Arizona Tax Resolution Glossary
Understand the terminology used in IRS tax resolution. This glossary covers the key terms Arizona residents need to know when dealing with federal tax debt.
Offer in Compromise (OIC)
An agreement between a taxpayer and the IRS that settles tax debt for less than the full amount owed. Arizona residents may qualify if they cannot pay the full tax liability or doing so would create financial hardship.
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Installment Agreement
A payment plan that allows taxpayers to pay their tax debt over time in monthly payments. Arizona taxpayers with debt under $50,000 may qualify for streamlined agreements without detailed financial disclosure.
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Federal Tax Lien
A legal claim by the government against a taxpayer's property when they fail to pay tax debt. In Arizona, this can attach to real estate, vehicles, and financial accounts, affecting credit scores and property sales.
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Bank Levy
An IRS enforcement action that seizes funds directly from a taxpayer's bank account. Arizona residents typically have 21 days from the date of levy to negotiate before funds are sent to the IRS.
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Wage Garnishment
An IRS collection action that requires an employer to withhold a portion of a taxpayer's wages and send it directly to the IRS. This is technically called a 'wage levy' and leaves the taxpayer with only exempt amounts.
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Trust Fund Recovery Penalty (TFRP)
A penalty that holds individuals personally responsible for unpaid employment taxes. Arizona business owners, officers, and even bookkeepers can be assessed 100% of the unpaid trust fund portion (employee withholding).
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Currently Not Collectible (CNC)
A status granted when the IRS determines a taxpayer cannot afford to pay anything toward their tax debt. Interest and penalties continue to accrue, but active collection stops.
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Penalty Abatement
Removal or reduction of IRS penalties. Arizona taxpayers may qualify for First Time Penalty Abatement (FTA) with a clean three-year compliance history, or through reasonable cause arguments.
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Collection Statute Expiration Date (CSED)
The date after which the IRS can no longer legally collect a tax debt. Generally 10 years from the assessment date, though certain actions can extend or toll this period.
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CP14 Notice
The first notice sent by the IRS when a balance is due on a tax return. This is typically the starting point for IRS collection, informing Arizona taxpayers of the amount owed and payment options.
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CP504 Notice
An 'Intent to Levy' notice that warns the IRS may seize property if the debt isn't resolved. Arizona taxpayers receiving this notice should act quickly to prevent bank levies or wage garnishment.
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LT11 Notice
A 'Final Notice of Intent to Levy and Notice of Your Right to a Hearing' that provides appeal rights before levy action. This is often the last notice before the IRS takes enforcement action.
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Collection Due Process (CDP)
A taxpayer's right to request a hearing before the IRS Office of Appeals prior to certain collection actions. CDP requests must be filed within 30 days of the LT11 or equivalent notice.
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Reasonable Collection Potential (RCP)
The formula the IRS uses to calculate how much a taxpayer can afford to pay. RCP equals equity in assets plus future income (monthly disposable income × number of months remaining on collection statute).
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Form 433-A
Collection Information Statement for Wage Earners and Self-Employed Individuals. This form details income, expenses, and assets to determine collection potential for Arizona taxpayers.
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Form 433-B
Collection Information Statement for Businesses. Arizona business owners use this form to document business income, expenses, and assets when negotiating with the IRS.
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Substitute for Return (SFR)
A return the IRS prepares on behalf of a taxpayer who fails to file. SFRs typically don't include deductions or credits, resulting in a higher tax liability than a self-prepared return.
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Innocent Spouse Relief
Relief from joint tax liability for a spouse who didn't know about or benefit from understatement of tax by the other spouse. Arizona residents must meet specific requirements and apply on Form 8857.
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Required Minimum Distribution (RMD)
The minimum amount that must be withdrawn annually from retirement accounts after reaching a certain age. Failure to take RMDs results in a 25% penalty, a common issue for Arizona retirees.
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Self-Employment Tax
A 15.3% tax on net self-employment income that covers Social Security and Medicare. This is in addition to income tax and applies to Arizona self-employed workers, freelancers, and gig workers.
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