GLOSSARY
We have gathered a list of common terms for you to better understand your tax issues.A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Automated Collection System
Automated Collection System is a computerized system that automatically responds to certain conditions happening to a taxpayer’s account. Most taxpayers who have back tax liabilities are monitored through ACS. ACS' main goal is to collect on a back tax liability through full payment of the tax or through monthly Installment Agreement payments. ACS issues levies and garnishments in order to collect on the back tax liabilities. ACS will also place a taxpayer into a Currently Non-Collectible status when he/she can demonstrate they are in a financial hardship. By contacting ACS, our Tax Practitioners can resolve an open case with any IRS agent. The resolution of a particular case may be a release of garnishment through the implementation of an installment agreement, or having the taxpayer's account being placed into a Currently Not Collectible status.
Bank Levy
The IRS has the right to issue a bank levy on a bank account that bears the name of a taxpayer who owes the IRS money after providing adequate notices to the taxpayer. Notice constitutes several letters with the final letter bearing a Final Notice of Intent Levy. After the IRS has sent out the Final Notice of Intent Levy, it can issue a bank levy 30 days from the date of the letter.
A Notice of Levy is sent to the taxpayer's bank and it attaches to all accounts in the name of the taxpayer regardless of a sole or joint account. The bank is legally obligated to honor the levy. The levy freezes the funds on deposit in the account for 21 days. A taxpayer may be able to release the levy if he/she can proof that it is causing financial hardship. On the 21st day, the bank must send the frozen funds to the IRS.
Collection Information Statement
The Collection Information Statement is a form used to provide vital financial information to the IRS such as taxpayer’s income, expenses and assets. If you owe back taxes, the IRS uses the information on the Collection Information Statement to determine the proper resolution of your tax matter.
Currently Non-Collectible Status
A taxpayer's account will be placed on Currently Non-Collectible status in situations where the IRS recognizes that the taxpayer does not have the ability to pay the taxes via full payment or through an Installment Agreement. When a taxpayer's account is temporarily placed on Currently Non-Collectible status the IRS does not pursue collection activity against the taxpayer and the statue of limitations on the tax liabilities continue to run. Unless the taxpayer's financial situation changes for the better, the account should remain on a Currently Non-Collectible status until the tax liabilities expire.
Dissipated Assets
Dissipated assets are assets sold, transferred, gifted or spent and are no longer available to fulfill one's tax obligations. For example, an individual withdrew monies from his retirement funds to purchase a property. The Internal Revenue Service may deem the funds from the retirement account as a dissipated asset. The Internal Revenue Service may assert that any dissipated assets should have been used to pay the tax debt and refuse to settle for less than the amount of the dissipated asset. As a result, a dissipated asset may cause the Internal Revenue Service to refuse to negotiate with a taxpayer.
Injured Spouse
If you file a joint tax return and all or part of the overpayment was, or is expected to be applied to your spouse’s past-due taxes, you may be considered an injured spouse.
Levy
Levy is the actual taking of a taxpayer's property/equity, usually through a third party, in order to settle past due taxes. Example bank levy or wage levy.
Under normal circumstances, a taxpayer receives 5 notices including the initial bill for taxes due. The fifth and final notice usually arrives by certified mail and it is titled "Intent to Levy" and the final notice is usually known as the "Final Notice of Intent to Levy" or "30-day letter". When you receive a final notice, the IRS is allowed to seize property/wage on the 31st day after issuance.
Lien
A Federal tax lien attaches to everything the taxpayer owns including rights, titles and interests in any kind of property of value. By filing notice of this lien, your creditors are publicly notified that IRS has a claim against all your property, including property you acquire after the lien is filed. Your credit score will be affected and the only way to have a lien removed is by:
- Satisfying the tax due (including interest and other additions); paying the debt or by having it adjusted through the submission of an Offer in Compromise, or
- Guaranteeing payment of the debt by submitting a bond.
- Expiration of the statute of limitations.
Typically 10 years after a tax is assessed, a lien is removed automatically if the IRS has not filed it again. If the IRS knowingly or negligently does not release a Notice of Federal Tax Lien when it should be released, a taxpayer may sue the federal government, but not IRS employees, for damages.
Lien Subordination
The IRS may take a lower place than a "junior lie nor" (someone whose lien originally had a lower place then the IRS lien) if it receives the dollar value of the lien in the property that the junior lienor is acquiring, for example, a second mortgage. IRS Publication 784 explains how to prepare for the application of a lien subordination.
Notice of Deficiency
A Notice of Deficiency is a notification to a taxpayer that he/she owes taxes and the IRS has made the proposed assessment and requires the taxpayer to respond. This assessment can be disputed. Typically, a taxpayer is granted 90-days to respond; either to agree to the deficiency or file a petition with the Tax Court. If no petition is filed during the 90-day period, a case will be closed and the taxpayer will not have any appeal rights. To protect your appeal rights, taxpayer needs to contact the IRS and request for an extension if more time is needed.
Practitioner Priority Service (PPS)
A nationwide, toll-free, service designed specifically for Tax Practitioners. Tax Practitioners receive quicker and more consistent service through PPS. The types of assistance offered by PPS include taxpayer's account problems, complex refunds, installment agreements, notices and payment tracers.
