Houston, TX IRS Tax Problem Survival Guide

Houston’s economy is deeply tied to the energy industry, and one of the defining characteristics of energy sector income is volatility. Engineers, geologists, landmen, executives, and independent contractors in oil and gas can experience dramatic swings in compensation from one year to the next. A banner year with generous bonuses and stock compensation can be followed by layoffs, reduced hours, or a complete industry downturn. This income volatility creates several tax traps.

When income spikes, taxpayers often do not adjust their estimated tax payments or withholding accordingly, leading to large underpayment penalties at filing time. Conversely, when income drops sharply, taxpayers who owe from a prior high-income year may suddenly find themselves unable to pay a tax liability that was calculated based on earnings they no longer have. Stock-based compensation, restricted stock units, and performance bonuses add another layer of complexity, because the timing of income recognition for tax purposes does not always align with when cash is actually received.

Mike Habib, EA understands the financial rhythms of energy sector professionals because he has worked with Houston-area taxpayers navigating these exact cycles for over two decades. His background as a former Controller at Xerox Corporation and Director of Finance at AEG means he speaks the language of corporate compensation structures, deferred income, and complex W-2 reporting. When an energy sector professional ends up owing the IRS more than they can pay, Mike evaluates the full picture—current income, assets, future earning potential—and identifies the resolution strategy that makes the most sense, whether that is a manageable installment agreement, an Offer in Compromise, or hardship status.

Houston is one of the best cities in America for small business formation. Low cost of living, no state income tax, a massive consumer base, and a business-friendly regulatory environment have made the Houston metro area a magnet for entrepreneurs. But that same entrepreneurial energy sometimes outpaces the administrative discipline required to stay current on federal tax obligations. Quarterly estimated tax payments get missed. Payroll deposits fall behind. Annual returns get filed late or not at all. Before you know it, the IRS is sending notices, assessing penalties, and the balance grows faster than you thought possible.

The first step when you owe back taxes is to stop the bleeding. That means understanding exactly what you owe, for which tax years, and what penalties and interest have been assessed. The second step is to get into compliance—you cannot negotiate a resolution with the IRS if you have unfiled returns. The third step is to pursue the resolution option that best fits your financial reality.

Mike Habib, EA handles this entire process for Houston business owners, from start to finish. He does not delegate your case to a junior associate or hand you off to a seasonal employee. When you hire Mike, you work directly with Mike. He reviews your complete tax history, identifies every outstanding obligation, prepares or amends any delinquent returns, and then negotiates with the IRS to secure the best possible resolution—whether that is a reduced payment plan, penalty abatement, or a formal settlement. And because most engagements are handled on a transparent flat fee basis, you know the cost before a single piece of paper is filed.

Houston taxpayers receive IRS audit notices for all sorts of reasons. High-income returns, complex business deductions, home office claims, large charitable contributions, and discrepancies between reported income and third-party information returns (like 1099s and K-1s) are all common audit triggers. The Houston IRS office handles a significant volume of audit activity given the size and complexity of the local economy.
You have important rights during an audit. You have the right to professional representation, the right to know why the IRS is asking for information, the right to appeal any findings you disagree with, and the right to pay only the correct amount of tax. These rights are codified in the Taxpayer Bill of Rights, and exercising them effectively is one of the most important things you can do to protect yourself.

Should you handle an audit yourself? In most cases, the answer is no. Even a straightforward correspondence audit can escalate if you provide the wrong documentation or volunteer information that expands the scope of the examination. An office or field audit is a formal investigative process conducted by trained revenue agents, and without experienced representation, taxpayers frequently make costly mistakes.

Mike Habib, EA holds unlimited practice rights before the IRS, which means he can represent you in any audit—correspondence, office, or field—at any IRS location in the country. He attends meetings on your behalf, responds to document requests strategically, and ensures that the audit stays within its proper scope. His corporate finance experience gives him a significant edge when audits involve business financials, because he understands the underlying accounting at a level that allows him to challenge IRS positions with credibility and precision.

This is a situation that arises with painful frequency in Houston, where high-income households, dual-career couples, and complex financial arrangements are common. When you file a joint tax return, both spouses are jointly and severally liable for the entire tax liability—meaning the IRS can pursue either spouse for the full amount, regardless of who earned the income or who made the error on the return.

