If you are involved in a challenge or tax controversy relating to a Federal taxation issue and the IRS, or a problem with Ohio taxes, the Nardone Law Group is uniquely positioned to help. As former Department of Justice Tax Division personnel and tax law specialists, we understand firsthand many of the internal goals, strategies and perspectives of the IRS and state tax agencies. If you have been contacted by the IRS, a state agency or are experiencing problems or tax controversies call us at (614) 223–0123 or contact us to schedule an initial consultation.

Communications with the IRS and the OH Department of Taxation can be confusing, and often include terms unique to the Internal Revenue Service, taxation, delinquency, audits or tax collection. Here is a list of some of the most common terms used in a civil or criminal tax controversy matters:

Note: The list provided is not intended to represent an exhaustive list of terms.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

1. Abatement – A reduction in the assessment of tax, penalty, or interest when it is determined that assessment is incorrect, or when the taxpayer should be relieved of a liability, e.g., penalty abatement for reasonable cause.

2. Alter Ego –

   1. Alto ego essentially means a second self. It is a doctrine that allows the law to disregard an entity's separate legal identity in order to extend liability and prevent abuse. Using an alter ego theory, if an individual is the alter ego of a corporate taxpayer or other legally distinct entity, then that individual's assets may be used to satisfy the debts of the corporate taxpayer. This is sometimes called piercing the corporate veil. Similarly, if a corporation or other legally distinct entity is the alter ego of a taxpayer, then the assets of that entity may be used to satisfy the debts of the individual taxpayer. This is sometimes called reverse piercing of the corporate veil.

   2. An alter ego generally involves a sham corporation used to avoid legal obligations. To establish an alter ego lien, it must be shown that the shareholders disregarded the corporate entity and made it an instrumentality for the transactions of their own affairs. No one factor determines whether an alter ego situation is present, but a number of factors taken together may. The following list is neither exhaustive nor exclusive, but alter ego situations typically involve one or more of the following:

      1. Commingling of corporate and personal finances and use of corporate funds to pay personal expenses.

      2. Unsecured interest–free loans between the corporation and the shareholder.

      3. The taxpayer is a shareholder, director, or officer of the corporation, or otherwise exerts substantial control over the corporation.

      4. The corporation is undercapitalized relative to its reasonable anticipated risks of business.

      5. A failure to observe corporate formalities, e.g. issuance of stock, payment of dividends, director and shareholder meetings, or the maintenance of corporate records.

      6. A failure to disregard the corporate fiction presents an element of injustice or “fundamental unfairness.”

   3. In an alter ego case, the standard Notice of Federal Tax Lien is used, except that the alter ego is identified as the name of the taxpayer. For example, if the taxpayer is TP, and ABC Inc. is the TP's alter ego, then the name of the taxpayer on the alter ego Notice of Federal Tax Lien would be ABC, Inc., as Alter Ego of TP.

      I.R.M. 5.17.2.5.7.1

3. Appeals – IRS Office of Appeals is independent from any other office of the IRS. Its mission is to resolve tax controversies, without the need for a formal trial. Appeals is an informal administrative forum for taxpayers who have a disagreement with an IRS determination.

4. Appeals Officer – An IRS Appeals Officer conducts conferences to settle cases in which taxpayers have appealed IRS determinations on their tax case, or filed a petition in U.S. Tax Court. The Appeals Officer’s responsibilities include providing effective neutral assistance as a mediator between the IRS and the taxpayer. Appeals Officers generally have the authority to arrive at the final disposition of the case from the Government’s perspective and to approve the final settlement.

5. Assessment – A bookkeeping entry, recording the amount of tax, penalties, and/or interest charged to a taxpayer’s account.

6. Assistant United States Attorney – serve as the nation’s principal litigators under the direction of the United States Attorney General. See the link below for more information: http://www.usdoj.gov/usao/index.html

7. Attorney–Client privilege – Where legal advice of any kind is sought (1) from a professional legal adviser in his capacity as such; (2) the communications relevant to that purpose; (3) made in confidence by the client; (4) are at his instance protected permanently from disclosure either by himself or his legal adviser; (5) except where the protection is waived. Wigmore, Evidence § 2292 (McNaughton, ed.; rev. ed. 1961).

8. Attorney Work–Product Doctrine – The work–product doctrine traces back to Hickman v. Taylor, 329 US 495, 91 L Ed 451 Hickman v. Taylor, . It is now codified in Rule 26(b)(3) of the Federal Rules of Civil Procedure (F.R.Civ.P.), which states:

   "Subject to the provisions of [Rule 26(b)(4)], a party may obtain discovery of documents and tangible things otherwise discoverable under [Rule 26(b)(1)] and prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means. In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation."

   1. There are essentially three elements: (1) materials or communications are of a nature that qualifies for protection, (2) they were prepared in anticipation of litigation, and (3) they were prepared by or for that party or that party's attorney or other qualifying representative.