Proposed Tax Change Notice
A Proposed Tax Change Notice also known as the Notice CP 2000 illustrates proposed changes to a taxpayer's income tax return. The proposal is based on a comparison of the income, payments, credits, and deductions reported on one's tax return with information on these items reported to the Internal Revenue Service by employers, banks, businesses, and other payers. The Proposed Tax Change Notice also reflects any corrections the Internal Revenue Service made to your original return when it was processed. The Proposed Tax Change Notice provides one the opportunity to disagree, partially agree, or agree with the proposed changes. The Proposed Tax Change Notice will provide an explanation of how to respond. IRS assumes that changes are correct if you do not respond by the due date on the notice. If you need more time, contact the IRS to request for an extension.
Retired Debt
If a taxpayer has a balance for an allowable expense (e.g. car payment), which will be paid off soon, the IRS may partially disregard the debt when calculating the taxpayer's long term ability to full pay his or her outstanding Federal tax liability. While analyzing an Offer in Compromise, the IRS will take into consideration the number of payments left and factor that into the outstanding Federal tax liability of a taxpayer to determine how much he/she can pay in future.
Substitute For Returns (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 it on behalf of the taxpayer. The whole purpose of a SFR is to arrive at a definite dollar amount of a taxpayer's liability, so that the IRS can begin collection efforts. Prior to filing a substitute return, the Internal Revenue Service will request that the taxpayer voluntarily file the missing return(s). Typically, the Internal Revenue Service will not file a substitute return until the return has been delinquent by two or more years. The substitute return is often least favorable to the taxpayer; it will most likely result in higher taxes than what the taxpayer would have been assessed if he/she filed it voluntarily.
Statute of limitations (SOL)
It is the statute in a common law legal system that set forth the maximum duration, after certain events, that legal proceedings based on those events may be initiated. In the case of a tax liability, the SOL is 10 years from the date the taxes were assessed.
In the case of filing an Offer in Compromise, the SOL for assessment and collection is suspended while the OIC is being reviewed.
Tax Levy
Levy is the actual taking of a taxpayer's property/equity, usually though a third party, in order to settle past due taxes. Example bank levy or wage levy.
Under normal circumstances, a taxpayer receives 5 notices including the initial bill for taxes due. The fifth and final notice usually arrives by certified mail and it titled "Intent to Levy" and the final notice is usually known as the "Final Notice of Intent to Levy" or "30-day letter". When you receive a final notice, the IRS is allowed to seize property on the 31st day after issuance.
Tax Lien
A Federal tax lien attaches to everything the taxpayer owns including rights, titles and interests in any kind of property of value. By filing notice of this lien, your creditors are publicly notified that IRS has a claim against all your property, including property you acquire after the lien is filed. Your credit score will be affected and the only way to have a lien removed is by:
- Satisfying the tax due (including interest and other additions); paying the debt or by having it adjusted through the submission of an Offer in Compromise, or
- Guaranteeing payment of the debt by submitting a bond.
- Expiration of the statute of limitations.
Typically 10 years after a tax is assessed, a lien is removed automatically if the IRS has not filed it again. If the IRS knowingly or negligently does not release a Notice of Federal Tax Lien when it should be released, a taxpayer may sue the federal government, but not IRS employees, for damages.
Taxpayer Advocate Service
The Taxpayer Advocate Service is an independent group within the IRS that assists taxpayers who are experiencing economic harm, seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or Revenue Officer is not responding. The goals of the Taxpayer Advocate Service are to protect individual taxpayer rights and to lessen taxpayer burden.
Trust Funds
Trust Fund is withheld income, social security and Medicare taxes. An employer actually holds the employee's money in trust until the employer makes a federal tax deposit in that amount.
Trust Fund Recovery Penalty (TFRP)
TFRP is due to failure to withhold Trust Fund taxes. These monies are withheld from the salary payments of employees and paid over to the government by employers. When an employer does not pay these taxes and actions by the IRS to collect these taxes are not successful, the person responsible for withholding these taxes will be held liable. A responsible person could be one who has the duty to perform and the power to direct the collecting, accounting and paying of trust fund taxes.
Wage Garnishment
A wage garnishment is a levy that the IRS has a right to issue to an employer of a taxpayer who owes back taxes. Wages and salary include fees, bonuses, and commissions. It remains effective until the tax is fully paid, until the IRS agrees to release the wage garnishment through a payment plan or if a taxpayer can show that the garnishment is causing financial hardship.
The IRS must provide proper notification before it can actually issue the levy. This constitutes numerous form letters ending with a letter with a Final Notice of intent to Levy attached. Once the notice has been sent to the taxpayer, the IRS can issue a garnishment after 30 days from the date of the letter.
An employer is legally obligated to fulfill with the terms of the levy. However, if the taxpayer is no longer employed or for some other reason the employer does not owe the taxpayer money, the employer does not have to honor the garnishment. If the taxpayer goes back to work for the employer, then the employer is re-obligated to honor the garnishment. An employer, however, cannot threaten to dismiss an employee due to the levy. Title III of the Consumer Credit Protection Act restricts the amount of an employee's earnings that may be garnished and protects an employee from being fired if pay is garnished for only one debt (see US Department of Labor website).