Morgan Sebastian Law, PCDo You Have IRS And State Tax Debt? Let Morgan Sebastian Law Help You.2026-06-26T17:01:59Zhttps://www.morgansebastianlaw.com/feed/atom/WordPress/wp-content/uploads/sites/1402396/2021/11/cropped-fav-icon-32x32.pngOn Behalf of Morgan Sebastian Law, PC<![CDATA[Options for disagreeing with an IRS Audit finding]]>https://www.morgansebastianlaw.com/?p=480252026-06-26T17:01:59Z2026-06-26T17:01:59ZUnderstanding the audit results notice
The IRS communicates its findings through official notices, such as a "30-day letter." This document outlines proposed changes to your tax return and explains your rights. It serves as a proposal, not a final bill, indicating the auditor has completed their review. The agency provides this notice to give you a chance to respond before taking further action. Ignoring it can lead to more serious collection efforts.
Primary options to dispute audit findings
When you disagree with the audit's conclusion as stated in a 30-day letter, you have several options. If you do not respond, the IRS will typically issue a Statutory Notice of Deficiency or "90-day letter," which allows you to petition the U.S. Tax Court.
Alternatively, you can proactively challenge the findings through other administrative channels. Your options often include:
IRS appeals: This formal process involves requesting a conference with the IRS Office of Appeals. An independent appeals officer, who was not involved in the original audit, will review your case. It provides an opportunity to present your arguments and negotiate a settlement without going to court.
Audit reconsideration: You can request this path if you have new information to present that the auditor did not consider. You can also use it if you did not appear for the original audit or did not provide the requested information.
Both of these options have strict deadlines and documentation requirements.
Developing your post-audit strategy
Challenging an IRS decision requires a careful approach. Missing a deadline or submitting incomplete information can weaken your position and limit your future options. The rules for presenting evidence and arguing your case are specific.
An experienced legal professional can help you understand the audit report, gather the necessary documents, and build a strong case for an appeal. Properly addressing an unfavorable audit can prevent the issue from escalating into liens or levies.]]>On Behalf of Morgan Sebastian Law, PC<![CDATA[How could you benefit from the IRS’s separation of liability?]]>https://www.morgansebastianlaw.com/?p=480222026-06-23T14:20:01Z2026-06-23T14:20:01ZIf the IRS is seeking payment for a tax understatement connected to a joint return filed during your marriage, the separation of liability relief can come in handy. It is applicable for the taxpayers of California or any other state under specific conditions and circumstances. Here are some key points to understand.
What is the separation of liability relief?
When the IRS identifies a tax understatement on a joint return filed during your marriage, it generally holds both parties liable. However, the separation of liability relief allows a qualifying spouse to break that joint obligation. Once approved, the IRS recalculates the liability so that you are only responsible for the taxes generated by your own financial items, while your ex-spouse remains responsible for their own share.
When can you claim it?
IRS expects you to meet certain prerequisites to be eligible for separation of liability relief. The IRS may consider you qualified if:
You filed joint tax returns with your spouse while you were married.
Your spouse’s error led to an understatement of tax on the joint returns.
You were unaware or had no reason to suspect a tax discrepancy when you signed the return.
Your marriage is dissolved or you don’t live with your spouse.
The statement “you don’t live with your spouse” will be valid only if you and your spouse have lived separately for a minimum of 12 consecutive months before filing.
When might you be ineligible?
The IRS relief is a breather for qualifying individuals. Nevertheless, the IRS will not exempt you from your spouse’s tax due if any of the following apply:
You have signed either an offer in compromise or a closing agreement with the IRS.
You previously requested relief and a court denied the request.
You failed to request the relief during the related court proceeding.
Additionally, if the IRS can prove you had actual knowledge of a specific hidden income source or false deduction when you signed the return, relief will be denied for that specific item, though you may still receive relief for other items you didn't know about.
Take control of your tax responsibility
Tax problems can linger long after a marriage ends, but separation of liability relief provides a pathway toward a fair resolution. You can start by filing the Form 8857 to claim innocent spouse relief from the IRS. It can help you move forward without carrying the full weight of a joint tax debt.]]>On Behalf of Morgan Sebastian Law, PC<![CDATA[What if you have unfiled California tax returns?]]>https://www.morgansebastianlaw.com/?p=480192026-06-05T08:45:40Z2026-06-05T08:45:40ZWhy unfiled returns can get expensive
The agency uses specialized programs to identify people who earned income but did not meet state filing requirements. If you owe back taxes, penalties and interest can add up quickly.
