Here’s a crash course on often-confusing terms and acronyms commonly used by the IRS.
June 8, 2015
by Jim Buttonow, CPA/CITP
It’s post-filing season—the time of year when you help clients with any IRS problems, issues, or questions that may pop up. And chances are, these issues will come up for many of your clients. According to the IRS Oversight Board, 43% of taxpayers have to interact with the IRS outside of filing a tax return. Besides the difficulties that taxpayers and tax professionals are experiencing getting through to the IRS by phone, the very nature of this work can be time-consuming. This is especially true if you aren’t familiar with IRS nomenclature—that is, IRS speak.
How many times have you called or met with someone from the IRS, or received information or instructions for your client, and left wondering, “What did that mean? Did I really understand exactly what happens and what to do next?” Having a working knowledge of IRS language can help you avoid having to recontact the IRS and endure long call wait times. You’ll also be able to immediately have a clear picture of your client’s situation from the IRS’s point of view.
Here’s a crash course on often-confusing terms and acronyms commonly used by the IRS. Incorporate them into your tax lexicon so you can work better with the IRS.
Terms related to working on behalf of your client
Disclosure authorization, or authorization: “Are you authorized on behalf of your client?” The answer is “yes,” if you have executed one of the two types of authorizations: Form 2848, Power of Attorney and Declaration of Representative. or Form 8821, Tax Information Authorization. Form 2848 allows CPAs, attorneys, and enrolled agents to advocate for, or represent, their client. Form 8821 allows anyone, including unenrolled tax professionals, to receive information for a client, including automatically mailed copies of notices.
Power of attorney (POA): If you call the IRS, this is the first question you’ll get: “Do you have a POA on file?” That is referring to Form 2848.
CAF: This stands for the Centralized Authorization File, which is an IRS unit where you submit authorizations (Form 2848 or 8821) to access a client’s information or represent a client. It’s best to have a power of attorney or tax information authorization on file with the CAF unit. Otherwise, you would have to fax the authorization to the IRS each time you call or risk being left out of the loop by not being copied on your client’s notices or contacts from an IRS compliance function.
PPS: This stands for the Practitioner Priority Service, a phone line that tax professionals can call to get help for their clients. The number is 866-860-4259. By calling this specialized service line, you can get information on your client, obtain transcripts, set up a simple installment agreement or extension to pay for your client, and even get first-time penalty abatement if your client’s case isn’t in a compliance unit. Despite the usefulness of PPS, it’s not always easy to get through, with the IRS recently reporting an average wait time of 47 minutes. Best bet: Call at 8 a.m. sharp.
Transcripts: In 2014, when the IRS released its Get Transcript application for individual taxpayers to download copies of their IRS transcripts, the IRS was often asked a not-so-surprising question: “What is a transcript?” A transcript is your client’s electronic tax records at the IRS. There are five types of transcripts, but the most-accessed types are tax return transcripts (an electronic copy of most lines of the filed tax return), wage and income information (Forms W-2, 1099, etc.), and account transcripts (transactions on your client’s account, such as payments and additional assessments).
TAS: This stands for the Taxpayer Advocate Service, another good friend of the tax professional. If your client can’t get an issue resolved, you can file a “911”—that is, the Form 911, Request for Taxpayer Advocate Service Assistance. The TAS helps many taxpayers and tax professionals expedite their cases if they’ve repeatedly had trouble getting IRS assistance or response. Keep in mind, the TAS is not much help if your client is in an audit or has a collection issue, unless the IRS is breaking the rules or your client has a documented hardship.
RA: This is a revenue agent, the IRS employee assigned to field audits, which are more comprehensive and intrusive than mail and office audits. If your client has an RA, your client will definitely need your representation services in the audit. Field audits involve what’s not on the tax return just as much as they involve the accuracy of the return itself. You’ll need to take inventory of your client’s entire year of financial activity, especially properly accounting for income.