The IRS offers three forms of relief for spouses caught in this situation: Innocent Spouse Relief under Section 6015(b), Separation of Liability under Section 6015(c), and Equitable Relief under Section 6015(f). Each has different qualification criteria, and the right choice depends on your specific circumstances—when you learned about the tax problem, whether you benefited from the underreported income, and whether you are now divorced or separated from the spouse in question.

Mike Habib, EA has guided numerous clients through the innocent spouse relief process. He understands the documentation the IRS needs to see, the factors that strengthen or weaken a claim, and the appeal options available if an initial request is denied. For Houston residents navigating the intersection of divorce proceedings and tax disputes, Mike provides steady, experienced counsel focused on protecting your financial interests.

Oil and gas taxation is one of the most complex areas of the federal tax code, and Houston is ground zero for these issues. If you own mineral rights, receive royalty payments, participate in drilling programs, or hold working interests in oil and gas properties, your tax return involves specialized calculations that most general tax preparers are not equipped to handle correctly. Depletion allowances, intangible drilling costs, lease bonus income, delay rental payments, and the Section 199A qualified business income deduction for mineral interests all have specific rules that the IRS scrutinizes closely.

When the IRS questions oil and gas deductions, the stakes can be substantial. Disallowed depletion deductions alone can generate five- and six-figure adjustments. Working interest holders who improperly classified expenses or failed to capitalize costs that should have been amortized face similar exposure. And because oil and gas partnerships generate K-1s with complex allocations, errors can cascade across multiple tax years.

Mike Habib, EA has the financial and analytical expertise to defend oil and gas tax positions effectively. His corporate finance background enables him to work through the underlying economics of drilling programs and royalty arrangements in a way that general practitioners simply cannot. When the IRS challenges a deduction, Mike responds with substantive, well-documented analysis that demonstrates why the taxpayer’s position is correct—or, where adjustments are warranted, negotiates the best possible outcome.

Houston’s Texas Medical Center is the largest medical complex in the world, employing tens of thousands of physicians, surgeons, nurses, researchers, and other healthcare professionals. Many of these professionals carry substantial student loan debt, and the intersection of high income, large debt service obligations, and complex tax situations creates unique challenges.

Physicians transitioning from residency to full practice often experience dramatic income increases that trigger estimated tax obligations they are not prepared for. Those participating in Public Service Loan Forgiveness programs need to understand that while PSLF forgiveness is not taxable, other forms of student loan forgiveness may be—and planning for that potential tax event is essential. Additionally, medical professionals who own their own practices face all the complexities of business taxation on top of their personal obligations.

Mike Habib, EA works with medical professionals who find themselves behind on estimated payments, facing unexpected tax bills from income spikes, or dealing with the tax consequences of complex compensation packages that include signing bonuses, relocation stipends, and productivity-based incentives. His approach is to look at the complete financial picture and build a tax strategy—or resolve an existing problem—in a way that accounts for both the high income and the high obligations that define the financial lives of many Houston medical professionals.

Houston’s real estate market has been one of the most active in the country, and rental property ownership is enormously popular among local investors. But rental property taxation is more complicated than many landlords realize, and the IRS pays close attention to rental income and deductions reported on Schedule E.

Common issues include failure to report all rental income, improper classification of capital improvements as current expenses, miscalculated depreciation, and claiming losses that exceed the passive activity loss limitations. For Houston landlords who materially participate in their rental activities or who qualify as real estate professionals, there are additional rules and elections that can either expand or limit deductible losses—and getting these classifications wrong can trigger audits and substantial adjustments.

If you are already in an IRS dispute over rental property income or deductions, Mike Habib, EA can step in and represent you through the audit or appeals process. If you are not yet in trouble but want to make sure your rental property reporting is defensible, Mike can review your situation and identify potential vulnerabilities before the IRS does. His flat fee structure means this kind of proactive review is affordable and predictable.

Houston is one of the most internationally connected cities in the United States. The Port of Houston is the largest port in the country by foreign tonnage, and the city’s business community includes thousands of importers, exporters, freight forwarders, and international traders. Many Houston residents maintain bank accounts, business interests, and financial assets in other countries—and all of these create federal reporting obligations that carry severe penalties for non-compliance.

