Tax Glossary - Tax Group Center

Tax Glossary

Tax Glossary

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 is required to have reasonable cause that is specific for each year when submitting this request and must be able to explain why this reason should grant the penalties to be removed from their account.

Amended Tax Return

This is a tax return filed to make changes to a previously filed tax return. A taxpayer can amend any tax return from a previous tax year, going back as far they they desire; however, taxpayers have only three (3) years from the due date of the original return or the actual date of filing to file an amended return in order to collect refunds. **If filing amended returns, you must have a copy of the original return filed, along with an explanation and documentation as to what items need to be amended.


IRS administrative process for taxpayers to contest decisions within the IRS. Also known as the Appeals Division.

Back Taxes

Taxes that have not been paid on the due date or were underreported either by accident or by intention on a past tax return. The tax authorities (IRS) can demand payment of back taxes plus the imposing of penalties and or interest.


This is a legal process under Federal statutes that provides for rehabilitation of a debtor (provide the opportunity to make a fresh start) through the discharge of certain debts or through a debt repayment plan over a certain period of time. Creditors cannot contact the debtor during the bankruptcy. They must wait until it is fully discharged. There are three chapters of bankruptcy.

See descriptions below:

Chapter 7: In Title 11, United States Code, this chapter of bankruptcy law provides for a full liquidation of an entitys non-exempt property to satisfy creditors, and discharges all dischargeable debts.

Chapter 11: This chapter of the bankruptcy law provides for a partial payment of some debts and the partial discharge of some debts belonging to a business.

Chapter 13: This chapter of the bankruptcy law provides for the partial payment of some debts and the partial discharge of some debts for an individual. It is also known as the Wage Earners Repayment Plan since all creditors must receive a dividend.


The cost of an asset owned by a taxpayer. The cost of the asset may be adjusted upwards by the cost of improvements, or may be adjusted downward by depreciating the asset.

Burden of Proof

A formal legal requirement to provide persuasive information or evidence of the legitimacy of a claim. For tax returns, OICs, or requests for any resolution, the burden of proof to substantiate the claim or deduction rests with the individual or entity either required to sign the return or who submitted the claim.

Centralized Authorization File (CAF)

Located three of the ten IRS Service Centers, it contains all Forms 2848, Powers of Attorney, and Forms 8821, Tax Information Authorizations. Each individual authorized by these forms will be given a CAF number.

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. The Service Center Collection Function, the Automated Collection Site, or the Field Collection Function is all part of the Collection Division. The revenue officer is required to effectively collect against any Balance Due accounts.

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 can be extended under certain situations.

Community Property

A state law that creates a community upon marriage and all property acquired during the marriage is held as community property, with both the husband and the wife having a one-half interest in the community assets. Hence, the IRS can serve a Notice of Levy for of the wifes salary for the husbands separate liability. **Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.


All taxes are paid up to date and all returns required to file are filed to date. Therefore, if submitting an OIC, IA or status 53 for individuals request, the taxpayer must have all estimated tax payments paid to date and returns filed. If submitting an OIC or IA for a business, the taxpayer must have paid all taxes for the past two quarters and filed all returns.

Currently Non-Collectible

Status 53 is also referred to as Currently Non-Collectible, Currently Uncollectible, or CNC. Status 53 allows taxpayers to make no monthly payments to their delinquent tax debt due to minimal income to provide for themselves and their family.DeductionsAn expense subtracted from adjusted gross income when calculating taxable income, such as for state and local taxes paid, charitable gifts, and certain types of interest payments or business expenses.


Failure to repay an outstanding debt as agreed.

Discharge of Federal Lien

Authorized under the IRS Code. The process whereby the taxpayer or interested third party applies to have the federal tax lien removed from a specific piece of property or other asset. The discharge may be granted if:

  • IRS has no interest in the property,
  • IRS will receive the net proceeds from the sale of the asset, or
  • The taxpayer has equity in other assets equal to 3 times the amount of the tax liability.
Earned Income Tax Credit

A tax credit given to qualified low-income wage earners, even if no income tax was withheld from the individuals pay.

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.

