Tax Resolution Terms
Definition of common tax relief terms and concepts in plain english:
ACS - Automated Collection System
Audit - An audit is an IRS examination of an individual or corporation's tax return, to verify its accuracy. There are three types of audits: correspondence audits (the IRS mails a request for additional information), office audits (an interview is conducted at a local IRS office), and field audits (an interview is conducted at a taxpayer's place of business, for a corporate tax return).
Back Taxes - Back taxes is a slang term for taxes that were not paid when due. They are typically taxes that are owed from a prior year.
Innocent Spouse - An exception to the general rule that both signers of a joint return are individually liable for the entire tax due plus penalties and interest. Generally, when you sign a joint return you are liable for the entire tax due, even if you later divorce your spouse, did not earn the income that generated the tax, and did not know about the omission of income or claiming of erroneous deductions. Under the innocent spouse rule, a spouse may claim to not be jointly liable if he or she did not know about the errors and did not benefit from them.
Installment Agreement - An agreement between the IRS and a taxpayer that allows the taxpayer to pay unpaid federal taxes under a monthly payment plan.
IRS Levy - An IRS levy (also known as an IRS Garnishment) is a legal seizure of your property to satisfy your tax debt. An IRS levy can attach to your wages, bank accounts, retirement accounts, stocks, bonds, etc. Typically an IRS wage levy will take 70% - 90% of your take home pay. It is a continuous wage levy, meaning it will continue until the debt is satisfied or until it is legally released. An IRS bank levy will freeze the funds in your bank account for 21 days. If after 21 days you have not resolved the debt or released the levy, the bank must send the money to the IRS.
Offer in Compromise (OIC) - The Offer in Compromise (or OIC) program is an IRS program under 26 U.S.C. § 7122 which allows qualified individuals with an unpaid tax debt to negotiate a settled amount that is less than the total owed to clear the debt. A taxpayer uses the checklist in the Form 656, Offer in Compromise, package to determine if the taxpayer is eligible for the offer in compromise program. The objective of the OIC program is to accept a compromise when acceptance is in the best interests of both the taxpayer and the government and promotes voluntary compliance with all future payment and filing requirements.
Payment Plans - See Installment Agreement
Power of Attorney (IRS Form 2848) - The form appointing your tax representative to act on your behalf before the IRS.
Statute of Limitation - The statute of limitations limits the time during which an action can be brought by the IRS for an audit and the time for IRS tax collection activities. Generally, there is a 3-year statute of limitations for the IRS auditing a tax return and a 10-year statute of limitations for the IRS collecting tax.
Substitute for Return (SFR) - When the IRS uses income reported to it under your social security number and files a tax return for you. When the IRS files an SFR most of the time the taxpayer will end up owing significantly more in back taxes than if they had filed themselves.
Trust Fund Recovery Penalty - A penalty from the IRS for not paying "trust fund" taxes, which are taxes a company withholds from an employees paycheck, including Social Security and Medicare taxes and federal income (withholding) taxes. This penalty can be assessed against any owner, officer, or company employee whose job is related to accounts payable, payroll, or the financial operations of the business.
IRS Levy - An IRS levy (also known as an IRS Garnishment) is a legal seizure of your property to satisfy your tax debt. An IRS levy can attach to your wages, bank accounts, retirement accounts, stocks, bonds, etc. Typically an IRS wage levy will take 70% - 90% of your take home pay. It is a continuous wage levy, meaning it will continue until the debt is satisfied or until it is legally released. An IRS bank levy will freeze the funds in your bank account for 21 days. If after 21 days you have not resolved the debt or released the levy, the bank must send the money to the IRS.
Wage Garnishment - See IRS Levy
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