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Abatement of Penalties
An abatement of penalties is a request to the IRS to remove certain penalties
that were added to the taxpayers account for a particular year or multiple
years. The taxpayer must establish reasonable cause to explain why the IRS
should grant the abatement of penalties from their account.
Amended Tax Return
This is a tax return filed to make changes to a previously filed tax return. A
taxpayer has 3 years from the due date of the original return or the actual
date of filing to file an amended return.
Appeal
IRS administrative process for taxpayers to contest decisions within the IRS.
Also known as the Appeals Division. There are several different types of
appeals available for certain actions threatened or taken by the IRS such as
Collection Due Process appeals (CDP).
Collection Division
That organizational arm of the IRS which has the mission of collecting
delinquent taxes and securing delinquent tax returns for individuals,
businesses, corporations, trusts, or any other entity that owes IRS money.
Collection Information Statement (CIS)
IRS standard financial statements required from individuals and/or
self-employed individuals (Form 433-A) and businesses (Form 433-B) that owe IRS
taxes and have indicated an inability to pay the liability. IRS uses these
forms to determine the taxpayers’ ability to pay in full by installment
agreement or a hardship situation.
Collection Statute of Limitation
IRC Section 6503 places an express limit on the time in which the IRS may
collect a tax. Normally, the Collection Statute is 10 years from the date of
assessment, but the collection statute can be extended under a number of
situations such as the filing of an Offer in Compromise, bankruptcy, CDP or
other appeals.
Enrolled Agent
An Enrolled Agent (EA) is a federally-authorized tax practitioner who has
technical expertise in the field of taxation and who is empowered by the U.S.
Department of the Treasury to represent taxpayers before all administrative levels
of the Internal Revenue Service for audits, collections, and appeals.
Federal Tax Deposit (FTD)
An employer must deposit employment taxes withheld (income tax withholding and
FICA taxes) including the employers share of the FICA, either monthly or semi-weekly
(depending on the amount of tax withheld) with an authorized commercial bank or
Federal Reserve Bank.
Federal Unemployment Tax Act (FUTA)
A Federal tax paid by employers that provide for the administrative costs of a
states unemployment compensation program for workers who have lost their jobs
through no fault of their own. Only the employer pays FUTA tax, it is not
deducted from the employees’ wages. This annual tax is reported on Form 940.
Garnishment
Legal process whereas a creditor has obtained judgment on a debt may obtain
full or partial payment by seizure of a portion of a debtor's assets such as
wages, bank account, etc.
Innocent Spouse
A spouse who unknowingly filed a joint return with their spouse who had
reported an understatement of tax due to erroneous items. The unknowing spouse
must prove that at the time the tax return was signed he/she did not know, or
have reason to know, there was an understatement of tax. Also with the fact and
circumstances taken into consideration, it must show that it would be unfair to
hold the unknowing (innocent) spouse liable for the understatement of tax.
Installment Agreement (IA)
An IA is an agreement between the IRS or State and a taxpayer to allow the
taxpayer to pay their delinquent tax debt over a specified period of time.
There are several different types of Installment Agreements available depending
on a taxpayer’s circumstances.
Notice of Federal Tax Lien (NFTL)
The Internal Revenue Code provides for a notice of statutory tax lien to be
filed for a tax debt after a proper assessment, notice and demand, and a
neglect or refusal to pay. Liens can be discharged or subordinated under
special circumstances. A NFTL is recorded in the appropriate public records
office (city, town or county recorder, Secretary of State (UCC) or US District
Court depending on the individual state) in order to establish priority over
creditors, judgment lien creditors and other lenders.
Levy
Garnishment attached to taxpayers wages, bank account, accounts receivable,
social security income, or other real or personal property.
Lien Discharge (Certificate
of Discharge)
Removal of a lien on a specific piece of property to allow for its sale or
disposal.
Lien Release (Certificate
of Release)
The Certificate issued by IRS when a tax debt is fully paid, satisfied,
compromised or expired by statute of limitation.
