TAX HELP DEFINITIONS
Resolving your IRS problems can be frustrating and complicated, but getting the tax help you need doesn't have to be. Here are some common tax relief terms to help you settle your IRS debt and permanently achieve your tax resolution.
Abatement A partial or complete cancellation of taxes, penalties or interest owed by a taxpayer. Taxpayers can request that penalties be abated and in many cases, the IRS removes 100% of the penalty. The IRS requires that you have a good reason to request penalty abatement. While IRS procedures for deciding who qualifies for penalty abatement and for what reason seem to differ in each case, the best thing you can do is to request that the IRS abate your penalties by providing the circumstances surrounding your situation.
ACS See Automated Collection System.
Appeal A request by a taxpayer who does not agree with an IRS decision. The action of filing an appeal puts the IRS on notice that the taxpayer doesn't agree with the IRS and is seeking a meeting to change the IRS decision. Audits/examination determinations, offers in compromise, installment payment plans, requests for penalty removal, innocent spouse decisions, levies, liens, seizures and just about every type of intrusive action taken by the IRS can be appealed.
Application for Taxpayer Assistance Order (Form 911) Type of appeal used when the taxpayer has exhausted all other means of trying to resolve an issue with the IRS but an agreeable decision can not be reached. This appeal is handled by the IRS's Taxpayer Advocate Service. The Taxpayer Advocate Service can not over turn an appeals officer decision. However, they can to expedite matters and are very helpful in most circumstances.
Audit A tax audit is an examination of the tax return you filed with the IRS.
Automated Collection System (ACS) A computerized collection process for IRS collectors to contact delinquent taxpayers by telephone and mail.
Back Taxes IRS debt from taxes owed from a prior year(s). The IRS assesses back taxes when a taxpayer does not pay taxes when they become due, fails to report all income and taxes on a return, or fails to file a return.
Bank Levy The IRS can issue a bank levy to take your cash in savings and checking accounts. When the IRS levies a bank account, the levy is only for the particular day the levy is received by the bank. These are generally referred to "one shot" levies. The bank is required to remove whatever amount is available in your account that day (up to the amount of the IRS levy ) and send it to the IRS in 21 days unless notified otherwise by the IRS. This type of levy does not effect any future deposits made into your bank account unless the IRS issues another Bank Account Levy.
Bankruptcy Tax debt may be eligible for discharge in bankruptcy. However, bankruptcy does not always remove all tax liabilities as not all IRS taxes, penalties and interest qualify for complete 100% discharge. In order for a taxpayer to benefit from bankruptcy laws, the taxpayer must determine whether or not tax liabilities must are eligible for discharge.
Certified Tax Resolution Specialist (CTRS) Tax professional who has met the educational, experience, and examination requirements prescribed by the American Society of Tax Problem Solvers (ASTPS). The CTRS designation is restricted to Enrolled Agents, CPA or Tax Attorney in good standing, who have proven expertise to resolve a wide range of tax problems. The services a CTRS provides to individuals and businesses include securing offers in compromise, installment agreements, penalty abatement, innocent spouse relief, release of liens or levies, non-filer issues and many others.
Also see Tax Attorney
Collateral Agreement An agreement sometimes secured by the IRS prior to acceptance of an Offer in Compromise when the IRS wants to cover a future, reasonably possible event, such as a significant increase in income.
Collection Appeal Request (CAP Form 9423) Type of appeal used when a taxpayer and a Revenue Officer (Collection) do not see eye-to-eye on an intrusive collection tactic that the IRS wants to implement or has already implemented such as a Levy, Lien, seizure or the denial or termination of an installment agreement.
Collection Division Tax collectors who work out of the IRS Service Center, Automated Collection or District Office.
Collection Information Statement (IRS Forms 433-A, 433-B, and 433-F) IRS financial statements that require disclosure of personal information, particularly assets, income and expenses.
