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Glossary Of Tax Collection Terminology
Abatement of Penalty/Interest refers to removal
of penalties or interest liability. This generally can be obtained only if the taxpayer
can show that the penalty event was due to reasonable cause and not willful neglect.
Reasonable cause is a factual determination. Criteria for determining reasonable cause
include (but are not limited to): death or serious illness of taxpayer or immediate
family; unavoidable absence of taxpayer; destruction of records by fire and inability to
obtain necessary records. Abatement of interest is available only in quite limited
circumstances.
Assessment occurs when the IRS enters the tax
liability into its system of records and an assessment officer signs a certificate of
assessment or the IRS computer generates a signature. Assessment always precedes
collection.
Automated Collection System (ACS) is a centralized,
computerized account collection system which the IRS attempts to collect primarily by
letter and telephone.
Bankruptcy is the filing of a petition in
bankruptcy court which causes, an Automatic Stay to be entered prohibiting the
continuation of law suits or collection efforts by the IRS without the approval of the
Bankruptcy Court. In addition, the IRS could be ordered to return property seized prior to
the bankruptcy filing. Some taxes are not dischargeable in bankruptcy, for example: income
taxes assessed within the last three years; "responsible person" 100% penalty
taxes on failure to withhold payroll taxes.
Extension of Time for Collection is an act which
extends the 10 year statute of limitations on collections. Acts which extend the
collections period includes signing a waiver of the statute [IRS Form 900], leaving the
U.S. for more than six months, filing bankruptcy, filing an Offer in Compromise with the
Service, or if the IRS initiates a lawsuit prior to the expiration of the limitation
period and later secures judgment.
Form 433 Collection Information Statement is a
financial statement [IRS Form 433 series] that requires full financial disclosure,
including all bank accounts and other assets, as well as income and expense information.
Installment Agreement is an agreement by the
taxpayer to pay a set amount each month to the IRS until the full liability (and interest)
is paid. The amount is derived by figuring the difference between the taxpayer's necessary
monthly living expenses and his net monthly income.
Levy is the enforcement of a lien on your property.
Actual seizure of the levied asset occurs, e.g., withdrawal of funds in a bank account.
Liens arise upon a taxpayer's failing to pay the
money due within 60 days of the receipt of a Notice and Demand letter. The lien attaches
to all of the taxpayer's property and rights to property, whether owned before assessment
or acquired after the date of the lien. This lien does not result in the direct collection
of any money by the Service unless the Service first enforces the lien by either using an
administrative levy, an administrative seizure and judicial remedies.
Notice and Demand is the second step the IRS takes
to create a statutory lien. Notice and demand occurs when the taxpayer is sent a notice
requesting payment. If the taxpayer does not pay in full within the time specified in the
notice, the final requirement for creating a lien is met.
Offer in Compromise is an offer to settle your debt
to the IRS for an amount which is less than the total amount owed, but which you are able
to pay within a short period. It can be based only on (i) doubt as to liability; or (ii)
doubt as to collectability.
Problems Resolution Office is a division of the IRS
established to deal with taxpayer problems that are not being adequately addressed under
standard IRS procedures.
Revenue Officers handle collection of taxpayer
accounts which have been transferred to the taxpayer's local IRS office.
Statute of Limitations provides a limit on the
amount of time during which the IRS can try to collect the money you owe. In most cases,
that period is 10 years from the date of assessment of the tax.
Transcript of Account is an IRS computer printout
of all activity in a taxpayer's account for any given tax period. Account activity
includes filing of a return, assessments of tax, penalty or interest, crediting of
payments made by the taxpayer, etc. It is helpful in determining what actions have been
taken by the IRS and the nature of any liability.
Transferee is an individual or entity to whom the
taxpayer has given some or all of his assets without receiving value in return. If the IRS
can establish that the taxpayer has indeed made such a transfer, it can take actions to
collect the taxpayer's liability from the transferee.
Unauthorized Collection Action is a lawsuit if a
collection officer "recklessly or intentionally" violates the Internal Revenue
Code. Damages are limited to "actual, direct economic damages" resulting from
the misconduct, attorney's fees and costs. Administrative remedies with the IRS must be
fully pursued prior to bringing an action. The action must be brought within two years of
the date the cause of action accrues.
Wrongful Levy occurs when the IRS has improperly
levied on property (generally not the taxpayer's). The IRS may be stopped from enforcing
such a levy or selling the property if the enforcement or sale would cause irreparable
injury to the owner's rights and property.
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