Tax Debt Related Terms and Definitions

A

Adjusted Gross Income - Income adjusted downward by specific deductions but not including standard itemized 
deductions. Income can include wages, interest, capital gains, and income from other accounts. 

Amortization - The gradual reduction of debt through installment payments of principal and interest 

Appraisal - The valuation of an asset by an authorized person. Appraisals are used for multiple purposes. A Tax Lien against your property is based of an appraisal. 

Asset - Anything owned that by an individual or entity that has the expectation of providing future benefit. Can include cash, property, goods, accounts receivable, a company, investments or savings. Something that holds economic value that has the expectation of providing a future benefit. 


B

Back Taxes - Taxes that are due, but have not been paid on time

Back Taxes Relief - Back taxes help, Back Taxes

Bank Account Levy - Form of IRS enforcement to recover back taxes. Usually they notify your bank and they can take whatever you have in your account. The money is frozen for 21 days until you can justify or release the levy so that the bank does not send your money to the IRS.

Bank Account Garnishment - (see bank account levy)


C

Capital Gains - An increase in the value of a capital asset that gives it a higher worth than the purchase price. This gain is not realized until the asset is sold. These gains must be claimed on income taxes 

Casualty - Property damage that results from a natural disaster or other common hazard. It may be tax deductible in the year of the damage. 

Collateral - Assets that are used to secure a loan or other credit. Mainly is property, but can be other forms of assets. Collateral becomes the subject to seizure on default. 

Collections Appeal - Is a request made by a taxpayer when they do not agree with an IRS decision 

Compulsory Payroll Tax - An automatic tax collected from employers and employees to finance specific programs 

Compound Interest - Interest that is paid on previously earned interest as well as on the principal. Interest can be compounded on different terms (ex: Continuously, monthly, quarterly, annually) 

Correspondence Audit - Is when the IRS mails a request for additional information on a tax return 

Credit Bureau - An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals. The information they have is used for those who are being considered for credit. The consequences of unpaid tax debt can lead to your credit report and score being damaged. Examples of these companies are: Experian, TransUnion and Equinox. 

Credit inquiry - An attempt to seek information concerning interest rates and the availability of funds without disclosing your identity, or specifying the need or purpose of the proposed borrowing, or the specifics concerning your credit worthiness. 

Credit Report - A detailed report of an individuals credit history prepared by a credit bureau and used by a lender to 
determine a loan applicant's creditworthiness 

Credit Score - Is a snapshot of a person's credit risk at a particular point in time. It is used by lenders to help determine if a borrower qualifies for a loan 

D

Debt Consolidation - Combining multiple loans into a single loan, often at a lower interest rate and having lower monthly payments 

Debt Ratio - Also called debt to income ratio, which is a loan qualifying ration used by lenders to determine if a borrower qualifies for a loan. It is calculated by taking the borrower's monthly debts and dividing it by their monthly income. 

Default - Failure to meet legal obligations in a contract, such as failing to meet monthly debt payments 

Deferment - Occurs when a borrower is allowed to postpone repaying the tax debt

Deferred Interest - Unpaid interest added to your tax debt with the state or IRS. 

Delinquent Tax Payer - Failure to pay IRS or State Taxes. 

Delinquent Tax Returns - Is when a taxpayer fails to file their required tax returns. Failing to file your tax returns can be construed as a criminal act by the IRS, failure to file is punishable by one year in jail for each year not filed 

Direct Tax - At tax on sources of income over which the taxpayer has no discretion. Include income tax, corporate taxes and transfer taxes. 

Disposable Income - Disposable Earnings is the net amount or dollar amount after taxes, social security, etc.

E

Earned Income - Gross salary, commissions, fees, wages etc, which are received from a job or occupation. Does not include investment income, rent, or annuity amounts received. 

Equity - The difference between the market value of an asset and the claims held against it. Assets - Liabilities = Equity 

F

Field Audit - Is an audit on a corporate tax return where an review of the tax payers records is conducted at the tax payer's location of business 

Finance Charge - The amount a borrower must pay in order to obtain credit. The amount includes all fees, points and interest payments paid by the borrower. 