What does the term Enrolled Agent mean?
Enrolled means to be licensed to practice by the federal government, and Agent means authorized to appear in the place of the taxpayer at the IRS. Only Enrolled Agents, tax attorneys, and CPAs may represent taxpayers before the IRS. The Enrolled Agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings.

Enrolled Agent" (EA) is a tax professional who has passed an IRS test covering all aspects of taxation, plus passed an IRS background check. Enrolled Agents have passed a two-day, 8-hour examination. The examination (called the Special Enrollment Examination) covers all aspects of federal tax law, including the taxation of individuals, corporations, partnerships, and various regulations governing IRS collections and audit procedures. Like CPAs and tax attorneys, EAs can handle any type of tax matter and represent their client's interests before the IRS. Unlike CPAs and tax attorneys, Enrolled Agents are tested directly by the IRS, and enrolled agents focus exclusively on tax accounting. The "EA" designation may be revoked by the IRS' Office of Professional Responsibility for malpractice.

How can Enrolled Agent help me?
Enrolled Agents advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. Enrolled Agents expertise in the continually changing field of taxation enables them to effectively represent taxpayers audited by the IRS

Privilege and the Enrolled Agent: The IRS Restructuring and Reform Act of 1998 allow federally authorized practitioners (those bound by the Department of Treasurys Circular 230 regulations) a limited client privilege. This privilege allows confidentiality between the taxpayer and the Enrolled Agent under certain conditions. The privilege applies to situations in which the taxpayer is being represented in cases involving audits and collection matters. It is not applicable to the preparation and filing of a tax return. This privilege does not apply to state tax matters, although a number of states have an accountant-client privilege with the U.S. Treasury Department.

Equitable Relief

If a spouse does not qualify for innocent spouse relief or separation of liability, they may qualify for equitable relief. The taxpayer must show, under all facts and circumstances, that it would be unfair to be held liable for the understatement or underpayment of taxes. (U.S. Master Tax Guide 2004)

Federal Insurance Contributions Act (FICA)

This is Social Security Tax. FICA consists of Social Security (supplemental retirement income) payroll tax and a Medicare (hospital insurance) tax. The tax is levied on employers, employees, and certain self-employed individuals. On some pay stubs it may be listed as some form of Old Age Survivors and Disability Insurance (OASDI).

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.


Legal process whereas a creditor (the IRS in this case) has obtained judgment on a debt (IRS back taxes or other debt) may obtain full or partial payment by seizure of a portion of a debtor's (taxpayer in this case) assets such as wages, bank account, etc.


Tax Related Terms and Glossary 1040A, U.S. Individual Income Tax Return - Form 1040A, U.S. Individual Income Tax Return, simplified 1040A tax form.

1099-DIV - A required statement from your broker or a company whose stock you own that summarizes your dividends.

1099-INT - The statement you receive from payers of interest income that summarizes your interest income for the year.

401(k) plan - A portion of your earnings is deducted and placed in a qualified retirement plan.

A Close Look At Federal Taxes - This article on federal taxes will cover basics about federal taxes from history of taxation in the United States, the institution in charge of the taxation process to the methods presently used to calculate the taxes to be paid by individuals and institutions across America.

A View at Federal Income Tax - This article on federal income tax looks at the definition of the term, the rates that are applied to federal income tax, the situations which call for tax deductions, the people who are expected to pay the taxes and the two methods that are applied calculation of taxes

Accessing State Tax Forms - State tax forms can be obtained every year at the beginning of every April through online advertisements. Information of how to fill these forms is also available through the same channel. They come in a PDF format and can be used by self employed individuals as well as owners of LCC.

Basics of U.S Tax System Explained - Till the period of World War II, the income taxes were paid as an approximate amount at the end of every year. At present, the people of America are paying about forty percent of their income as tax, which was only about six percent few years back.

Business Payroll Taxes - Your If you have any employees, by IRS you are required to withhold payroll taxes from their paychecks.

Casualty - A casualty occurs when property is damaged as a result of a disaster such as a hurricane, fire, car accident or similar event.

Claiming your Tax Refund - The following article seeks to give familiarity to the processes and regularities that are concerned with tax refunds. Matters relating to tax are always complex for the general mass to understand; therefore, such an imminent piece is very helpful.

