Glossary of Tax Terms

Field Audit

An audit conducted by an IRS auditor at the taxpayer's home or business. These audits are usually carried out by the most experienced IRS auditors and are generally requested when a serious discrepancy has been detected. They are commonly requested for individuals or businesses that have relatively high incomes.

Filing Status

An IRS classification that determines the amount of a taxpayer's standard deduction and their income tax rate.

Freedom of Information Act

A federal law that allows taxpayers to obtain and review their IRS files.

Head of Household

A filing status available to an unmarried taxpayer who has at least one qualifying dependent and who has paid more than half of the cost of maintaining the household for at least half of the tax year. The head of household filing status carries a lower tax rate than that of a single taxpayer.

Installment Agreement

A payment plan negotiated with the IRS or State Tax Agency whereby a taxpayer agrees to pay a tax debt over a specified period of time rather than with a single lump-sum payment. The terms of an Installment Agreement normally depend on the amount of the tax liability together with the current and projected financial status of the taxpayer.

Office Audit

A face-to-face audit done in the auditor's office. Like the Correspondence Audit, it is initiated when the IRS issues a notice demanding that a taxpayer provide documentation to substantiate certain items on a tax return.

Net Operating Loss Carry Back

A tax relief option that allows a taxpayer to reduce an existing tax liability by applying net operating losses for the current fiscal year against a gain from a previous year.

Notice of Deficiency

A formal letter from the IRS informing a taxpayer of a tax deficiency and advising him or her of their appeal rights when the United States Tax Court. A Notice of Deficiency can be issued when no tax return has been filed, but is most often sent when the tax amount shown on a filed return is less than the actual amount owed according to IRS calculations.

Partial Payment Installment Agreement

A tax settlement option that allows a taxpayer to settle a tax debt for less than the full amount owed and to pay the balance of the settlement amount over a specified period of time.


An amount assessed by the IRS or State Tax Agency for failure to file a tax return by the filing deadline or failure to pay the tax amount due as shown on a tax return that has been filed. Both types of penalties are based on the tax amount due and are calculated from the due date of the return.

Penalty Abatement

The reduction or elimination of a tax penalty by the IRS or FTB when the circumstances are such that a taxpayer has acted in a reasonable and prudent manner and yet, because circumstances beyond their control, was unable to meet his or her tax debt obligations.

Reasonable Cause

A determination made by the IRS to excuse late filing and late payment penalties when a taxpayer can show that he or she had a valid reason for not filing a return or making a tax payment.

Trust Fund Recovery Penalty

A harsh penalty imposed when a business fails to meet its payroll tax deadlines. The penalty is equal to 100 percent of the payroll tax balance and does not take into account the reason for the delinquency. Under the provisions of the penalty, blame can be assigned to anyone who was in any way responsible for the payroll tax debt.



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