Flat Tax - A single rate tax system. Also called a proportional tax, which is a system that taxes all entities in a class at the same rate (as a proportion of income) 

Final Notice of Intent To Levy and Notice of Your Right To A Hearing - Final notice the IRS sends to you before levying your wages, bank account, house or other personal property.


I

Income Tax - Tax paid on income within a given financial year. This is the main source of revenue for the federal government. It is based on your earned and unearned income. 

Indirect Tax - A tax that is levied on goods or services rather than on persons organizations. Examples are sales tax, excise tax or value added tax. 

Innocent Spouse - Under the innocent spouse rule, on a joint tax return a spouse can claim to not be jointly liable if he or she did not know about errors and did not benefit from them. In a normal situation both signers on a joint return are individually liable for the entire tax amount due plus any other penalties and interest.

Interest - The charge made to a borrower for use of a lending. The cost of borrowing money.

Internal Revenue Service - government organization that collects taxes or revenue for Federal Government

IRS Audit - Is when Internal Revenue Services (IRS) examines individual or a corporations tax return to verify its accuracy. It is the tax payer that is responsible for providing all support of records, so it is encouraged that the filer maintains good records. There are three types of audits, which are: correspondence audits, office audits, and field audits 

IRS Bank Levy - If you are delinquent in paying your taxes, the IRS can seek a levy on your bank account. This will effectively freeze the funds in your account for seizure. 

IRS Payment Plan - The IRS encourages tax payers to pay quickly, but for the individuals or businesses that have no other alternative the IRS may allow for a payment agreement for past due taxes


L

Liquid Asset - Cash, or an asset that can easily be converted to cash 

Lien - A lien in general is a claim or security of interest granted over personal property to secure payment of debt. 


M

Minimum Payment Amount - The minimum amount that must be paid to keep the account from going into default with an IRS payment plan. The amount can be a set percentage rate or a minimal fixed amount that must be paid every month. 

N

Notice and Demand for Payment - letters the IRS primarily sends you before sending a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. 

O

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 federal tax liabilities by accepting less than full payment under certain circumstances. Taxpayers may be able to take advantage of the Offer in Compromise if they are not able to pay a tax debt in full or an installment agreement 

Office Audit - Is when an interview is conducted at a local IRS office based on tax filings 

P

Payroll Taxes - Taxes based on wages, salaries paid and tips. The tax is deducted by the employer. This tax funds many finance programs, including social security, health care and worker's disability 

Penalty Abatement - Is when someone receives a penalty for not paying taxes and the individual has a good sound reason for not filing and the taxpayer can receive a complete or partial removal of the money owed. To receive penalty abatement, the IRS will require you have a sound reason 

Property Taxes - Taxes paid annual based on the value of property 


S

Secured Debt - A type of debt that is collateralized by specific assets in which the creditor has rights to take the property which it is collateralized by in the event of default. 


T

Tax Liability - The amount of tax you owe on your income or other taxable event 

Tax Lien - A claim against personal property (real estate, automobiles, boat etc) arising from unpaid taxes 

Tax Sale - The sale of property arising from the non-payment of taxes

Tax Levy - Also property tax, is the legal seizure on personal property (cars, boats, house) by local government. The IRS and State can levy also property held by someone else. For example, Bank Account Levy or Bank Account Garnishment is when your back accounts funds are seized. Wage Levy or Wage Garnishment is a type of levy when your wages are taken.

U

Unsecured Debt - Any type of debt that is not collateralized by a specific asset in the event of default 


W

W-4 Form - Is the form used to figure out the amount of income tax to have withheld from your paycheck, which is called your withholding allowance. This represents your total tax deductions divided by the personal exemption rate 

Wage Garnishment - When money is deducted from an employee's monetary compensation as a result of a court order. They can be taken for any type of debt, most commonly for child support, taxes and unpaid court fines.