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Tax Glossary

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  • Module

    On the IRS Master File, the module of the return defines a specific return by its time frame. Form 1040, Individual Income Tax Return, is normally for a calendar year module and Form 941, Employers Quarterly Tax Return, is for a 3-month quarterly module during a calendar year i.e. March 31st, June 30th, September 30th, and December 31st). (Same as the term period.)

  • Monthly Disposable Income

    Any positive amount remaining after the taxpayers necessary monthly living expenses are subtracted from their monthly income. MDI is used to help calculate the taxpayers RCP (reasonable collection potential) for OIC purposes.

  • Notice of Federal Tax Lien

    Whether a taxpayer does or does not own any property, IRS will issue a lien against their SSN to hinder them from purchasing, selling or transferring any property. A lien will effect their credit report. If the taxpayer is preparing an OIC and it is accepted, the lien will be released once the OIC payment terms have been satisfied. If not preparing an OIC, the lien will be released when the tax debt is either paid in full or the statute to collect the tax has expired. *The Internal Revenue Code of 1986 provides for a statutory lien of the Federal Government to be filed for a tax debt after a proper assessment, notice and demand, and a neglect or refusal to pay. Liens can be discharged or subordinated under special circumstances. **A Federal Tax Lien is formally recording in the appropriate public records office (county recorder, MENSE, Secretary of State (UCC) or US District Court) in order to establish priority over creditors, judgement lien creditors and other lenders.

  • Notice of Levy

    A notice imposing and collecting a fine. When used in conjunction with IRS, this normally refers to the document that is served on a third party that attach wages, bank accounts, and other personal property.

  • Offer In Compromise

    Code Section 7122 authorized the Commissioner or his delegate the authority to compromise most tax liabilities. An OIC is an agreement between the IRS and taxpayer that allows the taxpayers delinquent tax debt to be compromise for less than the amount owed. The offered dollar amount is based on the taxpayers net worth plus their future income potential.
    An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax debt. The IRS has the authority to settle, or "compromise," federal tax liabilities by accepting less than full payment under certain circumstances. A tax debt can be legally compromised for one of the following reasons:
    • Doubt as to Liability - Doubt exists that the assessed tax is correct.
    • Doubt as to Collectibility - Doubt exists that you could ever pay the full amount of tax owed.
     
    Effective Tax Administration - There is no doubt the tax is correct, and no doubt that the amount owed could be collected, but an exceptional circumstance exists that allows the IRS to consider a taxpayer's OIC. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable. The objective of the OIC program is to accept a compromise when it is in the best interests of both the taxpayer and the government and promotes voluntary compliance with all future payment and filing requirements.
    Typically there is an application fee of $150.00 for the offer in compromise. The IRS will accept an Offer in Compromise (OIC) when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. The ultimate goal is a compromise that is in the best interest of the taxpayer and the IRS. Acceptance of an adequate offer will also result in creating, for the taxpayer, an expectation of a fresh start toward complying with all future filing and payment requirements. The OIC process is based on a debt-to-asset formula devised by the IRS.
     
    The Process - The OIC process is complex and time-consuming and can take up to 24 months to resolve. TGC relies on the client to provide detailed financial information required by the IRS. The IRS will not consider an OIC if the client-submitted documents are more than three months old. In addition, the client must be in compliance (all taxes must be filed and quarterly estimated payments, if applicable, have to be current).
  • Power of Attorney

    The legal form giving an authorized individual (Certified Public Accountant, Enrolled Agent, or Attorney, etc) authority to represent a taxpayer before the Internal Revenue Service.

  • Qualified Domestic Relations Order

    A state court can allocate an interest in a qualified retirement plan to a former spouse through a qualified domestic relations order. Payments made to a former spouse as the result of QDRO will not result in the taxpayer being assessed a penalty for early withdrawal from the plan; the former spouse will be taxed on the benefits when received, or the benefits can be rolled over tax free into an IRA or other qualified retirement plans.

  • RCP Equation:

    Total Income - Total Expenses = MDI (Monthly Disposable Income)
    MDI x FIP Factor (Future Income Potential) = Future Income
    Future Income + Equity in Assets = RCP
  • Reasonable Collection Potential

    The total realizable value of the taxpayers assets plus any future income. The total is generally the minimum Offer in Compromise amount.

  • Recovery Period

    The period of time, normally in years, over which the basis (cost) of an item of property is recovered (by depreciation).

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