Tax Problem Resolution Checklist

Summary. Everything, in the order it has to happen.

Part 1 — Emergency (today)

Levy in progress:

Wage levy: call the notice number today; request release for economic hardship
Bank levy: call now — the bank holds funds for a statutory period before remitting; that window is the opportunity
File a resolution request simultaneously — levy is generally prohibited while an installment agreement request, offer, or CDP hearing is pending
Describe income and necessary living expenses when asked; have the numbers ready

Deadlines to find and calendar right now — write them on the envelope:

"Notice of Deficiency" / "90-day letter" → 90 days to petition the U.S. Tax Court (150 if abroad). Cannot be extended by anyone
Notice of Federal Tax Lien filing → 30 days for a CDP hearing (26 U.S.C. § 6320)
"Final Notice of Intent to Levy" / "Notice of Your Right to a Hearing" → 30 days for a CDP hearing (§ 6330)
Missed the 30 days? → equivalent hearing within 1 year (no collection-period suspension, no Tax Court review)
State tax license action → the state's own deadline, usually short
Every unopened envelope opened and sorted by date

Part 2 — Transcripts (free; nothing decided without them)

Request for every year in question:

Wage and income transcript — everything third parties reported (W-2s, all 1099s, K-1s, brokerage proceeds)
Account transcript — assessments, payments, penalties, interest, event codes
Return transcript — what was filed
Record of account — both combined

Read the account transcript for:

The assessment date for each year (the 10-year collection period runs from it)
Whether a substitute for return was prepared → the balance is probably inflated
Total penalties by year → this is your penalty abatement target
Events that suspended the collection period — prior offers, CDP hearings, bankruptcy, time abroad
Lien filing and levy entries
Ask the IRS for its computed collection statute expiration date for each year. Your own arithmetic will be wrong if there were suspensions

Part 3 — Filing compliance (the gate to everything)

Unfiled years identified by comparing wage/income transcripts to return transcripts
Asked how many years the IRS wants — commonly the last six; do not assume twenty
Understood: no installment agreement, offer, or currently-not-collectible status while returns are missing

Reconstruction:

Wage and income transcripts for reported figures
Bank and credit card statements, categorized by vendor
Last filed return, for the expense categories used
Brokerage historical statements for BASIS — this fixes the worst substitute-return distortion
Vendor and supplier invoice reprints
Mileage from calendars and job logs
Landlord or servicer records
Documented estimates with methodology where a record is genuinely gone
Returns filed — even if you cannot pay. 26 U.S.C. § 6651: the failure-to-file penalty is much larger than failure-to-pay
Refund deadline checked — § 6511: 3 years from the due date or 2 from payment. Older refunds are permanently gone

Part 4 — Compute your own numbers first

Average monthly gross income          $ ______
Allowable living expenses (standards) $ ______
MONTHLY DISPOSABLE INCOME             $ ______

Home quick sale value minus mortgage  $ ______
Vehicles, less loans and allowance    $ ______
Bank accounts, less small allowance   $ ______
Retirement, net of tax and penalty    $ ______
Cash value life insurance             $ ______
Other assets                          $ ______
REALIZABLE ASSET VALUE                $ ______

RCP ≈ assets + (disposable income × applicable months)  = $ ______
BALANCE OWED                                             = $ ______

RCP far below the balance → offer in compromise is realistic
RCP near or above the balance → an offer will not be accepted. Anyone saying otherwise is selling something
No assets, no disposable income → currently not collectible
Comfortable disposable income → installment agreement

Part 5 — Financial statement documentation

3 months of bank statements, every account
3 months of pay statements, or profit and loss if self-employed
Mortgage or lease + property tax statement
Vehicle registrations and loan statements
Utility bills
Health insurance and out-of-pocket cost documentation
Court orders for child or spousal support + proof of payment
Retirement and investment statements
Life insurance policy with cash value

Claim what you are entitled to — these are the under-claimed categories:

Out-of-pocket health care above the standard (premiums, prescriptions, dental, vision) — documented
Court-ordered support actually being paid
Child care necessary for employment
Current federal and state tax withholding or estimated payments
A second vehicle for a working spouse
Term life insurance premiums, within limits
Delinquent state/local tax being paid under an agreement

Generally NOT allowed — do not build a plan around them: unsecured credit card payments · private school tuition · charitable contributions · voluntary retirement contributions · expenses for people outside the household

Everything accurate. Understating assets or income on an IRS financial statement is a serious matter and it is verifiable

