The IRS reduces or removes penalties and/or interest owed on unpaid or delinquent tax debt.

Accounting Methods:

The method whereby income and expenses are determined for tax or bookkeeping purposes.  Most common accounting methods are the cash method or the accrual method.

Accounts Receivable:

Accounting transactions dealing with the billing customers who owe money to the company, organization or person for goods and/or services that have been provided to the customers.

Accrual Method:

One of the two most common types of business accounting in which income and expenses are reported in the tax year earned; regardless of whether or not they were received or paid during that tax year.   A business that maintains an inventory is required to use the accrual method for purchases and sales.

Automated Collections Systems Special collection unit of the IRS that handles cases from $100,000 to $999,999. Currently The IRS has two high dollar units. The wage and income division in Buffalo, NY and the small business self-employed division in Holtsville, NY.

Adjustable Rate Mortgage (ARM):

A long–term loan to finance real estate, usually a home or commercial real estate.  The interest rate on an ARM is adjusted periodically most often at pre-set times during the life of the loan.

Amended Return:

A tax return filed on Form 1040X after the original return has been filed.  A 1040X return is used to most often used to correct errors or claim more advantageous ways of filing the original return.  An amended return can also be used to carry back certain unused credits or a net operating loss.

Analysis Letter:

An assessment of a taxpayer’s financial income, expenses and assets with a detailed explanation of the situation and options for resolution.

Appeal Rights:

The IRS has an appeals system for taxpayers who disagree with the results of an audit of tax returns or other adjustments to their tax liability.  The IRS will send to a taxpayer a report and/or letter that explains the proposed adjustments, the taxpayer’s right to request a conference with the Appeals office and a document explaining how a taxpayer can request an appeals.

Asset:

A piece of property that has a cash or exchange value.

Audit (a/k/a Examination):

An examination and verification of a tax return by the IRS.  These are now performed either in person or via the mail.

Automated Collection System:

Automated Collection System is a computerized system, which is linked to telephone workstations.  Many taxpayers with delinquent tax liability are sent to ACS for collection.  ACS’ mainly tries to collect back unpaid tax liability. They try to obtain full payment of tax debt or offer monthly installment plans.  ACS can also place an account into the Currently Not Collectible status when a taxpayer demonstrates they are unable to pay the delinquent taxes.  ACS can levy assets or garnishment paycheck in order to collect back tax liabilities.  By contacting ACS, people can resolve an open case with any IRS agent who answers the phone.

Back Taxes:

Back taxes – or tax debt – are unpaid taxes due to the government (i.e. Federal, State or Local).  Internal Revenue Service (IRS) back taxes are past due federal income taxes.  Back taxes are accrued either by not paying taxes when they are due, failure to report all income and/or taxes on a return or by failing to file a return altogether.

Balance Sheet:

A statement of a company’s financial position at a specific moment in time. This financial report shows the two sides of a company’s financial situation — what it owns and what it owes. What the company owns, called assets, are always equal to the combined value of what the company owes, or its liabilities, and the value of its shareholder/s equity.  This is expressed as an equation, a company’s balance sheets shows assets = liabilities + shareholder equity.

Bank Levy:

A one–time occurrence where the IRS freezes all funds in a taxpayer’s account on the day the bank receives the IRS levy.  If not released or dealt with by the taxpayer within 21 days, the funds plus interest will be sent to the IRS by the bank.

Bankruptcy:

The act of declaring oneself insolvent in Federal Bankruptcy court.  You are claiming that you or a company, business etc. is unable to fulfill existing financial obligations.  In this legal proceeding, the court will declare a person insolvent.

Benefits Statement:

A statement used (usually by a government agency) to report income and calculate taxes owed to the federal government of the United States.

Business Assets:

Items used in a trade or business or used to produce rental, royalty income or used in the productions of goods and/or services by the business.

Business Entities:

An individual or group of people organized for profitable or charitable purpose.  Business entities include corporations, partnerships, limited partnerships, limited liability corporations, charities, trusts, and other forms of organization.  Business entities, just like individual persons, are subject to taxes and must file a tax return.  Some business entities are exempt from federal income taxes. These include non–profit charities, S–corporations, and partnerships.

Business Tax Liability:

Amount of tax, penalties and interest owed by a business entity.

C–Corporation
Legal business entities owned by shareholders with the ability to own property, incur debts and sue or be sued. C–Corporations are taxed separately from its shareholders.