   2. The courts have frequently reaffirmed "the strong public policy" on which the work–product doctrine is grounded. The doctrine promotes professionalism and encourages diligent preparation by affording a zone of professional confidentiality in which an attorney can fully consider the client's case and develop advice, without fear that such preparation will redound to the benefit of the adversary.

      The doctrine also improves the overall ability of the adversarial system to uncover truths. "[T]he truth emerges from the adversary presentation of information by opposing sides, in which opposing lawyers competitively develop their own sources of factual and legal information." Unlimited access to an adversary's work product would stifle this competition and thereby hinder the zealous preparation that is necessary for the system's truth–finding machinery to function properly.

9. Audit – a systematic inspection of a taxpayer’s records involving analyses, tests, and confirmations.

10. Audit Reconsideration – This is the process that the IRS uses to reevaluate the results of a prior audit when a taxpayer disagrees with the original determination by providing information that was not previously considered during the original examination. It is also the process the IRS uses when the taxpayer contests a substitute tax return determination by filing an original delinquent return while the assessment remains unpaid. I.R.M. 4.13.1.2

11. Automatic stay – Prevents creditor from taking collection action upon filing of bankruptcy petition.

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12. Bankruptcy – Bankruptcy is a commonly overlooked tool of a tax practitioner when attempting to resolve his client’s tax liabilities. In fact, a taxpayer’s filing of a petition in bankruptcy may result in the elimination or significant reduction in taxes owed to federal, state, and local taxing authorities. It can also be used as leverage when negotiating offer–in–compromises and installment agreements with the IRS, as well as with state and local taxing authorities.

13. Bankruptcy Court – Federal court where the petition for relief is filed and the case is administered.

14. Bankruptcy Estate – Assets of a debtor administered in bankruptcy; created automatically at commencement of case.

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15. Chapters 7, 11, 13, and 12 – Title 11 of the United States Code authorizes the filing of bankruptcy petitions for individuals under Chapters 7, 11, 13, or 12. Chapter 7 provides for the liquidation of the debtor’s assets. Chapter 11 provides for a payment of creditors through a Chapter 11 plan of reorganization. Chapter 13 is known as the adjustment of debts of an individual with regular income, and it provides for the payment of creditors through a Chapter 13 plan. Chapter 12 is the adjustment of the debts of a family farmer or family fisher with regular annual income and it provides for the payment of creditors through a Chapter 12 plan. Chapter 12 contains many special debtor–friendly rules not found in other chapters. For example, it allows debtors to convert potential priority/nondischargeable tax debt that arises from the sale of farm or fish assets used in the business into nonpriority/dischargeable tax debt.

16. Choice of Forum – In general, three forums are available to institute tax litigation. These are the United States Tax Court, the United States district courts, and the United States Court of Federal Claims, each of which are discussed separately below.

17. Claim – Potential right to payment from bankruptcy estate assets. Claim is a prepetition concept; postpetition, an entity files a request for payment of an administrative expense.

18. Claim for Refund – Claims for refunds can be either formal or informal.

    1. A formal claim is a request by the taxpayer for refund or credit of income, employment, gift, or estate tax that has been made following the statutory requirements of Internal Revenue Code §301.6402. In general, a formal claim is one that is made using Form 843 (or Form 1040X, 1120X, etc. if it involves income taxes); and the claim must set forth in detail the grounds upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis, including the appropriate tax periods.

    2. An informal claim is a request that does not meet all of the statutory requirements, but where formal defects are remedied by amendment. Several court cases discuss this concept including United States v. Kales, 314 U.S. 186 (1941); Newton v. United States, 163 F. Supp. 614 (Ct. Cl. 1958).

    3. Whenever a claim provides the necessary information, whether formal or informal, it is handled as a valid claim for refund.

    I.R.M. 4.90.7.1

19. Closing Agreement – Closing agreements are final determinations, which often result in deficiencies. The IRS uses different forms for closing agreements depending on the type of agreement. In cases not involving TEFRA partnerships, the IRS uses three forms of closing agreements: (i) an agreement that finally determines tax liability; (ii) an agreement that finally determines specific matters; and (iii) a combined agreement, which finally determines both tax liability and specific matters.

    1. An agreement that finally determines tax liability is typically executed on Form 866. See generally I.R.M. 8.13.1.2.1. This agreement reflects the total corrected tax liability for each period and type of tax covered in the agreement. An agreement that finally determines specific matters is typically executed on Form 906. See generally I.R.M. 8.13.1.2.2. A combined agreement is prepared on plain paper rather than on a designated form and is used when a determination of corrected tax liability for one or more periods encompasses a determination of specific matters affecting other periods. See Rev. Proc. 68–16, 1968–1 C.B. 770, 778; I.R.M. 8.13.1.2.3.

