Ability to Pay
This refers to the amount you can pay toward your tax balance.
Glossary of Tax Terms
A
Above-the-Line Deduction
Also called an adjustment to income. A type of deduction that you may take without having to itemize.
Abusive Tax Scheme
An illegal series of transactions designed to hide taxable income from the IRS.
Adjusted Basis
The original value of a piece of property plus the value of improvements and minus depreciation. The adjusted basis is used to figure your gain or loss on a sale.
Adjusted Gross Income (AGI)
Your gross income reduced by adjustments to income, before exemptions and deductions are applied.
Adjustment to Income
Also called an above-the-line deduction. A type of deduction that you may take without having to itemize.
Alimony
Regular payments made to an ex-spouse or to a legally separated spouse. Alimony is considered income for the payee and is tax deductible for the payer.
Allowances
A number on your Form W-4 used by your employer to calculate how much income tax to withhold from your pay. The greater the number of allowances, the less income tax will be withheld.
Audit
An examination of your tax return by the IRS to verify that income, deductions, and credits are reported correctly. Audits can be conducted by mail or in person.
B
Back Taxes
Taxes that were owed from a previous year but were not paid. Back taxes accrue interest and penalties until they are resolved.
C
Collection Due Process
A formal hearing before the IRS Office of Appeals that taxpayers can request when the IRS proposes to levy property or file a lien. It provides an opportunity to dispute the tax liability or collection action.
Currently Not Collectible
An IRS status that temporarily suspends collection activity when a taxpayer cannot afford to pay their tax debt. The debt remains but the IRS will not pursue collection until the taxpayer's financial situation improves.
E
Enrolled Agent
A tax professional licensed by the IRS who can represent taxpayers before the IRS for any tax matter. Enrolled Agents must pass a comprehensive exam and maintain continuing education.
F
Failure to File Penalty
A penalty imposed when you do not file your tax return by the deadline. The penalty is typically 5% of the unpaid taxes for each month the return is late, up to 25%.
Federal Tax Lien
A legal claim the government places on your property when you fail to pay tax debt. A lien secures the government's interest in your assets and can affect your ability to sell property or obtain credit.
Form 433-A
Collection Information Statement for Wage Earners and Self-Employed Individuals. Used by the IRS to evaluate your ability to pay and determine appropriate collection options.
Form 433-B
Collection Information Statement for Businesses. Used when the IRS needs to evaluate a business's financial condition for collection purposes.
Form 9465
Installment Agreement Request form used to request a monthly payment plan for tax debt. Can be filed with your tax return or separately.
Fresh Start Program
IRS initiatives designed to help struggling taxpayers resolve tax debt through expanded installment agreements, offer in compromise eligibility, and penalty relief options.
G
Garnishment
A legal process where a creditor (including the IRS) can collect a debt by taking a portion of your wages or other income directly from your employer or bank.
I
Installment Agreement
A payment plan that allows you to pay your tax debt over time in monthly installments. The IRS offers various types of installment agreements based on the amount owed.
L
Levy
A legal seizure of your property to satisfy a tax debt. The IRS can levy wages, bank accounts, retirement accounts, and other assets.
N
Notice of Deficiency
A formal notice (often called a 90-day letter) that the IRS proposes to assess additional tax. You have 90 days to petition the Tax Court to dispute the proposed assessment.
O
Offer in Compromise
A program that allows taxpayers to settle their tax debt for less than the full amount owed when paying in full would create financial hardship.
P
Penalty Abatement
The removal or reduction of IRS penalties. Taxpayers may qualify for first-time penalty abatement or reasonable cause abatement if they can show they had a valid reason for non-compliance.
Power of Attorney
A legal document that authorizes a tax professional to represent you before the IRS. Form 2848 is used to grant this authority.
R
Revenue Officer
An IRS employee who handles in-person collection cases, typically for larger or more complex tax debts. Revenue Officers can visit your home or business.
S
Statute of Limitations
The time limit the IRS has to collect tax debt. Generally, the IRS has 10 years from the assessment date to collect. After this period, the debt may expire.
T
Tax Resolution
The process of resolving tax debt and compliance issues with the IRS through programs such as installment agreements, offers in compromise, or currently not collectible status.
Taxpayer Advocate Service
An independent organization within the IRS that helps taxpayers resolve problems they have not been able to fix through normal IRS channels.
U
Unfiled Returns
Tax returns that were required to be filed but were never submitted. The IRS may file substitute returns on your behalf, which often result in higher tax assessments.
W
W-2 Form
Wage and Tax Statement that employers must send to employees and the IRS. It reports wages paid and taxes withheld for the year.
Wage Garnishment
A type of levy where the IRS directs your employer to withhold a portion of your paycheck to satisfy tax debt. Federal law limits how much can be garnished.
0-9
1099 Form
A series of forms used to report various types of income other than wages, such as freelance income (1099-NEC), interest (1099-INT), and retirement distributions (1099-R).