Received an IRS notice or audit letter?
Deadlines for responding are real and short typically 30 to 90 days. Call us before you respond to anything. The first response sets the scope of what follows.
Why Representation Matters and Why the Credentials Matter
IRS controversy is not a paperwork problem. It is an adversarial process one in which the IRS has significant procedural tools, time, and institutional knowledge on its side, and in which every response you make either narrows or expands the scope of its inquiry. The outcome of an audit, a collection matter, or a Tax Court petition depends heavily on how the case is positioned from the beginning, how information is disclosed, and who is in the room when the decisions are made.
Not all tax representatives are the same. An enrolled agent can represent taxpayers before the IRS. A CPA can represent taxpayers before the IRS. An attorney can represent taxpayers before the IRS and before the Tax Court and crucially, an attorney's communications with clients are protected by the attorney-client privilege in a way that communications with a CPA are not. In a civil examination that shows signs of criminal referral potential, or in any matter where the IRS may seek to compel disclosure of advice you received, that privilege is not a technicality. It is a material difference in your legal protection.
At Montgomery Legal, IRS representation is handled by an advisor who holds both credentials the legal authority of an attorney and the technical fluency of a CPA. That combination means the legal strategy and the tax analysis are developed together, by the same person, rather than coordinated between a lawyer who does not fully understand the accounting and an accountant who cannot advise on legal strategy.
Do not respond to an IRS notice or examination request without representation. The initial response sets the scope of the inquiry, the information the IRS expects to receive, and the tone of the agent relationship. A poorly framed response to a targeted correspondence examination can transform it into a full field audit. We review every notice before any response is sent even notices that appear routine.
What we handle
IRS Notices and Correspondence
CP2000 underreporter notices, math error adjustments, balance due letters, and examination notices reviewed, analyzed, and responded to before any deadline passes.
Correspondence, Office & Field Examinations
Full representation through all three audit types organizing documentation, managing IDRs, limiting scope, and negotiating the best available outcome.
IRS Independent Office of Appeals
Protest preparation, Appeals conference representation, and settlement negotiation for taxpayers who disagree with an examiner's proposed adjustments.
U.S. Tax Court Litigation
Petition preparation and Tax Court representation for taxpayers who have received a Statutory Notice of Deficiency and elect to litigate rather than pay.
IRS Collections, Liens & Levies
Installment agreements, currently not collectible status, offer in compromise, lien releases, levy releases, and collection due process hearings.
Penalty Abatement
First-time abatement requests and reasonable cause arguments for accuracy, failure-to-file, and failure-to-pay penalties evaluated and pursued on every applicable matter.
Payroll Tax Disputes & Trust Fund Recovery
Representation in payroll tax examinations and defense against the Trust Fund Recovery Penalty one of the IRS's most aggressive personal liability assessments.
Voluntary Disclosure and Compliance
Guidance for taxpayers with unfiled returns, unreported income, or foreign account obligations before the IRS makes contact, when options are still open.
IRS Notices: What They Mean and What to Do
The IRS issues hundreds of millions of notices each year. Most are automated generated by matching information returns (W-2s, 1099s) against filed returns, or triggered by mathematical errors or missing schedules. A small fraction represent the opening of a formal examination. Understanding which type of notice you have received and what your response window is determines what happens next.
The IRS believes income reported on information returns does not match your return
The CP2000 is not a bill and it is not an audit it is a proposal. The IRS has matched 1099s, W-2s, and other information returns against your filed return and found a discrepancy. You have 60 days to agree, disagree, or partially agree. A well-crafted response that explains the discrepancy with supporting documentation typically resolves the matter without further action. An incomplete or poorly framed response can result in the IRS assessing the proposed amount automatically and sending the matter to collections.
The IRS has assessed a balance and is preparing to take collection action
The CP504 is a final notice before the IRS exercises its levy authority. It triggers a 30-day response window after which the IRS can levy bank accounts, wages, and other assets without further notice. Receiving a CP504 requires immediate action: either resolving the underlying balance, entering an installment agreement, requesting currently not collectible status, or filing a Collection Due Process hearing request to stop the levy while options are evaluated.