IDRs: If you have ever helped a client with an office or field audit, you have this term burned into your memory. It is an information document request from the IRS auditor, requesting documents proving your client’s return position. An
IDR can be your enemy or your friend. IDRs come with deadlines; miss them, and the auditor will become impatient and may issue you a summons for the information. IDRs can work for you if you use them properly to document all of the information requested and provided in the audit. At the end of the audit, there shouldn’t be a dispute of the facts if everything was presented and responded to using an IDR.
CP2000: You likely know about this term—it stands for that dreaded underreporter letter that the IRS sends in two main waves each year (November for April 15 filers and the next March for extended filers). As a point of clarification, a CP2000 notice is not an audit, so put your client at ease. The IRS just wants to correct your client’s return. The IRS will, however, apply a 20% accuracy penalty if your client has received a CP2000 for a prior year or has substantially understated his or her income.
FTA: According to the Treasury Inspector General for Tax Administration, fewer than 10% of eligible taxpayers were granted an FTA, or first-time penalty abatement. An FTA automatically grants a taxpayer penalty removal if the taxpayer has a clean compliance history. You can get an FTA for your client with one phone call to the IRS, but you’ll have to specifically ask for it. Don’t worry, the IRS knows what FTA means. Learn more about the FTA rules in these articles from The Tax Adviser and CPA Insider .
P&I: This stands for penalties and interest. Want to know how much P&I has accrued on your client’s outstanding balance? Don’t rely on an account transcript. Instead, call the PPS line and ask for an up-to-date payoff calculation.
Reasonable cause: This is a valid excuse for why your client shouldn’t owe penalties. There are many valid reasons. See the Internal Revenue Manual Section 184.108.40.206.2 (called the IRM, which is the IRS’s internal rule book) for a list of reasonable-cause arguments and the questions you should answer in evaluating each argument. Taxpayers often misunderstand one concept: The IRS may accept financial hardship as a reasonable-cause argument for the failure-to-pay penalty but rarely for the failure-to-file penalty.
DDIA: Call the IRS to set your client up with a payment plan, and the IRS will always ask you to execute a DDIA, or direct debit installment agreement. Under a DDIA, your client’s payment will automatically be drafted from his or her bank account. The good news is, this will materially lower your client’s chance of default and also avoids a monthly reminder letter from the IRS to send a check.
TFRP: This stands for the dreaded trust fund recovery penalty. If your business client has unpaid payroll taxes, the IRS will look to assess the TFRP to any and all “willful and responsible persons” involved in the business. That could mean that a person with any authority or control over payroll could be liable for the business’s unpaid payroll taxes. The IRS will collect this assessment from all applicable people.
Lien, levy: These two terms are not often confused by the IRS, but they are always confused by clients. A levy is a seizure of your client’s wages, bank account balances, or other assets as payment against an outstanding tax liability. This isn’t to be confused with a Notice of Federal Tax Lien (NFTL), which is a public filing at your client’s local courthouse that announces to everyone that your client owes back taxes. Good news here: You can help your clients avoid liens and levies for balances up to $50,000 with a qualifying agreement to pay the IRS back in six years or less. (Note: Some require a DDIA.)
RO: This is your local collection, or revenue, officer. ROs enforce egregious collection cases such as those involving high liabilities or unpaid business taxes, including assessing and collecting the TFRP on unpaid payroll taxes. Because of the severity of the cases they work on, ROs have a quick lien-and-levy trigger.
ACS: When taxpayers owe the IRS and don’t pay, their cases end up in the IRS automated collection system (ACS). This means that taxpayers will receive a series of notices, and eventually can face enforced collection action, such as liens and levies, if they don’t pay the balance or establish an agreement with ACS. Fortunately, ACS can establish most agreements with taxpayers, such as extensions to pay, installment agreements, and currently not collectible status. The more complicated offer in compromise is handled by the IRS centralized offer-in-compromise unit, or an RO.
These are just some of the many useful acronyms to understand when speaking with an IRS representative. The more you know about how the IRS speaks, the better you’ll be able to communicate on behalf of your client, get the right information faster, and navigate the IRS.
Want to know more IRS acronyms? See SFR, TDI, TDA, CDP, CSED, ASED, RSED, and AUR; the list goes on and on.