Earnings Withholding Order - An Earnings Withholding Order is a continuing levy on a percentage of an individual's earnings.

Economic Development Areas EDAs - These areas are: Enterprise Zones (EZs), Local Agency Military Base Recovery Areas (LAMBRAs) Targeted Tax Areas (TTAs).

Evolution of Taxes in U.S - The taxation system of U.S has been subject to various changes in the past that were a response to the taxation scenario present in the country and all over the world.

Filing your Home Taxes - Filing your home taxes is a very vital domestic exercise that everyone who wants to lead an organized and well structured financial endeavor should consider.

Financial Hardship - If you cannot pay the full amount due with your income tax return, you can ask to make monthly installment payments.

Form 1040, U.S. Individual Income Tax Return - Form 1040, U.S. Individual Income Tax Return. If any federal income tax withheld is shown on these forms, include the tax withheld on Form 1040, line 62.

Form 1040EZ, U.S. Individual Income Tax Return - Form 1040EZ, U.S. Individual Income Tax Return

How Can One Get a Mortgage? - Since the mortgage rates have fallen down suddenly early this year, the swiftness of finance applications has definitely shown indications of intensification.

How Does An Income Tax Form Look Like? - This article is to give information how individuals who are liable to pay taxes can make discloses of their earnings for purposes of reconciling of taxes against any exemptions, by the Internal Revenue Service.

How Tax Deductions Are Made - It is certain that you need to understand how a fraction of the amount you were contracted for if you earn a direct income, or profits from your business goes to the authorities in the form of taxes, and this article tries to bring out how these deductions are done.

How To Do Your Taxes - Find out how to do your taxes and if you are using an online service find out what to look for.

Importance Of Filling 1040ez - This article is about 1040ez which enables the taxpayer file in the returns at the end of the month. The 1040EZ is a simplified form used by the IRS for income taxpayers that do not require the complexity of the full 1040 tax form.

Installment agreement - If you cannot pay your taxes in full, you may request to make monthly installment payments.

Obama extends tax relief to working families - Tax Relief President Obama announced a five-fold, tax-cut plan and vowed to simplify the monstrous tax code that baffles most Americans.

Property tax lien - Property tax is based upon your property’s assessed value and your property taxes is the current tax rate.

Regressive tax - A tax that tends to take a larger percentage of the incomes of lower income citizens than it takes from the incomes of higher income citizens.

Tax Relief: Tax Deduction and eligibility for deductible taxable income - Tax deduction represents expenses incurred by the tax payer and is sometimes referred to as tax deductible expenses.

Tax shelters still exist and can save you money - Tax shelters have been described by the unsophisticated as gimmicks or loopholes.

Temporary Absence - - Even if you qualifying person was temporarily absent from your home, you are considered to have occupied the same household.

Wash sales - Simultaneous or near-simultaneous purchases and sales of the same property.

What Tax Relief Is - A definition and an illustration of what Tax Relief is. It gives several examples of tax relief laws allowed by the IRS, tax rates and the purposes of these tax reliefs.

Who is an innocent spouse and how can I get relief of tax? - Generally, when a joint tax return is filed, each spouse is equally liable for all the tax, penalties, and interest for the particular joint tax year.


An investigation conducted by the IRS to discover whether an individual has filed his tax return correctly. An audit can either be conducted through a face to face meeting or a letter asking for further information. The IRS audits returns thatlook suspicious, including tax returns that claim a high number of deductions, unreported income or home office deductions.

Back Taxes

Taxes not completely paid when they are due. Back taxes can be assessed by federal, state or local taxing agencies. A taxpayer can be assessed back taxes by not paying taxes when they are due, failing to report all income on a return, taking too many deductions or failing to return a tax return all together. Back taxes are subject to fines and fees.

Bank Levy

The IRS can issue a levy against a taxpayer’s bank account if the taxpayer refuses to pay back taxes. The bank levy will collect all of the funds in the taxpayer’s bank account, up to the amount owed, and send it to the IRS. Before the IRS can issue a bank levy, they must send out a Final Notice of Levy. They can then issue a levy within 30 days after sending out the final notice. When a levy is issued, the taxpayer’s bank must freeze all of his accounts for 21 days. On the 21st day, the bank must send all frozen assets to the IRS.


