Commons terms used in IRS tax controversy issues
Abatement
In general, a decrease in the amount of taxation faced by an individual or company. Examples of an abatement include a tax decrease, a reduction in penalties, or a rebate.
Amnesty
State tax amnesty programs offers individuals a window of opportunity. Pay past-due taxes and the related interest without fear of criminal prosecution and without having to pay most penalties and fees.
Audit
An official examination and verification of accounts and records, esp. of financial accounts.
Automated Collection System (ACS)
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Business Taxes
Businesses pay taxes to federal, state and local governments. Businesses pay taxes on their profits. Businesses also pay unemployment insurance, worker's compensation, social security and Medicare insurance.
Electronic Federal Tax Payment System (EFTPS
Businesses and Individuals can pay all their federal taxes using EFTPS. Individuals can pay their quarterly 1040ES estimated taxes electronically using EFTPS, and they can make payments weekly, monthly, or quarterly as well as schedule payments for the entire year in advance.
Levy
The legal term for enforced collection by the IRS. The IRS may levy your wages (salary), commissions, the cash value of life insurance, licenses or franchises, securities, contracts, demand notes, accounts receivable, rental income, dividends, retirement accounts, etc.
Monthly Payment Plan
Known as an Installment Agreement to the IRS. The IRS does not automatically grant an installment agreement. Generally, in order to enter into an agreement the taxpayer must be able to afford monthly payments, while also being in compliance with all tax return filing and paying requirements.
Notice of Federal Tax Lien
Also known as a "Statutory Line" it is an instrument recorded in the Recorder of Deeds office in the taxpayers county of residence that serves to notify the public of a tax debt due the IRS. A Federal Tax Lien secures all current and future right, title and interest in a taxpayer's assets up to the amount due the government. The lien is valid for the duration of the 10 year statute for collection, which begins on the day the tax was assessed.
Notice of Seizure
A seizure is the act of levying a tangible asset, like real estate, motor vehicles, office equipment and inventory.
The decision to seize a taxpayer's assets is one of the most sensitive decisions that an IRS Revenue Officer will make. The case history must be well documented with all actions that have been taken in order to show the justification for seizing a taxpayer's assets. The decision for the IRS to seize must be based on the individual facts and circumstances of each case, and the revenue officer must follow all legal and procedural guidelines. If the facts of the case indicate seizure of the taxpayer's assets would be the next appropriate step to take, the Revenue Officer will begin the seizure process.
IRM 1.2.1, Policies of the Internal Revenue Service related to seizure action:
P-5-1 Enforcement is a necessary component of a voluntary assessment system
P-5-28 Successive seizures — Timing to avoid undue hardship
P-5-34 Collection to be enforced through seizure and sale of assets of a taxpayer only after thorough consideration of all factors and alternative collection methods
P-5-35 Establishment of a minimum price in distraint sales
P-5-38 IRS Seizure of assets located on private premises
Revenue Officers have the authority to seize assets and Property Appraisal and Liquidation Specialists (PALS) have the authority to sell assets.
Offer in Compromise
Whereas a taxpayer asks the government to accept a lesser amount of money than the delinquent tax balance. This is the most comprehensive and time consuming investigation a taxpayer will experience with the Collection Division of the IRS. As a general rule, the amount offered must be equal to ALL of the equity in a taxpayer's assets. Upon acceptance of an Offer the Federal Tax Liens are released.
The IRS has the right to reverse an accepted Offer in Compromise if a taxpayer fails to remain in compliance with all tax return filing and paying requirements for 5 tax years from the date of the offers acceptance. This includes reassessment of all accruing penalties and interest and re-filing of Federal Tax Liens.
Payroll Taxes
An employer deducts a certain amount from your paycheck to pay for taxes. This tax money funds many finance specific programs, including social security, health care and worker's disability. These programs might not mean a whole lot to you now, but you may likely benefit from them when you are older.
Revenue Agent
Employed by the Examination Division, Revenue Agents conduct tax audits
Revenue Officer
Employed by the Collection Division, Revenue Officers conduct tax delinquency field investigations, which require them to visit taxpayers at their residence or place of business. Revenue Officers have the authority to assess the Trust Fund Recovery Penalty; prepare and file delinquent employment tax returns; conduct asset seizures and sales; issue a Notice of Federal Tax Lien; issue a Notice of Levy; obtain writs of entry (civil law equivalent of a search warrant); refer cases for investigation by the Criminal Investigation Division and Examination Division; and initiate civil suits in Federal Court.
Seizure
The act of levying a tangible asset, like real estate, motor vehicles, office equipment and inventory.
Special Agents
Employed by the Criminal Investigation Division, Special Agents conduct investigations involving criminal violations of Internal Revenue Law.