A late-filing charge is 5% of the unpaid balance for each month the return remains overdue, up to a maximum of 25%. If the return is more than 60 days late, the state imposes a minimum penalty of $135 or 100% of the tax due, whichever is less.
Interest also accrues on unpaid balances. If you fail to respond to a formal Demand for Tax Return, the FTB may assess a 25% demand penalty. However, for individual taxpayers, this penalty is typically only applied if you also failed to respond to a similar demand in any of the four prior tax years.
Waiting can also affect refunds. The state generally gives you until the later of the following dates to claim a refund: four years from the original due date or one year from the date you overpaid.
How to start fixing the problem
Start by gathering documents that show your income, payments and possible deductions, including:
W-2s, 1099s and business income records
Prior tax returns
Payment records
Documents supporting deductions or credits
If the FTB issued a Notice of Proposed Assessment, review the tax year, amount and response deadline. You can then file the missing returns and address any balance.
If you cannot pay everything at once, the FTB offers installment agreement options for eligible taxpayers.
Take action before collection escalates
Unfiled returns rarely become easier to fix with time. Getting back into compliance can help limit additional penalties and interest, replace FTB estimates with accurate information and give you a clearer path toward resolving the debt.]]>On Behalf of Morgan Sebastian Law, PC<![CDATA[How to protect your home office from a tax audit]]>https://www.morgansebastianlaw.com/?p=480162026-05-26T09:12:32Z2026-05-26T09:12:32ZWhy compartmentalization is important
In California, the FTB requires a separate identifiable space for home office expenses. You can use that condition to designate a space in your home for exclusive and regular use.
When going by that requirement, the desk in the corner of your bedroom can count as a home office. However, your kitchen table where you also eat dinner does not. Making that distinction is crucial to remain compliant.
What documents to prepare
Compiling current and relevant evidence can help prove the legitimacy of your home office. You can provide visual proof by preparing before and after photos of your workspace to demonstrate exclusive use.
Building a digital folder for your utility bills, lease agreements and receipts can show your business operations. You can also maintain a basic calendar showing that you regularly worked from that space. Creating this paper trail can help safeguard you from a tax audit.
Hustling with confidence
Facing a tax audit does not have to end with you losing your home office. Seeking legal guidance can help you maintain precise documentation while crafting your response to auditors. The right support and preparation allows you to focus on running your business.]]>On Behalf of Morgan Sebastian Law, PC<![CDATA[Blindsided by joint tax debt? 3 ways to seek relief]]>https://www.morgansebastianlaw.com/?p=480122026-05-21T07:25:49Z2026-05-21T07:25:49ZReceiving a letter from the Internal Revenue Service (IRS) or from the California Franchise Tax Board (FTB) can threaten your financial stability. The possibility that the IRS could garnish your wages, freeze your bank accounts or place a lien on your home can create a highly stressful experience. This is particularly true when you discover that this massive tax debt originates from your spouse’s actions.
The IRS and the FTB understand that these situations happen and offer programs to help individuals who face an unfair burden from a joint tax debt.
Innocent spouse relief
This is the most well-known option. You may qualify if your spouse or former spouse created the tax error without your knowledge. To be eligible for this program in California, you have to prove that:
The error on your joint return was due to your spouse's incorrect reporting (for example, unreported income).
When you signed the return, you did not know and had no reason to know about the error.
Remember, you must file your request for relief within two years after the date the federal and state tax agencies start collection activities against you.
Separation of liability relief
If you are divorced, legally separated or have lived apart from your spouse for at least 12 months, you can opt for this relief. This program divides the tax debt, including penalties and interest, from your joint return between you and your spouse. At the end of the process, you may only be responsible for the portion allotted to you by the IRS or by the FTB, depending on whether the liability is federal or California state tax.
Equitable relief
In case you do not qualify for the other two types of relief, you might still be eligible for equitable relief. Tax agencies will evaluate all the facts and circumstances to determine whether holding you responsible for the tax debt is fair. This often applies in situations involving financial abuse or control by the other spouse, or if paying the debt would cause you to suffer significant economic hardship.
