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Understanding IRS Tax Liability in 2026

The 2026 OBBBA (One Big Beautiful Bill Act) changes the landscape for tax liability resolution. Here's what you need to know about penalties, abatement, and your options.

2026 OBBBA Changes
New rules that may reduce what you owe

Standard Deduction (Joint)

$32,000

2026 Standard

Standard Deduction (Single)

$16,000

2026 Standard

Overtime Deduction (§ 101)

Up to $25,000

Joint filers / $12,500 single

1099-NEC Threshold

$2,000

Up from $600

Does OBBBA reduce what you owe?

Our analysis recalculates your liability using 2026 standards to find every deduction.

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Penalty Abatement: Your First Line of Defense

Penalties can make up 25-47% of your total liability. Getting them removed is often the fastest way to reduce what you owe.

First Time Abate (FTA)

The IRS will waive failure-to-file and failure-to-pay penalties if you meet these criteria:

  • Clean compliance history for the prior 3 tax years (no penalties)
  • All required returns filed (or on valid extension)
  • All taxes paid or on an approved payment plan
Reasonable Cause

If FTA doesn't apply, you may still qualify for penalty relief based on reasonable cause:

  • Serious illness or death in family
  • Natural disaster or fire destroying records
  • Erroneous advice from the IRS
  • Reliance on a tax professional who failed you

Your Resolution Options

Once penalties are addressed, here are the main paths to resolve your tax liability:

Offer in Compromise (OIC)

Settle your tax liability for less than you owe. Subject to IRS approval based on financial analysis.

Best for: Those who cannot pay full liability before CSED expires

Installment Agreement

Pay over time in monthly installments. Streamlined option generally available for balances under $50,000.

Best for: Those who can afford monthly payments

Currently Not Collectible

May temporarily pause active collection when you demonstrate inability to pay basic living expenses and tax liability.

Best for: Those in financial hardship

Penalty Abatement

Remove or reduce failure-to-file and failure-to-pay penalties through FTA or reasonable cause.

Best for: First-time offenders or those with valid excuses

Don't Forget: The 10-Year Clock
Your CSED is the most important date

The IRS has 10 years from assessment to collect. After your CSED (Collection Statute Expiration Date), the liability becomes legally uncollectible. Before pursuing aggressive options like OIC, know your Freedom Date.

Learn About CSED

Continue Your Discovery

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