Tax Resolution Pathways – How CPA Firms Solve Tax Problem
The phrase “tax related issues” covers a wide range of problems, from a single notice that can be resolved with one letter to a multi-year pattern of noncompliance that requires a structured resolution plan. What a CPA firm does depends entirely on which of these situations applies.
This guide describes the engagement process from the firm’s perspective—what information is gathered, how the problem is assessed, and what resolution pathways are available. It is written for business owners who want to understand what happens after the first phone call.
The Diagnostic Phase: Understanding the Problem Before Acting
The most common mistake businesses make when facing a tax problem is acting before understanding it. Filing an amended return based on a guess, calling the IRS without knowing what to ask, or ignoring a notice until the deadline passes all create worse outcomes than a measured diagnostic process.
The diagnostic phase typically involves:
Document collection. The firm requests all relevant returns, notices, and financial records. This establishes a factual baseline.
Notice analysis. Each notice is matched to the underlying return and reviewed for accuracy. The firm determines whether the notice is correct, whether it resulted from a processing error, or whether it raises a substantive issue.
Exposure assessment. The firm calculates the potential liability, including tax, penalties, and interest. This establishes the financial stakes and informs the resolution strategy.
Timeline review. Deadlines are identified. Some notices require a response within 30 days; others allow 90. Missing a deadline can waive appeal rights or trigger enforcement action.
Resolution Pathways
Once the problem is understood, the firm selects a resolution pathway. The main options are:
Penalty abatement. If penalties resulted from reasonable cause—illness, natural disaster, reliance on incorrect professional advice, or first-time errors—the firm can request abatement. The IRS grants abatement in appropriate cases, and Virginia and DC have similar provisions.
Installment agreement. For businesses that can pay the liability over time but not in full, an installment agreement spreads payments over months or years. The IRS charges a setup fee and interest continues to accrue, but enforcement action is suspended while the agreement is in good standing.
Offer in compromise. For businesses that cannot pay the full amount and do not have assets to liquidate, an offer in compromise settles the debt for less than the full amount. The application requires detailed financial disclosure, and acceptance depends on the IRS’s determination of the taxpayer’s reasonable collection potential .
Currently not collectible. If paying the liability would prevent the business from covering basic operating expenses, the IRS may suspend collection temporarily. This does not eliminate the debt, but it stops enforcement activity.
Audit representation. If the issue is an examination, the firm represents the business throughout the audit process. This includes responding to Information Document Requests, participating in interviews, and negotiating findings.
What the IRS Looks For During an Audit
Understanding what triggers scrutiny helps businesses prepare. The IRS selects returns for audit through random selection, related examinations (when a business partner or investor is audited), and information matching . Once selected, the auditor examines the specific items identified in the notice.
The Taxpayer Bill of Rights guarantees the right to know why the IRS is asking for information and how it will be used . A CPA firm uses this right to scope the audit appropriately and avoid unnecessary expansion of the examination.
The Role of Documentation
Every resolution pathway depends on documentation. The IRS requires substantiation for deductions, credits, and positions taken on returns. When documentation is missing, the firm works with the client to reconstruct records using bank statements, invoices, and other secondary evidence.
The Cohan rule allows taxpayers to estimate certain expenses if they can prove the expenses were incurred and provide a reasonable basis for the amount. This is not a license to fabricate records, but it does provide a pathway when primary documentation is lost.
Virginia and DC: Separate but Coordinated
Businesses operating in Virginia and DC face separate tax authorities with separate resolution processes. A federal resolution does not automatically resolve state liability, and vice versa. The firm coordinates both, ensuring that agreements with one authority do not create problems with the other.
Virginia’s individual filing deadline is May 1, and the state operates its own collection and audit functions . DC’s Office of Tax and Revenue administers its own audits and collections. The firm maintains familiarity with both.
How Nova Tax & Accounting Services Can Help
Nova Tax & Accounting Services provides representation and resolution services for businesses across the DMV. Our CPAs understand what the IRS and state authorities look for, how to present information persuasively, and when to negotiate versus when to contest.
For more information, visit https://novataxservices.com/ or schedule a free consultation.