U.S. taxpayers are required to report foreign bank accounts exceeding $10,000 in aggregate value through the Report of Foreign Bank and Financial Accounts (FBAR). Those with foreign financial assets exceeding higher thresholds must also file Form 8938 under FATCA. Failure to file these forms can result in penalties of $10,000 or more per violation—and in willful cases, the penalties can reach $100,000 or 50 percent of the account balance, whichever is greater. Separately, U.S. persons with ownership interests in foreign corporations, partnerships, or trusts face additional reporting requirements on Forms 5471, 8865, and 3520.

Mike Habib, EA serves Houston’s international business community with deep knowledge of cross-border tax obligations and disclosure requirements. He helps clients come into compliance through voluntary disclosure procedures, prepares delinquent international information returns, and defends clients facing penalties for late or missing foreign account reporting. For Houston residents whose business activities span borders, Mike’s nationwide and international practice offers the specialized expertise these situations demand.

IRS penalties can add up shockingly fast. The failure-to-file penalty alone is 5 percent of the unpaid tax per month, up to a maximum of 25 percent. The failure-to-pay penalty adds another 0.5 percent per month. Accuracy-related penalties for substantial understatement of income tax are 20 percent of the underpayment. And on top of all of that, interest compounds daily on both the unpaid tax and the unpaid penalties. For Houston taxpayers dealing with significant balances, penalties and interest can sometimes exceed the original tax liability.

The good news is that the IRS does have formal mechanisms for penalty relief. First-time penalty abatement is available to taxpayers who have a clean compliance history for the three prior years—no penalties assessed, all returns filed on time, and all taxes paid or properly arranged. Reasonable cause relief is available to taxpayers who can demonstrate that their failure to comply was due to circumstances beyond their control, such as serious illness, natural disaster, destruction of records, or reliance on erroneous professional advice.

Mike Habib, EA aggressively pursues penalty abatement for every client where the facts support it. He prepares detailed penalty abatement requests that address the specific criteria the IRS evaluates, and he follows up through the appeals process when initial requests are denied. In his experience, many Houston taxpayers leave significant penalty relief money on the table simply because they do not know these options exist or do not know how to present their case effectively. His flat fee approach ensures that pursuing penalty relief does not add unpredictable costs to your representation.

It is almost never too late, and taking action now is always better than waiting. The IRS has a specific process for bringing non-filers back into compliance, and in the vast majority of cases, the outcome is far less catastrophic than people fear. The IRS generally requires the last six years of unfiled returns to be filed in order to be considered in compliance, though the exact number can vary depending on your specific circumstances.

What happens if you continue to do nothing? The IRS may file substitute returns on your behalf under Section 6020(b). These substitute returns will not include any deductions, credits, or favorable filing status elections you are entitled to, which means the resulting tax assessment will almost always be higher—sometimes dramatically higher—than what you would actually owe if proper returns were prepared. Beyond the inflated tax bill, continued non-filing can result in criminal referral in extreme cases, loss of refunds for years beyond the three-year refund statute, and the inability to obtain mortgage financing or other credit.

Mike Habib, EA specializes in guiding non-filers through the return-to-compliance process with a calm, organized, judgment-free approach. He reconstructs income records using IRS wage and income transcripts, identifies all available deductions and credits, prepares accurate returns for all delinquent years, and negotiates with the IRS to minimize penalties. For Houston taxpayers who have been losing sleep over unfiled returns, Mike’s direct personal involvement and transparent flat fee pricing provide both the expertise and the peace of mind needed to finally resolve the situation.

Houston taxpayers know the devastating impact of hurricanes and tropical storms firsthand. When a major weather event destroys homes and businesses, financial records are often among the casualties. The IRS recognizes this reality and provides specific relief provisions for taxpayers in federally declared disaster areas, including extended filing deadlines, waiver of certain penalties, and the ability to claim casualty losses.

However, navigating disaster-related tax provisions requires careful documentation and timely action. Casualty loss deductions have specific rules about timing, insurance reimbursement offsets, and the election to claim losses on the prior year’s return for faster refund access. If the IRS is auditing a year for which your records were destroyed, you have the right to reconstruct those records using bank statements, third-party documentation, and IRS transcripts—but the burden of proof still rests with you.

Mike Habib, EA has helped Houston-area taxpayers navigate the aftermath of major storms by reconstructing records, claiming appropriate disaster relief provisions, and defending audit positions when documentation was lost to circumstances beyond the taxpayer’s control. His experience with IRS procedures in these situations allows him to move quickly and effectively when time-sensitive relief is on the line.