut the agency, leaving fewer employees to handle an already messy tax system. Instead of hiring more staff, why not simplify the tax code so a smaller IRS can manage it? Here are some tax changes that could make life easier for everyone.

1. Eliminate Business Income Taxes

Corporate taxes don’t come from company profits. Businesses pass them on to consumers through higher prices, workers through lower wages, and shareholders through smaller returns. In reality, business taxes act as a hidden sales tax.

And they’re insanely complicated. Businesses spend billions on compliance, while the IRS wastes resources auditing deductions and chasing tax shelters. Cutting corporate taxes would simplify enforcement, boost the economy, and free up IRS resources. The lost revenue could be replaced with higher individual income taxes or a simple consumption tax.

2. Get Rid of Tax Credits and Deductions

The tax code is overloaded with credits, deductions, and phase-outs, making filing a nightmare. The fix? Scrap them all—no more complicated calculations—just a straightforward tax on your earnings.

Fewer exceptions mean fewer audits and fewer IRS interventions. A two-tiered or flat tax system would make enforcement even easier.

3. Automate More Tax Filing

What if most people didn’t have to file taxes at all? Many countries pre-fill returns using employer-reported income. The U.S. could do the same for W-2 earners. Instead of gathering documents and manually entering numbers, taxpayers could just check a pre-filled return and hit submit.

Fewer mistakes, less paperwork, and way less IRS involvement. Win-win.

4. Cut Down on IRS Customer Service Nightmares

Millions of taxpayers call the IRS every year, stuck on hold for hours. Most issues come from confusing tax rules, outdated notices, and unclear payment systems.

A simpler tax code would mean fewer people need to call. Better online tools could also help taxpayers get answers without waiting on hold forever.

5. Spread Out the Tax Deadline

The IRS is overwhelmed with returns every February through April 15. A rolling deadline—based on birth month or Social Security number—could spread out the workload, helping a smaller IRS workforce process returns more efficiently.

The Bottom Line

Instead of expecting an overworked IRS to manage an outdated system, we should fix the system itself. Eliminating business taxes, ditching deductions, automating returns, and reducing IRS interactions would allow a smaller, more efficient agency to function smoothly.

IRS Service is About to Get Worse – Here’s Why

If getting the IRS on the phone felt impossible before, just wait. The agency is losing workers quickly due to a federal buyout program and mid-tax-season layoffs.

Here’s the deal. The government offered IRS employees a buyout—quit by early February, get paid through September, and don’t work in between. Sounds great, right? The catch? The IRS needs people now. So, they blocked many employees from taking the deal until May 15. That leaves a workforce filled with people who know they’re going but still have to grind through tax season. Think they’ll be motivated to work faster? Didn’t think so.

It gets worse. The government is also laying off thousands of IRS employees who are still in their probationary period. And when? Right in the middle of tax season. Because why not cut staff when millions of Americans are waiting for refunds?

So, what does this mean for you? Expect slower processing times, endless hold music when calling the IRS, and chaos. The IRS already struggled to keep up. Now, they’re losing employees left and right.

The one upside? If you’re worried about an audit, don’t be. It’s hard to see the IRS cracking down on enforcement when they can barely pick up the phone.

The bottom line is that this tax season will be a mess. File early, be patient, and if you need help, good luck.

Understanding the Three Types of Innocent Spouse Relief

Filing a joint tax return with your spouse has its perks—like better tax rates and deductions—but it also means both of you are responsible for any taxes owed. That’s all fine and dandy when everything is on the up and up. But what if your spouse (or ex-spouse) messes up the taxes or straight-up lies on the return, and now the IRS is coming after you?

That’s where Innocent Spouse Relief comes in. The IRS knows that sometimes one spouse isn’t at fault, and they offer three different types of relief to help people get out of unfair tax debt. Let’s break them down in plain English.

1. Innocent Spouse Relief (a.k.a. “I had no idea!”)

This applies if your spouse understated income, lied about deductions, or otherwise fudged the numbers, and you had no clue when you signed the return. The IRS will consider whether:

You knew (or had reason to know) about the mistake.
It would be unfair to hold you responsible.
You benefited from the tax savings in a significant way.

Beware of benefiting too much! If you lived a lavish lifestyle thanks to the lower tax bill—think fancy vacations, luxury items, or significant savings—the IRS might say, “Sorry, you still owe.” But if the extra money covers basic household needs, you have a better shot at relief.

2. Separation of Liability Relief (a.k.a. “That’s their problem, not mine.”)

If you’re divorced, legally separated, or widowed, you can ask the IRS to separate the tax debt between you and your ex—so you only pay your fair share. However, you must prove:

The mistake was due to your ex’s actions.
You didn’t know (or have reason to know) the errors when signing.
You didn’t personally benefit beyond everyday living expenses.

Example: If your ex falsely claimed a bunch of deductions, and you had no idea, you might qualify. But if you enjoyed the extra tax savings, the IRS may still hold you partially responsible.

3. Equitable Relief (a.k.a. “Life isn’t fair, and neither is this tax bill.”)

If neither of the first two options work, Equitable Relief is a last resort—especially if the tax bill is from unpaid taxes (rather than a mistake on the return). The IRS will consider:

Whether paying the debt would cause financial hardship.
If you were in an abusive or controlling relationship.
Whether you benefited from the unpaid taxes.

Again, if you lived comfortably because your spouse skipped paying taxes, the IRS may not let you off the hook. But if you were struggling financially, that could work in your favor.

How to Apply

You generally have two years from when the IRS starts collecting to apply, using Form 8857. Be ready to provide proof that you qualify—especially if you’re claiming you didn’t know about the mistakes.

Final Thoughts

The IRS isn’t known for its sympathy, but they do recognize unfair situations. If you’re being blamed for tax debt that isn’t yours, Innocent Spouse Relief could be a way out. If you’re unsure which type applies to you, getting professional advice is always a good idea.