The IRS has determined a deficiency and is giving you 90 days to respond
The Statutory Notice of Deficiency often called a "90-day letter" is the IRS's formal assertion of a tax deficiency following an examination. It starts the 90-day window within which you must either pay the assessed amount or file a petition in the U.S. Tax Court. Missing this deadline waives your right to Tax Court review and requires you to pay first and sue for a refund later an option that is significantly more expensive and uncertain. This deadline is absolute; extensions are not available.
This is your last opportunity to request a Collection Due Process hearing
The LT11 and Letter 1058 are the IRS's final notification before levy and they trigger the 30-day window to request a Collection Due Process (CDP) hearing with the IRS Independent Office of Appeals. Requesting a CDP hearing stops the levy action while Appeals reviews the case. Failing to request a CDP hearing within 30 days permanently waives the right to Tax Court review of the collection action leaving only equivalency hearings, which provide fewer protections.
The examiner has proposed adjustments at the conclusion of an audit
The examination report sets out the auditor's proposed adjustments and the resulting additional tax liability. You have 30 days to agree or disagree. Disagreeing at this stage is the formal beginning of the Appeals process. Many taxpayers accept the examiner's adjustments without understanding that Appeals an independent function within the IRS reviews the case de novo and has broad authority to settle, often for significantly less than the examiner proposed.
IRS Examinations: The Three Types and How Each Works
IRS audits come in three forms correspondence, office, and field each representing a different level of scrutiny and a different approach to representation. The type of examination determines what documents will be requested, where the examination takes place, and how the IRS agent will approach the process. Knowing what to expect before the examination begins is one of the most important advantages a represented taxpayer has over an unrepresented one.
Conducted entirely by mail, the correspondence examination targets specific items on the return typically charitable contributions, business expenses, education credits, or earned income tax credit claims. The IRS sends a letter identifying the items under examination and requesting documentation. The taxpayer responds with supporting documents.
Correspondence examinations are manageable but require careful preparation. The IRS examiner reviewing the response does not know the taxpayer's situation, cannot ask follow-up questions in real time, and will disallow items that are not clearly supported by the documents provided. Submitting the right documents in the right format organized around the specific items under examination is the difference between resolution and escalation.
- Analyze the specific items under examination before responding
- Identify all supporting documentation for each challenged item
- Draft a response that explains the legal and factual basis for each position
- Limit the response to items actually under examination not volunteering additional exposure
- Follow up if the IRS proposes adjustments despite the response
An office examination brings the taxpayer and their representative to an IRS office for a face-to-face meeting with an examiner. It is typically used for more complex individual returns those involving Schedule C, rental properties, or other issues where the examiner needs to review documents in person and may ask questions about specific items.
Office examinations require preparation on two levels: the documents and the narrative. The examiner will ask questions about how the business operates, how records are kept, and the basis for specific deductions. Having a representative present who can answer questions clearly, object to questions that exceed the scope of the examination, and manage the flow of information is critical. Unrepresented taxpayers frequently expand the scope of an office exam simply by answering questions they did not need to answer.
- Pre-exam preparation session with the client to review likely questions
- Organize and present documentation in exam-ready format
- Attend the conference and manage all direct communication with the examiner
- Prevent scope expansion limit the examiner to the issues on the notice
- Negotiate with the examiner on disputed items before the report is issued
A field examination is the most comprehensive form of IRS audit an IRS Revenue Agent comes to the taxpayer's place of business, reviews records on-site, and may conduct the examination over multiple visits across several months. Field exams are typically reserved for businesses, high-income individuals, and returns with complex or unusual positions. They often begin with a broad scope that narrows as the agent reviews the records.
Managing a field examination requires active, ongoing representation not just preparation before the first meeting. Information Document Requests (IDRs) must be responded to carefully, the examination timeline must be managed, and the agent's questions must be fielded in a way that moves the case toward resolution rather than expanding it. Our role is to be the primary point of contact with the Revenue Agent throughout the examination ensuring the client does not inadvertently create additional issues through direct communication with the examiner.
