Tax Law Glossary

California Tax Attorney Assisting Clients in San Jose and Throughout the San Francisco Bay Area

The following definitions are an abbreviated and summarized form intended to facilitate understanding but are not final, definitive, or complete, and may not be considered to constitute legal advice.

"30-day letter": This is another commonly used term for a notice of deficiency. See notice of deficiency.

940, form (FUTA): This form is filed annually by businesses to report federal unemployment tax to the U.S. government. Depending on the number of employees of a business, the unemployment tax may be paid annually or it may be required to be paid more frequently.

941, form: This form is filed quarterly by businesses to report employee taxes and employee withholding to the U.S. government.

Administrative law judge: A judge for an administrative hearing such as a hearing of the findings of the California State Employment Development Department (EDD).

Advance directive for health care: This used to be called a power of attorney for health care. It provides instructions for medical authorization and for end-of-life care.

Beneficiary: Specifically, a person who receives a benefit and often is often identified in a trust or will as a person to whom some asset or amount is being left.

Board of Equalization (BOE): The California State tax authority charged with the collection of sales and use taxes.

BOE: See Board of Equalization.

Cancellation of debt (COD): This may occur because of a short sale of a residence (see short sale). It may also occur in any situation where one party forgives an obligation to pay an amount without actually having received it.

Cancellation-of-debt income (CODI): The income of the party who receives the benefit of a cancellation of debt (COD). This income may be avoided if the requirements of the Internal Revenue Code are met for relief from cancellation-of-debt income (CODI), for example, if the CODI occurred when an individual was insolvent.

COD: See cancellation of debt.

CODI: See cancellation-of-debt income.

Collection due process hearing (CDP): A hearing held by the Internal Revenue Service Appeals Division to review whether there has been a violation of a taxpayer's right to due process. At the CDP hearings, a taxpayer may recommend an alternative collection procedure that will satisfy the Government's interests without being as burdensome to the taxpayer.

Collection statute expiration date (CSED): For Federal collection of taxes, the Internal Revenue Code provides that each tax assessment has a CSED of 10 years, which means that the there is an end date to the Government's right to pursue collection on a liability. Note: A number of factors can extend the 10-year date. The CSED for the Franchise Tax Board (FTB) is 20 years, subject to factors that can extend the date. Note: The California State Employment Development Department (EDD) has no applicable CSED.

Corporation ("S" corporation): The letter "S" refers to the subchapter of the Internal Revenue Code containing the rules for taxation of small business corporations. The rules of subchapter "S" are applied to a corporation that both qualifies to and elects to be taxed under the small business corporation tax rules. See also "S" election.

Corporation ("C" corporation): The letter "C" refers to the subchapter of the Internal Revenue Code containing the tax laws applicable to corporations. All corporations are "C" corporations unless they elect to be taxed otherwise.

CSED: See collection statute expiration date.

"Currently not collectible": A temporary status allowed by the tax authorities when tax collection would cause hardship as supported and documented. This status means that no collection action will be undertaken against an individual. Note that interest will continue to accrue on the liability.

DE 9 / DE 9 C, forms: These forms together are required to be filed quarterly by businesses to report unemployment insurance, employee training tax, state disability insurance, and employee tax withholding to the State of California.

EDD: See Employment Development Department.

EDD.CA.gov: The website of the California Employment Development Department (EDD), which is the California State tax authority charged with the collection of employee taxes paid by employers. This site also contains the EDD payment portal (eddservices.edd.ca.gov) that allows taxpayers to pay a variety of taxes online.

EFTPS: See Electronic Funds Transfer Payment System.

EIN: See Employer Identification Number.

Electronic Funds Transfer Payment System (EFTPS): This is the IRS online system for payment of taxes. Its use is mandatory for certain types of taxpayers and for payment of certain types of taxes. It is also available for payment of taxes by taxpayers for whom its use is optional. The EFTPS portal may be found on IRS.gov or directly at eftps.gov/eftps.

Employee vs. independent contractor: The difference between these two types of workers does not have to do with part-time or full-time but has to do with the type of work done and how it is done. In California, the statutory default is that all workers are employees.

Employer Identification Number (EIN): This is the taxpayer identification number for an entity, business, or trust. It works similarly to a Social Security Number (SSN).

Employment Development Department (EDD): The California State tax authority charged with the collection of employee taxes paid by employers and paying unemployment insurance payments.