Getting the right help
Requesting relief from the IRS does not automatically grant you relief from the FTB, and vice versa. The application process requires meticulous evidence and a carefully constructed argument to. Seeking the support of a professional to guide you through filing for tax relief is crucial, as tax authorities are likely to deny poorly presented applications. ]]>On Behalf of Morgan Sebastian Law, PC<![CDATA[What happens to IRS debt after someone dies?]]>https://www.morgansebastianlaw.com/?p=480102026-04-30T15:23:21Z2026-04-30T15:23:21ZSorting through a loved one’s finances can feel overwhelming, especially when an IRS notice arrives after the death. A family member may wonder if the debt disappears, whether they personally owe it or what happens if no one knows which returns were filed.IRS debt does not automatically vanish when someone dies. In many cases, the issue becomes part of the estate administration process. The key is to slow down, confirm what the notice says and avoid making assumptions about who is responsible.
The estate may still need to address the debt
When a taxpayer dies, the estate may need to deal with unpaid tax balances, missing returns or IRS notices. The IRS says survivors or representatives may need to file the deceased person’s final tax return, pay any balance due and claim any refund.That does not mean every relative becomes personally responsible for the debt. Generally, the IRS looks first to the estate’s assets. Problems may arise, though, if an estate distributes money or property before handling known tax issues.A person managing a loved one’s finances should review IRS letters, prior tax returns, account transcripts and probate documents before deciding what to pay. For many families, an unresolved tax controversy can involve both the IRS and the person handling the estate.
Notices should not be ignored
An IRS notice after death may involve several different issues. It could relate to an unpaid balance, a missing return, a proposed adjustment, a refund claim or identity theft. The wording matters.Useful first steps include:
Confirm the tax year: Check whether the notice concerns a year before or after death.
Identify the issue: Look for a balance due, missing return or response deadline.
Gather authority documents: Probate papers may show who can act for the estate.
Find prior records: Collect filed returns, IRS letters and payment records.
Avoid quick payments: Make sure the estate actually owes the amount first.
These steps can help separate a valid tax issue from an IRS mistake or missing information.
Heirs should be careful with distributions
Family members often want to close an estate quickly. That can create risk if tax debts remain unresolved. Estate funds may need to cover taxes before beneficiaries receive their shares.If the IRS balance looks wrong, the estate may have options. Depending on the facts, those may include providing missing records, challenging the assessment or requesting a transcript to see how the IRS calculated the debt.
Start with the paperwork
The most practical first step is to gather every IRS notice, filed return, probate document and financial record tied to the deceased person. Once those records are in one place, it becomes easier to determine whether the estate owes the balance, whether the IRS made an error or whether someone needs authority to respond on the estate’s behalf.]]>On Behalf of Morgan Sebastian Law, PC<![CDATA[Can tax debt affect your passport or travel plans?]]>https://www.morgansebastianlaw.com/?p=480072026-04-24T12:35:18Z2026-04-24T12:35:18ZFederal tax debt and your passport
The IRS can certify your account as having “seriously delinquent tax debt” and notify the U.S. Department of State. Once that happens, the State Department may deny a new passport application, refuse renewal or limit your current passport.
Before certification, the IRS typically sends a written notice to your last known address (often Notice CP508C). This confirms that your debt has been certified and explains your options.
To qualify as seriously delinquent, your tax debt must generally exceed $66,000 (for 2026, adjusted annually for inflation) and meet specific conditions. This often includes situations where the IRS has filed a lien and your right to challenge it has passed, or where collection action, like a levy, has already begun.
After certification, passport action is not always immediate, but delays can affect upcoming travel. In some cases, the State Department may issue a limited passport for return travel only, rather than fully revoking an existing passport.
California state tax debt does not directly block passports
Revenue authorities, including the California Franchise Tax Board (FTB) and the California Department of Tax and Fee Administration (CDTFA), can pursue collection through liens, levies and wage garnishments. However, they do not have the authority to request passport denial or revocation based solely on state tax debt. Passport restrictions remain a federal process tied to IRS certification.
Addressing your tax debt
The IRS may reverse certification if you take one of the following steps:
Request a collection due process hearing if eligible
Once you resolve the issue, the IRS notifies the State Department so it can update your passport status.
Addressing the issue early gives you more control over the outcome and helps prevent disruptions when you need your passport most.]]>On Behalf of Morgan Sebastian Law, PC<![CDATA[What happens if you miss an IRS installment payment in CA?]]>https://www.morgansebastianlaw.com/?p=480052026-04-08T13:49:57Z2026-04-08T13:49:57ZUnderstanding your 30-day safety net
The IRS cannot immediately cancel your agreement the moment you miss a payment. Under federal law, the IRS must provide a written notice of intent to terminate. This affords you a 30-day window to reinstate your compliance or request a formal review. During these 30 days, the IRS is generally prohibited from seizing your wages or bank accounts. This is your opportunity to breathe and strategize your next move.