An individual declaring bankruptcy is protected from creditors seeking his assets. However, the IRS can generally get past any protection that bankruptcy offers. Therefore, a person can file for bankruptcy and still owe the IRS money.

Collection Information Statement

A statement that tells the IRS what a person’s income, assets and expenses are. The IRS uses the information collected from the statement to determine how much of a person’s tax debt to collect.

Currently Non-Collectible Status

This status protects taxpayers who are not financially able to pay their taxes. If the IRS accepts a taxpayer’s request to enter currently non-collectible status, they will keep him in this status until his finances improve. When a taxpayer’s account is in currently non-collectible status, the ten-year statute of limitations that the IRS has to collect taxes continues to run. Unless the taxpayer is removed from currently non-collectible status, the statute of limitations will eventually expire, and he will not owe the IRS back taxes.

Dissipated Asset

Money used for paying something other than tax debt. If an individual owes back taxes and is asking for debt relief, the IRS will look for dissipated assets. The IRS may say that the dissipated assets should have been used to pay down tax debt and refuse to settle for less than the amount of the dissipated asset or refuse to negotiate all together.

Form 1040

The form used for individuals to file a tax return. Two simplified versions of this form, 1040EZ and 1040A, exist for individuals with relatively easy tax returns. The 1040 form has six sections that taxpayers commonly use: Schedule A – Describe itemized tax deductions. Individuals taking the standard deduction do not need to use Schedule A. Schedule C – Describes tax deductions from self employment. Self-employed individuals may write off many business expenses as long as they can prove that those expenses were used for their business. Schedule D – Describes capital gains and losses. A physical asset sold for a profit is a capital gain, and an asset sold for a loss is a capital loss. Schedule E – Describes income or loss from an estate, trust, royalty, real estate rental, S-Corporation or partnership. Schedule F – Describes tax deductions from farming income and expenses. This form is very similar to Schedule C. Schedule SE – Describes the amount of taxes a self-employed individual must pay based on his income. Generally, income tax from self-employed individuals is due quarterly.

Income Statement

A financial statement used by self-employed individuals to show their business’s profitability. The statement reports net income by calculating the revenue generated minus the expenses incurred.

Innocent Spouse Relief

The IRS offers innocent spouse relief to spouses who have a clean tax record, but get married to individuals who owe the IRS money. The relief means that the IRS will only assess fines and collect the assets of the individual owing back taxes. As long as the spouse does not file jointly, he or she should be eligible for innocent spouse relief.


An action that gives the IRS authority to seize a taxpayer’s property if that taxpayer does not pay back taxes. The IRS can issue a levy against a taxpayer’s property, home or even bank account. A levy is usually used as a last resort by the IRS, therefore individuals should have plenty of warning and opportunities to settle tax debt before a levy is issued.


A public record attached to a taxpayer’s property saying that he owes the IRS money. A lien tells creditors that the IRS has a claim on that taxpayer’s property, including the property that he buys after the lien is filed. A lien significantly hurts a person’s credit score.

Offer in Compromise

An offer in compromise is an agreement to settle debt between the IRS and a taxpayer who has no way of paying his back taxes. If the IRS accepts the offer in compromise, the taxpayer will be relieved of any tax debt he owes. The IRS will accept an offer in compromise if there is doubt a taxpayer’s tax is correct or if there is doubt he can pay what is owed. Occasionally, an offer in compromise will be accepted if a taxpayer proves the tax would be unfair or create an economic hardship. The taxpayer must file and pay tax returns for the next five years after his offer is accepted, or he will again be responsible for all taxes and fines.

Penalty Abatement

The IRS can issue a tax penalty abatement, removing all tax penalties, if an individual can show that he had reasonable cause for not paying his taxes on time. To qualify for a tax penalty abatement, an individual must show the IRS that he has showed due diligence in trying to repay the debt. A person could qualify for tax abatement if he or a close family member has recently experienced a serious health problem, theft, bad accounting advice or a natural disaster.

Proposed Tax Change Notice

A notice sent to a taxpayer by the IRS showing proposed changes to the taxpayer’s income tax return. The IRS will send a proposal if the numbers on an individual’s tax return are different than the numbers provided to them by that individual’s employers and banks. The notice is not a bill, it is simply a statement that allows the taxpayer to disagree, partially agree or agree with the proposed changes.

