Tax Terms/Topics Glossary

Bank Levy Release – If you find that you wake up one day and see your bank account completely drained and your identity was not stolen, then the IRS probably issued a bank levy on your account. The IRS will send letters of intent to levy to you and your bank. Normally a period of 21 days will be given to pay off your debt, or the IRS will take money from your account to pay off your taxes plus interest accrued on those taxes. We routinely secure bank levy releases by having our clients become compliant in their filing obligation (e.g. file unfiled returns) and by placing them on a payment plan, OIC, or CNC status.

Currently-Not-Collectible (CNC) – CNC is a temporary or permanent hold against collection of taxes from the IRS. In order to be eligible, you must prove that you do not have assets that allow you to pay any of what is owed. During CNC, interest is still accrued and the IRS still monitors your financial statements regularly.

The Internal Revenue Service (IRS) will place a taxpayer’s account in a Currently Not Collectible (CNC) status when they have determined that the IRS is presently unable to collect the taxes from the taxpayer by full payment, through an Installment Agreement or by way of an Offer in Compromise. Once the account is placed in a Currently Not Collectible status, the IRS does not pursue collection activity against the taxpayer and the statute of limitations on the tax liabilities will continue to run. Generally, unless the taxpayer’s financial situation changes, the account will remain in a Currently Not Collectible status until the tax liabilities expire. However, if the taxpayer’s financial situation improves the account will be taken off of Currently Not Collectible status so that the IRS can collect the taxes through full payment or an Installment Agreement.

When a taxpayer has a negative cash flow and has equity in assets that the taxpayer is dependent upon, the taxpayer could attempt to resolve their account by having their account placed in a Currently Not Collectible status depending on their circumstances. For Currently Not Collectible status, the underlying issue is that liquidation of a particular asset is either not feasible or would cause a financial hardship.

Installment Agreement – Taxpayers who cannot afford to pay back their tax liability can be offered to pay their taxes back in monthly increments by the IRS. Again, each taxpayer has a different financial situation, thus the IRS will determine the eligibility and amount of each installment on a case-by-case basis. Furthermore, a taxpayer must be compliant with all past tax filings in order to qualify for an installment agreement.

Full Pay Service – Sometimes it is hard to determine what a taxpayer actually owes to the IRS. With our Full Pay Service, we can assist you in determining what you exactly owe and how you can pay it off in a timely and efficient manner. We will also follow up with the IRS to assure your account has been paid in full and you are free of tax liability.

Offer in Compromise (OIC)* – Taxpayers who cannot afford to pay back their tax liability can offer to settle for less than what they owe. In order to determine whether you are eligible, the IRS looks at your past, present, and future financial situation. It is essential to pre-qualify for an offer in compromise because everyone has different financial situations that distinguish them from their eligibility.

Wage Garnishment Release – Wage garnishment is essentially a deduction in wage that is allocated to the IRS as a result of tax liability. Up to 25% of your paycheck can be confiscated! A situation like this will occur if the taxpayer fails to pay their taxes or respond to the IRS’s request to pay taxes. At JDKatz, we negotiate for the release of wage garnishments and transition to an easier and better means of payment options, like an offer in compromise, or installment agreement.

Payroll Tax Representation – Payroll taxes encompass the Medicare tax and Social Security tax taken out of your income. Employers allocate a sum of payroll taxes from the money earned by employees to the IRS by law. These withholdings must be sent to the IRS with Form 941 (Employer’s Quarterly Federal Tax Return) and Form 940 (Employer’s Annual Federal Unemployment Tax Return). Without representation, an employer who has not fully paid payroll taxes could increase their liability significantly. At JDKatz, our tax professionals act as liaisons between the employer and IRS to provide Payroll Tax Representation for a favorable outcome to our clients.

Revenue Officer Assistance – A revenue officer is a representative from the IRS who collects taxes for accounts that still have tax liabilities. The officer has the authority to garnish wages, levy bank accounts, file Federal tax liens, and seize assets. Although, as a citizen, you must know your rights and privileges when dealing with revenue officers, you generally should avoid dealing with the agent directly, having the agent visit your home or business, or speaking with your friends or co-workers. Revenue Officers are not your friends—they are trained to recover as much money as possible for the US Government. They may also refer your case to a Department of Justice prosecutor if they believe that you are trying to evade your tax filing obligations. While you should not make false or misleading statements to the agents. We generally advise our clients to avoid making any statements in the absence of counsel. Our tax professionals work closely with the revenue agents, to provide a buffer between you and the agent.

Tax Account Review (TAR) – The Tax Account Review Service (TAR) assists taxpayers in specific information about their accounts from the IRS. Taxpayers often find themselves wondering what they are actually paying for and why a lump sum of money is going straight to the government. At JDKatz, we give clear, concise and specific information to clients about the status of their accounts.

Taxpayer Advocate Service (TAS)– The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. TAS helps taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving problems with the IRS; and those who believe an IRS system or procedure is not working as it should. TAS provides emergency access to the IRS to help resolve tax issues which Taxpayers are unable to resolve on their own. JDKatz often works with the TAS to help resolve Taxpayer issues where traditional means have been unsuccessful.