Correspondence Audit A correspondence audit is done by mail. The IRS sends you a letter either alleging you forgot some item of income or requests to see the documentation to substantiate a deduction you have taken on your tax return. The most common type is the CP2000 notice, a computer generated notice that you failed to report an item of income. These must be checked closely since the reporting agency, often time the Social Security Administration for W2's, can make typographical errors. If you fail to properly dispute these errors the IRS is free to assess and collect the tax they believe is owed. And if ignored long enough, your only recourse is to pay the tax, penalty, and interest and then sue the IRS in court, an expensive proposition.
Current Market Value The amount you could reasonably expect to be paid for the asset if you sold it today. You can find out the value from realtors, used car dealers, publications, furniture dealers, or other experts on specific types of assets. You are advised to include a copy of any written estimate with your Collection Information Statement.
Delinquent Tax Return A tax return not filed by the due date (April 15) or by the dates allowed through the IRS extension periods (August 15 and October 15). Failure to file tax returns may be construed as a criminal (misdemeanor and potentially a felony!) act by the IRS. This type of criminal act is punishable by one year in jail and $10,000 for each year not filed. Regardless of what you have heard, you have the right to file your original tax return, no matter how late it's filed.
Examination Official IRS term for a tax audit
Expenses Not Generally Allowed Expenses not allowed such as claim tuition for private schools, public or private college expenses, charitable contributions, voluntary retirement contributions, payments on unsecured debts such as credit card bills, cable television charges and other similar expenses as necessary living expenses. These expenses can be allowed when you can prove that they are necessary for the health and welfare of you or your family or for the production of income.
Fair Market Value The price a willing buyer and seller of property would agree on as fair; neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.
Federally Authorized Only Enrolled Agents, CPA's and Attorneys are allowed to represent taxpayers before the IRS. An un-enrolled tax preparer can defend a client for whom he prepared a tax return during audit but cannot take it to appeals or represent the taxpayer before the collections division. Our members are all federally authorized to represent all taxpayers. We are not affiliated with nor are employees of the IRS. We work exclusively to provide you with the best representation possible in your controversies with the IRS.
Field & Office Audits Audits are an examination of the tax return you filed with the IRS. The examiner, typically a Revenue Agent, looks for undocumented income and unsubstantiated expenses or deductions. If the audit is performed in the IRS office, it is considered an office audit. These are common for wage earners. If the audit is conducted at the taxpayer's home or place of business, these are field audits. For our clients, field audits are typically conducted in our offices. It is generally too disruptive to have an IRS auditor or examiner hanging around your office for several days.
Freedom of Information Act A federal law giving citizens the right to see governmental documents, including their IRS files. Freedom of Information documents can be used to explain why, how, when and where a taxpayer's IRS problems started. Having this information is helpful as it discloses the IRS information used to assess taxes, penalties and interest against the taxpayer. Any taxpayer having difficulty in sorting out what the IRS is doing to them should consider using the Freedom of Information Act to obtain their IRS files.
Fraud Loss Recovery Victims of fraudulent investment schemes (Ponzi Scheme) who have lost all or most of their investment, may be eligible to take advantage the United States Tax Code (law) and recoup 30% to 40% of their losses under Internal Revenue Code Section 165 treatment. Most victims of these types of white collar crimes can convert their capital stock losses into ordinary losses and offset them against prior, current and future ordinary taxable income, thereby reducing the taxes paid in those years, and receiving a refund with interest. The process generally involves amending prior years tax returns and is a highly technical, time consuming and complex process that could prove invaluable to those who've sustained major investment losses due to fraud and white collar crime.
Future Income The amount the IRS could collect from your future income by subtracting necessary living expenses from your monthly income over a set number of months. For a cash offer, you must offer what you could pay in monthly payments over forty-eight months (or the remainder of the ten-year statutory period for collection, whichever is less). For a short-term deferred offer, you must offer what you could pay in monthly payments over sixty months (or the remainder of the statutory period for collection, whichever is less). For a deferred payment offer, you must offer what you could pay in monthly payments during the remaining time we could legally receive payments.