Retired Debt

Debt that is completely paid off. However, if the IRS is evaluating an individual’s ability to pay back debt when considering a debt relief compromise, they may consider debt that will soon be paid off as retired debt. It is important to consider debt that the IRS may consider “retired” when filing for an offer in compromise.

Statute of Limitations on Taxes

Under normal conditions, the IRS has 10 years to collect after a tax has been assessed. This statute of limitations can be suspended, however, if a person files for bankruptcy or an offer in compromise. The statute of limitations is not suspended if a taxpayer is in currently non-collectible status.

Substitute for Returns

All individuals are required to calculate their own taxes and file a tax return every year. However, the IRS will file a substitute return for an individual if he fails to file one. Before filing the substitute, the IRS will request one more time that the taxpayer files the late return on his own. Substitute returns are subject to fines and fees. They are usually not filed unless a tax return is late by at least two or three years.

Tax Refund

If an individual completes his tax return and finds out that he paid more in taxes through the year than was required, he is eligible for a tax return. If that individual owes back taxes from previous years, the taxing agency might keep the tax refund to help pay that tax debt.

Trust Fund Recovery Penalty

If a business does not pay the IRS enough payroll taxes, certain individuals in that business could be held responsible to pay back that money. Owners, officers and payroll employees could be charged a trust fund recovery penalty, meaning that the IRS could go after that person’s property or bank account.

Wage Garnishment

A levy that the IRS can issue against a taxpayer’s wages. When the IRS garnishes an individual’s wages, that person’s employer must pay a certain percentage of those wages directly to the IRS. The wage garnishment can be released only if the taxpayer completely pays off the debt, agrees to a payment plan or shows that the garnishment is causing an economic hardship. Wage garnishments usually collect a high percentage of an individual’s wages – sometimes 80 percent or more.

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. To request innocent spouse relief, the taxpayer must file Form 8857. (See also Equitable Relief and Separation of Liability).

Installment Agreement (IA)

An agreement between the IRS and a taxpayer to allow the taxpayer to pay their delinquent debt over a specified period of time.

IRS Form 1040- Individual Income Tax Return

Those individuals and married couples who are required to file with IRS must complete this return. **Form 1040EZ is for income less than $100,000, interest less than $1,500 and cannot be used if the taxpayer received the advanced earned income credit. Form 1040PC is a paper tax return prepared on a computer using the approved IRS tax preparation software.

IRS Form 1065- Return for business partnership income

Return for partnerships to report income and expenses for the previous tax year.

IRS Form 1120- Corporation Income Tax Return

Return for incorporated businesses to report income and expenses for the previous tax year.

IRS Form 940 - Annual Unemployment Tax Return

Each business reports Federal Unemployment Tax Act (FUTA) tax based on the amount paid to each employee. The tax applies to the first $7000 paid to each employee [Federal base = $7000, State base is different] in a year after subtracting any exempt payments. FUTA tax along with state unemployment systems provides payments of unemployment compensation to workers who have lost their jobs.

IRS Form 941- Quarterly tax return/ payments

Businesses that withhold wages from their employees are required to file 941-Employers Quarterly Federal Tax Return. These are filed each calendar quarter i.e. January thru March, filed April 30; April thru June, filed July 31; July thru September, filed October 31; and October thru December, filed January 31. Any business that pays more than $2500 in net taxes is required to make quarterly deposits to authorized financial institutions. Again, IRS is trying to aid businesses in being compliant with paying their tax.

IRS Form W-2

Employers must provide employees with a statement of how much they earned in wages, tips and other compensation from the previous year in a W-2 form (by January 31 of each year). The form will reflect state and federal taxes, social security, Medicare wages and tips withheld.

IRS Form W-4 (Employee's Withholding Allowance Certificate)

This form, completed by the employee, determines how much of the individuals paycheck is withheld for federal income taxes.

Itemized Deductions

Expenses claimed on an individuals tax return (on Schedule A), that are subtracted from the adjusted gross income to determine taxable income. Examples of itemized deductions include medical expenses, taxes paid (other than federal taxes), interest, charitable contributions, and employee business expenses.