Cancellation of Debt Income:

When a person takes out a loan, it is not considered as income because the person has a corresponding obligation to repay the loan.  However, if the debt is canceled, then that obligation is destroyed.  Therefore, the taxpayer has received a benefit and the amount of canceled debt will be included as income.  This is usually incurred as a result of foreclosure or loan modification.

Cash Method:

One of the two most common types of accounting.  Under the cash method of accounting, income is reported in the tax year it is received and expenses are deducted in the tax year in which they are paid.  The form of accounting in which income, either actively or constructively earned, is reported along with all paid expenses for that year.  Most sole proprietors and self–employed individuals use this method of accounting.

Certificate of Deposit (CD):

A debt instrument from a bank or savings institution that has a set maturity date and usually a set interest payment.

Certificate of Release of Federal Tax Lien:

A letter issued by the IRS informing the recipient that it is removing its tax lien from the taxpayer’s property and/or credit report.  It will be issued upon full payment of the taxes, penalties, interest, and recording fees AND/OR when the IRS may no longer legally collect the tax obligation.  Occasionally to protect collection efforts the IRS will issue a Certificate of Release of Federal Tax Lien.

Certified Public Accountant (CPA):

A CPA is a professional accountant licensed one or more of the fifty states.  To become a certified public accountant, a person must have at least 150-hours of college education in various business and accounting subjects, and pass the States CPA examination, which covers auditing, accounting, business management, and business laws & regulations and taxation.

Chapter 7 Bankruptcy:

Allows for discharge of unsecured debts but can result in the loss of a home, car, or other secured debt/s. Chapter 7 relief is available only to individuals who earn less than the median income for their state or who qualify because of special circumstances.

Collateral Agreement:

A collateral agreement is an additional or secondary agreement that the Internal Revenue Service may require before agreeing to settle back tax liabilities.

Collection Due Process (CDP) Hearing:

Allows taxpayers a right to a hearing before Appeals regarding proposed enforced collection actions or a filed Notice of Federal Tax Lien.  During the hearing, a taxpayer may dispute the enforcement action and/or propose a resolution to the underlying tax controversy.

Collection Hold:

IRS suspends collection activity on a tax debt for a limited time in order for the taxpayer to file taxes, collect financial information, or acquire funds to make payment on the tax liability.

Collection Information Statement:

A financial statement listing assets, income, liabilities, and expenses submitted by the taxpayer. This financial statement can be submitted on Form 433–A, Collection Information Statement for Wage Earners and Self–Employed Individuals, on Form 433–F, Collection Information Statement or Form 433–B, Collection Information Statement for Businesses.

Collection Statute Expiration Date (CSED):

The end of the time period (Statute of Limitations) in which the IRS has to collect tax, penalties, and interest.  It is set ten years from the date of assessment of the tax, unless extended by other statutory exceptions.

Community Property:

Property belonging in to both a husband and wife.  This concept of ownership for property acquired after marriage is followed in Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin.

Corporations:

A legal business fiction. It is an entity owned by shareholders with the ability to own property, incur debts, and sue or be sued.

Correspondence Audit:

Audit/Examination type conducted entirely by mail.  The taxpayer receives a letter from the IRS requesting additional information about certain items shown on the taxpayer’s return, such as income, expenses and itemized deductions

Currently Not Collectible (CNC) Status:

A temporary status that suspends all collection activity upon a showing that payment of the tax liability, immediately or through monthly payments, would leave the taxpayer unable to pay necessary living expenses.
Generally, unless the taxpayer’s financial situation changes, the account will remain on CNC status until the time the IRS has to collect the tax liability expires, which is known as the collection statute expiration date. (See Collection Statute Expiration Date above)

Debt–to–Income Ratio:

A percentage of a consumer’s gross monthly income that goes towards the payment of bills.

Deed of Trust:

An instrument used in some states instead of a mortgage.  A deed of trust passes legal title to real property is placed in one or more trustees to secure the repayment of a sum of money or the performance of other conditions.

Deferred Payment Offer in Compromise:

An Offer in Compromise that is payable in 6 or more installments and 25 or more months from the IRS received date, but within the time remaining on the statutory period for collection.

Dependent:

Someone the taxpayer supports and can claim as an exemption. To qualify, the dependent must meet all five of the following tests: 1. Relationship or member of household test 2.Citizenship test 3. Joint return test 4. Gross income test 5. Support test

Dissipated Assets:

Assets that have been sold, gifted, transferred or spent on non–priority items or debts and are no longer available to pay the tax liability.  The IRS will include the value of these assets for purposes of calculating a taxpayer’s minimum Offer in Compromise.

