Types of IRS & State Tax Problems — and How Mike Habib, EA Can Help

They are very different, and the distinction matters. A federal tax lien is a legal claim. It attaches to your property — real estate, accounts, assets — and secures the government’s interest in what you owe. It does not take anything; it stakes a claim and, once filed publicly, can damage your ability to sell property or obtain financing. A levy is the taking. It is the IRS actually seizing funds: pulling money from a bank account, intercepting accounts receivable, or, in the case of a wage garnishment, requiring your employer to send a large portion of each paycheck directly to the IRS.

In short: the lien is the claim, the levy is the action. Both are serious, but a levy or garnishment is the one that changes your daily life immediately, because it hits the money you were counting on.

A tax problem is any situation where a tax authority believes you owe money, believes you reported something incorrectly, or believes you failed to file something you were required to file — and is now taking, or threatening to take, action because of it. That covers a wide territory. It includes the obvious cases, like owing a balance you cannot pay. It also includes situations many people do not realize are problems until they escalate: an unfiled return from three years ago, a business that fell behind on payroll deposits, a side income that never made it onto a return, or a notice you set aside because you did not understand it.

The agencies involved are not just the IRS. In California, the Franchise Tax Board (FTB) handles state income tax, the Employment Development Department (EDD) handles payroll and employment tax, and the California Department of Tax and Fee Administration (CDTFA) handles sales and use tax. Each has its own rules, its own collection powers, and its own personality. A taxpayer can be dealing with more than one at the same time — which is one of the reasons professional representation matters.

Because tax authorities have collection powers that ordinary creditors do not. A credit card company has to sue you and win a judgment before it can touch your bank account. The IRS and California’s tax agencies, by contrast, can issue a levy or a garnishment through an administrative process — no courtroom required. They can reach your wages, your bank accounts, your accounts receivable, and in serious cases file a lien that attaches to everything you own.

That imbalance of power is exactly why the fear is rational, and exactly why having a guide changes the experience. When you are represented, you are no longer one person trying to interpret notices and negotiate against a federal agency. You have someone whose entire profession is standing in that gap.

When you hire Mike Habib, EA, you sign a form (IRS Form 2848, Power of Attorney) that authorizes the firm to speak to the IRS on your behalf. From that point forward, the IRS is supposed to contact your representative — not you. The phone calls, the document requests, the negotiation: that becomes the firm’s job. Mike Habib is an Enrolled Agent, a tax practitioner licensed by the U.S. Department of the Treasury to represent taxpayers before the IRS in all 50 states. California’s POA forms (such as FTB Form 3520) extend that same representation to the state agencies. The practical effect is simple but powerful: the stressful part of the process stops landing in your lap.

This is the single most common tax problem, and the good news is that it is also one of the most solvable. The IRS does not actually expect every taxpayer to write a check for the full balance on demand. It has a structured set of resolution options, and the right one depends on your specific financial picture. The job of a representation firm is to figure out which option you genuinely qualify for and then build the case for it.

The main paths look like this:

The firm’s process is built to replace uncertainty with a clear sequence of steps. Fear thrives on not knowing what comes next; a defined plan starves it.

1. Investigation. The firm pulls your IRS account transcripts to see exactly what the IRS has on file — balances, years, penalties, collection status, and any deadlines already running. Many clients are surprised by what is actually there, in both directions.

2. Compliance check. The IRS will not negotiate a resolution while returns are missing. If there are unfiled years, those get prepared and filed first, because compliance is the entry ticket to every other option.

3. Financial analysis. The firm builds an accurate picture of your income, expenses, and assets using the IRS’s own standards. This analysis is what determines which resolution you qualify for.

4. Resolution strategy. With the facts in hand, the firm recommends the specific path that produces the best realistic outcome and explains why.

5. Negotiation and follow-through. The firm submits the proposal, communicates with the IRS, responds to requests, and sees the resolution through to a signed agreement.