    2. The Closing Agreement Manual at Exhibit 8.13.1–4 of the I.R.M. provides an example of a combined agreement. This form of closing agreement is less commonly used than the other forms of closing agreements. In cases involving TEFRA partnerships, Form 866, Form 906, and combined agreements are sometimes used, though specialized TEFRA closing agreement forms, such as Form 870–LT and Form 870–PT, are more common. See CC 2006–017

20. Collection Appeals Program – Under CAP, a taxpayer may appeal liens, levies, seizures, and proposed denials or terminations of installment agreements. When the taxpayer appeals his case, the IRS will normally stop collection action until the appeal is settled, unless the IRS has reason to believe the collection of the tax is in jeopardy. Once a decision is made in the case, the decision is binding on both the taxpayer and IRS. I.R.M. 5.1.9.4

21. Collection Due Process Hearing – The Collection Due Process hearing provisions give taxpayers an opportunity for an independent review to ensure that the levy or lien action by the Collection division is warranted. I.R.M. 5.1.9.3.1

22. Criminal Investigation – Criminal Investigation is the arm of the IRS that investigates potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law. See more information regarding Criminal Investigation at:

    http://www.irs.gov/compliance/enforcement/article/0,,id=98205,00.html

23. Currently Not Collectible – When analysis of the Collection Information Statement (CIS) indicates the taxpayer is currently unable to pay, Form 53, Report of Currently Not Collectible Taxes, is completed by Collection personnel. A lien may still be filed in this instance, subsequent refunds are withheld, and subsequent actions/identifiers may cause recurring collectibility determinations at later dates. I.R.M. 5.16.1.

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24. Debtor – Person who owes money, and except for involuntary cases, the person who files petition for relief.

25. Department of Justice Civil Tax – Tax Division attorneys conducting civil litigation are charged with promoting public compliance with the internal revenue laws by ensuring strict and even–handed enforcement. The work of the Tax Division's Civil Trial Sections covers a broad spectrum of litigation in United States District courts, United States Bankruptcy Courts, and state courts. The civil trial work performed by the Division is handled by six regional trial sections.

26. Department of Justice Criminal Tax – The Tax Division is responsible for handling or supervising most federal criminal tax prosecutions. Attorneys assigned to the Tax Division's three regional Criminal Enforcement Sections investigate and prosecute individuals and corporations that attempt to evade taxes, willfully fail to file returns, submit false tax forms, and otherwise attempt to defraud taxpayers. The Criminal Enforcement Sections are staffed with prosecutors who are particularly skilled at investigating, prosecuting and evaluating complex financial crime cases. Prosecutors conduct criminal tax investigations with the assistance of the IRS Criminal Investigation Division and the Treasury Inspector General for Tax Administration. See the following link for additional information: http://www.justice.gov/tax/

27. Discharge – Goal of debtor in bankruptcy, i.e., removal of legal obligation to pay creditors. If the legal obligation cannot be removed, a debt is nondischargeable.

28. Equivalency Hearing – If the request for a Collection Due Process hearing is made after expiration of the I.R.C. §6320 or I.R.C. §6330 notice period, the taxpayer is still afforded the opportunity for an independent review conducted by the Office of Appeals. This hearing is conducted in a similar way to the CDP hearing and is referred to as an equivalent hearing. In an equivalent hearing, the decision by Appeals is final. The taxpayer cannot appeal the decision to Tax Court or federal district court. The exceptions to this are spousal defenses under I.R.C. §6015 and denial of interest abatement under I.R.C. §6404. The taxpayer has 90 days to file a petition for review of a denial of innocent spouse relief, 180 days to file a petition for review of denial of interest abatement. There is also the potential for litigation over whether or not the Collection Due Process request is timely. Following an equivalent hearing, the appeals officer sends the taxpayer a letter explaining the results of the hearing. Levy action during an equivalent hearing is not required to be suspended. However, as a general rule, even when not required by statute, levy action is generally suspended pending the Appeals determination.

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29. Exempt Assets – Portion of an individual’s assets excluded from the bankruptcy estate. This exclusion helps provide the individual debtor with a fresh start.

30. Federally Authorized Practitioner Privilege – Section 7525 was enacted to allow taxpayers to consult with qualified tax advisors in the same manner that they consult with tax advisors that are licensed to practice law. This is referred to as the Federally Authorized Practitioner Privilege. With respect to tax advice, the same common law protections of confidentiality that apply to a taxpayer and an attorney apply to a communication between a taxpayer and any federally authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a taxpayer and an attorney. However, the privilege may only be asserted in noncriminal tax matters before the IRS; and noncriminal tax proceeding in federal court brought by or against the United States.

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31. Flora Full Payment Rule –

    1. A Federal District Court or the United States Court of Federal Claims does not have jurisdiction over a suit for refund under the terms of 28 U.S.C §1346, unless the Taxpayer has made full payment of the amount of the assessment. It was not until 1960 in Flora v. United States, 362 U.S. 145 (1960), that the Supreme Court resolved the issue of whether 28 U.S.C. §1346 required full payment of the tax in issue or only part, and concluded that full payment of the tax in issue was a pre–requisite to District Court jurisdiction. Since full payment is a jurisdictional pre–requisite to a suit for refund, the burden of making that payment is always a factor to be considered in the filing of a claim for refund. In general, if a tax is one over which the tax court has jurisdiction (e.g., income, gift, and estate tax), the Flora rule applies and the taxpayer must make full payment of assessed tax if the taxpayer wishes to obtain jurisdictional review at District Court or the Court of Federal Claims with refund jurisdiction under §1346.