Doubt as to Collectability:

The basis for acceptance of an Offer in Compromise where there is doubt that the tax can be paid in full.

Employee:

For income tax purposes, an employee is an individual who is subject to the will and control of the employer not only as to what shall be done, but also as to how it shall be done.  An employee is to be distinguished from an independent contractor because an employee’s wages are subject to income tax withholding, and in most cases, social security and Medicare tax withholding.  Employee status also affects how the taxpayer claims allowable deductions.

Employer Identification Number:

A nine (9) digit number used by the IRS to identify the tax account of an employer. Similar to a social security number except for employers.

Enrolled Agent:

A person able to practice and represent taxpayers before the IRS.  Usually enrolled agents are former IRS employees.  Enrolled agents, like attorneys and certified public accountants (CPAs), are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can practice before.

Equity in Assets:

The difference between an asset’s current market value and the debt owed against it.

Estimated Tax Payments:

The amount of tax a taxpayer pre-pays usually quarterly.  This is based on expectation for the year after subtracting expected amounts withheld and the amount of any expected credits.

Extension to File:

A provision allowing additional time to file a tax return after the original due date.

Extreme Financial Hardship:

When a taxpayer is unable to meet basic living expenses.  Common examples include eviction or foreclosure.

Fair Market Value:

The expected price an item would sell for, assuming the buyer is not under undue pressure.

Field Audit:

Audit/Examination type conducted by the IRS on the premises of the taxpayer.  Sometimes these are held in the office of the tax practitioner representing the taxpayer.

Filing Status:

The category under which you classify your income tax rate. Generally based upon your family status.  Your filing status is an important factor in determining your standard deductions and/or tax rate and whether you must file a return. The five filing status types are:  Single, Married filing jointly, Married filing separately, Head of household and qualifying widow(er).

Final Notice of Levy:

Letter sent by the IRS when payment on past due taxes has not been made. This is the final notice that aggressive collection action (e.g. garnishment, levy, lien, etc.) will be brought against a taxpayer in thirty (30) days.

Financial Hardship:

When a taxpayer is unable to meet basic living expenses.

Gross Monthly Income:

Total income received in the form of money, property, or services that is subject to tax unless specifically exempt or excluded by law.

Guaranteed Installment Agreement (GIA):

Guaranteed monthly payment agreements for past due taxes.  This type of resolution is a statutory right, provided by the IRS, but only to qualified taxpayers with a one-time account delinquency of $10,000 or less (excluding penalties and interest). Qualified taxpayers must have filed all income tax returns and agree to fully pay the tax liability within 3 years. They must also agree to file and pay all tax returns during the agreement. The taxpayer cannot have entered into an installment agreement during any of the preceding five taxable years.

Head of Household:

The filing status for an unmarried taxpayer who pays over half the cost of maintaining his/her home.  That home being the principal residence for over half the tax year of his/her qualifying child (whether or not the child is claimed as a dependent) or a qualifying relative who is claimed as a dependent.  A dependent parent who does not live with the taxpayer may also qualify the taxpayer for the head of household status if qualifications are met.

Independent Contractor:

A taxpayer who contracts to do work according to his own methods and who is not subject to control except as to the results of such work.  An employee, by contrast, is subject to the control of the employer as to the methods to be used to obtain the desired results.

Individual Retirement Account (IRA):

A trust set up to receive retirement financial contributions from individuals.  The arrangement may be in the form of an individual retirement account or individual retirement annuity.  The amount of money that may be contributed is limited.  Amounts earned in the IRA are not taxed until they are withdrawn.

Individual Tax Liability:

Taxes owed by individuals or by persons filing a joint return. Individual tax liabilities are those reported on IRS Form 1040, Form 1040A, and Form 1040EZ. Although the name implies that the liability attaches to an individual, married persons filing jointly will both owe any tax liability jointly and severally.

Individual Taxpayer Identification Number:

The taxpayer identification number for persons who do not qualify for a Social Security number. It is usually assigned to resident aliens of the United States.

Injured Spouse Relief:

When a joint return is filed and the refund is used to pay one spouse’s past due child support, spousal support, or a federal debt, the other spouse can request a refund for his/her share of the overpayment that was used to pay the past due amount. The test to qualify as an injured spouse is:

Not legally obligated to pay the past due amount and
One of the following criteria is met:
Made and reported tax payments (such as federal income tax withheld from wages or estimated tax payments);
Earned income (such as wages, salaries, or self–employment income) and claimed the earned income credit or the additional child tax credit; OR
Claimed a refundable credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax.