Sometimes — but it is important to be honest about this, because the Offer in Compromise is the most over-promised remedy in the tax industry. The IRS settles when its own analysis shows that it is unlikely to collect the full amount within the legal time it has to collect. That is a math question, not a persuasion question. A good representative does not try to talk the IRS into a settlement; they document your finances accurately so the math points to the right answer. For some taxpayers that answer is a genuine settlement. For others, the better outcome is a low monthly payment or a hardship status. The firm’s role is to tell you the truth about which group you are in.

No. An audit is an examination, not an accusation. Returns are selected for many reasons — statistical scoring, mismatches between your return and third-party documents, certain deductions that draw closer review, or simply random selection. Plenty of audits end with no change at all, and some even end with a refund. The danger in an audit is rarely guilt; it is the unrepresented taxpayer who, trying to be helpful, volunteers information that was never requested or agrees to adjustments they did not actually owe.

When Mike Habib, EA represents you in an audit, the examiner deals with the firm, not with you. That single change removes the most common way audits go badly. The firm reviews the return before the examiner does, identifies which positions are well supported and which need shoring up, assembles documentation in an organized form, and frames the response to address exactly what was asked — no more, no less.

Just as importantly, the firm keeps the audit inside its lane. Examiners are allowed to follow threads, and an unrepresented taxpayer often hands them new threads to follow. A representative’s job includes politely keeping the examination focused on the items actually under review.

An audit result is not the end of the road. If the firm believes the examiner reached the wrong conclusion, the case can be taken to IRS Appeals, a separate function whose job is to weigh the hazards of litigation and reach a reasonable resolution. Many audit disagreements are resolved at Appeals without ever going to court. Knowing when a result is worth challenging — and when accepting it is the smarter move — is part of what experienced representation provides.

Yes. The FTB conducts income tax audits, and they often follow federal audit results — if the IRS adjusts your return, California frequently mirrors the change. The firm represents taxpayers in FTB examinations using the same disciplined approach: control the communication, organize the documentation, keep the scope contained, and challenge results that are not supported by the facts.

Because payroll taxes are not really the employer’s money. When a business withholds income tax and the employee’s share of Social Security and Medicare from a paycheck, it is holding those funds in trust for the government. The IRS calls them trust fund taxes for exactly that reason. Falling behind on them is treated not as a debt but as something closer to a breach of trust — and the IRS responds accordingly, with faster and more aggressive collection than almost any other category of tax.

Yes — and this is the part of payroll tax problems that catches business owners off guard. Under Internal Revenue Code Section 6672, the IRS can assess the unpaid trust fund portion of payroll tax against any individual who was both responsible for collecting or paying those taxes and willful in failing to do so. This is the Trust Fund Recovery Penalty, or TFRP. It pierces the corporate shield. It means an owner, officer, bookkeeper, or anyone with check-signing authority and decision-making power can become personally liable for a business’s payroll tax debt, even if the business is an LLC or corporation.

The two key words — responsible and willful — are legal terms, and the IRS interprets them broadly. The investigation usually runs through an interview built around IRS Form 4180, a questionnaire designed to establish who had authority and who made the decisions. How a person answers Form 4180 can determine whether the penalty attaches to them or not. This is not a form to walk into unprepared.

The firm approaches these cases on two fronts at once. On the business side, it works to get the company into a payroll tax resolution — an installment agreement or other arrangement — while bringing payroll deposits current, because the IRS will not resolve the back debt while new debt is still piling up. On the personal side, it works to limit or defend against the TFRP for the individuals involved.

That personal defense is detailed work. It means analyzing each person’s actual role against the responsible and willful standards, preparing them properly for the Form 4180 interview rather than letting them improvise, distinguishing genuine responsibility from titles that look responsible on paper, and building the factual record — grounded in the relevant case law — that supports the right outcome. A non-owner employee who simply followed instructions is in a very different position than a controlling officer, and that difference has to be established with evidence, not just asserted.