    2. Transactional taxes, as well as most excise taxes (such as employment tax), do not fall within the tax court’s jurisdiction, and so the taxpayer has no opportunity for the pre–payment traditional review. If the tax is one that is imposed on and may be divided among individual transactions, such as excise taxes, the taxpayer is considered to make full payment if the taxpayer pays the tax for a single transaction in the applicable periods. Flora v. United States, Spevak v. United States, 370 F.2d 612 (2^d Cir.), Cert Denied, 387 U.S. 908 (1967). (The IRS may contest the taxpayer’s allegation that the amount paid represents the full amount of the divisible tax. In Spevak, the District Court found that the taxpayers failed to sustain their burden of proving by a fair preponderance of the credible evidence that the sums they paid were in fact the taxes due for one employee for one period.) See also Forty–Seventh Street Setting Corp. v. U.S., 84 AFTR 2d 99–669(1) SDNY (1999) (Refund suit dismissed because taxpayer paid $43.25, and the IRS apparently claimed the amount that should have been paid was $415.60, including, erroneously, accrued interest).

    3. Flora also ruled that the full payment rule did not require the payment of interest, unless the taxpayer challenged the amount of interest. Flora states, “In some of the cases, the only amount remaining unpaid at the time of suit was interest. As we have indicated, a statute runs itself to construction, which would permit suit for the tax after full payment thereof without payment of any part of the interest. Of course, where the computation of interest is an issue, under the Flora rule, the full amount of the interest must be paid. If the taxpayer intends to challenge the assessment of the penalty, the amount of tax must be paid in full. Professional Engineers, Inc. v. United States, 527 F.2d 597, 599 (4^th Cir., 1975) and Francis v. United States, 89–1 USTC 9299 (D. Nav. 1988).

32. Fraud – The intentional commission of an act or acts for the specific purpose of evading a tax believed to be owed.

33. Fraudulent Conveyances – A conveyance is in fraud of a debt owed to a creditor when real or personal property is transferred to a third party with the object or the result of placing the property beyond the reach of the creditor and hindering the creditor's ability to collect a valid debt. The property conveyed is described as the transferred property. The party who conveys the property is the transferor. The recipient of the property is the transferee. See I.R.M. 5.17.14.4.

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34. Golsen Rule – The Golsenrule is a self–imposed rule of the Tax Court that it will follow the rule of law laid down by the court of appeals to which an appeal from the decision in the case before it will lie. Golsen v. Commissioner, 54 T.C. 742 (1970), aff'd on other grounds, 445 F.2d 985 (10th Cir. 1970), cert denied, 404 U.S. 940 (1971). In cases that are consolidated for trial, briefing and opinion, the Tax Court could reach differing results for petitioners in the same consolidated group; the differing results depend on the controlling appellate court opinions in the various circuits to which appeals would lie. See, e.g., Lewis v. Commissioner, T.C. Memo. 1986–155. The same problem can arise in joint petitions filed under T. C. Rule 61.

35. Grand Jury Subpoena – The subpoena is the Grand Jury's principal method of obtaining evidence and the functional equivalent of the IRS administrative summons used by CI in administrative tax investigations.

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36. Hardship – In general, an economic condition that is so severe that the taxpayer is, or would be financially debilitated if they satisfy their obligation.

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37. Immunity – A witness must be given some form of immunity in order to overcome his or her Fifth Amendment self–incrimination privilege. Immunitynegates a witness's Fifth Amendment privilege, but it has no effect on the other privileges a witness may invoke in Grand Jury proceedings. It is not unusual for witnesses to invoke the Fifth Amendment privilege and be granted some form of immunity during a white–collar investigation.

38. In Rem and in Personam Obligations – An in rem obligation is an obligation secured by a thing, i.e., a secured claim. In personam obligations are secured only by a person’s good word. Bankruptcy discharges in personam obligations. Bankruptcy does not discharge in rem obligations. This is why notices of tax lien can be death to a successful bankruptcy filing.

39. Indictment – The substance or text of the charge used by the department of justice to charge defendants in tax cases.

40. Information Document Request – An information document request is an informal written request by the IRS used during a field examination to request specific information from the taxpayer pursuant to the statutory authority under I.R.C. §§7601 and 7602(a)(1).

