Resolution Glossary and Terms
Education & Support for Professionals
Resolution
The act or process of reducing or lessening taxes.
This is a tax return that is created to replace an already filed return. This type of return is prepared to indicate a change in information from the originally filed return. There are limitations as to what information can be amended. The taxpayer has up to three years from the due date of the original return to file an amended return if it was filed timely. If the return was filed late, the taxpayer has up to three years from the date of filing.
This is a process that allows taxpayers to contest assessments and other findings by governmental taxing agencies. The IRS offers several methods to appeal including Collections Appeal Procedures (“CAP”), Collection Due Process (“CDP”), Fast Track Appeals, Fast Track Mediation, and tax court.
This is a procedure that the governmental taxing agencies use to verify the accuracy of income, deductions, or other information that was reported in a filed tax return. Audits may be conducted in person (Usually with a representative of the taxpayer), by phone, by email, or by correspondence.
This is a department that uses computer driven automation in combination with live representatives to collect from delinquent taxpayers via telephone and correspondence.
A table containing all of the taxpayer’s assets, encumbrances, and exemptions which calculates equity included in the reasonable collection potential (RCP) calculation.
This is the sum of liabilities stemming from assessments of previously filed tax returns that remain unpaid, and assessments made for returns that have not yet been filed. See Substitute for Return (“SFR”)
If certain rules are met, income taxes may be discharged via this type of legal proceeding. In order to qualify, among other requirements, the liabilities must meet the Three-Year Rule, The Two Year Rule and the 240 Day Rule.
The responsibility and duty of each taxpayer to provide proof that their tax return is accurate.
Typically, debt that is forgiven is considered taxable. In certain cases, income may be excluded. One such example includes if a taxpayer was insolvent at the time the debt was forgiven.
A net gain/loss obtained from the sale of property or assets including real estate, stocks, bonds, and mutual fund shares. A gain/loss is defined as a short-term capital gain/loss if the property or assets that produced it have been held for less than one year and as a long-term capital gain if they have been held for more than twelve months.
A unit where the power of attorney (POA) is filed.
This is the removal of a Federal tax lien against specific property. This type of discharge is often issued in order to allow for the sale of said property.
A donation made to an organization or person that exists for the benefit of the public. A tax deduction is permitted for such contributions when the receiving organization has received tax exempt status under section 501(c)(3)of the Internal Revenue Code.
This is an addendum to the terms agreed upon in an Offer In Compromise. The taxing agencies will require this type of agreement if they believe a taxpayer’s income may increase significantly in the near future. Typically this type of agreement requires the taxpayer to pay more than the terms agreed upon in the offer if their income reaches certain thresholds.
An administrative appeal program that puts disputed issues before the Appeals Office for expedited Resolution. Use form 9423
The IRS must provide a 30 day notice of the right to request a hearing in the Appeals Office before property can be taken by levy or seizure. Use Form 12153.
This document is what the taxing agencies require if a taxpayer wants to claim financial hardship as it relates to paying delinquent taxes. In addition to other information, the taxing agencies want to see what income, expenses, assets, and liabilities the taxpayer has.
This is the period of time a taxing agency has to collect from a taxpayer once tax has been assessed. The IRS period is 10 years. Some States have periods spanning much longer. Certain actions including filing appeals, submitting an Offer In Compromise, and residing out of the country for more than 6 consecutive months can extend (“toll”) the statute.
This is an audit by the government in which the taxpayer provides the requested information via mail and once a determination is made, the results are also sent to the taxpayer via mail. Some audits begin as correspondence audits and become face-to-face audits if (1) the government wants to expand the scope or (2) the taxpayer does not agree with an additional assessment.
This is when the government places a hold on collection for a set period of time based upon the taxpayer’s inability to pay. In essence, CNC status is equivalent to a zero-dollar installment agreement. CNC status is temporary. Typically, the government will revisit the taxpayer’s ability to pay within a 2-year period.
An IRS division that serves the American public by investigating criminal violations of the Internal Revenue Code andother financial crimes
An amount that is subtracted from taxable income to decrease the amount of income that is subject to tax.
This is a tax return that is filed after the prescribed deadline. Those filing Federal and most State income tax returns may apply for a 6-month extension of time to file. If this is done, the amount due with the return is still due by the original filing date. If a tax return is placed on extension and subsequently filed one day later than the extension deadline, it is by definition 6 months and one day late.
A qualifying child or relative that can be claimed by a taxpayer as a dependency exemption on a tax return.
A deduction pertaining to the gradual loss in value of property starting with the original cost of the property and continuing over its assigned tax life.
The basis for acceptance of an Offer In Compromise in which their is doubt that the tax can fully be paid. Use form 656.
The basis for acceptance of an Offer in Compromise in which there is doubt that the taxpayer’s liability is correct. Use form 656-L.
Taxable income received for employment which includes wages, tips, long-term disability income, strike benefits, and income from self-employment.
A written agreement that describes the business relationship between a company and a client.
An Enrolled Agent (“EA”) is approved by the IRS to practice in several areas of taxation. These areas include preparing taxes, representing clients in collection matters, and some levels of appeal. An EA cannot represent a taxpayer in tax court.
Tax payments made to cover a taxpayer’s projected tax liability for the current tax year when they have income that is not subject to withholding.
This is a payment employers make to the taxing agencies comprised of Social Security, Medicare, and income taxes withheld from pay. The frequency at which these payments must be made vary anywhere from weekly to quarterly depending on number of employees and amounts being withheld.
