Category: IRS Processes

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:

1. Report them accurately on 1040 and Form 433. The IRS likely already has your data.
2. Keep detailed records of all transactions—buys, sells, transfers, and staking rewards.
3. 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.

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.

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.

If you’ve received a Final Notice of Intent to Levy or a Notice of Federal Tax Lien, you may have the right to request a Collection Due Process (CDP) hearing. This formal process allows you to challenge the IRS’s proposed collection actions and explore alternatives to resolve your tax debt. Here’s how a CDP works and how to use it to your advantage.

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What is a CDP Hearing?

A CDP hearing allows you to dispute IRS collection actions like levies or liens. Filing for a hearing temporarily halts these actions while the IRS Office of Appeals reviews your case.

You must file your request within 30 days of the notice date using Form 12153. Missing this deadline limits your options, though you may still request an Equivalent Hearing, which provides less protection.

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The CDP Process in a Nutshell

1. File Form 12153

Submit Form 12153 to the address on your notice. Indicate what you want to discuss, such as disputing the debt, requesting a payment plan, or arguing financial hardship. Be specific, as this will guide your hearing.

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2. IRS Halts Collection Actions Temporarily

Once your request is received, the IRS pauses levies, garnishments, and liens. This gives you time to resolve the issue without immediate financial pressure. However, the downside is that the statute of limitations on collections (typically 10 years) is paused during the CDP process, giving the IRS more time to collect.

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3. Work with the Office of Appeals

An impartial Settlement Officer will handle your case. The hearing can occur over the phone, virtually, or in person. During the hearing, you can:

• Propose a payment plan to pay over time.
• Request an Offer in Compromise (OIC) to settle for less than what is owed.
• If you face financial hardship, ask for Currently Not Collectible (CNC) status.
• Dispute the validity of the debt if it was miscalculated.

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4. Settlement Officer Issues a Decision

After the hearing, the Settlement Officer issues a determination letter summarizing their decision. If you disagree, you have 30 days to petition the decision in Tax Court.

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Why is a CDP Hearing Important?

A CDP hearing lets you avoid aggressive collection actions and negotiate a resolution. Even if you don’t dispute the debt, it’s a chance to explore manageable alternatives, such as installment agreements or CNC status.

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Tips for a Successful CDP Hearing

• Act Fast: File Form 12153 within 30 days to maximize your rights.
• Be Prepared: Gather financial records or evidence to support your case.
• Negotiate: Be open to solutions that work for both you and the IRS.

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A CDP hearing is your chance to hit the pause button on the IRS’s collection machine and take control of the situation. By knowing the rules and acting fast, you can turn a tax nightmare into an opportunity to negotiate on your terms—and maybe even sleep a little better at night.

When it comes to dealing with the IRS, many taxpayers feel a sense of dread—and for good reason. The IRS, while powerful, does not have a reputation for precision. In fact, the agency is often wrong, and taxpayers can be left sorting through the mess. One critical area where the IRS often stumbles is in applying the Statute of Limitations (SOL), the time limit for certain IRS actions, such as audits or collections. Understanding how the IRS frequently miscalculates the SOL could help you protect your rights and push back when they overstep.

What is the Statute of Limitations (SOL)?

The Statute of Limitations essentially places a deadline on how long the IRS can take certain actions:

1. Audits – The IRS generally has three years from when you file your return to audit it. However, if you underreport your income by 25% or more, that window extends to six years. If you fail to file a return or commit fraud, there’s no limit—the IRS can audit anytime.
2. Collections – For unpaid taxes, the IRS has 10 years from the date they assess the tax to collect it. After that, they are supposed to stop all collection efforts.

Sounds simple, right? Not so fast. The IRS often messes up when calculating these deadlines.

How Does the IRS Get the SOL Wrong?

One of the most common errors involves “tolling events,” which pause or extend the SOL. These events include filing for bankruptcy, submitting an Offer in Compromise (OIC), or requesting a Collection Due Process (CDP) hearing. Each of these can temporarily stop the clock, but the IRS can (and does) miscalculate how long the pause lasts, incorrectly extending the SOL.

Another frequent mistake happens when the IRS doesn’t correctly record when a return was filed or tax was assessed. This could lead to the IRS attempting to collect taxes or audit a return long after the deadline. For taxpayers, this can feel like being chased for a debt that should have been closed years ago.

What Can You Do When the IRS Makes Mistakes?

If you think the IRS is acting outside the SOL, you have options:

• Request your account transcripts using IRS Form 4506-T. This will give you a breakdown of your tax history and show how the IRS calculates dates.
• You can challenge the IRS’s actions by appealing or disputing their calculation. Working with the Taxpayer Advocate Service (TAS) can sometimes help resolve complex issues.
• Know your rights – Familiarizing yourself with IRS procedures in the Internal Revenue Manual (IRM) can give you the upper hand when dealing with SOL miscalculations.

The IRS might not always be right, but it’s up to taxpayers to hold them accountable. Knowing the limits of what the IRS can do—and when they’ve gone too far—can save you from unnecessary headaches and stress.

Keeping good financial records is important even if you haven’t filed taxes in a while. Non-filers still need to track income and expenses in case the IRS contacts them. This guide covers what records to keep, how long to keep them, and why it’s important.

Why Record-Keeping Matters

You might think you don’t need to keep records if you haven’t filed taxes. However, the IRS can pursue unfiled returns for up to six years (longer if fraud is involved). Organized records can help you file past-due returns, avoid penalties, and correct any mistakes the IRS may make in estimating your tax liability.

Accurate records are essential to qualify for IRS programs like Offer in Compromise (OIC) or Currently Not Collectible (CNC) status. These require proof of financial hardship, which you can’t show without the proper documents.

Record Keeping for Small Business Owners

Small business owners and self-employed individuals are likelier to fall behind on tax filings. Record keeping is even more important for these individuals, as their income and expenses are often complex.

If you’re a small business owner who hasn’t filed, be sure to keep:

1. Income Records: Keep sales receipts, invoices, 1099 forms, and payment platform records (PayPal, Stripe, etc.).
2. Expense Receipts: Save receipts for business expenses like office supplies, advertising, or vehicle costs.
3. Business Bank Statements: Keep business bank and credit card statements to verify income and expenses.
4. Payroll and Contractor Records: Maintain payroll records and Forms 1099 for contractors.
5. Asset and Inventory Records: Track inventory and equipment depreciation for tax deductions.

How Long to Keep Records

The IRS recommends keeping records for at least three years after filing, but the clock doesn’t start until the return is filed for non-filers. To be safe, hold on to records for at least six years.

Conclusion

Good record-keeping is essential for non-filers, especially small business owners. Whether you need to file past-due returns or prove financial hardship, organized records will help you get back on track with the IRS. Take the time to sort through your receipts and statements now—it will save you stress later.