Garnishments Garnishments are ongoing levies. Most common is the wage garnishment in which the IRS takes all but a pittance of your take home pay. The IRS would serve its garnishment on your employer. The employer is required to leave you a preset amount to live on (although you couldn't live on the amount the IRS authorizes) and send the balance to the IRS toward your tax debt. The garnishment is one of the most effective tools the IRS has to get you to the bargaining table. And most employers hate garnishments since it creates a lot of extra work for their payroll department. Some employers have policies against having unresolved tax debts. We have a strong track record of getting the IRS to release the garnishment.
Also see Levies.
Innocent Spouse In order to help taxpayers that are being subjected to IRS problems because of their spouse's (or ex-spouses) actions, the IRS has come up with guidelines for tax relief where a person may qualify as an innocent spouse. This means that if a taxpayer can prove they fit in those guidelines, they may not be subject to the taxes caused by their spouses or ex-spouses. They may qualify for innocent spouse tax relief.
Installment Agreement The installment agreement is a payment plan between you and the IRS. The IRS has some flexibility regarding the payment amount as long as the debt will be paid off before the statute of limitations expire. If the amount due is small and you are offering large payments, it can be quite simple to get an installment agreement. The agreement comes with some strings attached, such as staying current on the filing and paying of future tax returns for as long as the agreement is in place. Penalties and interest will continue to be charged although the penalty rate is currently reduced during the installment agreement. The IRS charges a nominal fee to setup an installment agreement. For larger debts or those debts involving payroll tax issues the IRS may elect to assign a Revenue Officer (debt collector) to determine the maximum payment they can bet from you.
Jeopardy Assessment An expedited procedure by which the IRS imposes a tax liability without notifying you first. A jeopardy assessment is rare and used when the IRS believes the taxpayer is about to leave the country or hide assets.
Levies A levy is the taking of an asset. Most common is the bank levy. The IRS serves a levy notice on your bank for money held in your account. The account is frozen for an amount of money up to the amount owed to the IRS. If there is less in the account than you owe, the whole account is frozen for 21 days. During that time the original amount in the account is locked up. Any new money added is not part of the original levy. At the end of the 21 days the money is transferred to the IRS unless you have obtained a release from the IRS. Most levies are one-shot deals but the IRS can continue to get new levies on a daily basis. They generally don't. Part of resolving tax debts is to obtain from the IRS a release of the levy.
Liens A lien is merely a statement alleging that you owe a tax debt. It is legally created anytime you owe taxes. It can show up on your credit report, and if the IRS locates property you own, it can be filed against the property. The most common example is a lien filed against your home. Once filed, you cannot sell the asset until the lien is paid off. For houses, the payoff is part of closing. And if you don't have sufficient equity to payoff the mortgage(s) and lien, you can only sell your home by bringing your own money to closing.
Liquidation Value The amount the IRS can get from a distress sale of a taxpayer's assets, usually a public auction (typically 70% of fair market value).
Local Standards Maximum allowances for housing and utilities known as Local Standards, vary by location. Unlike the National Standards, taxpayers are allowed the amount actually spent, or the standard, whichever is less. There are separate allowance amounts for transportation expenses.
National Standards Allowances for food, clothing and other items, known as the National Standards, apply nationwide except for Alaska and Hawaii, which have their own tables. Taxpayers are allowed the total National Standards amount for their family size and income level, without questioning amounts actually spent.
Necessary Expenses The allowable payments you make to support you and your family's health and welfare and/or the production of income. This expense allowance does not apply to business entities. Publication 1854, How to Prepare a Collection Information Statement (Form 433-A), explains the National Standard Expenses and gives the allowable amounts. We derive these amounts from the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey. We also use information from the Bureau of the Census to determine local expenses for housing, utilities, and transportation. Note: If the IRS determines that the facts and circumstances of your situation indicate that using the scheduled allowance of necessary expenses is inadequate, we will allow you an adequate means for providing basic living expenses. However, you must provide documentation that supports a determination that using national and local expense standards leaves you an inadequate means of providing for basic living expenses.
Notice of Deficiency An IRS notice informing a taxpayer that he or she owes the IRS the amount listed, which is the excess of the taxpayer's correct tax liability for the taxable year over the amount of taxes already paid for such year.