Part 6 — Choose and file the resolution

Installment agreement

Streamlined eligibility checked against current thresholds
Direct debit chosen — lower fee, no missed payments, supports lien withdrawal
Payment amount realistic; a defaulted agreement is worse than a modest one

Currently not collectible

Financial statement showing income at or below allowable expenses
Understood: penalties and interest continue, a lien may still be filed
Understood: the collection period keeps running — often the best outcome for someone with no assets and an expiring liability

Offer in compromise (26 U.S.C. § 7122)

Ground identified: doubt as to collectibility / doubt as to liability / effective tax administration
RCP computed and it is below the balance
Application fee and initial payment, or low-income waiver
Understood: the collection period is suspended while pending, plus additional time
Understood: 5 years of compliance required after acceptance — default reinstates the entire original liability

Pay in full by borrowing

Loan rate compared against combined penalty and interest

Part 7 — Collection due process hearing (if requested)

Filed within 30 days
Collection alternative named specifically with a number, not just disagreement
Intrusiveness argument made concretely — what the action does to the household
Spousal defenses raised if a joint return is involved
Underlying liability challenged if there was no prior opportunity to dispute it — say so explicitly
Procedural failures raised: notices, assessment, expired collection period
Filing compliance achieved BEFORE the hearing — the number one reason these fail
Financial statement, documentation, and a written proposal prepared
Transcripts in hand for precise date discussion
Notice of determination deadline for a Tax Court petition calendared when it arrives

Part 8 — Penalty relief

Total penalties added up from the account transcripts
First-time abatement requested FIRST — clean 3-year history, current filing, paid or in an arrangement. Granted essentially on request
Reasonable cause requested for other years, containing:
- What happened, with specific dates
- The causal link — how it prevented compliance
- When it ended and how quickly you complied afterward
- Documents: medical records with dates, death certificate, disaster declaration, fire or police report, professional correspondence
- Compliance history
Statutory exceptions or IRS erroneous written advice raised if applicable
Understood: interest is generally not abatable except from IRS error or delay

Part 9 — Innocent spouse (joint return cases)

26 U.S.C. § 6015

Understood: a divorce decree assigning the debt does not bind the IRS
Relief type identified: innocent spouse (understatement) · separation of liability (deficiency, if divorced/separated/widowed/living apart) · equitable relief (the only route for an underpayment)
Detailed personal declaration drafted
Evidence of separate finances and who controlled money
Evidence of what you could not have known
Divorce decree and support orders
Economic hardship documentation
Abuse or financial control evidence — expressly relevant, can outweigh knowledge
Compliance since the marriage ended
Understood: the former spouse will be notified; protections where abuse is involved raised explicitly
Deadline for the relief type confirmed and met

Part 10 — Lien problems

Correct request identified:
- Withdrawal — notice removed as if never filed. Request after a few months of direct debit installment payments
- Discharge — one property released so it can be sold
- Subordination — lien yields priority so a refinance can close
- Release — liability satisfied or unenforceable
Published application requirements obtained for that specific request
Transaction documents assembled: purchase agreement, payoff statement, appraisal, title report, estimated closing statement
Showing made of what the government gets or why its position is not impaired
Started when the property listed, not when a closing date was set — these take weeks
Written determination obtained before closing

Part 11 — Get help

Low Income Taxpayer Clinic contacted if income is below the threshold — free representation, including Tax Court
Taxpayer Advocate Service contacted for hardship or unresolved problems
Taxpayer Assistance Order requested by name where an IRS action is causing significant hardship
Volunteer return preparation program used if eligible

If hiring:

Representative is an attorney, CPA, or enrolled agent — verified
Diagnostic asked: "What is my collection statute expiration date for each year?" A professional who read the transcript can answer; a salesperson cannot
Written scope and fee before payment

Walk away from: guaranteed outcomes before transcripts are read · fees quoted on the first call · uncredentialed salespeople · pressure to decide now · large upfront payments with no written scope · only offers in compromise discussed · no mention of free clinics to someone who would qualify

Part 12 — Prevent the next one

Withholding rechecked after any change: raise, second job, spouse working, dependent aging out, bonus, filing status
Self-employment: separate account, fixed percentage transferred on the day money arrives (many find 25–30%, higher in a high-tax state)
Quarterly estimated payments calendared: April · June · September · January
Safe harbor based on the prior year's tax computed — it converts an uncertain obligation into a known number
Withholding elected on any retirement distribution — 10% is almost never enough
Estimated payment made in the quarter of any stock, crypto, or property sale
Cancelled debt watched for — a 1099-C may be taxable; exclusions must be claimed on the return
File on time every year, even when you cannot pay