Innocent Spouse Relief:

Tax rules designed to protect married taxpayers who file joint returns from being held responsible for taxes due to erroneous actions by their spouses—such as failing to report income or claiming unsubstantiated deductions. A spouse requesting innocent spouse relief must prove (1) lack of knowledge and (2) no reason to have knowledge of an error that resulted in the underpayment of tax on the joint return in order to be granted relief of the responsibility for the underpayment. A taxpayer has two (2) years from the time the IRS begins trying to collect the underpayment to petition for innocent spouse relief.

Installment Agreement:

An agreement under I.R.C. § 6159 allowing a taxpayer to pay the tax liability over equal monthly payments until the liability is paid in full or the time the IRS has to collect the tax liability expires, which is known as the collection statute expiration date (CSED).

Installment Agreement Processing Fee:

Fee the IRS charges to set up a monthly payment plan, also known as an Installment Agreement. Current fee is $105.00.

Installment Agreement Reinstatement Fee:

Fee the IRS charges to reinstate a recently defaulted monthly payment plan, also known as an Installment Agreement. Current amount is $43.00. IRS will reinstate Installment Agreements that went delinquent within three months of the request for reinstatement.

Interest:

An amount charged for the use of borrowed money.

Internal Revenue Service (IRS):

Government agency, under the Department of the Treasury, responsible for administering and enforcing the internal revenue laws.

IRS Allowable Expense Test:

Allowable expenses include those expenses that are necessary to provide for a taxpayer and or his family’s health and welfare and/or for the production of income. The expenses must be reasonable. The total necessary expenses establish the minimum a taxpayer and family need to live. There are three types of necessary expenses:

National Standards:

Five categories of expenses under the national standards are food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous.

Local Standards:

Two categories of expenses under the local standards are housing and utilities and transportation. Taxpayers will normally be allowed the local standard or the amount the taxpayer actually pays, whichever is less.

Other Expenses:

Other expenses may be allowed if they meet the necessary expense test. The amount allowed must be reasonable considering the taxpayer’s individual facts and circumstances. An expense is necessary if it provides for the health or welfare of the taxpayer and or his family or for the production of income.

IRS Automated Collection Service (or ACS):

A computerized system at the IRS linking numerous telephone stations. Primary function is to collect back taxes through full payment of the tax or through monthly installment agreement payments. ACS can place an account on Currently Not Collectible status when a taxpayer can demonstrate financial hardship. ACS can issue levies and garnishments in order to collect on the back tax liabilities. By contacting ACS, our attorneys can resolve an open case with any IRS Representative. The resolution of a particular case may be a release of a levy (on wages and/or a bank account), the implementation of an installment agreement, or the taxpayer’s balances being placed on Currently Not Collectible status.

IRS Centralized Offer In Compromise (or COIC):

Units located in Brookhaven, NY and Memphis, TN that complete the initial processing and determine acceptance or rejection of a taxpayer’s proposed Offer in Compromise.

IRS Customer Service:

Call center division of the IRS where employees take inbound calls from taxpayers. The IRS Customer Service Center cannot issue or release levies.

IRS Federal Tax Lien:

A legal claim to your property as security or payment for your tax debt.

IRS Form 1040:

Every person is required to declare the income he or she received during the prior year. The return may be filed jointly with a spouse, single, married filing separately or head of household. Simplified versions of the form 1040 are forms 1040EZ and 1040A.

IRS Form 1065:

A document used for specific tax purposes related to a business partnership. It is used to report information such as income, losses, gains, credits, or deductions, accumulated during the operation of a partnership for a tax year. It is necessary because each partner contributes to the partnership and in return, shares any profits or losses that the business experiences. The partnership itself never pays taxes on the income it makes, but instead passes those profits or losses through to its partners who pay taxes (i.e. Schedule K). The partners also receive deductions or credits as they are passed through from the partnership.

IRS Form 1099:

A form used to report a wide variety of taxable income, such as interest, dividends, stock sales, and self–employment income. Income data on a Form 1099 is reported in different places on the tax return.

IRS Form 1120:

A tax return used to report the income, gains, losses, deductions, and credits in order to figure the income tax liability of a corporation.

IRS Form 2848, Power of Attorney:

A Power of Attorney is an authorization to act on someone else’s behalf in a legal or business matter. The person authorizing the other to act is the principal or granter (of the power), and the one authorized to act is the agent or attorney.

