PART VII – Frequently Asked Questions

The questions taxpayers ask most often, answered directly. Each chapter contains a fuller FAQ specific to its topic.

Owing the IRS

Can the IRS take my house?

It is legally possible but uncommon. Seizure of a principal residence requires federal court approval, and the IRS pursues it rarely and late. Wage and bank levies are far more common and far faster.

How long can the IRS collect from me?

Generally ten years from the date each liability was assessed, under IRC § 6502. Certain events — a pending offer, a CDP request, bankruptcy, or extended time abroad — suspend that period.

Will the IRS forgive my tax debt?

The IRS settles liabilities through an Offer in Compromise when the amount offered meets or exceeds what it could collect. It does not forgive debt as a matter of policy or hardship alone.

Does interest stop if I set up a payment plan?

No. Interest continues to accrue at the statutory rate until the balance is paid. The failure-to-pay penalty rate drops from 0.5% to 0.25% per month while the agreement is active.

Can I settle for pennies on the dollar?

That phrase is advertising language, not a program. What the IRS will accept is determined by a calculation of assets and income. For some taxpayers the result is a small fraction of the balance; for many others it is the full amount.

Notices and Enforcement

What is the difference between a lien and a levy?

A lien is a legal claim against property that secures the debt and appears in public records. A levy is the actual seizure of property or funds. A lien affects credit and the ability to sell; a levy takes money.

The IRS levied my bank account. How much time do I have?

A bank must hold levied funds for 21 days before remitting them. That period exists so errors can be corrected and hardship releases requested — it is the window in which action matters most.

How much of my paycheck can the IRS take?

A wage levy is continuous and takes everything above an exempt amount determined by filing status and dependents under IRS Publication 1494. Unlike most creditors, the IRS is not limited to a percentage.

Can the IRS take my passport?

The IRS does not act on passports directly. It certifies seriously delinquent tax debt to the State Department, which may then deny, revoke, or limit a passport. For 2026 the threshold is more than $66,000 including penalties and interest, and a lien or levy must already have occurred.

What does it mean when a Revenue Officer is assigned to my case?

The case has left automated collection and been assigned to an individual with authority to levy, summons records, and conduct field visits. Response times shorten considerably.

Unfiled Returns and Audits

I have not filed in several years. Where do I start?

With transcripts. Wage and income transcripts show what was reported to the IRS, which establishes what must be filed and often reveals that an IRS-prepared substitute return overstates the liability.

How many years back do I have to file?

IRS policy generally requires the last six years for a taxpayer to be considered in compliance, though facts can change that. Filing more years is sometimes advantageous when refunds or carryforwards are involved.

Can I still get a refund on an old return?

Generally only within three years of the original due date. Refunds for older years are permanently lost even though the liability for other years remains collectible.

Does an audit mean the IRS thinks I committed fraud?

No. Most examinations result from computer scoring, information return mismatches, or compliance initiatives. Selection is not an accusation.

Should I just send the auditor everything I have?

No. Provide complete, organized documentation responsive to the issues under examination. Unrelated records invite the audit to expand.

Relief and Representation

What is first-time penalty abatement, and does it still exist?

It is being replaced. Beginning in summer 2026 the IRS applies an Automatic Exemption from Penalty during return processing for taxpayers with three clean years, without a request. First Time Abate remains available during the transition and is fully replaced for returns due on or after January 1, 2027. Reasonable cause relief is unaffected.

My spouse created this debt. Am I liable?

A joint return generally creates joint and several liability. Innocent spouse relief under IRC § 6015 may separate that liability, and an injured spouse claim on Form 8379 is a different remedy that recovers your share of an offset refund.

What is Currently Not Collectible status?

A determination that collection would create hardship. Collection activity is suspended while it lasts, but interest and penalties continue and the account is periodically reviewed for improvement in income.

Do I need representation, or can I handle this myself?

A single-year balance below the streamlined threshold can usually be resolved online. Cases involving a Revenue Officer, payroll taxes, an audit, multiple unfiled years, or a proposed Trust Fund Recovery Penalty involve procedural rights that are forfeited by default rather than by decision.

What can an Enrolled Agent do that I cannot do myself?

An Enrolled Agent holds unlimited rights to practice before the IRS: to receive notices, speak on your behalf, negotiate agreements, and represent you in examinations and appeals in all 50 states.