Glossary

A reduction or cancellation of taxes, penalties, or interest assessed by tax authorities. Taxpayers may request an abatement when there’s reasonable cause for noncompliance, such as serious illness, natural disasters, or errors by the tax authority.

AGI is your gross income (from wages, business, investments, etc.) minus specific deductions such as student loan interest, retirement contributions, and some legal fees. AGI is a critical figure used to determine your taxable income and your eligibility for various tax credits and deductions. The IRS uses AGI as a benchmark for income-based phaseouts and credit limits.

When you fail to resolve outstanding tax debts, the IRS or state agency can seize (take legal ownership of) your assets, including homes, vehicles, bank accounts, or investment holdings. Asset seizure is typically a last-resort enforcement action following repeated notices and opportunities to pay or resolve your debt.

A formal IRS or state agency examination of filed returns, accompanying documents, and supporting financial records. Audits may be conducted via mail (correspondence audit), at the tax office, or on-site (field audit). Audits aim to verify reported income, claimed deductions, and compliance with tax law. Representation by an experienced tax attorney can dramatically improve audit outcomes.

If you disagree with the findings or outcomes of an IRS or state audit, collections action, or penalty assessment, you have a legal right to file an appeal. Appeals are reviewed by independent IRS offices or state boards, offering taxpayers a chance to provide more evidence, negotiate liabilities, and possibly overturn previous decisions.

A direct seizure of funds from your bank accounts initiated by the IRS or state agency to satisfy unpaid taxes after you’ve failed to address notices. Levies can drain an account up to the amount owed and often freeze your funds without prior warning.

The original value of an asset (property, stocks, business equipment) for tax purposes. Basis is used to calculate capital gains or losses when you sell, exchange, or transfer that asset. Adjustments may apply for improvements, depreciation, or previous tax treatments.

The ordinary and necessary costs incurred in operating a business. These include salaries, rent, utilities, materials, travel, and other expenditures. Only legitimate, documented business expenses are deductible, reducing taxable business income.

Manages the collection of sales, use, excise, and certain specialty taxes for the state of California. CDTFA audits, enforces compliance, and administers permits and licenses relevant to California businesses.

The profits or losses realized from the sale or exchange of assets such as stocks, bonds, or real estate. Short-term gains (assets held less than one year) are taxed at ordinary income rates, while long-term gains may qualify for preferential tax rates.

A formal opportunity to challenge IRS collection actions (such as tax liens or levies) before enforcement proceeds. A CDP hearing provides a stage to resolve disputes, propose payment alternatives, or present hardship claims.

Staying up-to-date and accurate with all tax filing and payment obligations. Compliance is necessary to avoid penalties, interest, and enforcement actions. Leading Tax Group helps clients achieve and maintain tax compliance even after major tax delinquencies or audit issues.

A legally allowable expense that reduces taxable income. Deductions can be “above-the-line” (adjustments to gross income) or “below-the-line” (standard or itemized deductions). Documenting deductions is crucial for accuracy and defence during audits.

Taxes that remain unpaid after the due date lead to penalties, interest, and potential enforcement. Continued delinquency can result in aggressive collection actions such as liens, levies, and asset seizures.

In some bankruptcy or negotiated settlements, the IRS may agree to discharge (forgive) certain tax debts. Not all tax debts are eligible for discharge; eligibility depends on the type of tax, age of debt, and other legal factors.

Required quarterly payments for taxpayers with significant non-wage income (self-employed, investors). Underpayment or late payment of estimated taxes can result in IRS penalties.

Previously, an amount that could be deducted for each taxpayer, spouse, or dependent. Exemptions have largely been replaced or supplanted by credits due to recent US tax law updates.

A term for IRS or state actions like wage garnishments, bank levies, and asset seizures to collect past-due taxes. Enforced collection can be stopped or resolved through prompt negotiation or representation by tax professionals.

A mandatory disclosure (via FinCEN Form 114) for US persons with foreign financial accounts exceeding certain thresholds. Failure to file FBAR can lead to devastating financial penalties and, in extreme cases, criminal charges.

California’s agency for income and corporate taxes. FTB enforces compliance, audits, and assesses penalties for underpayment or late filing.

An IRS initiative aimed at helping taxpayers resolve debts through streamlined Installment Agreements, Offers in Compromise, and penalty relief measures. The program makes it easier for qualifying taxpayers to get out of collections and back in compliance.

A legal order requiring your employer to withhold a portion of your earnings to satisfy a court-ordered debt, including tax debts. IRS wage garnishment continues until the debt is paid in full or a resolution is put in place.

All income received from any source in a tax year, before deductions or exemptions. This includes wages, business profits, dividends, capital gains, and miscellaneous income.

A filing status for unmarried taxpayers who pay more than half the cost of supporting a home for a qualifying individual. HOH status typically grants larger standard deductions and more favourable rates.

Special arrangements or suspensions of collection activity when paying tax debts would cause “undue hardship”—for example, by preventing you from paying living expenses. Legal documentation and negotiation are required.

An IRS-approved plan to pay owed tax over time, often in monthly instalments. Negotiate directly with the IRS or with expert assistance to obtain affordable and sustainable payment terms; defaulting on a plan may result in immediate enforcement.