IRS Form 433–A:

A financial statement listing assets, income, liabilities, and expenses submitted by the taxpayer.

IRS Form 433–B:

A financial statement listing assets, income, liabilities, and expenses submitted by a business or corporation.

IRS Form 433–F:

A financial statement listing assets, income, liabilities, and expenses submitted by the taxpayer.

IRS Form 656, Offer in Compromise:

Form 656 is the official form that must be used to submit an Offer in Compromise to the IRS. The IRS will not consider an Offer in Compromise submitted on any other form. The form itself spells out all of the requirements and contingencies associated with an Offer in Compromise. The form must be filled out to include the type of tax to be compromised (income tax, payroll tax, tax penalties, etc.), the relevant tax periods or years, the grounds for making the offer and the amount offered. Usually, Form 656 must be submitted with a Collection Information Statement and a $150 processing fee.

IRS Form 656–A:

A form used when submitting an Offer in Compromise certifying that the taxpayer is not required to submit the Offer in Compromise application fee and deposit based on their family unit size and income.

IRS Form 940:

A form used to report annual Federal Unemployment Tax Act (FUTA) tax. Together with state unemployment tax systems, the FUTA tax provides funds for paying unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. Only employers pay FUTA tax. It is not deducted from the employees’ wages.

IRS Form 941:

A form employers use to report and deposit the taxes withheld from each employee’s paychecks. Each time an employer pays wages, the employer is required by federal law to withhold a certain amount for federal income tax, social security tax, and Medicare tax from an employee’s paycheck. Under the withholding system, taxes withheld by the employer from an employee’s checks are credited to the employee in payment of their tax liability. Federal law also requires an employer to pay any liability for the employer’s portion of social security and Medicare taxes. This portion of social security and Medicare taxes is not withheld from employees.

IRS Form 943:

A form to report federal income tax withheld and employer and employee social security and Medicare taxes on wages paid to farm workers.

IRS Form W–2:

A form an employer sends to its employee and to the IRS at the end of the year to report each respective employee’s annual wages, taxes withheld, and other information.

IRS Form W–4:

A form submitted by an employee to their employer so that the employer can withhold the correct federal income tax from the employee’s pay. The Form W–4 instructs the employer of that employee’s selected filing status and claimed number of exemptions.

IRS Managerial Review:

A group manager must review all cases exceeding $5,000 in tax debt to ensure that they reflect a thorough analysis of a taxpayer’s financial statement(s), consideration of other available means of collection, and the rationale for allowing a taxpayer to retain assets with equity. The manager must agree that the resolution proposed is the appropriate resolution for the case.

IRS Office of Appeals:

The Office of Appeals is independent of any other IRS office and provides a venue where disagreements concerning the application of tax law can be resolved on a fair and impartial basis.

IRS Revenue Officers (RO):

Employees of the IRS charged with the duty of collecting back taxes.  General called Field agents these days. Usually revenue officers are assigned outside of the centralized IRS offices to field offices to handle taxpayers in an assigned geographical area. Revenue officers are typically assigned to cases where a business owes payroll taxes, a taxpayer fails to file multiple years of returns, or a taxpayer has a substantial tax liability.

IRS Summons:

A legal order issued by the IRS compelling a taxpayer or third party to appear and provide financial information to the IRS.

IRS Tax Liability:

Amount of tax owed to the IRS, which is also known as IRS tax debt or IRS back taxes.

IRS Taxpayer Advocate Service (TAS):

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers in solving tax problems that have not been resolved through normal channels, or who are experiencing significant hardships.

Joint and Several Liability:

Taxpayers who file and sign a joint return are fully responsible for the accuracy of the return and for the full liability.  The liability applies to each spouse regardless of who earned the income on the return.

Keogh Plan:

A pension or profit–sharing plan available to self–employed individuals and their employees.

Levy on Income:

A legal seizure of wages, social security, pension, or other income in order to satisfy a tax debt. Also known as a tax garnishment.

Lien:

A legally recognized right or interest that a creditor has in another’s property, lasting until the debt that it secures is paid or satisfied. A tax lien is a legal right the IRS has in a taxpayer’s property. The lien secures the tax debt and does not relate specifically to a debt owed on that property.

Lien for Taxes:

The U.S. Treasury, as part of its tax collection efforts, may attach a lien (or a legal claim) on the property of a taxpayer who is delinquent in the payment of amounts owed to the IRS and who has not arranged to pay.