Lien Subordination (Certificate
of Subordination)
The Certificate issued by the IRS to temporarily set aside a lien to allow for
a sale or refinance. The IRS will generally not release its lien, but it may,
in the proper circumstances allow a new mortgage or security instrument to be
recorded ahead of the Notice of Federal Tax Lien in order of priority.
Notice of Levy
When used in conjunction with IRS, a Notice of Levy normally refers to the
document that is served on a third party that attaches wages, bank accounts,
and other personal or real property by way of seizure.
Offer In Compromise
Code Section 7122 grants the Commissioner or his delegate the authority to
compromise most tax liabilities. An OIC is an agreement between the IRS and
taxpayer that allows the taxpayers delinquent tax debt to be compromised for
less than the full amount owed. The offered dollar amount is based on the taxpayer’s
net worth (equity in assets) plus their future income potential. There are three bases for compromise of tax
debts with the IRS:
Doubt as to Liability. Doubt exists that the assessed tax is correct.
Doubt as to Collectibility. Doubt exists that you could ever pay the full
amount of tax owed.
Effective Tax Administration. There is no doubt the tax is correct, and no
doubt that the amount owed could be collected, but an exceptional circumstance
exists that allows the IRS to consider a taxpayer's OIC.
Power of Attorney
A form signed by a taxpayer giving an authorized individual (Certified Public
Accountant, Enrolled Agent, or Attorney, etc) authority to represent a taxpayer
before the Internal Revenue Service or State taxing authorities.
Refund Statute Expiration Date
A taxpayer may request a refund of an overpayment within three years from the
time the return was filed or within two years from the time the tax was paid,
whichever is later. If no return was filed by the taxpayer, the claim must be
filed within two years from the time the tax was paid (IRC 6511(a)).
Self Employment Tax
Self-employment tax is the social security and Medicare tax for people who work
for themselves. When an individual pays self-employment tax, they are
contributing to their coverage under the social security system.
Statute of Limitation
Specific time periods under the law within which certain actions must be taken,
i.e. to collect a tax, make an assessment to an account, conduct an audit
(examination), to request a refund, to file bankruptcy, etc.
Subordination of Federal Tax Lien
The legal process whereby the IRS will subordinate its Federal Tax Lien to a
third party by temporarily setting aside the lien to enable a refinance or sale
of a piece of property. Normally the IRS must determine that it is in its best
interest to subordinate.
Substitute for Return
If a taxpayer has not filed a return and the IRS feels it can collect from the
money earned, an IRS Revenue Officer may file a SFR. When a SFR is filed, the
agent lists all of the income reported to the IRS for that year, but only gives
the taxpayer one exemption and only the standard deduction, i.e. nothing is
itemized. Even if for the past 10 years the taxpayer has itemized, the IRS
prepares the return in their favor. If the taxpayer has children the IRS tries
to file the return based on the information from the previous years, i.e.
married filing joint with 2 children. But IRS will only file this way if they
have previous returns showing this info.
Tax Return
Any federal, state, or local tax return (personal income tax, corporate income
tax, employer quarterly tax return, excise tax return, estate tax return,
partnership tax return, fiduciary tax return, or any other return) required by
law to be filed to report income, taxes withheld, sales tax, etc.
Taxes
Taxes are required payments of money to the government (federal, state or
local). Tax money provides public goods and services for the community as a
whole (roads, schools, law enforcement, public libraries, etc.). Taxes are the
price we pay for our liberty.
Trust Fund Recovery Penalty (TFRP)
A civil penalty assessed against
the responsible person(s) in a corporation that has failed to pay its
employees’ federal withholding taxes. The IRS has the authority under IRC 6672
to hold responsible parties personally liable for unpaid withholding taxes. The
TFRP is the process by which the IRS holds individual liable for the unpaid
withholding taxes and attempts to collect the penalty from the responsible
parties’ personal assets.
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