41. Innocent Spouse – In 1971, Congress enacted I.R.C. §6013(e) to provide relief from joint and several liability for certain taxpayers, commonly referred to as innocent spouses, whose circumstances were recognized to be such that a strict application of I.R.C. §6013(d) would be inequitable. It was then expanded upon as part of the Deficit Reduction Act of 1984, Pub. L. No. 98–369, section 424(c), 98 Stat. 494, 803 (1984). Yet, until Congress passed the IRS Restructuring and Reform Act of 1998 (“1998 Reform Act”) the relief from joint and several liability that arises from filing a joint income tax return was often inadequate, complicated, and difficult for all to interpret—many would argue that it is still inadequate, complicated, and difficult for all to interpret.

    In the 1998 Reform Act, Congress divided relief into three categories, all of which have the effect of allowing joint filers to be held responsible for only the portion of the amount due that is attributable to them: (i) Innocent spouse relief under §§6015(b), 1.6015–2; (ii) Proportionate liability under §§6015(c), 1.6015–3; (iii) Equitable relief under §§6015(f), 1.6015–4.

    See the IRS website for more information on innocent spouse relief: http://www.irs.gov/individuals/article/0,,id=109283,00.html

42. Insolvency – Inability of a person to pay obligations as they come due. (This definition notwithstanding, the Tax Code uses a balance sheet test for insolvency.)¹

43. Installment Agreement – Installment agreements are arrangements whereby the IRS allows taxpayers to pay liabilities over time. If full payment cannot be achieved by the Collection Statute Expiration Date, and taxpayers have some ability to pay, partial payment installment agreements may be granted. During the partial payment installment agreements, penalties and interest continue to accrue, although the penalties are at a reduced rate. No levies may be served during installment agreements.

44. IRS – The IRS is a bureau of the Department of the Treasury and one of the world's most efficient tax administrators. In 2004, the IRS collected more than $2 trillion in revenue and processed more than 224 million tax returns.

45. IRS Mission –Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. This mission statement describes the IRS’ role and the public’s expectation about how the IRS should perform that role.

    1. In the United States, the Congress passes tax laws and requires taxpayers to comply.

    2. The taxpayer’s role is to understand and meet his or her tax obligations.

    3. The IRS role is to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share.

    See the IRS website for more information: http://www.irs.gov/irs/article/0,,id=98141,00.html

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46. Kovel Doctrine – A privilege applies to communications made by the client in the presence of an accountant employed by the attorney to assist him in rendering legal advice to the client. United States v. Kovel, 296 F2d 918, 922 (2d Cir. 1961).

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47. Levy – A levy is an administrative means of collecting taxes by seizure and sale of property to satisfy delinquent taxes. I.R.M. 20.1.1.8. It is a summary remedy that enables the Government to collect outstanding taxes without first going to court. A levy is a summary self–help extra–judicial remedy used to compel the payment of the tax. United States v. Eiland, 223 F. 2d 118 (4^th Cir. 1955); United States v. Nat’l Bank of Commerce, 472 U.S. 713 (1985). The Government’s right to levy upon a taxpayer’s property is similar, but in addition to, attachment, garnishment and other similar remedies available to any other creditor. United States v. Sterling Nat’l Bank & T. Co. of NY, 360 F. Supp. 917 (S.D.N.Y. 1973).

48. Lien – The law generally defines a lien as a charge or encumbrance that one person has on the property of another as security for a debt or obligation. Essentially, this concept can be reduced to a simple metaphor — i.e., a special “sticker” similar to what a moving company puts on the furniture, boxes, and other contents of a house when it takes the owner's property from one place to another.

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49. Nominee liens –

    1. A nominee is someone designated to act for another. As used in the federal tax lien context, a nominee is generally a third party individual who holds legal title to property of a taxpayer while the taxpayer enjoys full use and benefit of that property. In other words, the federal tax lien extends to property actually owned by the taxpayer even though a third party holds legal title to the property as nominee. Generally speaking, the third party in a nominee situation will be either another individual or a trust.

    2. A nominee situation generally involves a fraudulent conveyance or transfer of a taxpayer's property to avoid legal obligations. To establish a nominee lien situation, it must be shown that while a third party may have legal title to the property, it is really the taxpayer that owns the property and who enjoys its full use and benefit. No one factor determines whether a nominee situation is present, but a number of factors taken together may. The following list is neither exhaustive nor exclusive, but nominee situations typically involve one or more of the following:

       1. The taxpayer previously owned the property.

       2. The nominee paid little or no consideration for the property.

       3. The taxpayer retains possession or control of the property.

       4. The taxpayer continues to use and enjoy the property conveyed just as the taxpayer had before such conveyance.

       5. The taxpayer pays all or most of expenses of the property.

       6. The conveyance was for tax avoidance purposes.

    3. The IRS's NFTL in a nominee situation is identical to the standard NFTL, except that the nominee is identified as the name of the taxpayer. For example, if the taxpayer is TP, and My Brother–In–Law or My Trust is TP's nominee, then the name of the taxpayer on the nominee NFTL would be “My Brother–In–Law or My Trust, Nominee of TP.”

    4. Unlike the alter ego situation, nominee situations usually involve specific pieces of a taxpayer's property that were conveyed to the nominee. Since the federal tax lien only attaches to property actually “owned” by the taxpayer, it may not reach all property that is, in fact, actually owned by the nominee. Therefore, the NFTL in a nominee situation will usually contain a notation on its face that the lien is filed to attach specifically to certain identified property.

