Tax Glossary

Audit representation is the practice of a licensed professional — a tax attorney, CPA, or enrolled agent — handling communication and document production with IRS auditors on behalf of a taxpayer. The representative signs Form 2848 (Power of Attorney) and stands in for the client at examination interviews, document requests, and appeals conferences. Circular 230 governs who can represent taxpayers before the IRS.

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Back taxes are unpaid federal, state, or local taxes from a prior tax year. Interest accrues daily from the original due date under IRC § 6601, and the failure-to-pay penalty under IRC § 6651(a)(2) adds 0.5% per month (up to 25%). Back-tax balances can be resolved through installment agreements, Offers in Compromise, Currently Not Collectible status, or penalty abatement.

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A Collection Due Process hearing is a taxpayer’s right under IRC § 6330 to challenge an IRS levy or lien filing before an independent IRS Appeals officer. The taxpayer must file Form 12153 within 30 days of receiving an LT11 / Letter 1058 (Final Notice of Intent to Levy) or a Notice of Federal Tax Lien. A timely CDP request stops collection action and preserves the right to petition U.S. Tax Court.

Citation: 26 U.S.C. § 6330

The Collection Statute Expiration Date is the date after which the IRS may no longer collect an assessed tax. Under IRC § 6502, the statute is 10 years from the date of assessment. Events such as a pending Offer in Compromise, a bankruptcy filing, a CDP hearing request, or time spent outside the United States can suspend (toll) the CSED and extend it past the original 10-year mark.

Citation: 26 U.S.C. § 6502 · Learn more →

Currently Not Collectible is an IRS account status that pauses active collection when a taxpayer cannot pay reasonable basic living expenses and the tax liability simultaneously. The IRS verifies hardship using Form 433-F or 433-A and the Allowable Living Expense (ALE) standards. Interest and penalties continue to accrue, but levies, garnishments, and seizures are halted. The IRS reviews CNC status periodically based on income changes.

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An Enrolled Agent is a federally licensed tax practitioner empowered to represent taxpayers before all administrative levels of the IRS. EAs earn the credential by passing the three-part Special Enrollment Examination administered by the IRS or through qualifying IRS employment. They are bound by Circular 230 (31 C.F.R. Part 10) but cannot represent clients in U.S. Tax Court unless they pass the non-attorney Tax Court exam.

The failure-to-file penalty under IRC § 6651(a)(1) applies when a taxpayer does not file a required return by the due date (including extensions). The penalty is 5% of unpaid tax per month, capped at 25%. If a return is more than 60 days late, the minimum penalty is the lesser of $485 (2024 amount) or 100% of the tax due. The penalty can be abated for reasonable cause or under First-Time Abatement.

Citation: 26 U.S.C. § 6651

The failure-to-pay penalty under IRC § 6651(a)(2) is 0.5% of unpaid tax per month (or partial month), capped at 25%. The rate drops to 0.25% per month while an approved installment agreement is in effect, and rises to 1% per month after the IRS issues a final notice of intent to levy. It runs concurrently with the failure-to-file penalty, which is reduced accordingly during overlap months.

Citation: 26 U.S.C. § 6651

The Report of Foreign Bank and Financial Accounts (FBAR) is filed on FinCEN Form 114 by any U.S. person with signature authority over, or financial interest in, foreign financial accounts whose aggregate value exceeded $10,000 at any time during the calendar year. It is filed electronically with FinCEN — not with the IRS — by April 15, with an automatic extension to October 15. Non-willful penalties reach $10,000 per violation; willful penalties can reach the greater of $100,000 or 50% of the account balance.

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A federal tax lien arises automatically under IRC § 6321 when the IRS assesses tax, sends a demand for payment, and the taxpayer fails to pay. The lien attaches to all property and rights to property — real estate, vehicles, bank accounts, accounts receivable. The lien becomes public when the IRS records a Notice of Federal Tax Lien (Form 668(Y)) with the county recorder or secretary of state.

Citation: 26 U.S.C. § 6321 · Learn more →

Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) is the IRS’s detailed financial-disclosure form used in non-streamlined collection cases. It captures household income, monthly expenses (compared to the IRS Allowable Living Expense standards), and equity in assets. Form 433-A is required for installment agreements over the streamlined threshold and for CNC determinations.