Garnishment attached to taxpayers wages, bank account, account receivable, social security income, etc.


Whether a taxpayer does or does not own any property, IRS will issue a lien against their SSN to hinder them from purchasing, selling or transferring any property. A lien will effect their credit report. If the taxpayer is preparing an OIC and it is accepted, the lien will be released once the OIC payment terms have been satisfied. If not preparing an OIC, the lien will be released when the tax debt is either paid in full or the statute to collect the tax has expired. *The Internal Revenue Code of 1986 provides for a statutory lien of the Federal Government 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 Federal Tax Lien is formally recording in the appropriate public records office (county recorder, MENSE, Secretary of State (UCC) or US District Court) in order to establish priority over creditors, judgement lien creditors and other lenders.

Lien Discharge

Removal of a lien on a specific piece of property to allow for its sale or disposal.

Lien Release

Issued by IRS when a tax debt is fully paid or if the taxpayer can prove they are suffering from a financial hardship and are unable to provide for their familys health and wellbeing.

Lien Subordination

To set aside a lien temporarily to allow for a sale or refinance.

Master File

An IRS File which consists of a series of runs, data records and files that are in production with links to many of the other IRS systems. All businesses and individuals have an IRS Master File. Master files receives individual or business tax submissions in electronic format and processes them through a pre-posting phase, posts the transactions, analyzes the transactions and produces output in the form of Refund data, Notice data, Reports, and information feeds to other entities.


On the IRS Master File, the module of the return defines a specific return by its time frame. Form 1040, Individual Income Tax Return, is normally for a calendar year module and Form 941, Employers Quarterly Tax Return, is for a 3-month quarterly module during a calendar year i.e. March 31st, June 30th, September 30th, and December 31st). (Same as the term period.)

Monthly Disposable Income

Any positive amount remaining after the taxpayers necessary monthly living expenses are subtracted from their monthly income. MDI is used to help calculate the taxpayers RCP (reasonable collection potential) for OIC purposes.

Notice of Federal Tax Lien

Whether a taxpayer does or does not own any property, IRS will issue a lien against their SSN to hinder them from purchasing, selling or transferring any property. A lien will effect their credit report. If the taxpayer is preparing an OIC and it is accepted, the lien will be released once the OIC payment terms have been satisfied. If not preparing an OIC, the lien will be released when the tax debt is either paid in full or the statute to collect the tax has expired. *The Internal Revenue Code of 1986 provides for a statutory lien of the Federal Government 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 Federal Tax Lien is formally recording in the appropriate public records office (county recorder, MENSE, Secretary of State (UCC) or US District Court) in order to establish priority over creditors, judgement lien creditors and other lenders.

Notice of Levy

A notice imposing and collecting a fine. When used in conjunction with IRS, this normally refers to the document that is served on a third party that attach wages, bank accounts, and other personal property.

Offer In Compromise

Code Section 7122 authorized 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 compromise for less than the amount owed. The offered dollar amount is based on the taxpayers net worth plus their future income potential.

An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. A tax debt can be legally compromised for one of the following reasons:

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. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable. The objective of the OIC program is to accept a compromise when it is in the best interests of both the taxpayer and the government and promotes voluntary compliance with all future payment and filing requirements.

Typically there is an application fee of $150.00 for the offer in compromise. The IRS will accept an Offer in Compromise (OIC) when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. The ultimate goal is a compromise that is in the best interest of the taxpayer and the IRS. Acceptance of an adequate offer will also result in creating, for the taxpayer, an expectation of a fresh start toward complying with all future filing and payment requirements. The OIC process is based on a debt-to-asset formula devised by the IRS.

The Process -

The OIC process is complex and time-consuming and can take up to 24 months to resolve. TGC relies on the client to provide detailed financial information required by the IRS. The IRS will not consider an OIC if the client-submitted documents are more than three months old. In addition, the client must be in compliance (all taxes must be filed and quarterly estimated payments, if applicable, have to be current).

Power of Attorney

The legal form giving an authorized individual (Certified Public Accountant, Enrolled Agent, or Attorney, etc) authority to represent a taxpayer before the Internal Revenue Service.