50. Nonfiler – This is a taxpayer that has failed to file required federal tax returns. When examiners discover during any examination that a taxpayer has failed to file required Federal tax returns, they will, before soliciting any returns:

    1. Determine the taxable periods for which the taxpayer was required to file returns. Ascertain the reasons why the taxpayer failed to file the required returns.

    2. Determine whether any indications of fraud exist.

    3. Request a transcript of account using Form 6882, IDRS/Master File Information Request.

51. Notice of Deficiency – A notice of deficiency, also called a statutory notice of notice of deficiency or 90–Day Letter, is the Tax Commissioner's determination of a taxpayer's income, estate, gift or certain excise tax deficiencies sent to the taxpayer by certified or registered mail.

52. Notice of Federal Tax Lien – The federal tax lien arises and is perfected when the IRS meets the requirements of I.R.C. §6321, i.e., an assessment and a notice and demand for payment. However, the law provides that in order for the federal tax lien to have priority against certain competing lien interests, the IRS must file a Notice of the Federal Tax Lien pursuant to I.R.C. §6323. I.R.M. 5.17.2.3. The IRS files Notice of Federal Tax Liens to protect the Government's right of priority against certain third parties, typically a purchaser, holder of a security interest, mechanic's lien, or judgment lien creditor.

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53. Offer in Compromise – An Offer in Compromise is a written agreement entered into between the taxpayer and the IRS to satisfy unpaid tax liabilities for less than the full amount due. The objectives of the offer in compromise program are:

    1. Effect collection of what can reasonably be collected at the earliest possible time and at the least cost to the government.

    2. Achieve a resolution that is in the best interest of both the individual taxpayer and the government.

    3. Provide the taxpayer a fresh start toward future voluntary compliance with all filing and payment requirements.

    4. Secure collection of revenue that may not be collected through any other means.

Click here to read the IRS's March 30, 2012 Report - "Increasing Requests for Offer in Compromise Have Created Inventory Backlogs and Delayed Responses to Taxpayers"

54. Ordinary and Necessary – To be a deductible business expense, the expense must be both “ordinary” and “necessary.” Both of these terms, “ordinary” and “necessary” have specific definitions. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable, however, to be considered necessary. Ordinary has the connotation of normal, usual, or customary. An expense may be ordinary even though it only happens once. The transaction, however, which gives rise to the expense, must be of common or frequent occurrence in the type of business involved (e.g., the Dental Practice). Also, the fact that a particular expense would be an ordinary or common expense in the course of one’s business does not necessarily make it an ordinary or common business expense for another business. As for the term necessary, the courts have suggested that the term necessary requires no more than the expense must be appropriate and helpful in developing the taxpayer's business. This minimal requirement implies that the expenses need not be indispensable or unavoidable. Moreover, the courts have tended to accept the taxpayer's judgment of the business value of expenditures. Courts recognize that you cannot authorize the government to assume the role of business efficiency experts in reviewing the commercial decisions of the taxpayer.

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55. Penalty – A sanction primarily used to promote voluntary compliance of the tax laws.

56. Postpetition – Time period after the petition is filed.

57. Power of Attorney – Power of Attorney — The IRS requires specific documentation from the taxpayer to have another individual act on their behalf. Authority to act on behalf of a taxpayer is normally granted when a Form 2848 Power of Attorney and Declaration of Tax Representative is submitted to IRS. I.R.M. 13.1.3-1.

58. Prepetition – Time period before the petition is filed.

59. Priority – Ranking of creditor’s claim for purposes of asset distribution. Bankruptcy does not work like a soup kitchen, where every person receives an equal amount. In bankruptcy, the first person or class is paid in full before the next person or class receives a distribution. Thus, one’s ranking is important. Secured creditors come first as to assets in which they have a security interest. Creditors holding certain administrative expenses and claims are next in line. The debtor comes last.

    As an adverb that modifies tax, i.e., priority tax claim, priority refers to the class of general unsecured tax claims that come first.

60. Protest – To appeal an unagreed income, estate, or gift tax case or penalty after assessment, taxpayers must request Appeals review and, when required, file with the local office a written protest setting forth specifically the reasons why the district's findings are contested. Procedurally, protests are filed in response to the district's thirty–day letter transmitting a summary of the revenue agent's findings within the thirty–day period permitted for this purpose.

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61. Qualified Offer – A prevailing party in a tax controversy that meets certain conditions, including net worth requirements, may recover reasonable administrative and litigation costs under I.R.C. §7430. A taxpayer who makes a “qualified offer” to settle a tax controversy I.R.C. §7430(c)(4) may be treated as a prevailing party, and thus be eligible to receive an award of reasonable administrative and litigation costs in connection with an administrative or court proceeding, if the U.S. rejects the taxpayer's offer, even if the positions of the U.S. in the administrative and litigation proceedings were substantially justified and even though the taxpayer doesn't substantially prevail on either the amount in controversy or the most significant issue or set of issues presented. However, to qualify for an award under the qualified offer prevailing party rule, taxpayers must satisfy the remaining requirements of I.R.C. §7430, e.g., not unreasonably protracting the proceedings and, for purposes of an award of litigation costs, exhausting their administrative remedies.