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Form 433-A (OIC) is the Offer in Compromise version of the 433-A. It calculates a taxpayer’s Reasonable Collection Potential (RCP) — the sum of net realizable equity in assets plus future monthly disposable income multiplied by 12 (lump-sum offer) or 24 (periodic-payment offer). The IRS compares the offered amount against RCP under IRC § 7122 doubt-as-to-collectibility standards.

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Form 433-B (Collection Information Statement for Businesses) is the IRS financial-disclosure form for active business entities — corporations, partnerships, LLCs taxed as entities, and exempt organizations — that owe federal tax. It collects gross receipts, expenses, asset detail, and accounts receivable aging. It is the business equivalent of Form 433-A and is required for business installment agreements above the streamlined threshold.

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Form 433-B (OIC) is the Offer in Compromise version for business taxpayers. It calculates the business’s Reasonable Collection Potential by valuing trade fixtures, equipment, accounts receivable (at 80% of book value), and projected future income. Sole proprietors use Form 433-A (OIC) instead; only separate entities file 433-B (OIC).

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Form 433-F (Collection Information Statement) is the streamlined version of Form 433-A used by the IRS Automated Collection System (ACS) for smaller balances and faster determinations. It is shorter than 433-A and is the form most commonly requested when a taxpayer calls IRS collections about wages, monthly expenses, and household assets.

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Form 656 (Offer in Compromise) is the document a taxpayer files to formally propose settling a federal tax debt for less than the full amount owed. It is submitted with the supporting Form 433-A (OIC) or 433-B (OIC), a $205 application fee (unless the low-income waiver applies), and a 20% non-refundable down payment for lump-sum offers. The IRS evaluates the offer under IRC § 7122.

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Form 1040 (U.S. Individual Income Tax Return) is the standard federal return filed by individual taxpayers — single filers, married couples filing jointly or separately, heads of household, and qualifying widow(er)s. It reports wages, interest, dividends, capital gains, self-employment income, deductions, and credits, and reconciles total tax liability against withholding and estimated payments.

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Form 1099 is a family of information returns reporting income paid to a person who is not an employee. Common variants include 1099-NEC (non-employee compensation, $600+), 1099-MISC (rents, royalties, prizes), 1099-INT (interest), 1099-DIV (dividends), 1099-K (third-party network payments), and 1099-R (retirement distributions). Payers file with the IRS and furnish copies to recipients; mismatches trigger CP2000 notices.

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Form 2848 (Power of Attorney and Declaration of Representative) authorizes an attorney, CPA, or enrolled agent to represent a taxpayer before the IRS for specific tax years and tax matters. It permits the representative to receive confidential return information, attend examinations, sign agreements, and negotiate collection alternatives. It does not authorize the representative to receive refund checks.

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Form 8821 (Tax Information Authorization) allows the IRS to disclose a taxpayer’s confidential tax information to a designated third party — including transcripts, notices, and account data — but does not authorize that party to act on the taxpayer’s behalf, sign agreements, or negotiate. Tax-resolution firms commonly use Form 8821 to pull transcripts for analysis before formal representation is engaged.

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Form 8938 (Statement of Specified Foreign Financial Assets) is filed with the annual Form 1040 by U.S. taxpayers holding foreign financial assets above the IRC § 6038D reporting thresholds — starting at $50,000 (single, end of year) or $75,000 (single, any time during year), with higher thresholds for joint filers and taxpayers living abroad. It is distinct from FBAR; many taxpayers must file both. Failure-to-file penalty is $10,000.

Citation: 26 U.S.C. § 6038D · IRS reference

Form 941 (Employer’s Quarterly Federal Tax Return) reports federal income tax withheld from employees plus the employer and employee shares of Social Security and Medicare taxes. It is due by the last day of the month following each calendar quarter. Unpaid Form 941 trust-fund taxes trigger personal liability under the Trust Fund Recovery Penalty (IRC § 6672) against responsible persons.