Lien Subordination:

When the IRS moves their claim or interest in a taxpayer’s property to a secondary or lesser position. Generally, the IRS will only subordinate the lien if the property is going to be sold or refinanced and money is going to be paid to the IRS.

Limited Liability Company (LLC):

A hybrid business entity that has the characteristics of both a partnership and corporation. The owners have the limited personal liability of a corporation, yet can retain the benefits of pass through taxation of income for tax purposes.

Liquidation:

The process of converting securities or other property into cash.

Loan Modification:

A process where the terms of a mortgage are modified outside the original terms of the contract between the borrower and the lender.

Lump Sum Payment (LSP) Offer in Compromise:

Payments made to pay off an accepted Offer in Compromise. Payments are payable in five or fewer installments within 5 months from notice of the accepted offer.

Mandatory Retirement:

Contributions to a retirement account that are required as part of a taxpayer’s employment.

Married Filing Jointly:

A filing status for taxpayers who are married at the end of the tax year and not legally separated under a final decree of divorce or separate maintenance. The income, deductions, and credits of both spouses are entered on a joint return.

Married Filing Separate:

A filing status for married taxpayers who choose to record all respective incomes, deductions, and credits on separate individual tax returns.

Money Market Account:

A deposit account with an interest rate typically higher than a bank account.

Mutual Fund:

A professionally managed type of investment that pools money from many investors and invests that money in stocks, bonds, short-term money market instruments and other securities.

National Standards:

For IRS tax debt resolution, the IRS established an average monthly acceptable amount for five necessary expenses: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous. The standards are derived from the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey (CES). The amount of each standard varies depending upon the taxpayer’s family size and geographical location. A taxpayer is allowed to claim the standard for each expense without having to document their actual expenses. If a taxpayer claims more than the average amount per month, the taxpayer must provide documentation to substantiate those expenses that are necessary living expenses. Generally, the total number of persons allowed for National Standards should be the same as those allowed as exemptions on the taxpayer’s most recent year income tax return.

Net Available Income:

Monies remaining out of gross income after subtracting ordinary and reasonable expenses.  Also, know as Disposable Income.

Non-Liable Party (NLP):

A party with whom the taxpayer shares living expenses, but who is not liable for the taxpayer’s tax debt.

Non-Reimbursed Work Expenses:

Ordinary and necessary expenses incurred by the employee to perform the job duties that the employee was hired to perform, but that are not reimbursed to the employee by the employer.

Notice of Deficiency:

A Statutory Notice of Deficiency is not an assessment of tax nor does it require you to make immediate payment. It is a proposed deficiency, which generally gives you 90 days, (150 days if the notice was addressed to a person outside the United States), to either agree to the deficiency or file a petition with the United States Tax Court for a redetermination of the deficiency. Once the notice of deficiency is issued, the 90 or 150-day period cannot be suspended or extended.  During this period, you may ask Appeals to reconsider the case. However, the reconsideration does not extend the 90-day period you have for filing a petition with the Court. The Notice of Deficiency can be rescinded under certain circumstances if both parties agree.

Notice of Intent to Levy:

An IRS letter sent to a taxpayer notifying the taxpayer of an unpaid tax liability due to the IRS and that the IRS intends to levy on the taxpayer’s assets if the taxpayer does not make efforts to resolve the tax liability.

Offer in Compromise (OIC):

An agreement between a taxpayer and the IRS to settle a tax liability for an amount that is less than the full amount owed.

Offer in Compromise Processing Fee:

A fee paid to the IRS when a taxpayer submits an Offer in Compromise.

Out–of–Pocket Health Care Costs:

The total amount of monthly medical services, prescriptions, and medical supplies paid by a taxpayer that is not covered by the taxpayer’s insurance.

Partial Payment Installment Agreement (PPIA):

A taxpayer’s agreement with the IRS where the IRS reviews a taxpayer’s financial statement and determines that the taxpayer can make a monthly payment, but the payments will not pay off the entire balance within the statutory period.

Partnership:

A form of business in which two or more persons join their money and skills in conducting the business. Partnerships must file a return, but are not subject to tax. Each partner is responsible to report his or her share of the partnership’s income, gains, losses, deductions, and credits on his or her individual return.

Payroll Taxes:

Taxes held in trust by a business with Form W-4 employees. The taxes include the employee’s withholding taxes and the employer’s and employee’s portions of Social Security tax and Medicare tax.