Qualified Domestic Relations Order

A state court can allocate an interest in a qualified retirement plan to a former spouse through a qualified domestic relations order. Payments made to a former spouse as the result of QDRO will not result in the taxpayer being assessed a penalty for early withdrawal from the plan; the former spouse will be taxed on the benefits when received, or the benefits can be rolled over tax free into an IRA or other qualified retirement plans.

RCP Equation:

Total Income - Total Expenses = MDI (Monthly Disposable Income)
MDI x FIP Factor (Future Income Potential) = Future Income
Future Income + Equity in Assets = RCP

Reasonable Collection Potential

The total realizable value of the taxpayers assets plus any future income. The total is generally the minimum Offer in Compromise amount.

Recovery Period

The period of time, normally in years, over which the basis (cost) of an item of property is recovered (by depreciation).


When an individual has more tax withheld from their wages than what is owed on their tax return, this difference results in an overpayment of taxes or a refund.

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)).

Schedule C - Profit and Loss from Business

When a taxpayer has an unincorporated business and is a sole proprietor business owner, they are required to file taxes on Schedule C attached to their Form 1040. Schedule C allows taxpayers to deduct the expenses incurred during the tax year they conducted business from the gross income received. Schedule C taxpayers are required to pay half of their Self-Employment tax since they work for themselves. Any debt incurred by a sole proprietor will be recorded as a 1040 liability under the taxpayers SSN and can be found on their IMF (Individual Master File). **Taxpayers need to be able to prove the figures listed on the 1040, Schedule C.

Schedule K-1 - Partner's Share of Income, Credit, Deductions

Each partner within the partnership uses this Schedule K-1 to report his or her share of the partnerships income, credits, deductions, etc. This form is not filed with IRS, but is simply a record-keeping requirement. Even though partnerships are not generally subject to income tax, each individual partner is liable for tax on their share of the partnership income, whether or not it is distributed.

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. This differs from wage earners who have social security taxes taken from their wages. An individual must pay self-employment tax if: 1) the net earnings from self-employment are $400 or more OR 2) Services are performed for a church as an employee and $108.28 or more is received.

Status 53

Status 53 is also referred to as Currently Non-Collectible, Currently Uncollectible, or CNC. Status 53 allows taxpayers to make no monthly payments to their delinquent tax debt due to minimal income to provide for themselves and their family.
Status 53 is reviewed by the IRS on a regular basis and the client's status can be changed back to "Collectible" if there is any change in the client's financial situation. Penalties and interest continus to accure while the client is in Status 53.

Statute of Limitation

The IRS has set specific time periods before expiration of certain actions, i.e. to collect a tax, make an assessment to an account, 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, which translates, What are we going to get out of this?

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 Debt

A debt is something owed, such as money, goods, or services. In this case, it is a debt that is owed to the IRS or state authority.

Tax Exempt

Not subject to tax. Normally this refers to charitable and other qualified organizations, but can also refer to specific exempt income of individuals.

Tax Exemptions

The amount allowed by the Code for a personal exemption (for an individual and spouse if filing a joint return) and for a dependency exemption (for a taxpayers dependents). In 2004, each exemption was worth $3100 as a deduction from adjusted gross income.

Tax Help

There are lots of companies that will offer tax help. But true tax help is not just setting up payment plans it is interceding with the IRS on your behalf with the IRS to help solve your tax problems.

Tax Laws

The body of law created by congressional action that governs the entire administrative process of the tax system. Officially known as Title 26, Unites States Code, it is more commonly known as the Internal Revenue Code or the Code. Interpretation of the Code begins with the IRS, and will ultimately end with the interpretation provided by the judicial system.

Tax Liability

The total tax bill that an individual or business owes after all withholding (individuals), Federal Tax Deposits (businesses), Estimated Tax Payments (individuals, sole proprietorships & corporations), and payments attached to the tax return are submitted and credited by the IRS.

Tax Problem

Tax problems can refer to any type of problems taxpayers are having with the IRS (federal) or state tax authority. These problems may include garnishments, levies, liens, back taxes and interest owed, haven't filed a tax return, haven't paid your business taxes, haven't paid your self-employment taxes, can't pay your Installment Agreements, etc.

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 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.