Not necessarily, but this is genuinely time-sensitive. A business that addresses a payroll tax problem early — while it is still operating and generating revenue — has real options. A business that waits until the IRS has already moved to enforced collection has far fewer. If there is one tax problem in this entire guide that rewards acting now rather than later, it is this one. The most useful thing an owner in this situation can do is get the case in front of a representative before the IRS makes the next move.

They are very different, and the distinction matters. A federal tax lien is a legal claim. It attaches to your property — real estate, accounts, assets — and secures the government’s interest in what you owe. It does not take anything; it stakes a claim and, once filed publicly, can damage your ability to sell property or obtain financing. A levy is the taking. It is the IRS actually seizing funds: pulling money from a bank account, intercepting accounts receivable, or, in the case of a wage garnishment, requiring your employer to send a large portion of each paycheck directly to the IRS.

In short: the lien is the claim, the levy is the action. Both are serious, but a levy or garnishment is the one that changes your daily life immediately, because it hits the money you were counting on.

A wage garnishment is one of the most disruptive collection tools, because it does not leave you a reasonable amount to live on the way a private creditor garnishment does — it can take a large share of your pay. But garnishments and levies can often be released, and that is frequently the first thing the firm works on when a client comes in mid-collection.

Getting a levy or garnishment released generally requires two things: getting you into compliance (filing any missing returns) and getting a resolution in place — an installment agreement, a hardship status, or another arrangement that the IRS accepts as the path forward. The IRS releases the levy because there is now a structured alternative. The firm’s role is to move quickly, make contact with the IRS, demonstrate that a resolution is underway, and push for the release so the immediate financial bleeding stops while the longer-term resolution is finalized.

When the IRS files a lien or issues a final notice of intent to levy, you have the right to request a Collection Due Process (CDP) hearing. This is an important and time-limited right. A CDP hearing gives you a forum, before an independent Appeals officer, to propose collection alternatives, dispute the appropriateness of the collection action, and — in some circumstances — raise issues about the underlying liability itself. It can also be used to argue for lien withdrawal or to prevent a levy.

The deadline to request a CDP hearing is short, and missing it means losing a valuable layer of protection. The firm prepares CDP requests and the supporting exhibit packages, presents the collection alternative, and represents the taxpayer through the hearing — turning what is otherwise an intimidating notice into a structured opportunity to resolve the matter on better terms.

You are in a solvable situation — but it does need to be solved, and the longer it sits, the more it costs. Unfiled returns are the problem that compounds quietly. Failure-to-file penalties are steep, often steeper than failure-to-pay penalties. And there is a particular trap many people do not know about: if you do not file, the IRS can eventually file for you.

A Substitute for Return (SFR) is a return the IRS prepares on your behalf when you do not file. It sounds almost helpful. It is not. The IRS prepares it in the way least favorable to you: it uses the income reported by third parties, applies the standard deduction, gives you a filing status that may not be the best one for you, and includes none of the deductions, credits, or business expenses you would have legitimately claimed. The result is almost always a balance much higher than what you actually owed — and then the IRS begins collecting on that inflated number.

The firm starts by pulling your IRS wage and income transcripts, which show what the IRS already knows about your income for each year — the W-2s, 1099s, and other documents on file. That becomes the backbone for reconstructing accurate returns, supplemented by whatever records you can provide. Where an SFR has already been filed, an accurate original return can often replace that inflated assessment with the real, lower number.

Then the two pieces connect: once the returns are filed and you are compliant, the firm moves directly into resolving whatever balance remains — because filing was never the goal, it was the entry ticket to the resolution. Handled properly, what felt like years of accumulated dread becomes a defined cleanup project with an endpoint.

Many practitioners would say that in certain respects, yes. California’s agencies can be aggressive and persistent, and they have collection powers that rival the IRS’s. They also each cover a different slice of the tax world, so a California business can find itself dealing with several at once. Understanding which agency does what is the first step to dealing with any of them.