Penalties:

A fine charged by the IRS for paying and/or filing taxes late. A taxpayer is usually charged interest in addition to penalties for late payment of tax liabilities.

Pension:

Payments made periodically to an employee of a definite amount for a specified period from an employer–funded plan after the stated requirements have been met. Its primary purpose is to provide retirement income for employees.

Primary Residence:

The home in which a taxpayer lives most of the time. A taxpayer can have only one principal residence at any time. A principal residence can be a home, condominium, cooperative apartment, townhouse, mobile home, or houseboat.

Profit and Loss Statement (or income statement):

A financial statement created by self-employed individuals and sole proprietorships to determine the business’s profitability.  The profit or loss (or net income) is derived from a simple calculation: revenue generated (i.e. income received, gross receipts, etc.) minus expenses incurred.

Profit Sharing Plan:

A plan for distributing a predetermined percentage of a company’s profits to its employees.

Proper Tax Withholdings:

Correct amount of tax that is withheld from a taxpayer’s income that does not create a large overpayment or underpayment of tax.

Proration:

Method of dividing expenses within a household. Used to determine a liable taxpayer’s monthly expenses when some expenses are shared by other members of the household. Calculated by comparing the liable taxpayer’s gross monthly income to that of the non-liable parties living in the household. The percentage calculated is then applied to the shared expense(s) to determine the taxpayer’s share of expenses.

Quick Sale Value (QSV):

The amount that could be obtained if an asset is sold quickly, usually less than the fair market value. To calculate, the IRS typically discounts the fair market value by 20%.

Reasonable Collection Potential (RCP):

The amount that could reasonably be collected from a taxpayer to pay towards their tax liability within the time allowed for by statute. The Reasonable Collection Potential is calculated by examining the net available income, equity in assets, retired debt, and dissipated assets.

Remaining Loan Balance:

Amount remaining after all payments and credits have been applied.

Retired Debt:

A taxpayer’s ability to increase future payments because a necessary expense may decrease or expire. For example, retired debt may occur if a taxpayer’s monthly vehicle payment expires, increasing the taxpayer’s net available income.

Returned Offer in Compromise:

The IRS reviews an Offer in Compromise and determines that the taxpayer is either not compliant, has filed for bankruptcy, or does not provide the information the IRS requested within the required time period.  When an Offer is returned, the IRS will keep the processing and deposit fees, and does not allow for appeal rights.

S-Corporation:

A type of corporation that elects not to be taxed as a corporation. An
S-corporation does not pay federal income tax directly, but instead passes its income or losses and other tax items on to its shareholders, much like a partnership. It provides the legal liability protection of a corporation to its shareholders while avoiding corporate double taxation.

Secured Loan:

A loan in which the borrower pledges an asset as collateral for the loan. In the event that the borrower defaults, the creditor takes possession of the asset and may sell the asset to satisfy the debt.

Self–Employed Individuals:

Taxpayers who work for themselves. They decide when, how, and where to work, they obtain their own jobs or sales, pay their own expenses, and receive social security and Medicare coverage through payment of self–employment tax.

Self–Employment Tax:

The Social Security/Medicare tax paid by self–employed individuals.

Short Term Periodic Payment OIC:

Payment of an Offer in Compromise amount through equal monthly payments, which must be made within 24 months from the date the IRS receives the Offer in Compromise. When filing the offer, it must include the filing fee and the first installment payment and the taxpayer must continue to make payments while the offer is being evaluated.

Single:

The filing status for an unmarried taxpayer who does not qualify for any other filing status.

Social Security Number:

The taxpayer identification number for most Americans. A taxpayer must provide a taxpayer identification number for himself or herself and for each person for whom the taxpayer claims as an exemption or certain other tax benefits on the taxpayer’s tax return.

Sole Proprietorship:

A type of business entity, which is owned and run by one individual and where there is no legal distinction between the owner and the business.

Statement of No Filing Requirement:

A written statement signed and dated by the taxpayer that indicates that he/she did not earn enough income to require the filing of an income tax return. The State of No Filing Requirement is sometimes used to satisfy IRS attempts to get the taxpayer to file a tax return, even in lieu of no income being reported to it.

Student Loan Payment:

Payments made toward a federally secured loan used for qualified educational expenses.