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Form 9423 (Collection Appeal Request) is used to invoke the Collection Appeals Program (CAP). Unlike a CDP hearing, CAP can be requested before or after specific collection actions — proposed levies, lien filings, installment-agreement modifications, or terminations — and the Appeals decision is final, with no Tax Court review available. CAP is typically faster than CDP but provides fewer procedural rights.

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Form W-2 (Wage and Tax Statement) is filed by employers to report each employee’s annual wages, federal and state income tax withheld, Social Security and Medicare wages and taxes, and benefits. Employers must furnish W-2s to employees by January 31 of the following year and file copies with the Social Security Administration. Workers receiving a W-2 are employees for tax purposes, not independent contractors.

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The Fresh Start Initiative is a set of IRS administrative changes (originally announced in 2011 and expanded in 2012) that raised installment-agreement thresholds, broadened Offer in Compromise eligibility, and increased the dollar threshold for filing a Notice of Federal Tax Lien. It is not a single program — it is the umbrella term for relaxed collection rules that remain in place today.

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An installment agreement is a monthly payment plan with the IRS authorized under IRC § 6159. Variants include the Guaranteed IA (under $10,000, paid within 3 years), Streamlined IA (under $50,000, up to 72 months, no financial disclosure), Non-Streamlined IA (full Form 433-F or 433-A disclosure), and Partial Payment IA. Setup fees range from $31 (online direct debit) to $225 (paper, non-direct debit), with low-income waivers.

Citation: 26 U.S.C. § 6159 · Learn more →

Innocent spouse relief under IRC § 6015 releases one spouse from joint and several liability on a joint return when the other spouse understated tax or failed to report income, and the requesting spouse did not know and had no reason to know. Variants include traditional innocent-spouse relief (§ 6015(b)), separation-of-liability relief (§ 6015(c)), and equitable relief (§ 6015(f)). Requests are made on Form 8857.

Citation: 26 U.S.C. § 6015

The IRS Independent Office of Appeals resolves tax disputes between taxpayers and IRS examination or collection functions without litigation. Appeals officers are required to be independent of the originating function and consider hazards of litigation when settling cases. Taxpayers reach Appeals through CDP hearings, CAP requests, audit reconsideration, and protests of 30-day or 90-day letters.

Letter 1058 (and its automated counterpart LT11) is the Final Notice of Intent to Levy and Notice of Your Right to a Hearing. It gives the taxpayer 30 days to either pay, request a Collection Due Process hearing on Form 12153, or arrange a collection alternative before the IRS may levy wages, bank accounts, Social Security, or other property under IRC § 6331.

Citation: 26 U.S.C. § 6330

CP14 is the first balance-due notice the IRS sends after assessing tax that was not paid in full with the return. It states the amount owed, the assessment date, and gives the taxpayer 21 days (10 days for balances of $100,000 or more) to pay before additional interest and the failure-to-pay penalty escalate. CP14 is informational — it does not threaten levy, but it starts the collection clock.

CP504 is the Notice of Intent to Seize (Levy) Your State Tax Refund. It warns that the IRS may levy state tax refunds and pursue other property, and that a Notice of Federal Tax Lien may be filed. CP504 is not the same as the LT11 / Letter 1058 — it does not yet grant CDP hearing rights. Those rights attach when the IRS issues the Final Notice of Intent to Levy.

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CP2000 is the IRS Automated Underreporter notice, sent when third-party information (W-2s, 1099s, K-1s) does not match the income reported on a filed return. It proposes additional tax, interest, and accuracy-related penalties. The taxpayer has 30 days to respond — agreeing, partially agreeing, or disputing with documentation. An unanswered CP2000 typically escalates to a Statutory Notice of Deficiency (CP3219A).

CP90 is the Final Notice — Notice of Intent to Levy and Notice of Your Right to a Hearing, sent to individual taxpayers. Like the LT11, it triggers a 30-day window to request a Collection Due Process hearing on Form 12153. After 30 days without resolution or a CDP request, the IRS may levy wages, bank accounts, Social Security benefits, and other property.

When a taxpayer fails to file a required return, the IRS may prepare a Substitute for Return under IRC § 6020(b) using third-party income data (W-2s, 1099s). The SFR assigns the worst filing status — single or married filing separately — and excludes nearly all deductions and credits. The SFR-assessed tax is almost always significantly higher than the tax that would result from a self-prepared original return. Taxpayers can file an original return to replace the SFR figures.