An EDD audit very often centers on one question: did the business correctly classify its workers? When a business treats workers as independent contractors, it does not withhold or pay employment taxes on them. If the EDD decides those workers should have been classified as employees, it can assess back employment taxes, penalties, and interest — and the numbers can be substantial, because they reach back across the audit period and across every reclassified worker.

These audits also involve their own procedures, interviews, and documentation demands, and the conduct of the audit itself matters. The firm represents businesses through EDD examinations: managing the auditor relationship, organizing the records, presenting the classification position with supporting facts, and — where the audit is not being conducted properly — escalating appropriately within the EDD. As with IRS payroll cases, an EDD assessment can also create exposure for responsible individuals, so the personal dimension is part of the defense.

A CDTFA audit examines whether a business correctly collected and remitted sales and use tax. Auditors test recorded sales against bank deposits and other records, scrutinize claimed exempt or non-taxable sales, and may use sampling methods to project a result across the whole audit period — which means a small sampling error can become a large assessment. The firm represents businesses in CDTFA audits by reviewing the methodology itself, challenging projections that are not supported, documenting exempt sales properly, and negotiating the result. The audit method is often as contestable as the underlying numbers, and knowing that is half the battle.

Yes, and that is often the most efficient way to do it. Federal and state tax problems are frequently connected — a federal audit adjustment can trigger a state one, and a business in payroll trouble may owe both the IRS and the EDD. Mike Habib, EA represents taxpayers before the IRS, FTB, EDD, and CDTFA, which means one firm can see the whole board and coordinate the strategy rather than leaving you to translate between separate advisors.

When a married couple files a joint return, both spouses are generally jointly and severally liable for the full balance — meaning the IRS can pursue either one for all of it. But there are relief provisions, often grouped under the heading of innocent spouse relief, for situations where it would be unfair to hold one spouse responsible for an understatement or balance caused by the other. These cases are fact-intensive and turn on questions like who knew what, who benefited, and what is equitable under the circumstances. The firm evaluates whether a taxpayer qualifies and builds the request, because the difference between qualifying and not qualifying is usually in how the facts are presented.

Yes. Under federal law, the IRS can certify a taxpayer with a seriously delinquent tax debt — above an inflation-adjusted threshold — to the State Department, which can then deny a passport application or renewal, and in some cases revoke a passport. For anyone who travels for work or has family abroad, this turns a tax balance into an immediate personal crisis. The good news is that getting into a resolution — an installment agreement, an accepted offer, or certain other arrangements — generally reverses the certification. The firm handles these cases with the urgency they require, because the clock is often tied to a trip.

Absolutely — and ideally before the response deadline, not after. The IRS and state agencies send dozens of different notices, and they range from routine to genuinely urgent. The problem is that the envelope does not tell you which is which, and the language inside is rarely plain. Some notices start a clock on an important right, like the CDP hearing deadline. Others are simply informational. A short review by someone who reads these every day can tell you, quickly, whether a notice is a formality or a fork in the road. There is no downside to asking and a real downside to guessing.

U.S. citizens and green card holders are taxed on worldwide income regardless of where they live, which means Americans overseas can fall behind on filing or run into compliance issues with foreign income and accounts. These cases involve their own rules and reporting requirements, and the distance can make dealing with the IRS feel even more daunting. Because Enrolled Agent representation is not tied to any one state and works regardless of where the taxpayer lives, the firm is able to represent Americans abroad as well as those across all 50 states.

Because hourly billing puts you and your representative on opposite sides of the clock — and that is the wrong way to handle something as stressful as a tax problem. When a firm bills by the hour, every phone call you make is a cost. Every question you ask shows up on an invoice. You start rationing communication with the very person you hired to help you, which is exactly backwards. And you never really know what the total will be until it is over.