Transfer Pricing – Transfer pricing occurs whenever income and expenses are allocated among interrelated companies. For example, the payment of royalties, interest payments for debts, leasing expenses, and fees for other services between interrelated companies are transactions requiring transfer prices. Pricing of intercompany transactions affects the distribution of profits and, therefore, taxable income among the related companies and, sometimes, across tax jurisdictions. Abusive transfer pricing occurs when income and expenses are improperly allocated among interrelated companies for the purpose of reducing taxable income in a high-tax jurisdiction.

*OIC Terms

Living Standard Guidelines

When an individual taxpayer files an Offer in Compromise with the Internal Revenue Service (IRS) they are required to complete a Collection Information Statement for Wage Earners and Self-Employed Individuals, Form 433-A. Section 9 of this form is the “Monthly Income and Expense Analysis.” Taxpayers are required to complete this section in order for the IRS to determine their reasonable collection potential (RCP). Taxpayers are expected to state their income and their “claimed” expenses.

Processable?

When an Offer in Compromise is filed with the Internal Revenue Service (IRS) it must be deemed “processable” before the IRS will review it. If the Offer in Compromise is unprocessable, the IRS will return or reject it. The Offer needs to be complete and submitted on the appropriate forms along with the appropriate filing fee. Moreover, it is important that the taxpayer file the Offer at the appropriate Offer in Compromise Service Center. If an Offer is deemed unprocessable and returned to the taxpayer this will not prevent the taxpayer from re-filing the Offer, but may cause significant delay.

The Process

The IRS offers several programs to taxpayers with past-due federal income tax liabilities. The purpose of these various programs is to offer different ways for taxpayers to resolve their tax liabilities based on their unique financial situation. Perhaps the best known of these programs is the Offer in Compromise. The Offer in Compromise is one of the most popular tax resolution programs offered by the IRS. Because of the large number of Offers in Compromise received annually, the IRS has taken actions to streamline the OIC process as much as possible.

Non Liable Party Contact

When a taxpayer files an Offer in Compromise with the Internal Revenue Service (IRS), they will evaluate the taxpayer’s ability to pay the taxes owed. As part of this evaluation the IRS will look at the taxpayer’s income and expenses. The taxpayer must disclose to the IRS the taxpayer’s income and how much the taxpayer is paying for certain allowable living expenses. In addition, it is common practice for the IRS to require the income information from all members of the household regardless of whether they are liable for the taxes owed. Household individuals, who do not owe the tax, are considered “non-liable parties.” A non-liable party may be a husband, wife, significant other, parent, roommate, friend or anyone else living with the taxpayer.

Retired Debt

When a taxpayer files an Offer in Compromise with the Internal Revenue Service (IRS), they will evaluate the taxpayer’s ability to pay the taxes owed. As part of this evaluation, the IRS will look at the taxpayer’s income and expenses. For purposes of the Offer in Compromise, it is common practice for the IRS to determine if all claimed expenses are “allowable” and if the expense will be “retiring” in the near future. A debt is retired when it has been paid in full or satisfied by some other means.

Can I Really Settle my Tax Debt for less then I Owe?

Many people ask is there really a program available with the Internal Revenue Service (IRS) for taxpayers to settle their back taxes for “pennies on the dollar?” Yes, there is a program available with the IRS called the Offer in Compromise program, but not every taxpayer qualifies for it. Settlement amounts are not always for “pennies on the dollar” and depend on the facts of each taxpayer.

Effective Tax Administration

The majority of Offer in Compromises filed by taxpayers are filed on the basis of “Doubt as to Collectability” claiming that based on their financial information they do not have the ability to pay. Generally, when a taxpayer files an Offer in Compromise on this basis, the IRS does not look into the taxpayer’s specific facts such as their age, health or exceptional circumstances as part of their review process.

Dissipated Assets?

Dissipated assets are those that “(liquid or non-liquid) have been sold, gifted, transferred, or spent on non-priority items and/or debts and are no longer available to pay the tax liability.”

Compliance After Acceptance

An Offer in Compromise is a great opportunity for a taxpayer to settle his or her back tax liabilities with the Internal Revenue Service (IRS). The government offers tax settlement programs with the purpose of providing a taxpayer with a fresh start, and the expectation that the taxpayer will pay his or her taxes on time from here on out.

Payment Methods

Many taxpayers are searching for Internal Revenue Service (IRS) tax relief in the form of a tax resolution. The IRS has a tax settlement program, called an Offer in Compromise, for taxpayers who qualify. An Offer in Compromise allows taxpayers to settle their outstanding tax debts for an amount that is less than the taxpayer’s tax debts. In other words, when the IRS accepts an Offer in Compromise, they agree to take a certain dollar amount in exchange for wiping out the back taxes owed. An Offer in Compromise is a good program for many taxpayers with tax problems.

Types of Offers and Payment Plans

The IRS offers three (3) different payment options when it comes to the Offer in Compromise

Pro ration of expenses?

Before the Internal Revenue Service (IRS) accepts a taxpayer’s Offer in Compromise, or places his balances in Currently Not Collectible status, or agrees to an Installment Agreement, they will first request a Collection Information Statement (CIS). The CIS is the taxpayer’s financial information statement attesting to his income, expenses, and assets.

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