Citation: 26 U.S.C. § 6020

The Trust Fund Recovery Penalty under IRC § 6672 makes individual officers, directors, employees, and other "responsible persons" of a business personally liable for the unpaid trust-fund portion of payroll taxes — the withheld income tax and the employee share of FICA. The penalty equals 100% of the unpaid trust-fund taxes. The IRS asserts TFRP after a Form 4180 interview and following Letter 1153.

Citation: 26 U.S.C. § 6672

A levy is the IRS’s legal seizure of property to satisfy a tax debt, authorized under IRC § 6331. Common targets are wages (continuous levy on each paycheck until released), bank accounts (one-time seizure of funds present on the day the levy is received, after a 21-day hold), Social Security (typically 15% under the Federal Payment Levy Program), accounts receivable, and state tax refunds. A levy requires prior notice and a 30-day CDP window in most cases.

Citation: 26 U.S.C. § 6331 · Learn more →

The Notice of Federal Tax Lien (Form 668(Y)) is the public filing of an existing federal tax lien with the county recorder, secretary of state, or other applicable office. It establishes the IRS’s priority against other creditors, makes the debt visible to lenders, and is a primary reason tax debt impairs credit and real-estate transactions. Withdrawal, release, subordination, and discharge are available remedies under IRC § 6323.

Citation: 26 U.S.C. § 6323

An Offer in Compromise under IRC § 7122 is an agreement settling a federal tax debt for less than the full amount owed. The IRS accepts offers on three grounds: doubt as to collectibility (the most common — the taxpayer cannot pay in full before the CSED expires), doubt as to liability (the assessed tax is incorrect), and effective tax administration (collecting in full would create economic hardship or be inequitable). The offer is filed on Form 656 with Form 433-A (OIC) or 433-B (OIC).

Citation: 26 U.S.C. § 7122 · Learn more →

A Partial Payment Installment Agreement allows a taxpayer to pay a monthly amount less than the full debt — accepting that part of the liability will expire unpaid when the CSED runs out. PPIAs require full financial disclosure on Form 433-F or 433-A, are reviewed every two years for ability to pay more, and are authorized under IRC § 6159(a). A federal tax lien is typically filed before approval.

Citation: 26 U.S.C. § 6159

Under IRC § 7345, the State Department must deny, revoke, or limit the passport of any taxpayer the IRS has certified as having a "seriously delinquent tax debt" — currently defined as more than $62,000 (indexed annually) in legally enforceable, assessed tax for which a lien has been filed and CDP rights exhausted, or a levy issued. Resolution through an installment agreement, Offer in Compromise, or CNC status causes the IRS to reverse the certification.

Citation: 26 U.S.C. § 7345 · Learn more →

Penalty abatement removes IRS penalties — primarily failure-to-file, failure-to-pay, and failure-to-deposit. The two main routes are First-Time Abatement (FTA), available to taxpayers with three prior clean years and current filing compliance, and reasonable-cause relief, which requires written documentation of circumstances such as serious illness, natural disaster, death in the family, or reliance on a tax professional’s erroneous advice.

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Reasonable cause relief is a basis for abating IRS penalties when the taxpayer can show that, despite exercising ordinary business care and prudence, they were unable to comply. Factors the IRS evaluates under IRM 20.1.1 include the taxpayer’s compliance history, the reason for the failure, the length of delay, and any subsequent corrective action. It is requested in writing — often on Form 843 — with supporting documentation.

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A Revenue Officer is an IRS field collection employee assigned to higher-dollar or higher-complexity collection cases that the Automated Collection System (ACS) cannot resolve. Revenue Officers make in-person visits, issue summonses, conduct Trust Fund Recovery Penalty interviews, and have authority to seize assets. They are distinct from Revenue Agents, who conduct examinations and audits.

The statute of limitations on assessment under IRC § 6501 is generally three years from the date a return is filed. It extends to six years when more than 25% of gross income is omitted, and is unlimited when no return is filed or when the return is fraudulent. The IRS must assess additional tax within this window — once it expires, no additional assessment may be made for that tax year.

