Tax Relief Glossary
Clear definitions of key tax terms, IRS programs, and tax relief concepts.
Adjusted Gross Income (AGI)
Adjusted Gross Income is your total gross income minus specific deductions (called 'adjustments'). AGI is used to determine eligibility for various IRS programs including Offer in Compromise and installment agreements.
Back Taxes
Back taxes are taxes that were not paid when originally due. Back taxes include the original tax liability plus any penalties and interest that have accrued. The IRS can pursue collection of back taxes for up to 10 years from the date of assessment.
Collection Due Process (CDP)
Collection Due Process is a taxpayer's right to a hearing before the IRS takes certain collection actions, including filing a tax lien or issuing a levy. CDP hearings allow taxpayers to dispute the tax or propose alternatives.
Collection Statute Expiration Date (CSED)
The Collection Statute Expiration Date is the deadline by which the IRS must collect a tax debt, generally 10 years from the date of assessment. After the CSED passes, the IRS can no longer legally collect the debt.
Currently Not Collectible (CNC)
Currently Not Collectible is an IRS account status that temporarily suspends collection activity when a taxpayer cannot afford to make payments without experiencing financial hardship. While in CNC status, the 10-year collection statute continues to run.
Enrolled Agent (EA)
An Enrolled Agent is a federally-licensed tax practitioner who has unlimited rights to represent taxpayers before the IRS. EAs must pass a comprehensive three-part exam or have qualifying IRS experience and complete annual continuing education.
Federal Tax Lien
A federal tax lien is the government's legal claim against a taxpayer's property when they fail to pay a tax debt. The lien attaches to all property including real estate, personal property, and financial assets. It is filed publicly and affects credit scores.
First-Time Penalty Abatement (FTA)
First-Time Penalty Abatement is an IRS administrative waiver that removes failure-to-file and failure-to-pay penalties for taxpayers who have been compliant for the prior three tax years. FTA is one of the easiest forms of penalty relief to obtain.
Fresh Start Program
The IRS Fresh Start Program is a set of initiatives that make it easier for taxpayers to pay back taxes and avoid tax liens. Key features include raising the lien filing threshold to $25,000 and expanding access to installment agreements and Offers in Compromise.
Garnishment
Garnishment is a legal process by which the IRS or a state tax agency withholds a portion of a taxpayer's wages or other income to satisfy an outstanding tax debt. The IRS can garnish wages without a court order, unlike most private creditors.
Innocent Spouse Relief
Innocent Spouse Relief is an IRS program that allows a taxpayer to be relieved of responsibility for tax, interest, and penalties on a joint return if their spouse or former spouse improperly reported items or omitted items on the return.
Installment Agreement
An IRS Installment Agreement is a payment plan that allows taxpayers to pay their tax debt over time in monthly payments. Types include Guaranteed (under $10,000), Streamlined (under $50,000), and Non-Streamlined (over $50,000) agreements.
IRS Notice
An IRS Notice is an official communication from the Internal Revenue Service regarding your tax account. Notices may inform you of changes to your return, request payment, propose adjustments, or announce collection actions. Common notices include CP14, CP501, CP504, and LT11.
Levy
A tax levy is the IRS's legal seizure of property to satisfy a tax debt. Levies can include garnishing wages, taking money from bank accounts, seizing and selling vehicles, real estate, and other personal property. Levies are different from liens, which are claims against property.
Offer in Compromise (OIC)
An Offer in Compromise is an agreement between a taxpayer and the IRS that settles the taxpayer's tax debt for less than the full amount owed. The IRS considers the taxpayer's ability to pay, income, expenses, and asset equity. In fiscal year 2024, the IRS accepted approximately 17,890 OICs.
Penalty Abatement
Penalty abatement is the reduction or removal of IRS penalties from a taxpayer's account. Common methods include First-Time Penalty Abatement, Reasonable Cause relief, and Statutory Exceptions. Penalties can represent 25% or more of the total tax debt.
Power of Attorney (Form 2848)
IRS Power of Attorney, granted through Form 2848, authorizes a qualified tax professional (EA, CPA, or attorney) to represent a taxpayer before the IRS, receive confidential tax information, and negotiate on the taxpayer's behalf.
Reasonable Collection Potential (RCP)
Reasonable Collection Potential is the formula the IRS uses to determine the minimum acceptable Offer in Compromise amount. RCP equals the equity in assets plus future income (monthly disposable income multiplied by a factor based on payment terms).
Revenue Officer
A Revenue Officer is an IRS employee who handles collection of delinquent tax accounts. Revenue Officers are assigned to more serious cases and have authority to seize assets, file liens, and issue summonses. They differ from Revenue Agents, who handle audits.
Substitute for Return (SFR)
A Substitute for Return is a tax return the IRS files on behalf of a taxpayer who has not filed. SFRs typically result in higher tax liability because they don't include deductions or credits the taxpayer may be entitled to. Filing your own return usually results in a lower balance.
Tax Attorney
A Tax Attorney is a lawyer who specializes in tax law and has passed the bar exam. Tax attorneys can represent taxpayers before the IRS, in Tax Court, and in other legal proceedings. They are recommended for complex cases involving potential fraud, criminal investigations, or litigation.
Tax Court
The United States Tax Court is a federal court where taxpayers can dispute IRS determinations before paying the disputed amount. Tax Court petitions must be filed within 90 days of receiving a Notice of Deficiency.
Tax Resolution
Tax resolution is the process of resolving outstanding tax debts with the IRS or state tax agencies. Resolution methods include Offers in Compromise, installment agreements, penalty abatement, Currently Not Collectible status, and innocent spouse relief.
Trust Fund Recovery Penalty (TFRP)
The Trust Fund Recovery Penalty is a penalty assessed against responsible persons who willfully fail to collect, account for, or pay employment taxes (payroll taxes) to the IRS. The TFRP equals 100% of the unpaid trust fund taxes and can be assessed against business owners, officers, and other responsible individuals.
Unfiled Returns
Unfiled returns are tax returns that were required but not submitted to the IRS by the due date. The IRS requires resolution of unfiled returns before approving any settlement programs. Unfiled returns can result in Substitute for Return filings by the IRS, typically at higher tax amounts.
Wage Garnishment
Wage garnishment is the IRS's method of collecting tax debt by requiring an employer to withhold a portion of a taxpayer's wages. The IRS can garnish wages without a court order. The amount exempt from garnishment depends on filing status and number of dependents.
Withdrawal of Lien
A withdrawal of lien removes a filed Notice of Federal Tax Lien as if it was never filed. This differs from a lien release (which acknowledges the debt was paid). Withdrawal is available under the Fresh Start Program for taxpayers who set up Direct Debit Installment Agreements.
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