Learn IRS terms to resolve issues after filing season
Even though tax filing season is over, chances are good that any given taxpayer will hear from the IRS in the coming months. In fact, according to the IRS Oversight Board, 43 percent of taxpayers have to interact with the IRS outside of filing a tax return. Besides the difficulties taxpayers are experiencing getting through to the IRS by phone, interacting with the IRS can be time-consuming. This is especially true if a taxpayer isn’t familiar with IRS terms.
Having a working knowledge of IRS language can help taxpayers avoid having to re-contact the IRS and endure long call wait times. They’ll also be able to have a clear picture of their own situation from the IRS point of view.
Here’s a crash course on often-confusing terms and acronyms commonly used by the IRS.
ACS: When taxpayers owe the IRS and don’t pay, their cases end up in the IRS automated collection system (ACS). This means that taxpayers will receive a series of notices, and eventually can face enforced collection action, such as liens and levies, if they don’t pay the balance or establish an agreement with ACS. Fortunately, ACS can establish most agreements with taxpayers, such as extensions to pay, installment agreements and currently not collectible status. The more complicated offer in compromise is handled by the IRS centralized offer in compromise unit, or an RO (see below).
CP2000: This term stands for that dreaded under reporter letter that the IRS sends in two main waves each year (November for April 15 filers, and the next March for extended filers). A CP2000 notice is not an audit, so taxpayers should not panic. The IRS just wants to correct the taxpayer’s return. The IRS will, however, apply a 20 percent accuracy penalty if the taxpayer has seen this notice before or has substantially understated his or her income.
DDIA: Call the IRS to set up with a payment plan, and the IRS will always ask for a DDIA, or direct debit installment agreement. Under a DDIA, a taxpayer’s payment will automatically be drafted from his or her bank account. The good news is, this will materially lower their chance of default and also avoids a monthly reminder letter from the IRS to send a check.
FTA: According to the Treasury Inspector General for Tax Administration, only 8 percent of eligible taxpayers know about FTA, or first-time penalty abatement. FTA automatically grants a taxpayer penalty removal if the taxpayer has a clean compliance history. Taxpayers can usually get FTA with one phone call to the IRS, but they have to ask for it specifically.
IDRs: An information document request from the IRS auditor requests documents proving a taxpayer’s return position. IDRs come with deadlines; miss them, and the auditor will become impatient and may issue a summons for the information. IDRs can work for the taxpayer if used to document all of the information requested and provided in the audit. At the end of the audit, there shouldn’t be a dispute of the facts if everything was presented and responded to using an IDR.
Lien, levy: These two terms are often confused. A levy is a seizure of a taxpayer’s wages, bank account balances or other assets as payment against an outstanding tax liability. This isn’t to be confused with a Notice of Federal Tax Lien (IRS calls it an NFTL), which is a public filing at the taxpayer’s local courthouse that announces to everyone that they owe back taxes.
P&I: This stands for penalties and interest. Taxpayers shouldn’t rely on an account transcript to know how much P&I has accrued on their outstanding balance. Instead, they should call the IRS and ask for an up-to-date payoff calculation.
RA: A revenue agent is the IRS employee assigned to field audits, which are more comprehensive and intrusive than mail and office audits. If a taxpayer has an RA, they will definitely need professional representation services in the audit. Field audits involve what’s not on the tax return just as much as they involve the accuracy of the return itself. The tax professional can take inventory of the taxpayer’s entire year of financial activity, especially properly accounting for income.
Reasonable cause: This is a valid excuse for why a taxpayer shouldn’t owe penalties. There are many valid reasons. Taxpayers often misunderstand one concept: The IRS may accept financial hardship as a reasonable cause argument for the failure to pay penalty – but never for the failure to file penalty.
RO: This is a local collection or revenue officer. ROs enforce egregious collection cases such as those involving high liabilities or unpaid business taxes, including assessing and collecting the Trust Fund Recovery Penalty (TFRP) on unpaid payroll taxes. Because of the severity of the cases that they work, ROs have a quick lien-and-levy trigger.
TAS: The Taxpayer Advocate Service is a good friend of the taxpayer. If a taxpayer can’t get an issue resolved, they can file a “911” – that is, the Form 911 – the application for assistance from the TAS. The TAS helps many taxpayers expedite their cases if they’ve repeatedly had trouble getting IRS assistance or response. The TAS is not much help for taxpayers in an audit or with a collection issue, unless the IRS is breaking the rules or the taxpayer has a documented hardship.
Transcripts: A transcript is a taxpayer’s electronic tax records at the IRS. There are five types of transcripts, but the most-accessed types are tax return transcripts (an electronic copy of most lines of the filed tax return), wage and income information (Forms W-2, 1099, etc.) and account transcripts (transactions on a taxpayer’s account, such as payments and additional assessments).
These are just some of the many useful acronyms to understand when speaking with an IRS representative. The more a taxpayer knows about how the IRS speaks, the better they’ll be able to communicate, get the right information faster and navigate the IRS.