A client’s decision to change business structures isn’t just a checkbox, but a move with real tax consequences. Your guidance can shape the outcome, whether they’re going from an LLC to a corporation or converting to an S-corp.

You’ll need to evaluate entity-level impacts, flag ownership issues like nonresident shareholders, and determine if the change offers tax benefits or creates risk.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Why are C corporations referred to as “the king of fringe benefits”?

A: Of the entities in this webinar, only the C corporation can deduct all fringe benefits as a corporate expense. For sole proprietorships, for example, the owner’s benefits are not deducted on Schedule C, Profit or Loss from Business, but may be deducted individually on Form 1040, U.S. Individual Income Tax Return, Schedule 1. Partners, whose benefits are generally considered compensation in the form of guaranteed payments, are treated similarly for some benefits (but not all). S corporation shareholders also may have benefits added to compensation, or deducted by the corporation as a business expense, depending on the benefit. So, “the king” is the C corporation for ease of fringe benefit deductions.

Q: What exactly is a qualified small business?

A: In the context of §448(c) it refers to corporations with gross receipts under $31M allowing those entities favorable tax treatment, or small business exceptions such as ability to use cash basis method of accounting, non-incidental materials and supplies (NIMS) inventory methods and exemption from UNICAP rules.

Q: When does the recognition period for built-in-gains tax expire?

A: Under current federal tax law, the recognition period is five years, beginning on the first day of the corporation’s first tax year as an S corporation.

Q: How do you determine reasonable compensation for S corporation officer/shareholders?

A: This is not defined statutorily; however, it has been primarily developed through court cases. Based on those court cases, factors to consider include:

1. Nature of the work performed
2. Comparable industry standards
3. Experience and qualifications
4. Size and financial condition of the business
5. Compensation of similar employees – (probably most important)

Additionally, the IRS provides guidance on the following website: S corporation compensation and medical insurance issues | Internal Revenue Service.

To learn more about changing corporate structure, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

After a period of relative quiet, the IRS has ramped up its collection efforts, and tax professionals are once again seeing a surge in enforcement actions. Understanding the current landscape of IRS collections is essential for practitioners to advise and protect clients effectively. This includes the revived Automated Collection System (ACS), the sequence of collection notices and the mechanics of wage garnishments and bank levies.

After a slowdown during the pandemic, the IRS has shifted back into high gear. If your clients owe back taxes, the risk of enforced collection is higher than it’s been in years. Now is the time to review cases and take action before the IRS does.

Understanding the IRS collection notice timeline

ACS operates on a predictable notice sequence, but it has enforcement behind it. Here’s the path most delinquent taxpayers can expect:

• LT38: Special Reminder Letter

  This letter indicates that IRS collection notices are back in motion. It serves as a warning that follow-up notices and possible enforcement are coming.

• CP501, CP503, CP504: Reminder Notices

  These are issued roughly every eight weeks. They inform the taxpayer of their debt and request payment, but if ignored, enforcement follows.

• LT11: Final Notice of Intent to Levy

  This is the most critical notice. The IRS LT11 notice signals that the agency intends to seize assets, garnish wages or levy bank accounts. Taxpayers have 30 days to respond.

IRS wage garnishments and bank levies are happening now

A wage garnishment is one of the IRS’s most powerful collection tools. After issuing the LT11 and waiting the required 30 days, the IRS can contact an employer and require them to withhold a portion of the taxpayer’s wages to satisfy the tax debt. The amount exempt from garnishment is based on filing status, pay frequency and number of dependents, but the remainder is sent directly to the IRS.

A bank levy allows the IRS to seize funds directly from a taxpayer’s bank account. Unlike ongoing wage garnishments, a bank levy is a one-time event, though the IRS can issue multiple levies if the debt remains unpaid. The bank must hold the funds for 21 days before remitting them to the IRS, giving the taxpayer a brief window to resolve the issue.

Example

Angelica owes $22,000 from tax years 2018 and 2019. After ignoring the LT38 and CP504 notices, she receives IRS LT11. Without a response, the IRS can notify her employer to garnish up to 25% of her paycheck. If she is self-employed, the IRS may issue a bank levy, draining funds directly from her business account. As her tax professional, you can help Angelica by negotiating with the IRS about a payment plan or submitting an offer in compromise, but time is of the essence once garnishment begins.

The good news? Wage garnishments and bank levies can be stopped, but only with immediate action and the right resolution strategy.

Don’t overlook IRS CP508C

In addition to financial enforcement, the IRS may revoke or deny passports for those with seriously delinquent tax debt (over $62,000). The CP508C notice informs taxpayers that their case has been referred to the State Department.

This has major implications for international travelers, contractors and clients in global roles. It’s an enforcement tool that’s gaining more attention and power.

Best practices for tax professionals

• Monitor IRS notices closely:
  Encourage clients to forward all IRS correspondence immediately. Early intervention is key to avoiding enforcement actions.

• Educate clients on the consequences of inaction: Many taxpayers underestimate the seriousness of IRS notices. Make sure clients understand that ignoring the IRS can lead to wage garnishments, bank levies, liens and even passport restrictions.

• Act quickly after LT11:
  The 30-day window after LT11 is critical. File a Collection Due Process (CDP) hearing request if there are grounds to dispute the debt or negotiate a resolution.

• Explore all resolutions options: Depending on the client’s circumstances, consider installment agreements, offers in compromise, or currently not collectible status. Each option has its own requirements and implications.

• Stay informed about special populations:
  Federal employees and contractors face additional risks. The IRS has warned that unresolved tax debts could jeopardize their employment. If you have clients in this category, prioritize their cases and communicate the heightened stakes.

A warm, proactive approach

As tax professionals, our role extends beyond technical expertise. Clients facing IRS collections are often anxious and overwhelmed. Approach these situations with empathy, clear communication and a solutions-oriented mindset. By staying ahead of the IRS’s renewed enforcement efforts, you can help clients avoid the most severe consequences and regain control of their financial lives.

IRS collections are here, so be ready

The IRS’s collection machinery is back in motion, and wage garnishments and bank levies are once again a real threat for delinquent taxpayers. For tax professionals, vigilance, timely action, and client education are more important than ever. By understanding the notice sequence, the mechanics of enforcement, and the available resolution strategies, you can provide invaluable support to clients navigating these challenging waters.

If your clients receive notices LT38, CP501, CP504 or LT11, it’s time to act. Once a levy is in place, recovery becomes more difficult and more urgent.

Question: James and Olivia file jointly and claim the standard deduction. In 2026, they donated $2,400 in cash to qualified public charities. They have no mortgage interest or other deductions large enough to itemize. Can they deduct any of their charitable contributions? If so, how much tax will they save?

Answer: Yes. Beginning in tax year 2026, married couples filing jointly may deduct up to $2,000 in cash contributions to qualified charities, even if they do not itemize. This below-the-line deduction is available under §170(p), added by the One Big Beautiful Bill Act.

James and Olivia may deduct $2,000 of their $2,400 donations, reducing their taxable income. If their taxable income before the deduction was $100,000, the deduction lowers it to $98,000. Assuming they’re in the 22% tax bracket, this results in $440 tax savings: $2,000 × 22% = $440 tax savings.