Citation: 26 U.S.C. § 6501

The statute of limitations on collection under IRC § 6502 is 10 years from the date of assessment — the same period referenced as the CSED. The clock can be paused (tolled) by events including a pending Offer in Compromise plus 30 days, a pending CDP hearing, bankruptcy plus six months, time outside the United States exceeding six months, and certain installment-agreement requests.

Citation: 26 U.S.C. § 6502 · Learn more →

The Streamlined Filing Compliance Procedures allow U.S. taxpayers with previously unreported foreign income or accounts to come into compliance without willful FBAR penalties. The Streamlined Domestic Offshore Procedures apply to U.S.-resident taxpayers (5% miscellaneous offshore penalty); the Streamlined Foreign Offshore Procedures apply to non-resident U.S. citizens (no penalty). Both require non-willful certification, three years of amended returns, and six years of FBARs.

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A Substitute for Return is the assessment the IRS prepares under IRC § 6020(b) when a taxpayer fails to file. It is built from third-party income reporting (W-2s, 1099s, K-1s), uses single or MFS filing status with no dependents, and excludes most deductions and credits, producing an inflated tax figure. Filing an original return with allowable deductions almost always reduces the balance and restarts the collection clock from the new assessment date.

Citation: 26 U.S.C. § 6020

A tax audit (examination) is an IRS review of a return’s reported income, deductions, credits, and compliance with the Internal Revenue Code. The three audit types are correspondence audits (handled by mail, narrow scope), office audits (conducted at an IRS office, typically broader), and field audits (Revenue Agent visits the taxpayer’s home, business, or representative’s office — the most thorough). Most audits cover the most recent three filed years.

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The United States Tax Court is an Article I federal court that hears disputes between taxpayers and the IRS — most often petitions filed within 90 days of a Statutory Notice of Deficiency. Tax Court is the only federal forum where a taxpayer can litigate tax liability without first paying the disputed amount. Tax attorneys and a small number of non-attorneys who pass the U.S. Tax Court Practitioner exam (USTCPs) may represent taxpayers there.

The Trust Fund Recovery Penalty (sometimes called the 100% penalty) shifts liability for unpaid trust-fund employment taxes — withheld income tax plus the employee share of FICA — from the business to individuals who were responsible for collecting or paying the taxes and willfully failed to do so. The IRS conducts a Form 4180 interview, then issues Letter 1153 proposing the assessment under IRC § 6672. Appeals rights apply before assessment becomes final.

Citation: 26 U.S.C. § 6672

The IRS Criminal Investigation Voluntary Disclosure Practice (VDP) allows taxpayers with willful, potentially criminal tax noncompliance — including unreported offshore accounts, cryptocurrency, or domestic income — to come forward, file accurate returns, pay tax, interest, and a civil fraud penalty, and significantly reduce the risk of criminal prosecution. It is initiated on Form 14457 and is reserved for willful conduct that does not qualify for the Streamlined Procedures.

IRS reference

A wage garnishment is a continuous levy on a taxpayer’s wages under IRC § 6331 and IRC § 6334. The IRS sends Form 668-W to the employer, who must withhold all wages above an exempt amount calculated from the Publication 1494 tables (filing status and dependents) and remit the rest to the IRS. The garnishment continues every pay period until the debt is paid, a release is obtained, or a collection alternative is approved.

Citation: 26 U.S.C. § 6331

Withholding is the prepayment of income tax during the year. Employers withhold federal income tax from employee wages (reported on Form W-2) based on Form W-4 elections. Payers of certain non-wage income may also be required to withhold — most commonly 24% backup withholding on 1099 payments when a TIN is missing or incorrect. Estimated tax payments serve a parallel role for self-employed taxpayers and others without wage withholding.

Worker classification determines whether a worker is an employee (reported on Form W-2, employer pays half of FICA, must withhold income tax) or an independent contractor (reported on Form 1099-NEC, no withholding, contractor pays self-employment tax). The IRS applies a common-law control test focused on behavioral control, financial control, and the relationship of the parties. Misclassification triggers retroactive payroll tax, the Trust Fund Recovery Penalty under IRC § 6672, and potential Section 530 relief analysis.