This IRS program releases one spouse from joint tax debt liability when the debt resulted from the other spouse’s improper or fraudulent reporting on a shared return. To qualify, you must show you didn’t know about and had no reason to know about the understatement.

The federal tax authority is charged with collecting taxes, enforcing tax laws, conducting audits, and administering programs like the Earned Income Tax Credit or Fresh Start initiatives.

A detailed review of an individual’s or a business’s tax returns for accuracy. Examinations can be random or triggered by red flags like excessive deductions, large refunds, or mismatched income reporting.

A public claim registered by the IRS against your property for unpaid tax debts. A lien can affect your credit, ability to sell property, or secure loans.

Financial charges are imposed for late filing, underpayment, inaccurate returns, or noncompliance. Penalties can add up quickly, but many are negotiable or removable for reasonable cause.

A tax form filed by married couples, combining their incomes, deductions, and credits. Joint filing generally leads to lower tax liability but joins both spouses in responsibility for the content and payment.

A tax provision that taxes the unearned income (like dividends and investment interest) of children above a certain threshold at their parents’ tax rate to prevent income shifting for lower taxation.

A broad term for IRS seizures of funds or property, including bank levies, wage garnishments, or even forced sales of tangible assets.

A legal right to retain property belonging to another until a debt is paid. IRS liens are securely attached to property and must be satisfied or removed before that property can be refinanced or sold.

A tax-deferral tool (IRC Section 1031) for exchanging similar business or investment properties without paying tax immediately on the gain.

The percentage rate applied to your last dollar of taxable income. This is crucial for tax planning because it determines the benefit of future deductions or credits.

Two methods for married taxpayers to file returns. Filing jointly usually reduces taxes but joins both parties in liability. Filing separately provides financial or legal separation in unique situations.

A payroll tax withheld from employees and matched by employers to fund Medicare; self-employed persons pay both parts.

A formal IRS letter (sometimes called a “90-day letter”) advising the taxpayer of assessed additional tax, giving them 90 days to challenge the finding in tax court.

Also called “Currently Not Collectible,” this is a temporary status for taxpayers experiencing extreme financial hardship, suspending IRS collection activity but not interest or penalties.

An IRS settlement tool permitting eligible, financially distressed taxpayers to resolve their entire debt for less than they owe. OIC approval is stringent, requiring honest disclosure and generally proving that collection is unlikely.

Additional charges for noncompliance, such as late filing, failure to pay, or inaccurate information. Penalties can sometimes be abated if reasonable cause or first-time relief applies.

Employer-withheld taxes for Social Security, Medicare, unemployment, and disability insurance. Employers who fail to remit payroll taxes are subject to severe IRS action.

A formal or informal agreement to pay tax debt in a series of scheduled payments. Complex or high-balance debts benefit greatly from negotiation by a professional.

A child or relative who meets the criteria set by the IRS for tax credits, deductions, and filing status. Proper documentation is vital to substantiate dependency claims.

Any excess tax payments returned by the government. Claiming a refund requires complete, accurate returns or amendments within specified time frames.

Having a licensed tax professional (attorney, enrolled agent, CPA) advocate for you with the IRS or state agency, especially during audits, appeals, or enforcement actions.

State-levied tax on retail transactions for goods and certain services. In California, administered by CDTFA, it requires filing, reporting, and compliance to avoid penalties.

Voluntary or negotiated resolution of tax debt, via Installment Agreement, Offer in Compromise, or other program. Settlements usually result from diligent negotiation and presentation of financial realities.

A flat-dollar amount determined by filing status, reducing taxable income where itemizing does not provide a greater benefit.

A legal expert specializing in tax law, IRS defence, negotiation, settlement, appeals, and court representation. At Leading Tax Group, our Tax Attorneys only handle tax resolution work for IRS, FTB, CDTFA, EDD and more. They don’t do any legal work or handle criminal cases.

Direct reductions of tax owed, sometimes refundable (you get money back) or non-refundable (they only offset owed tax, never creating a refund). Key credits include Child Tax Credit, Earned Income Tax Credit, and education credits.

The total amount you owe the IRS or state, including initial liability, penalties, and accrued interest. Resolving tax debt is possible via settlement, payment plans, OIC, or hardship claims.

Intentional misrepresentation or concealment of income or assets to avoid tax. Evasion is a federal crime with severe legal consequences, including imprisonment.

The process of negotiating, disputing, settling, or otherwise resolving outstanding tax problems to achieve compliance, regain control, and end IRS/state harassment.

An official government form where you report all income, deductions, credits, and alternate tax items for the year. Most individuals use IRS Form 1040, but specific situations call for other forms.

The annual accounting period for reporting income, typically January 1 through December 31.

An independent IRS office that assists taxpayers facing systemic issues, delays, or unique hardships not easily resolved through standard channels.

Returns that are overdue and unsubmitted. Unfiled returns expose taxpayers to penalties, substitute filings, and enforcement actions. Prompt professional intervention helps restore compliance before further escalation.

A program allowing taxpayers who have failed to report previously undisclosed income or assets to come forward before audits or investigations, often mitigating civil and criminal penalties.

Court- or IRS-directed deduction of earnings from your paycheque to satisfy debt. Garnishments continue until debts are resolved or negotiated relief is arranged.

The earnings generated from investments. For tax purposes, yields can take the form of interest, dividends, or capital gains—all subject to various tax treatments and disclosures on returns.