Tax Controversy FAQ

Some of the most frequently asked questions RJS LAW encounters when handling tax controversy matters.

Why did I receive a notice from the IRS, FTB, EDD, or CDTFA? Tax Controversy

Taxing authorities issue notices for several common reasons, including unreported or underreported income, missing tax returns, reporting mismatches, or an alleged balance due. Notices may also result from automated reviews or information received from third parties.

Do I actually owe the amount shown on the tax notice? Tax Controversy

Not necessarily. Many assessed balances are based on estimated assessments, missing returns, or reporting discrepancies. After a proper review and analysis, the amount owed may be reduced or eliminated entirely.

What happens if I ignore an IRS or California tax notice?

Ignoring a tax notice can lead to serious consequences.

• Audit-related notices: Failure to respond may result in an unfavorable assessment.
• Collection-related notices: Penalties and interest continue to accrue and may lead to liens, bank levies, wage garnishments, or other enforced collection actions.

Failing to respond properly and timely often increases the total amount owed.

What options do I have if I cannot afford to pay my tax debt in full?

Depending on your financial circumstances, available options may include:

• Installment agreements (payment plans)
• Partial payment installment agreements
• Offers in Compromise (OIC)
• Temporary hardship or “currently not collectible” status

Can I settle my tax debt for less than the full amount owed?

Yes, in certain cases. The IRS and California taxing authorities allow eligible taxpayers to apply for an Offer in Compromise (OIC). Approval depends on your income, assets, allowable expenses, and the remaining time the agency has to collect the debt.

Can tax penalties and interest be reduced or removed?

Penalties may be reduced or eliminated through reasonable cause arguments or first-time penalty abatement. Interest may be reduced when it is directly tied to penalties that are successfully abated.

What is the difference between a tax audit, collections, and appeals?

• Audit: A review of a tax return to verify accuracy and compliance.
• Collections: Actions taken to collect an assessed tax balance.
• Appeals: An independent review of disputes involving audits or collection actions.

How long does the IRS or California FTB have to collect tax debt?

• IRS: Generally 10 years from the date of assessment.
• California Franchise Tax Board (FTB): Generally 20 years from the date of assessment.

Certain actions—such as filing an Offer in Compromise, requesting a Collection Due Process hearing, or filing bankruptcy—can extend these time limits.

Can the IRS or FTB levy bank accounts or garnish wages?

Yes. If a tax liability is not properly and timely resolved, taxing authorities may levy bank accounts, garnish wages, or take other enforcement actions.

What happens if I do not file my tax returns? Tax Controversy

The IRS or FTB may prepare a Substitute for Return (SFR) on your behalf. SFRs typically overstate tax liability because they do not include deductions or credits. The agency may file an SFR at any time until a proper return is filed.

Can the IRS or FTB place a lien on my property?

Yes. If a tax liability remains unresolved, the taxing authority may file a tax lien against your property.

What triggers a tax audit?

Audits may be triggered when a tax return is inconsistent with IRS or FTB records, prior-year filings, or returns filed by taxpayers in similar professions or income brackets.

What are common tax audit triggers?

Common audit triggers include:

• Large or unusual deductions
• High charitable contributions
• Repeated business losses
• Home office deductions
• Large Schedule C expenses
• Claiming certain tax credits
• Cash-intensive businesses
• High numbers of independent contractors compared to employees

Is bankruptcy an option for resolving tax debt?

In some cases, yes. However, not all taxes are dischargeable. Income taxes may be discharged only if:

• The return was due at least three years ago
• The return was filed at least two years ago
• The tax was assessed at least 240 days ago
• The return was not fraudulent

Can California tax me if I do not live in California?

Yes, depending on the circumstances. California residents are taxed on all income, while nonresidents may be taxed on California-sourced income. California may also tax part-time residents or challenge a taxpayer’s residency status.

Do I have to provide all personal information requested by the IRS or other tax authorities?

Not always. While taxing authorities have broad investigative powers, taxpayers are not required to comply with every request without limitation. An experienced tax attorney can help protect taxpayer rights and address privacy and scope concerns.

How much does it cost to hire a tax attorney? Tax Controversy

Fees vary based on the complexity of the matter and the services required. RJS LAW offers free consultations, which include an initial assessment and an estimate of legal fees.

Do I need a tax attorney for every tax issue? Tax Controversy

No. Some tax matters are relatively straightforward and can be handled without professional representation. More complex tax disputes benefit from experienced legal counsel. RJS LAW provides candid assessments to help clients determine whether professional representation is appropriate.