    A qualified offer is a written offer which:

    1. is made by the taxpayer to the U.S. during the qualified offer period;

    2. specifies the amount of the taxpayer's liability (determined without regard to interest, unless interest is a contested issue in the proceeding);

    3. is designated at the time it is made as a qualified offer for purposes of I.R.C. §7430; and

    4. remains open during the period that begins on the date it's made and ends on the earliest of the date the offer is rejected, the date the trial begins, or the 90th day after the date the offer is made. I.R.C. §7430(g).

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62. Reasonable Cause – Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but is unable to comply with those obligations.

63. Refund – Money returned to the taxpayer as a result of overpayment of a tax liability.

64. Revenue Agent – Revenue Agent is a professional accountant who examines and audits individual, business and corporate tax returns to determine correct federal tax liabilities and conduct examinations relating to compliance with technical requirements imposed by the Internal Revenue Code. See http://jobs.irs.gov/car_acc_iraSr.html

65. Revenue Agent Report – A report is written after each examination, on different report forms depending on whether the case is a regular agreed, unagreed, or excepted agreed case. A regular agreed case is an agreed case in which a copy of the examination report is furnished to the taxpayer before review. This category does not include excepted agreed cases, which are large cases, Joint Committee cases, inadequate records cases, fraud penalty cases, and personal holding company cases where the examination report is not furnished to the taxpayer prior to review. In unagreed and excepted agreed cases, the taxpayer is not furnished a copy of the examination report until after review. The basic form used in preparing a report on an agreed case is a Form 4549 (Income Tax Examination Changes). This form also includes a waiver of the restrictions on assessment so that when executed, any deficiency in tax may be immediately assessed. Since adjustments are explained at the conclusion of an examination, written explanations are rarely furnished in regular agreed cases. Although the execution of the Form 4549 closes a case, the IRS is not prevented from reopening it and making an additional assessment within the period of limitations if it sends a reopening letter pursuant to I.R.C. §7605(b).

66. Revenue Officer – A Revenue Officer is a highly trained professional responsible for protecting the interests of the Federal Government and the taxpaying public. Their primary responsibilities involve collecting delinquent tax accounts and securing delinquent tax returns. As part of that job, they conduct research, interviews, and investigations; they analyze financial statements, and contact third parties for additional information in an attempt to collect delinquent tax debts.

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67. Secured Claim – Claim protected by rights in property that assure payment, whether by voluntary agreement (security interest, deed of trust, or mortgage), court order (judgment lien), or operation of law (statutory lien).

68. Sentencing – See the United States Sentencing Commission website for additional information: http://www.ussc.gov/general/USSCoverview_2005.pdf

69. Statute of Limitation – A set of rules specifying the period in which actions may occur, or within which rights may be enforced.

70. Statute of Limitation for Assessment –

    Assessment of any internal revenue tax must generally be made within a three–year period beginning with the date a return is filed. The general rule stated in I.R.C. §6501(a) provides, subject to exceptions, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed. Even if the return is filed late (i.e., after the due date), the IRS still must assess tax within three years after the delinquent return is filed. If the IRS fails to assess the tax within three years, it is not only prohibited from collecting the tax administratively by lien and levy, the IRS may also not institute a proceeding in court without assessment for the collection of the tax after the three–year period expires. The general period of limitations on assessment applies not only to the principal amount of tax; it also applies to interest and to additions to tax, additional amounts, and penalties that are collected as part of the tax. Whether a tax return is filed or considered filed on the return due date or if the return is filed delinquently after the return due date, the tax must be assessed within the succeeding three–year period, or else it is uncollectible by administrative levy or by a proceeding in court. The critical act that starts the statute of limitations on assessment is the filing of a “return,” and the term “return” means “the return required to be filed by the taxpayer (and does not include a return of any person from whom the taxpayer has received an item of income, gain, loss, deduction, or credit).” In other words, the three–year period runs from the date the taxpayer's return is filed, not the date a pass–through entity, such as a partnership or an S corporation files its return.

71. Statute of Limitation for Collection –

    1. I.R.C. §6502 provides that the length of period for collection after assessment of a tax liability is ten years. The collection statute expiration ends the government's right to pursue collection of a liability. Each tax assessment has a Collection Statute Expiration Date (CSED). It is very important that employees charged with collecting delinquent tax be aware of CSEDs on accounts for which they are responsible and take appropriate case actions to resolve them.

    2. If you encounter an erroneous CSED while working your case you must use established procedures for manually correcting the CSED.

