At Wiztax, we try to keep things simple. So, here are some commons terms you might hear along with a brief – and simple – description of what they mean.
ACS
Also known as the Automated Collection System. If you owe back taxes, your case is likely assigned to the ACS. ACS is a computer-generated system and you are not specifically assigned to an individual.
Enrolled Agent (EA)
These individuals are licensed to practice before the IRS and represent taxpayers.
Garnishment
Also known as a wage levy (see Levy below)
Hardship Status (also known as Non-Collectible Status or CNC)
If you owe back taxes and can’t afford to pay because doing so would make it difficult to meet your basic monthly living expenses, the IRS will place you in a Non-Collectible Status. While you’re in CNC, you won’t have to make any payments at all.
Installment Agreement
This is also known as a Payment Plan. If you owe back taxes and can’t afford to pay for the entire amount due, the IRS will accept a monthly payment.
Innocent Spouse Relief
When one spouse seeks to be relieved of the joint tax liability.
IRS Form 656
This is the form a taxpayer fills out when seeking an Offer in Compromise. Once signed by the taxpayer, it becomes an offer to settle the tax liability under the terms of the offer. Once accepted by the IRS, it is a binding contract.
IRS Form 433A
It is a form required to be filled out by the taxpayer when seeking certain types of Installment Agreements, a Hardship Status or an Offer in Compromise. Once completed by the taxpayer, it will provide the IRS with the taxpayer’s income, expenses and assets. This is the form which the IRS relies on when determining whether to accept an Offer in Compromise, certain types of Installment Agreements or place the taxpayer on a Hardship Status.
Levy
A levy is a legal mechanism by which the IRS can take money from a paycheck or remove money from your bank account.
Lien
The IRS will file a Lien with the county recorders office to secure the tax liability. It will attach to real property if you own any. It is very rare that the IRS will foreclose on the lien. The lien is much like a mortgage where it will place a third party on notice that the IRS is taking a position. So if you are thinking of trying to refinance and pulling out $20,000 to remodel your kitchen, think again. The IRS will have to be paid first.
Notice of Intent to Levy
This is a notice that the IRS must send to a taxpayer identifying the name, tax ID number and tax period for which the IRS is seeking payment. It’s a notice sent to the taxpayer advising the taxpayer that the IRS intends to Levy his/her bank account or garnishing his/her wages. This notice gives the taxpayer a 30 day warning period.
Offer in Compromise
This is the mechanism by which the Internal Revenue Service will accept less than the full amount of tax you owe based upon an income expense and asset analysis. If you are month to month and have no appreciable equity in any assets, the IRS will likely accept an Offer in Compromise from you.
Penalty Abatement
Under certain circumstances, a taxpayer can ask the IRS for a penalty abatement on one or more tax years. Oftentimes the IRS seeks to determine whether something happened to the taxpayer which may have prevented the taxpayer from filing a return or paying the balance. There are strict criteria for a penalty abatement.
Revenue Officer (RO)
Some taxpayers are assigned to a Revenue Officer. They are usually very helpful and you can call them directly at any time. They still exist to collect the tax you owe, so your charm only goes so far.
Statute of Limitation
This is the date whereby the IRS can no longer collect the tax from a taxpayer. Generally, the IRS has 10 years from the date of assessment to collect the tax. If the IRS doesn’t or is unable to collect the tax within that 10 year period, the tax liability is no longer owed to the IRS. The are circumstances which may extent the 10 year statute of limitations.
Substitute For Return
Also known as SFR. If a taxpayer doesn’t file a return, the IRS may file a return for you. This is called Substitute For Return. The IRS will use any w-2 and/or 1099 information that has been reported to the IRS from the taxpayer’s income source to formulate an SFR. The amount due on the SFR is almost always higher than what the amount would be if the taxpayer had filed his or her actual return. A taxpayer can always file the actual return even after the IRS filed an SFR. The taxpayer’s return will supersede the SFR.
Tax Audit
If a taxpayer files a return, the IRS may seek to review the return for various reasons. The IRS seeks to verify the income and/or expenses the taxpayer self reported on his/her return.
Taxpayer Advocate Service
Was created by the IRS to provide the taxpayer with immediate relief when the taxpayer is experiencing an undue hardship from an IRS action. Filing IRS form 911 triggers the Taxpayer Advocate Service and additional congressional oversight.
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