Substitute for Return (SFR)
A formal way for the Internal Revenue Service to make an educated guess about how much taxes you might owe. The whole purpose of a Substitute for Return is to arrive at a definite dollar amount of your tax liability, so that the IRS can begin collection efforts. The IRS uses its substitute tax return to issue a proposed assessment of taxes you owe. If you don't respond to the proposed assessment, that assessment may become final. Once the assessment becomes final, the IRS can now legally collect on the tax for a period of ten years
Taxpayer Advocate Service
Is an IRS program that provides an independent system to assure that tax problems, which have not been resolved through normal channels, are promptly and fairly handled. Each state and campus has at least one local Taxpayer Advocate, who is independent of the local IRS office and reports directly to the National Taxpayer Advocate. The goals of the Taxpayer Advocate Service are to protect individual and business taxpayer rights and to reduce taxpayer burden. The Taxpayer Advocate independently represents your interests and concerns within the IRS. This is accomplished in two ways:
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Ensuring that taxpayer problems which have not been resolved through normal channels, are promptly and fairly handled;
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Identifying issues that increase burden or create problems for taxpayers: Bringing those issues to the attention of IRS management and making legislative proposals where necessary.
Trust Fund Recovery Penalty
Internal Revenue Code Section 6672 (a). To encourage prompt payment of withheld income and employment taxes, including social security and railroad retirement taxes or collected excise taxes, Congress passed a law that provides for the trust fund recovery penalty. This is used as a tool for collection of unpaid employment taxes.
If you are a "responsible person" the IRS can apply this penalty against you immediately after you do not pay trust fund taxes in response to a notice and demand for payment. Also, the IRS can apply this penalty regardless of whether you are out of business or without assets.
Forensic Accounting
Simply put, forensic accounting is accounting that is suitable for legal review, offering the highest level of assurance, and including the now generally accepted connotation of having been arrived at in a scientific fashion. That is, forensic accounting is sufficiently thorough and complete so that an accountant, in his/her considered independent professional judgment, can deliver a finding as to accounts, inventories, or the presentation thereof that is of such quality that it would be sustainable in some adversarial legal proceeding, or within some judicial or administrative review. Findings are based upon the scientific detection and interpretation of the evidences of phenomena introduced into the books and records of an accounting system (expansively defined) and the effects of such phenomena upon the accounts, inventories, or the presentation thereof. (Alternatively, if there is no impact on an accounting system, there is no accounting evidence, nor is there any effect upon the accounts, inventories, or the presentation thereof; and such situations are not within the realm of forensic accounting - where only the accountant is qualified to function.) The primary orientation of forensic accounting is explanatory analysis (cause & effect) of phenomena - including the discovery of deception (if any), and its effects - introduced into an accounting system domain. The primary methodology employed by forensic accountants is objective verification.
Innocent Spouse
Husbands and wives who sign joint tax returns are "jointly and severally" liable for any taxes owed. The Internal Revenue Code allows for relief from certain joint tax liabilities for divorced persons if it can be shown that the delinquency was caused by "erroneous" information provided by the other spouse. To qualify for innocent spouse relief, the following conditions must be established:
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A joint return was filed for the year relief is requested.
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There is an understatement of tax attributable to erroneous items of one individual filing the return.
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The spouse did not know and had no reason to know of the understatement.
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It would be inequitable to hold the person liable for the deficiency considering all the facts and circumstances.
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The spouse elects the benefits of this provision before expiration of two years after collection action begins.
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The IRS Restructuring and Reform Act of 1998 expanded the law with respect to relief from joint and several liability. Internal Revenue Code Section 6015 was enacted to make relief from joint and several liability easier to obtain. There are now three kinds of relief available:
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Innocent Spouse relief - IRC Sec. 6015(b)
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Election to allocate a deficiency - IRC Sec. 6015(c)
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Equitable relief - IRC Sec. 6015(f) & 66(c)
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Internal Revenue Code Section 6015 is effective for the following:
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Unpaid balances as of July 22, 1998 and
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Liabilities arising after July 22, 1998.
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Internal Revenue Code Section 6015(e) was added to enable taxpayers to petition the United States Tax Court to review denials of relief.
Criminal Litigation Support Services
Services are defined by the American Institute of Certified Public Accountants as any professional assistance given to lawyers by non-lawyers during the litigation process. Two related concepts that have a significant impact on litigation services are: the attorney work-product privilege, and discovery rules. Litigation consultants must determine whether they are to perform in the capacity of a consultant or expert witness. Prior to providing litigation consulting, CPAs should assess their expertise for its relevance to a case; determine the competence of the attorney; and evaluate a case for any conflicts of interest. The areas of the litigation process where consulting services can be provided include pre-trial investigation, discovery, and analysis.
Sullivan Consulting has served as the consulting or expert witness in numerous civil and criminal litigation cases since 1998.
Controversy
Federal, state and local income and employment delinquent tax collection and audit investigations. Disputed income, employment and penalty assessments appeals. Quite simply, all cases where the taxpayer disagrees with the opinions or conclusions of the taxing agency.
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