Publication date: 14.04.2025
Basil Chochla is a Certified Public Accountant (CPA) and tax advisor based in the US. Founder of The Bee Dance CPAs. He specializes in tax planning, small business accounting, financial consulting, and international taxation for entrepreneurs and investors.
How Strategic Tax Structuring Erased $1M in IRS Debt and Returned $500K in Overpaid Taxes
The COVID-19 pandemic challenged even the most resilient businesses. One such case involved a California-based entrepreneur who owned a network of successful labs developing antiviral products. During the crisis, supply chain disruptions caused a shortage of critical reagents, leading to a sudden collapse of operations. On top of that, the client went through a difficult divorce and ended up with over $1 million in federal tax debt for the 2020 tax year.
He initially hired a national tax resolution firm, but it failed to deliver results. The IRS saw significant income on his 2020 return, with losses only shown in 2021—raising red flags. The situation changed only after a forensic financial review and accurate tax year alignment, guided by an expert with a deep understanding of both tax law and the economic realities behind the numbers.
Key Outcomes
- Full cancellation of $1M IRS tax debt
- Refund of $500,000 in overpaid state taxes from California
- Total financial turnaround of $1.5 million
- Restored compliance and reputation with tax authorities
- A fully documented and defensible legal tax position
Step-by-Step Resolution Strategy
- Tax year alignment and economic loss tracing full forensic review revealed that most losses occurred in 2020 due to nonpaying counterparty and reagent shortages—despite originally being reported in 2021.
- Evidence gathering and documentation, Legal and financial proof (contracts, breach notices, email records) was assembled to support the correction of the tax year.
- Amending federal and state tax returns,
Updated returns were filed for both the IRS and California’s Franchise Tax Board (FTB), shifting the losses to the correct period. - Engaging with the IRS and FTB
A strategic, human-centered narrative backed by documents was presented to tax authorities, establishing credibility and compliance. - Outcome delivery
All federal debt was annulled, the state issued a half-million-dollar refund, and the client received a full financial reset.
Key Areas of Expertise
IRS Tax Debt Cancellation
Eliminating seven-figure federal tax liability by correctly repositioning losses
Filing Amended Tax Returns
Correcting prior-year filings and aligning income/losses with real economic events
Forensic Tax Strategy & Documentation
Combining tax code precision with a deep understanding of business dynamics and context
Frequently Asked Questions
Question
Can IRS debt of $1 million really be canceled?
Answer
Yes—if the original return inaccurately reported income and losses. In this case, the losses were traced back to the correct tax year, making it legally possible to amend the return and eliminate the debt.
Question
What is an amended return, and why file one?
Answer
An amended return allows you to correct errors in your original tax filing. It’s essential for shifting income or losses to the right tax year, maximizing deductions, or correcting missed reporting.
This case proves that effective tax resolution requires more than software or templates—it requires strategy, financial analysis, and legal accuracy. With expert guidance, the client not only erased seven figures of debt but also received a large tax refund and avoided long-term damage.
In the U.S., tax relief isn't just about numbers—it's about building a compelling, documented case. Strategic tax consulting, forensic insight, and personalized representation made this $1.5M turnaround possible.
