IRS TCO key terms

The amount of income subject to tax after subtracting allowable adjustments, deductions, and exemptions from gross income. It is the base figure used to compute an individual's or entity's federal income tax liability.

All income from any source unless specifically excluded by law, including wages, business profits, interest, dividends, rents, and gains. It is the starting point for computing taxable income on a federal return.

Gross income reduced by specific above-the-line adjustments such as certain retirement contributions, student loan interest, and educator expenses. It determines eligibility for many deductions, credits, and contribution limits.

A fixed dollar amount that taxpayers may subtract from adjusted gross income instead of itemizing. The amount varies by filing status, age, and blindness, and is indexed annually for inflation.

Allowable personal expenses such as mortgage interest, state and local taxes, charitable contributions, and medical costs above a threshold, claimed instead of the standard deduction. Taxpayers generally choose whichever produces the lower tax.

The category a taxpayer uses to determine rates, deduction amounts, and credit eligibility, such as single, married filing jointly, married filing separately, or head of household. Correct status affects the entire return computation.

A qualifying child or qualifying relative for whom a taxpayer may claim exemptions or credits, subject to relationship, residency, age, support, and joint-return tests. Rules prevent multiple taxpayers from claiming the same person.

A person who meets relationship, age, residency, support, and joint-filing tests, allowing the taxpayer to claim certain benefits. Special tie-breaker rules decide which adult may claim the child when more than one qualifies.

A favorable filing status available to an unmarried or considered-unmarried taxpayer who pays more than half the cost of maintaining a home for a qualifying person. It carries a higher standard deduction and wider brackets.

A refundable credit for low- and moderate-income workers based on earned income and number of qualifying children. Eligibility requires valid Social Security numbers, residency, and investment income limits, and it is heavily audited.

A tax credit that can reduce tax liability below zero, with the excess paid to the taxpayer as a refund. Examples include the earned income credit and portions of the child tax credit.

Tax withheld from wages or other payments by a payer and remitted to the IRS on the taxpayer's behalf. It is credited against total tax due and can generate a refund when it exceeds liability.

Periodic payments made by taxpayers whose income is not subject to sufficient withholding, such as self-employed individuals. Underpayment can trigger penalties unless an exception or safe harbor applies.

Social Security and Medicare tax owed by individuals with net self-employment earnings, calculated on Schedule SE. It includes both the employee and employer portions, with part deductible for income tax purposes.

A form filed with the IRS to report payments or transactions to the government and often to the recipient, such as Forms 1099, W-2, or 1098. Matching these against taxpayer returns drives many compliance notices.

A required withholding on certain reportable payments when a payee fails to furnish a correct taxpayer identification number or is subject to backup withholding. The payer remits it and reports it on an information return.

A set of ten rights published by the IRS describing how taxpayers should be treated, including the right to be informed, to quality service, and to appeal. It frames expectations for IRS employees and representatives.

An independent office within the IRS that helps taxpayers experiencing significant hardship or whose issues remain unresolved after normal channels. It may issue Taxpayer Assistance Orders to direct IRS action.

A directive issued by the National Taxpayer Advocate that can require the IRS to release property, cease action, or take action to relieve significant hardship. It is a tool of last resort within the advocate function.

The right to an independent hearing before Appeals after a notice of intent to levy or a filed federal tax lien. The taxpayer may raise collection alternatives, challenges, and spousal defenses at the hearing.

A written notice informing a taxpayer that the IRS intends to seize property or rights to property to collect an unpaid tax. It triggers collection due process rights and a 30-day window to request a hearing.

A statutory claim against a taxpayer's property and rights to property securing unpaid tax, arising automatically upon assessment and notice and demand. It differs from a levy, which actually seizes property.

The legal seizure of a taxpayer's property or rights to property, such as bank accounts or wages, to satisfy an unpaid tax liability. Procedural notices and hearing rights generally must precede it.

A time limit set by law for the IRS to assess tax or for a taxpayer to claim a refund or file suit. The assessment period is generally three years from filing, extended in certain circumstances.

The formal recording of a taxpayer's liability in IRS records, which establishes the government's right to collect. It follows a return, an examination adjustment, or a substitute return and precedes collection activity.

The amount by which the correct tax exceeds the tax shown on a return, plus amounts previously assessed, less rebates. The IRS generally must issue a notice of deficiency before assessing additional tax without a waiver.

A formal written notice informing a taxpayer of a proposed additional tax and the right to petition the Tax Court within a set period. It is often called a 90-day letter and is a prerequisite to certain assessments.

An independent court that hears disputes over proposed deficiencies before the taxpayer must pay the disputed amount. Its jurisdiction includes certain collection and innocent spouse matters.

Relief that may release a spouse from joint liability for tax, interest, and penalties attributable to the other spouse's erroneous items. Separate allocation and equitable relief provisions provide additional paths.

The IRS process of reviewing a return or records to verify reported income, deductions, and credits. It may be conducted by correspondence, at an IRS office, or at the taxpayer's place of business.

A structured conversation in which an IRS employee gathers facts from a taxpayer, representative, or witness to resolve a case. Documentation should record who was present, questions asked, and answers received.

The organized record of all documents, notes, and actions related to a taxpayer's matter. It must be complete, accurate, and sufficient for another employee or reviewer to understand what occurred.

A chronological log of actions taken, contacts made, and decisions reached on a case. Entries should be factual, dated, and written so they can be understood later without additional explanation.

The practice of recording facts, sources, and reasoning contemporaneously so decisions can be reviewed and defended. It should distinguish observed facts from conclusions and note any unresolved issues.

Communication with someone other than the taxpayer, such as an employer, bank, or witness, to obtain or verify information. Certain contacts require notice to the taxpayer, and records should identify the person and purpose.

The release of taxpayer return information to another person, which is restricted by law and generally requires consent or a specific exception. Unauthorized disclosure can carry civil and criminal consequences.

Information about a taxpayer's return, liability, or examination that the IRS holds, distinct from the return itself. Its handling is protected by confidentiality rules and limited disclosure exceptions.

A legal demand issued by the IRS requiring a person to appear, produce records, or provide testimony relevant to a tax matter. It must meet statutory requirements and may be challenged in court.

Intentional conduct to evade tax or mislead the government, such as concealment, false entries, or deliberate omission of income. It differs from negligence and generally requires proof of specific intent.

A penalty imposed for underpayment attributable to fraud, assessed administratively by the IRS. It requires clear and convincing evidence of intent and may be challenged in Tax Court.

A penalty for negligence, substantial understatement, or disregard of rules, separate from fraud. Taxpayers may avoid it with adequate disclosure and reasonable cause.

The process of sending a case with indicators of intentional wrongdoing to the appropriate function for possible criminal or civil fraud development. Referrals should be documented with specific facts and evidence.

A documented transfer of a case or issue to another IRS function or agency for action outside the sender's authority. It should state the issue, facts, and requested action clearly.

A voluntary, intentional violation of a known legal duty, often relevant to failure-to-file, failure-to-pay, and information-reporting penalties. It is a higher standard than negligence and typically requires evidence of awareness.

A defense to certain penalties when the taxpayer exercised ordinary business care and prudence but still failed to comply. Facts and circumstances must be documented and supported by the record.