- Initial scope assessment identify what years and issues are at risk
- IDR response management providing what is required without overproducing
- Client communication protocols limit direct agent-client contact
- Examination timeline management and extension negotiations
- Supervisor escalation when agent exceeds appropriate scope
- Position papers on disputed issues before the examination report
IRS Appeals: The Most Underused Tool in Tax Controversy
The IRS Independent Office of Appeals is a separate function within the IRS one that operates independently of the examination function and whose mission is to resolve tax controversies without litigation, on a basis that is fair to both the taxpayer and the government. Appeals officers have broad authority to settle cases and routinely produce outcomes significantly better than what the examination produced.
Most taxpayers who receive an unfavorable examination report do not know they have an automatic right to Appeals review or they believe that agreeing with the examiner is the only realistic option. In fact, the Appeals process is specifically designed for situations where an examiner's position was technically defensible but overstated, or where the weight of the evidence, properly presented, supports a different conclusion.
The key to effective Appeals representation is preparation. The Appeals officer reviews a written protest a formal document that lays out the taxpayer's factual and legal arguments for each disputed issue and the conference is built around that protest. A well-drafted protest that frames the issues clearly, cites the applicable authority, and acknowledges the strength of the government's position where appropriate is far more effective than an adversarial approach that overstates the taxpayer's case.
The Appeals process
- 30-day letter: Following the examination report, the taxpayer has 30 days to request Appeals conference. Missing this window results in the issuance of a Statutory Notice of Deficiency the 90-day letter that requires a Tax Court petition or full payment.
- Written protest: For cases above $25,000, a formal written protest is required. The protest sets out the facts, the law, and the argument for each disputed issue. It is the document the Appeals officer reads before the conference and the framework around which the conference is conducted.
- Appeals conference: A meeting in person or by telephone with the Appeals officer, who has reviewed the protest and the examination file. The conference is collaborative rather than adversarial. Most cases settle at or after the conference; the Appeals officer typically has authority to accept a resolution without further review.
- Settlement or 90-day letter: If Appeals resolves the case, the parties execute a closing agreement. If Appeals cannot reach a resolution, a Statutory Notice of Deficiency is issued and the taxpayer must either pay or petition Tax Court within 90 days.
IRS Collections: Stopping the Damage and Finding a Path Forward
When a tax liability has been assessed and remains unpaid, the IRS Collections function takes over. The collections process is automated in its early stages and becomes increasingly aggressive over time from notices to liens to levies to seizures. The key to protecting yourself in collections is acting before the IRS exercises its most powerful tools, because options narrow at every step.
Assessment and Initial Notices
Once a return is filed with a balance due, or the IRS assesses a deficiency, the liability is recorded on the taxpayer's account. The IRS sends a series of notices CP14, CP501, CP503, CP504 escalating in urgency over approximately 120 days. These notices also begin the 10-year statute of limitations on collection, which runs from the date of assessment. Responding to early notices, rather than ignoring them, preserves the most options.
Federal Tax Lien
After notice and demand for payment go unanswered, the IRS files a Notice of Federal Tax Lien in the public records of the county where the taxpayer's property is located. The lien attaches to all property and rights to property real estate, financial accounts, business assets, and future assets acquired while the lien is in place. It appears on credit reports and can prevent real estate transactions, refinancing, and business financing. Lien subordination, discharge, and withdrawal are available in specific circumstances and can preserve specific transactions even while the underlying liability is being resolved.
Levy and Seizure
A levy is the IRS's legal seizure of property to satisfy a tax debt. The IRS can levy bank accounts (a one-time seizure of the balance on the date of levy), wages (a continuous levy that captures a portion of each paycheck until released), accounts receivable, and in serious cases, business assets or real property. A bank levy can be released if the underlying liability is resolved or a collection alternative is established but the funds already seized are rarely returned. Acting before a levy is issued is always preferable to acting after.
