O.
Offer in Compromise ("OIC").  A formal process, provided by Internal Revenue Code § 7122, requiring comprehensive financial statements and detailed substantiation, whereby tax liabilities can be settled for less than the outstanding balances. The most common basis for settlement, Adoubt of collectibility@ requires that the taxpayer establish that the IRS could not reasonably expect to collect more than the amount offered. The majority of OICs are rejected by the IRS because the submitting taxpayers simply did not qualify or failed to satisfy the IRS that it could not collect an amount in excess of the amount offered.

Office Auditor.  An IRS employee who conducts, in IRS offices, audits of less complex individual and business tax returns.


P.
Passive Activity. Any activity in which the investor does not materially participate. Generally, losses generated by passive activities may not be used to offset active income.

Passive Loss. A loss from a Passive Activity.

Payroll Taxes.  Also known as Employment Taxes. Social Security and Medicare taxes withheld from employee's wages and employer's matching portion of such taxes.

Penalty.  A monetary fine assessed by the IRS. In some situations, especially in the area of employment taxes, penalties can account for more than half of the total liability.

Pennies on the Dollar.  A phrase often used by persons to tout their putative expertise in obtaining compromises of tax liabilities. The IRS takes its job seriously and does not settle for less than what is owed until it is satisfied that the amount offered is at least equal to the amount it could, with all of its impressive collection tools, reasonably expect to collect over time. The prudent taxpayer will not employ a representative who promises any specific result without first fully understanding the taxpayer's financial position.

Personal Liability.  An obligation that exposes an individual's personal income and assets to IRS collection efforts with respect to a corporate debt.

Power of Attorney.  An IRS power of attorney, Form 2848, is a legal document authorizing your attorney, CPA or enrolled agent to represent you on tax matters before the IRS.

Property Exempt from Levy.  Section 6334 of the Internal Revenue Code provides that, within specific statutory limits, certain possessions and types of income are exempt from levy.


Q.
Quick Sale Value.  For IRS purposes, generally 80 percent of fair market value. Quick sale value for cash and cash equivalents is the same as fair market value, usually 100 percent of face value.


R.
Reasonable Cause. A reason that the IRS would accept to excuse the imposition of a penalty or other sanction on a taxpayer or tax preparer.

Reconstruction of Income. Indirect methods whereby the IRS determines the taxpayer’s income in the absence of adequate books and records or in the presence of suspect books and records. Such methods include the Bank Deposit Method, Cash Expenditures Method and Net Worth Method.

Refund Statute Expiration Date ("RSED").  The date after which the refund of overpaid taxes is barred by statute. For prepayment credits (e.g., withholding credits) the RSED is three years from the due date of the return, including timely filed extensions. For non-prepaid credits, the RSED is three years from the date the original return was filed, or two years from the date of payment, whichever is later.

Release from Levy.  A procedure whereby the IRS notifies the levied party that it need not comply with the levy. The IRS is loath to release levies, especially where there is a history of noncompliance with tax laws. In personal tax cases, a full or partial release of levy may be negotiated if it can be shown that compliance with the levy will result in a "substantial hardship" to the taxpayer. In business cases, a partial release of levy may be possible where, e.g., enforcement of the levy would cause the taxpayer to miss a payroll or Federal Tax Deposit.

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