Substitute for Return (SFR):

All individuals, and taxpaying entities, are required to file tax returns to calculate their own taxes. However, if a taxpayer fails to file a tax return, the Internal Revenue Service may file the return on behalf of the taxpayer. Prior to filing a substitute return, the Internal Revenue Service will request that the taxpayer voluntarily file the missing return(s). If the taxpayer has still not filed voluntarily, the Internal Revenue Service will prepare the substitute return. Usually the Internal Revenue Service will not file a substitute return until the return has been delinquent by two or more years.
A formal way for the IRS to make an educated guess about how much a taxpayer may owe in taxes to the IRS for a particular year.  The purpose is to arrive at a definite dollar amount of tax liability so that the IRS can begin collection efforts. One the tax liability is determined; the IRS issues a proposed assessment of taxes to the taxpayer.  If the taxpayer does not respond to the proposed assessment, that assessment may become final.  Once the assessment becomes final, the IRS can legally collect on the tax liability for a period of ten years.

Summons:

An investigative tool similar to a subpoena that compels a taxpayer or third party to appear and provide financial information to the IRS

Tax Attorney:

An attorney whose practice focuses on tax-related issues. This can be accomplished as easily as writing the word "Tax" before the word "Attorney" on the lawyers business card, as there is no specific educational or additional requirements beyond those of becoming an attorney.

Tax Avoidance:

Legal use of the tax system to one’s own advantage to reduce the amount of tax that is payable by means that are within the law.

Tax Evasion:

Efforts to evade tax by illegal means.

Tax Protestor:

Someone who refuses to pay taxes by asserting constitutional, legal, or moral grounds.

Tax Resolution Assistant:

A person specially trained to assist a tax attorney in preparing files and speaking with clients.

Taxpayer Identification Number:

For individuals, it is typically their social security number. For a business, it is the employer identification number. The IRS uses the tax identification number to identify each taxpayer or each taxpaying entity.

Term Life Insurance:

A policy that provides coverage for a limited period of time. If the insured dies during the term of the policy, then the death benefit is paid to the beneficiary.

Tip Income:

Gratuities received by a taxpayer for services rendered. A taxpayer must report tips of $20 or more during a calendar month to their employer.

Transportation Expenses:

The cost of transportation incurred by an employee or self–employed taxpayer in the course of business or employment. Deductible costs include the cost of operating the taxpayer’s auto, car rental fees, and taxi fares. Commuting expenses are not deductible.

Trust:

Any arrangement whereby property is transferred with intention that the trustee (person holding title to the property) administers the property for another’s benefit (beneficiary). A trust can be created for any purpose that is not illegal or against public policy. The trustee is under a duty to deal with the property for the economic benefit of the beneficiary.

Trust Fund Recovery Penalty (TFRP):

A tax law giving the IRS the power to assess unpaid payroll taxes against any and all persons responsible for administering payroll for a business that owes unpaid payroll taxes.

Underpayment Penalty:

A penalty the IRS charges for not paying enough total estimated tax and withholding. To avoid underpayment penalties, pay either 100% of last year’s tax or 90% of this year’s tax in combined estimated and withholding tax payments.

Voluntary Compliance:

The principle that U.S. taxpayers voluntarily comply with the tax laws and report their income and other taxed items honestly.  Of course, this process is not voluntary since the government can compel you under the threat of jail, seizure or garnishment.

Wage Garnishment:

A wage garnishment is a levy that the IRS has a right to issue to the employer of a taxpayer who owes the IRS money. The IRS must give proper notice to a taxpayer before it can actually issue the wage garnishment. Proper notice constitutes several form letters and culminates with a letter with an accompanying Final Notice of Levy. Once the notice has been sent to the taxpayer, the IRS can issue a wage garnishment after 30 days from the date of the letter. An employer is legally obligated to comply with the terms of the wage garnishment. However, if the taxpayer is no longer employed or, for some other reason, such as the employer does not owe the taxpayer any money, the employer does not have to honor the wage garnishment. If the taxpayer goes back to work for the employer, then the employer is re–obligated to honor the wage garnishment. Through the wage garnishment, the IRS is allowed to take all of a taxpayer’s wages up to a certain amount. The IRS gives the employer a chart that informs the employer of how much they need to send to the IRS. Frequently, the amount the IRS can garnish is up to 80% of a taxpayer’s wages. The wage garnishment is ongoing until the taxpayer contacts the IRS and is able to negotiate a release of the garnishment. The IRS will agree to release a wage garnishment in full if the taxpayer agrees to pay the liability in full, agrees to a payment plan, or can show that the garnishment is causing an economic hardship.

Whole Life Insurance:

A life insurance policy is a policy that remains in force throughout the insured’s lifetime so long as the premiums are paid.