Offer in Compromise (OIC) The "pennies on the dollar" program allows taxpayers to settle their tax debt for something less than full payment. The criteria is fairly rigid and was designed by Congress, not the IRS. It is a pure business decision. The IRS determines what it could liquidate you for and adds to that what it could collect over the next 48 months and arrives at a minimum amount it might accept. The OIC program is a great program for those that qualify. But don't use it lightly since it stops the running of the statute of limitations on collections. Proper preparation of IRS financial statements is the key to a good OIC. And since the IRS is back-logged with Offers, patience is a virtue. But for those that qualify, this is a great program. Offers can be made with a lump sum payment or payments over time (much like an installment agreement). Acceptance by the IRS of an offer does come with strings attached, such as staying current with filing and paying for five years after the offer is accepted.
Offshore Tax Evasion Defense If you have undeclared funds in foreign bank accounts, now is the time to act in order to reduce your chances of criminal prosecution, minimize severe IRS penalties and work out a structured IRS payment plan. If you believe that you owe back taxes on your foreign accounts, you will need expert tax help (specialized tax attorney, tax resolution firm, etc.) disclosing your foreign funds, obtaining FBAR compliance, and mounting your offshore tax evasion defense.
Payroll Tax Problems If you owe delinquent payroll taxes, it is important to know that the IRS assigns a higher priority to collecting employment taxes than income taxes. Delinquent payroll taxes will not only generate huge IRS penalties and debt, but may also be considered a federal crime. It is important to resolve payroll tax debt problems swiftly to protect the future of your company.
Penalties The IRS assesses two types of penalties on late filed income tax returns. The first and most expensive is the failure to file. Any tax return filed after the due date, including extensions, is considered late. The penalty is based upon the balance due with the tax return. The second penalty is the failure to pay. This is also based upon the amount due with the tax return and is calculated from the due date of the return, without regard to extensions. Some people erroneously believe that since they have a refund they don't need to worry about filing on time. However, if the return is ever audited and the result is a balance due, the penalties will be based upon the due date of the return, even if the audit occurs 2 years later.
Pending, Offer An offer pending starting with the date an authorized IRS official signs Form 656 and accepts your waiver of the statutory period of limitation, and remains pending until an authorized IRS official accepts, rejects or acknowledges withdrawal of the offer in writing.
Petition A form filed with the U.S. Tax Court requesting a hearing to contest a proposed IRS tax assessment.
Power of Attorney (IRS Form 2848) A form appointing a tax representative to deal with the IRS on your behalf.
Protracted Installment Agreement An installment agreement that extends beyond the period allowed under IRS issued guidelines.
Quick Sale Value The amount that can be realized from the sale of a taxpayer's assets when financial and other pressures force the taxpayer to sell quickly, typically in ninety days or less. This amount generally is less than current value, but may be equal to or higher, based on local circumstances typically 80% of fair market value.
Realizable Value The quick sale value amount minus what you owe to a secured creditor. The creditor must have priority over a filed Notice of Federal Tax Lien before we allow a subtraction from the asset's value.
Reasonable Cause There are a variety of reasons why taxpayers don't file or pay. Divorce, job loss, death of family members, mental or physical diseases, drug and alcohol problems, dog ate the homework, etc. are many of the reasons why taxpayers fail to file or pay. The law allows for the abatement (removal) of penalties for reasonable cause. Obviously, it is very subjective.
Reasonable Collection Potential (RCP) The total realizable value of your assets plus your future income. The total is generally your minimum offer amount.
Reconsideration Audit reconsiderations are discretionary on the part of the IRS. However, we have been successful in convincing the IRS to reopen an audit where the taxpayers were poorly represented or new information is now available that was not available at the original audit.
Request for a Collection Due Process Hearing (CDP Form 12153) An all purpose appeal that generally is invoked by filing form 12153, when the IRS has already issued a Lien, is about to issue a levy, and you want to request an alternative collection option that is less intrusive such as an Offer in Compromise, Payment Plan, be declared currently not collectible, request Innocent Spouse Relief, or request a withdrawal, discharge or subordination of a lien. There are certain legal and administrative notices and requirements the IRS must send/meet before a taxpayer can file this type of Appeal.