    3. On November 5, 1990, an amendment to I.R.C. §6502 (Public Law 101–508) changed the collection period from six years from the date of assessment to ten years. Any collection statute that was due to expire before November 5, 1990 was under the six–year rule. Any account still open for collection on November 5, 1990 is under the ten–year rule.

    4. The Restructuring and Reform Act of 1998 (RRA 98), enacted on July 22, 1998, provided that the IRS's authority under I.R.C. §6501(c) and I.R.C. §6502(a) to extend the collection statute of limitations by agreement ended on December 31, 1999. Any extension of collection statute already in effect on December 31, 1999 will expire on the later of the last day of the ten–year collection period in I.R.C. §6502(a) or December 31, 2002. There is an exception for extensions relating to the acceptance of an installment agreement.

72. Substitute for Return – A return prepared on behalf of a taxpayer by the IRS pursuant to I.R.C. §6020(b). The return is prepared when it has been determined that a taxpayer is liable for filing the tax return but has failed to do so upon due notice from the IRS.

73. Summons – Authority has been granted to the Commissioner of Internal Revenue by 26 CFR 301.7602–1(b), 301.7603–1, 301.7604–1 and 301.7605–1(a) and the authorities contained in I.R.C. §7609 and vested in the Commissioner of Internal Revenue Service by Treasury Order No. 150–10 and delegated to the officers and employees of the Internal Revenue Service specified in paragraphs 1 through 6 of Delegation Order No. 4 (as revised) to:

    1. issue, serve and enforce summonses;

    2. set the time and place for appearance;

    3. take testimony under oath of the person summoned;

    4. to receive and examine data produced in compliance with the summons; and

    5. to perform other related duties described in Internal Revenue Code Sections 7609 (f), (g) and (i) (2).

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74. Timely Filed – A return or document, which was filed by the taxpayer and received by the IRS within specified time frames. A return is timely filed if postmarked by the original or extended due date (Rev. Rul. 73–133).

75. Trade or Business – The term trade or business is not defined in the Internal Revenue Code or the Treasury Regulations.  Rather, the Code and the Regulations identify a number of activities that do not represent a trade or business; therefore defining it in the negative.  But, in general, the term trade or business refers to any activity carried on for the production of income from the sale of goods or the performance of services.

76. Transferee Liability – Transferee liability is a tool used by the IRS to collect a transferor taxpayer's tax liability. I.R.C. §6901 governs transferee assessments. A transferee case is developed to collect the liability from the person/entity who received the taxpayer–transferor's assets for less than full, fair and adequate consideration or to collect the liability from the person/entity who is legally responsible for paying the taxpayer–transferor's liability. This person/entity is the transferee. The person/entity whose tax liability the government is seeking to collect is the transferor. Examiners are required to consider collectability in every examination. As such, they must be able to identify situations in which the taxpayer has intentionally or inadvertently placed assets out of the legal reach of the IRS. Additionally, they must be able to identify situations in which asset transfers may not be conducted in a “normal business manner” (not at arm's length) because of the close relationship of the parties involved.

77. Trust Fund Recovery Penalty – The Trust Fund Recovery Penalty is a penalty provided by I.R.C. §6672 against any person required to collect, account for, and pay over taxes held in trust who willfully fails to perform any of these activities. The penalty is equal to the total amount of tax evaded, not collected, or not accounted for and paid over. Assessments of the TFRP are possible based on liabilities for the following tax forms:

• 941, Employer's Quarterly Federal Tax Return
• 720, Quarterly Federal Excise Tax Return (see I.R.M. 5.7.3.1.1)
• CT–1, Employer's Annual Railroad Retirement and Unemployment Return
• 943, Employer's Annual Tax Return for Agricultural Employees
• 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
• 945, Annual Return of Withheld Income Tax

78. Trustee – Person who administers the bankruptcy estate. The trustee conserves and manages the assets of the bankruptcy estate. In Chapter 11, the debtor can be the trustee, and that debtor is known as a debtor–in–possession. In Chapter 13, the Bankruptcy Code provides for the appointment of a standing trustee who administers Chapter 13 cases in that district.

    The Bankruptcy Code also provides for the office of United States Trustee. In a perfect world, creditors would closely monitor the debtor to insure fair and efficient administration. In the real world, creditors often have an insufficient economic interest in the bankruptcy estate; therefore, they ignore the bankruptcy process altogether. The United States Trustee monitors the system to insure fair and efficient administration.

79. Trust Fund Taxes – The taxes to which the trust fund recovery penalty applies are the so–called “trust fund taxes,” that is, the collected or withheld taxes that are imposed on some person other than the person required to collect, account for, or pay over the tax. These taxes are called trust fund taxes because they are considered to be in a special fund held in trust for the U.S. Trust fund taxes include withheld wages, and the withheld employee portion of the social security tax. They also include withheld railroad retirement taxes and collected excise taxes, e.g., the communications excise tax and the air transportation excise taxes. In other words, the responsible person holds other people's money in trust.

1 I.R.C. § 108(d)(3).

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