A flat fee removes all of that. Before the work begins, you know what the engagement costs. The number does not move because a case took an extra phone call or a few more letters. That structure does two things at once: it gives you cost certainty so you can make a clear-eyed decision, and it aligns the firm’s incentives with yours — the goal becomes resolving the matter well, not running the clock.

No — and this is worth being direct about. When you hire Mike Habib, EA, your case is handled by an experienced practitioner, not handed down to a rotating cast of junior staff. Large firms often quote far higher rates and then assign the day-to-day work to whoever is available that week, which means you pay senior prices for junior attention and you re-explain your situation every time the file changes hands. The flat-fee model here is not a discount on quality; it is a different business model — direct access to the person actually doing the work, at a fee set in advance, without the overhead structure that drives big-firm pricing.

It is based on the scope of the work — what kind of problem it is, how many tax years and agencies are involved, whether returns need to be prepared, and what resolution path the case calls for. A single-year audit and a multi-year payroll case with a TFRP defense are not the same amount of work, so they are not the same fee. What stays consistent is the principle: the scope is defined, the fee is quoted up front, and then it does not move because the work turned out to involve one more letter than expected. Where a matter has distinct phases, it can be structured in phases, each with its own defined fee, so you are never committing to more than the step in front of you.

Because the story is yours, not the firm’s. You are the one with a business to protect, a family to provide for, a future you are trying to keep on track. The tax problem is the conflict in your story. The firm’s role is the experienced guide — the one who has seen this particular problem many times, knows the terrain, and has a plan — but the firm does not take center stage. A resolved case is not a trophy on the firm’s shelf; it is your bank account unfrozen, your paycheck whole again, your passport cleared, your nights quieter. The measure of the work is the change in your situation, not the firm’s.

Mike Habib, EA brings two things that matter in tax controversy work: depth in representation and a real-world business background. The practice is focused specifically on tax problem resolution — IRS and state collection cases, audits, payroll and trust fund matters, appeals — rather than being one item on a long menu of unrelated services. That focus means the firm sees these cases constantly and knows how they tend to move.

Alongside that, Mike Habib’s professional background includes senior corporate finance roles — experience as a Controller at Xerox Corporation and Director of Finance at AEG. That history matters because business tax problems are, at bottom, business problems. Understanding how a company’s books, cash flow, and payroll actually function — from the inside — is part of what allows the firm to build resolutions that are realistic rather than theoretical.

– Individuals and families facing back taxes, audits, liens, levies, or wage garnishments.
– Business owners dealing with payroll tax debt, Trust Fund Recovery Penalty exposure, or business income tax problems.
– Self-employed people and independent professionals with unfiled returns or balances they cannot pay.
– Businesses under audit by the IRS, FTB, EDD, or CDTFA — including worker classification and sales tax examinations.
– Taxpayers across all 50 states, and U.S. citizens living abroad, given that the firm’s representation is not limited by geography.

It begins with a conversation about your situation — what notices you have received, what you owe or might owe, what you are most worried about. From there, the firm can explain what category your problem falls into, what the realistic options are, and what an engagement would involve and cost. You are not committing to a process you do not understand. You are getting enough clarity to make a decision — which, for many people, is itself the first real relief they have felt since the problem started.

It depends on the problem, but it tends to look less like a dramatic victory and more like a return to normal. The bank levy is released and your account is yours again. The garnishment stops and your paycheck is whole. The audit closes — with no change, or with a result you can live with. The years of unfiled returns are filed, and the inflated SFR balance is replaced with the real number. The payroll case is on a structured agreement and the business keeps operating. The passport certification is reversed in time for the trip. The settled or scheduled balance has a defined endpoint instead of an open-ended dread.

In every version, the through-line is the same: the part of your life that the tax authorities had taken over is handed back to you. That is the actual product. Everything else — the transcripts, the forms, the negotiations, the case law — is just how the firm gets you there.