Running Out The IRS has 10 years to collect on back taxes unless the time period has been extended, either by consent of the taxpayer or by certain actions of the taxpayer. The most common reason for the statute of limitations to collect to have been extended is when the IRS has no ability to collect on the debt. Typically, this is because the taxpayer was out of the country, had made an Offer in Compromise, or was under the bankruptcy court. During the time the IRS could not legally collect the running of the 10-year statute of limitations is stopped (tolled). Knowing what has happened during the 10 years is critical to knowing when the IRS can no longer dun you for the debt. It is not uncommon for a tax debt to be removed because the time to collect has expired. The IRS is allowed to accept payments from you but they can't dun you for any debt that is outside the statute of limitations for collections.
Statute of Limitation Legal limits imposed on the IRS for assessing and collecting taxes, and on the Justice Department for charging taxpayers with tax crimes. The current statute of limitation for collection is 10 years from the date of assessment. However, the statute can be extended by certain actions of the taxpayer.
Substitute for Return (SFR) The law allows the IRS to take the income reported to it under your social security number and file a tax return for you. If you were single the prior year, they will file you as single. If you were married the prior year, they will file a return for you as married filing separate. They will not take any itemized deductions you might be legible for nor will they deduct for any dependents you might be entitled for. It will be a very basic return designed to produce the highest amount of tax allowed to the IRS. It is rarely in your best interest. And since you didn't file the return yourself, the year remains open (subject to assessment and collection) forever.
Tax Attorney An attorney that specializes in providing tax relief to individuals and businesses with tax problems at the state or federal level. A tax attorney can help taxpayers secure offers in compromise, installment agreements, penalty abatement, innocent spouse relief, release of liens or levies, non-filer issues and many other tax settlements.
Tax Debt Relief/ Tax Relief Assistance for tax-burdened individuals or businesses who seek a reduction in the amount of taxes owed. Tax relief includes settlements obtained by offers in compromise, installment agreements, penalty abatement, innocent spouse relief, release of liens or levies and other tax resolution strategies.
Tax Help While taxpayers may always represent themselves before the IRS. many taxpayers find dealing with the IRS frustrating, time-consuming, intimidating or all of the above and so they make the decision to hire professional tax help (specialized tax attorney, tax resolution firm, etc.) to negotiate with the IRS on their behalf.
Taxpayer Advocate Service An IRS program that provides an independent system to assure that unresolved problems are promptly and fairly handled.
Trust Fund Recovery Penalty (formerly called 100-percent Penalty) A penalty incurred by the responsible person(s) of a business for failure to pay Withholding and Federal Insurance Contributions Act Taxes (Social Security taxes)
Uncollectible A temporary designation by the IRS meaning a taxpayer does not have significant assets or available income, at the present time, from which to satisfy an IRS debt in part or in full. This designation takes a case out of collection, until a taxpayer has an ability to pay.
Voluntary Disclosure Taxpayers can participate in the voluntary disclosure program before the IRS has initiated a civil or criminal examination or before the taxpayer has received notice of such an investigation. The IRS offers leniency for voluntary disclosure and it is good advice for any American with IRS tax problems to take advantage of this policy. Under this policy, taxpayers have avoided prosecution for possible tax evasion and have had taxes, penalties, and interest reduced.
Waiver Voluntarily surrendering a legal right, such as the right to have the IRS collection period on a delinquent tax debt expire at the end of the statutory time period. The IRS may require waivers in exchange.
Wage Levy The IRS can levy your wages or accounts receivable and all other sources of income. The person, company, or institution that is served the levy must comply. If they do not comply, they too may have daunting IRS (legal) problems. Wage levies are filed with your employer and remain in effect until the IRS notifies the employer that the wage levy has been released. These are generally referred to as a continuous levy. Most wage levies take so much money from the taxpayer's paycheck that the taxpayer doesn't have enough money to live on.