Collection Due Process Hearing
Taxpayers who receive a Final Notice of Intent to Levy (LT11 or Letter 1058) have 30 days to request a Collection Due Process (CDP) hearing with Appeals. Requesting a CDP hearing stops the levy while Appeals reviews the case including whether a collection alternative such as an installment agreement or offer in compromise would be appropriate. The CDP is also the gateway to Tax Court review of collection actions, which is not available once the 30-day window closes. This is one of the most time-sensitive deadlines in tax controversy.
Collection Alternatives
Once the collections process has begun, several formal resolution paths are available depending on the taxpayer's financial situation installment agreements, currently not collectible status, partial pay installment agreements, and offers in compromise. Each requires a financial disclosure and an analysis of what the taxpayer can actually pay. We evaluate all available alternatives and recommend the one that produces the best long-term outcome based on the client's specific circumstances.
Collection Resolution Options
Every collection matter has a path to resolution. The right path depends on the amount owed, the taxpayer's current and projected financial situation, the age of the liability, and whether any collection statute of limitations issues are in play. Below is a plain-language overview of the primary resolution mechanisms and when each is appropriate.
Installment Agreement
A formal payment plan allowing the taxpayer to pay the outstanding balance over time with interest continuing to accrue on the unpaid amount. The IRS offers streamlined installment agreements for balances under $50,000 that can be established without a full financial disclosure. Balances above that threshold require a Collection Information Statement (Form 433-A or 433-B) and a review of income, expenses, and assets. Installment agreements keep the IRS out of enforced collection while the liability is being paid down.
Currently Not Collectible
When a taxpayer's income covers only necessary living expenses with nothing remaining to pay the IRS, the account can be placed in currently not collectible (CNC) status. The IRS ceases collection activity including levies while CNC status is in place. The liability remains on the account and continues to accrue interest and penalties, but the collection statute of limitations continues to run. CNC status is reviewed periodically and can be removed if the taxpayer's financial situation improves.
Offer in Compromise
An agreement between the taxpayer and the IRS to settle the tax liability for less than the full amount owed. Acceptance is based on the taxpayer's "reasonable collection potential" what the IRS calculates it could realistically collect over the remaining collection statute. An OIC is not appropriate in every case, and the IRS rejects the majority of applications. But for taxpayers whose reasonable collection potential is genuinely less than the outstanding balance, it is the most powerful resolution tool available.
Partial Pay Installment Agreement
A hybrid approach where the taxpayer makes monthly payments based on their actual ability to pay rather than a payment that would retire the full balance within the collection statute. If the collection statute expires while the PPIA is in place and the full balance has not been paid, the remaining liability is extinguished. For taxpayers who do not qualify for an OIC but whose monthly payment under a standard installment agreement would exceed their means, a PPIA is often the best available option.
Penalty Abatement
Separate from the underlying tax liability, penalties can often be reduced or eliminated reducing the total balance owed. First-time abatement is available for taxpayers with a clean prior compliance history. Reasonable cause abatement is available when the failure to comply resulted from circumstances beyond the taxpayer's control. We evaluate penalty abatement potential on every collection matter and pursue it as part of the overall resolution strategy.
Bankruptcy Considerations
Certain federal income tax liabilities those that are at least three years old, were assessed at least 240 days before filing, and meet other requirements may be dischargeable in bankruptcy. Bankruptcy is not a primary tax resolution tool, but for taxpayers with significant non-dischargeable consumer debt alongside an old tax liability, the interaction between bankruptcy and tax resolution can produce outcomes not available through IRS channels alone. We coordinate with bankruptcy counsel where appropriate.
The Offer in Compromise is not for everyone. The IRS accepts approximately 30–40% of OIC applications. Submission fees and professional fees for preparation are significant. For taxpayers who do not meet the financial profile for acceptance, filing an OIC delays other resolution options and may not be worth the cost. We assess OIC viability honestly before recommending it not every tax problem is an OIC problem, and telling clients that clearly is part of representing them well.