This is a collection tool taxing agencies use to seize assets including wages, bank accounts, retirement funds, investment funds, and pay from clients to self-employed individuals.
This is a program taxing agencies offer to relieve an injured spouse from liability assessed to their corresponding spouse. Based upon certain criteria, the injured spouse must prove that the meet the standards set by the taxing agency. The IRS recently eased the requirements necessary for an injured spouse to obtain relief.
An Installment Agreement is enacted when a taxing agency allows a taxpayer to make payment over a prescribed period of time. The payment amounts will either be based upon full-paying the liability over a given period of time or making payments that equate to less than the full amount owed including penalties and interest based upon hardship.
This department that assigned to collect from people and businesses that have unpaid taxes. These collectors are called Revenue Officers as opposed to Revenue Agents who conduct tax audits.
An IRS manual that has instructions on how to carry out all administrative and procedural affairs, such as how to process and audit returns, access penalties, collect taxes, etc.
Used interchangeably with garnishment, a levy occurs when assets such as wages, bank accounts, retirement funds, investment funds, and pay from clients to self-employed individuals are seized.
A tax relief option that allows a taxpayer to decrease an existing tax liability by applying net operating losses for the current year against a gain from a previous year.
This is a formal notice provided by the IRS when a taxpayer fails to pay or respond within a prescribed period of time. The recipient has 90 days from the date of notice to provide a response or file a petition in tax court.
In order to protect their interest, the IRS will file a tax lien against a person’s or business’s real or personal property. This notice is recorded in the county where the above-mentioned property resides to let the public (including creditors) know the IRS’s position.
This is a formal notice given to a taxpayer by the taxing agency, employer, third party payer, or financial institution shortly after a levy has been issued. In the case of a bank levy, prior to remitting said assets to the taxing agency, the taxpayer has a prescribed period of time to request that the assets be returned. The IRS provides 21 days from the date of levy for the taxpayer to request that assets be returned.
An Offer In Compromise (“OIC”) is an agreement between the IRS and taxpayer that allows unpaid taxes to be settled for an amount less than owed. The IRS bases the offer amount on 12 times (24 in some cases) one’s monthly disposable income plus their quick sale value of assets. The three types of IRS offers are Doubt as to Liability, Doubt as to Collectability, and Effective Tax Administration.
This is an installment agreement that a delinquent taxpayer enters in which they will end up paying a lower amount than they owe. This occurs because the statute of limitations on collection will expire prior to the tax being fully paid. The IRS will only allow this type of installment agreement if (1) the taxpayer qualifies for hardship and (2) the IRS believes that the taxpayer’s income will not increase substantially within the collection statute.
The amount/s assessed by taxing agencies for things such as failure to pay, failure to file, or failure to respond. Penalties and interest are added to one’s principle tax liability and continue to grow as allowed by law. Penalties accrue interest.
This happens when a taxing agency removes penalties based upon a request from the taxpayer or their representative. To request penalty abatement, one must provide a reason. There are numerous reasons which include accountant error, illness, and family emergency. The IRS offers a first time abatement program (“FTA”) to taxpayers that meet certain requirements. While penalties may be abated, interest most often cannot.
This is a form used by the taxing agencies which allow a designated representative to obtain information and discuss matters pertaining to a client’s tax concerns. The IRS allows CPA’s, attorneys, and enrolled agents to be included in power of attorney.
If a taxpayer is due a refund more than three years from the time a tax return was due or two years from the time the tax was paid, they will (1) not receive the refund and (2) the refund will not be applied to their account.
Revenue Officers are assigned to cases in which the IRS has not been able to collect with attempted letters, levies, garnishments, phone calls, and emails from IRS automated collections.
This type of tax is comprised of social security and Medicare (FICA) tax that is calculated for people who work for themselves and do not have these amounts taken out of their pay.
Laws that put time limits on many tax-related actions. The Statute for the IRS regarding collecting a tax liability with any interest and penalties that have accrued on the liability is 10 years from the date the tax was assessed. The Statute for auditing a tax return is three years from the filing deadline for the return.
This process allows the IRS to set aside their tax lien (Temporarily) so that a delinquent taxpayer may proceed with the sale or refinance of their property. This may be done so someone can put themselves in a better financial position. A condition of this process sometimes requires that a portion of the money gained by the delinquent taxpayer be given over to the IRS.
The IRS prepares interim tax returns for the purpose of assessing liability for years a taxpayer failed to file. This return the IRS prepares is based upon income information and limited expense information reported to the IRS. A SFR includes basic deductions and exemptions which may be less than what a taxpayer can actually take. An SFR may also preclude a taxpayer from including the liability for the year of the SFR from being discharged in bankruptcy.
A form used by governments to report income, deductions, withholding, payroll, sales, and other items in order to determine what amount of tax should be levied. Types of tax returns include individual income tax returns, corporate income tax returns, partnership income tax returns, payroll tax returns, sales tax returns, estate tax returns and gift tax returns.
These are assessments that governments (federal, state, and local) levy against its constituents to pay for public services.
Assessed as a civil penalty to companies as well as personally to anyone deemed responsible for not making payroll tax deposits, this penalty equates to the amount of income tax withheld from employees pay combined with the employee’s portion of Medicare and social security tax withheld.
This is one of several ways in which the taxing agencies collect unpaid tax. In this instance, the taxing agencies require that an employer withhold and remit a portion of the delinquent taxpayer’s wages. In some cases, the IRS will take all of an employee’s earnings with the exception of what amounts to minimum wage.