One of the biggest challenges individuals face when it comes to their taxes is learning the lingo. Between the paperwork and instructions, it can quite literally be taxing. To simplify the process, we’ve defined the ten top terms used throughout the industry. We recommend you familiarize yourself with this mini glossary, whether you’ve already sought tax resolution help or you are just trying to brush up on the verbiage. If, after reading these terms, you still have questions feel free to contact one of our many qualified tax attorneys.
1. Abatement: An abatement is a complete or partial cancellation of tax penalties, interest or taxes that are owed by a taxpayer. The qualifications for abatements seem to differ, from case to case, and the IRS requires sufficient reason for requesting an abatement, but they frequently remove the penalty. The best thing you can do if you have high penalties and want an abatement is to request one based on the circumstances surrounding your situation. Consult a tax attorney for help drafting this request.
2. Appeal: Much like in other legal situations, a tax appeal is a request made by a taxpayer who disagrees with an IRS decision that the decision be reviewed and changed. Taxpayers can appeal seizures, levies, liens, innocent spouse decisions, installment payment plans, offers in compromise audits, examination decisions, and many other intrusive IRS actions.
3. Back Taxes: This term encompasses the IRS debt that has been accrued from taxes that were not paid when they were due in previous years. These can qualify if a taxpayer failed to report their full income, or simply failed to file a return for that year.
4. Certified Tax Resolution Specialist: Tax Attorneys, tax preparers and professionals who have met the experience, educational and examination requirements set by the American Society of Tax Problem Solvers are eligible to receive the CTRS title. Only Tax Attorneys, Enrolled Agents and CPAs who are in good standing are qualified for this distinction, and, once gained, they are able to provide businesses and individuals with a range of services, including release of liens or levies, penalty abatement, offers in compromise, installment agreements, and more.
5. Delinquent Tax Return: Many people misunderstand this term to be a return that is never filed. It is broader than that, though, and includes any return that is not filed by the due date (April 15), or the end of the extension period, if an extension is granted. Failing to file a tax return can be deemed a criminal offense by the IRS, and can result in a year in jail and a fine totaling as high as $10,000 for each year that you fail to file the delinquent return. Regardless of what you’ve heard or how late you are, you should still file your return, whether it’s one month late, or ten years.
6. Examination: If you hear this term in conjunction with audit, you may be worried that you are going to be subjected to multiple procedures. This is simply the term that the IRS uses for a tax audit.
7. Exemption: An exemption is the amount which the IRS allows you to subtract from your income to reflect individual who rely on your earnings. This may include a dependents (children), a spouse, and even yourself. The total is subtracted from your AGI in order to reveal lower earnings on which you pay taxes.
8. Federally Allowed: This is an important term to know when you are searching for a tax preparer. The IRS only allows Enrolled Agents, Attorneys and CPAs to represent taxpayers, meaning all other individuals are not federally authorized. If you accidentally employ the services of an individual who isn’t federally allowed, you may accidentally incur more penalties from the IRS.
9. Itemized Deduction: Itemized deductions are expenses which can be deducted from your adjusted gross income (AGI) in order to reach a smaller total income of which you pay taxes on. These may include medical expenses, mortgage interest, charitable donations, losses, and a number of miscellaneous others. Be aware that when you itemize, you’re required to file Form 1040 and specify the deductions on Schedule A.
10. Levy: If you owe enough money, the IRS can legally issue a bank levy, which means they have seized the money in your savings and checking accounts. If this happens, the levy is only valid on the day on which it is received by the bank, which gives them their colloquial name of “one shot” levies. The amount requested by the levy must be sent to them within 21 days, unless the notice states otherwise. Also, unless a future levy is issued, your future deposits will not be claimed or affected.