Managing the financials
While the IRS does apply penalties for defaults, knowing the numbers helps you maintain control. If your agreement remains active, the failure to pay penalty is reduced 0.25% per month. If it defaults, it may increase to 0.5%. Reinstating a plan is often more straightforward than people think, with fees as low as $10 for online requests. The focus is on helping you minimize these costs while the current 6% interest rate applies.
Good news for California taxpayers
If you are also navigating the California Franchise Tax Board (FTB), there is a significant silver lining. California law offers a once-in-a-lifetime penalty abatement for individuals with a clean four-year compliance history. This means one mistake doesn’t have to determine your financial future.
You have the right to be heard
You have a legal right to request an administrative appeal if the IRS proposes to terminate your plan. This request suspends most collection actions while a neutral officer reviews your financial situation. If your income has changed, you may qualify to modify the agreement rather than defaulting. Regardless of how complicated the notice appears, there is always a path forward.]]>On Behalf of Morgan Sebastian Law, PC<![CDATA[Can a tax audit turn into a criminal investigation?]]>https://www.morgansebastianlaw.com/?p=480032026-03-16T09:07:49Z2026-03-19T07:00:57ZA tax audit can sometimes lead to a criminal investigation
Most tax audits remain civil matters. In most cases, an auditor reviews your records to confirm that you reported your income correctly and paid the proper amount of tax. If the auditor finds mistakes, the outcome often involves additional taxes, interest or civil penalties.
In some situations, an audit can raise concerns about intentional misconduct. When officials believe someone may have tried to avoid paying taxes, the review can move toward a criminal investigation.
Officials may notice certain warning signs during an audit, such as:
Large amounts of unreported income: Major gaps between reported income and bank deposits may suggest hidden earnings.
Altered or misleading documents: Records that appear changed or inconsistent may lead to deeper scrutiny.
Missing financial records: Incomplete receipts or transaction details can make it harder to verify tax filings.
In California, other agencies such as the California Department of Tax and Fee Administration (CDTFA) can take part in audits. The CDFTA may share its findings with the Internal Revenue Service (IRS).
Once the IRS receives this information, the Criminal Investigation Division may review it for signs of tax fraud or other financial crimes. If they find evidence of a possible violation, they may open a criminal investigation.
Understanding why careful reporting is essential
For many taxpayers, an audit ends after a review of records and possible corrections. However, the possibility of escalation explains why accurate reporting and organized financial records are important.
Understanding the process can help you respond carefully if you face questions during an audit. You can also review information about tax audit representation to better understand your options and responsibilities when responding to tax authorities.]]>On Behalf of Morgan Sebastian Law, PC<![CDATA[Can cryptocurrency holdings cause an IRS audit?]]>https://www.morgansebastianlaw.com/?p=479992026-02-26T16:37:35Z2026-02-26T16:37:35ZWhat tools does the IRS use to track cryptocurrency?
Major crypto exchanges in the United States must also follow Know Your Customer (KYC) rules. That means platforms such as Coinbase and Kraken collect personal details, such as Social Security numbers and government-issued IDs, and share tax data with the IRS.
Beginning in 2025, the IRS requires custodial brokers to track gross proceeds from digital asset sales, which will be reported on the new Form 1099-DA starting in the 2026 filing season. Furthermore, mandatory cost-basis reporting will begin for "covered" digital assets acquired on or after January 1, 2026.
Which behaviors draw IRS scrutiny?
Not every crypto holder will face an audit, but the following activities can attract a closer review:
Providing a false "No" answer to the digital asset question on Form 1040
Neglecting to report crypto-to-crypto trades, which the IRS treats as taxable events
Making large or frequent wallet-to-wallet transfers that obscure the cost basis or acquisition dates of assets
High trade volumes, unreported staking or mining income and large gains without matching tax filings can also raise concerns. The IRS uses automated systems to compare third-party data with filed returns, and even small errors can generate a notice.
What should you expect if an audit comes?
If the IRS selects you for an audit, they will usually send you a letter instead of a phone call. It may send a CP2000 notice, which means the data on your return does not match records from a third party like a crypto exchange. You will then have 30 days (60 days if you live outside the U.S.) to respond.
The IRS may also send Letter 6173 or Letter 6174-A. While both address crypto reporting, Letter 6173 requires a response by a specified deadline, whereas Letter 6174-A is generally an educational notice that does not require a reply.
The agency has up to three years to audit a return and this extends to six years if you underreported your income by more than 25%. In cases that involve domestic and international fraud, there is no time limit.]]>