IRS Penalties: What They Are and How to Reduce Them
IRS penalties can add 20–47.5% or more to an underlying tax liability, transforming a manageable balance into a significant financial burden. Understanding the mechanics of each penalty and the grounds for abatement is critical to minimizing total exposure. Penalties are not automatic; they can be challenged, reduced, and in many cases eliminated entirely.
§6651(a)(1) Failure to File Penalty
Imposed when a return is filed after the due date (including extensions) without reasonable cause. One of the largest and most avoidable penalties in the Code.
5% per month, max 25%§6651(a)(2) Failure to Pay Penalty
Imposed when tax owed is not paid by the due date. Less severe than failure-to-file but accrues continuously until the balance is paid. Reduced to 0.25% per month when an installment agreement is in place.
0.5% per month, max 25%§6662 Accuracy-Related Penalty
Imposed when an underpayment is attributable to negligence, disregard of rules, substantial understatement of income tax, or a substantial valuation misstatement. Avoided by substantial authority and adequate disclosure.
20% of the underpayment§6663 Civil Fraud Penalty
Imposed when any part of an underpayment is attributable to fraud. The burden is on the IRS to prove fraud by clear and convincing evidence. This is the most serious civil penalty and can accompany criminal referral.
75% of the fraudulent underpayment§6672 Trust Fund Recovery Penalty
A personal liability assessment against responsible persons who willfully failed to collect or pay over employment taxes. Assessed against individuals officers, owners, bookkeepers not just the business entity. One of the IRS's most aggressive tools.
100% of unpaid trust fund taxes§6654 Underpayment of Estimated Tax
Imposed when insufficient estimated tax payments were made during the year. Computed as interest on the underpayment, not a flat percentage. Avoided by meeting safe harbor thresholds based on prior year tax or current year liability.
Based on federal short-term rate + 3%Abatement grounds we pursue
- First-time abatement (FTA): Available for failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers who had no penalties in the three prior years. Requested by phone or in writing and routinely granted. We pursue FTA on every applicable matter before filing a reasonable cause argument.
- Reasonable cause: Available when the taxpayer exercised ordinary business care and prudence but was unable to comply due to circumstances beyond their control serious illness, death in the family, natural disaster, reliance on a tax professional's advice, or records destroyed by fire or flood. The argument must be specific, factual, and documented.
- Statutory exceptions: Certain penalties are not imposed when the underpayment resulted from a change in the law after the return was filed, an IRS error, or other specifically enumerated circumstances.
- Administrative waiver: The IRS may waive penalties under its general authority when imposition would be inequitable or inconsistent with the IRS's own errors or delays in processing.
Attorney-Client Privilege in Tax Matters
The attorney-client privilege protects confidential communications between a client and their attorney made for the purpose of obtaining legal advice from disclosure to third parties, including the IRS. When a CPA provides tax advice, that advice does not carry the same protection: the IRS can compel a CPA to testify about advice they gave a client, to produce workpapers, and to disclose the content of conversations. An attorney providing the same advice can assert the privilege and refuse compelled disclosure.
This distinction matters most in two circumstances. First, when an examination has criminal referral potential either because the understatement is large, the conduct appears intentional, or the agent has been replaced by a Special Agent from IRS Criminal Investigation. Second, when the IRS is seeking information about legal advice the taxpayer received in connection with a transaction or position on the return where the basis for the position was counsel's advice.
There is also a limited statutory privilege for tax advice provided by CPAs and enrolled agents under 26 U.S.C. §7525 but this privilege does not apply in criminal proceedings, does not apply in matters involving tax shelters, and is narrower than the full common-law attorney-client privilege. For taxpayers in serious controversies, the full attorney-client privilege available from an attorney-representative is meaningfully more protective.
- Attorney-client privilege applies to all communications with Montgomery Legal made for purposes of legal advice
- Privilege protects from IRS summons for attorney workpapers and advice in civil matters
- Privilege covers communications about legal strategy, positions taken on returns, and advice about potential exposure
- In matters showing criminal referral potential, attorney representation from the outset is critical
- The privilege does not protect disclosures made to facilitate a crime or fraud the crime-fraud exception applies