FBAR: The common name for FinCEN Form 114 and stands for Foreign Bank and Financial Account Report. This form used to be a U.S. Treasury form called Form TD F 90-22.1. Form 114 must be filed annually on or before April 15 by any U.S. person or entity having an aggregate value of $10,000 USD or greater in one or more offshore financial institution accounts. This form is required to be filed online at the BSA E-Filing System. Note: This form is a report and does not require payment when filed. It is filed separately from a taxpayer's income tax return. Harsh penalties may be assessed for filing late or not filing.

FICA (Federal Insurance Contributions Act): This tax is paid both by employees via wage withholding as well as employers. It is commonly known as Medicare and Social Security.

FinCEN: The U.S. Treasury's Financial Crime Enforcement Network, which interacts with the financial agencies of other governments and works to stop money laundering and other financial aspects of criminal activity.

Foreign Asset Tax Compliance Act (FATCA): These are new laws passed by the U.S. Congress that require additional informational forms be filed with the tax return by certain taxpayers who have offshore financial assets or accounts. The requirement to file the form is determined by the residence of the taxpayer and the value of the foreign assets or account.

Foreign Bank and Financial Account Report: See FBAR.

Franchise Tax Board (FTB): The state tax authority of the State of California.

FTB: See Franchise Tax Board.

FTB.gov: The website for the California Franchise Tax Board, the taxation authority for the State of California.

FUTA (Federal Unemployment Tax Act): See "940, form (FUTA)" for more information.

IA: See installment agreement.

IDR: See information document request.

Independent contractor vs. employee: The difference between these two types of workers does not have to do with part-time or full-time but has to do with the type of work done and how it is done. In California, the default belief of the State (Employment Development Department) is that all workers are employees.

Information document request (IDR): Both State and Federal tax authorities who are working with taxpayers may request that additional information be supplied for review and analysis. An IDR usually also bears a due date.

Innocent spouse: A spouse wrongfully charged with the tax debt of his/her spouse. The fundamental criteria for innocent spouse relief are no knowledge, participation, or benefit from the item giving rise to the tax debt.

Installment agreement (IA): One solution to resolving a tax liability to pay it over time. IAs may be manually paid via check or walk-in cash payment or via direct debit. In order to set them up, depending on the dollar amount of what is owed, they may be set up with little or no personal financial information; large dollar liabilities require financial information and frequently also tax lien.

Interest: Interest is always charged when taxes are not paid and is not abateable. Note that during the course of an installment agreement, interest will continue to accrue on the unpaid liability. This is also true if an individual is classified as "currently not collectible."

Internal Revenue Service (IRS): The federal tax authority of the United States. A variety of types of revenue officers work for the IRS. There also is a special unit of the IRS called the Taxpayer Advocate Service whose job is to step in and assist taxpayers where normal IRS procedures have failed.

Internal Revenue Service Taxpayer Advocate Service (IRS TAS): A special unit of the IRS whose job it is to step in and assist taxpayers where normal IRS procedures have failed.

IRS: See Internal Revenue Service.

IRS.gov: The IRS website contains IRS forms and a great deal of other information. The site is vast and sometimes confusing. The site also contains the IRS payment portal (eftps.gov/eftps) to allow taxpayers to pay a variety of taxes online via EFTPS (electronic funds transfer payment system).

Limited liability company (LLC): A relatively new and popular concept for entity formation. Simplistically, LLCs may report income similar to partnerships or similar to corporations and may even elect to be treated as "S" corporations.

Living trust: A trust created during a person's life and usually in "revocable" form that may be cancelled or amended at any time by the person creating the trust.

LLC: See limited liability company.

Notice of deficiency: This notice is sent by U.S. mail to give an audited taxpayer notice that additional taxes will be assessed against him/her and commences a 90-day period during which the taxpayer may file a petition to have the U.S. Tax Court redetermine whether an assessment should be made and if so how much (the deficiency).

Notice of intent to levy: This notice is sent via U.S. mail and is a warning letter that if a taxpayer does not do X, Y, or Z, levies (seizures) are intended in the future.

Offshore Voluntary Disclosure Program (OVDP): Over the course of several years, the U.S. government has offered a variety of iterations of programs (OVDP; OVDI [no longer in use]) with reduced and/or mitigated penalties to allow U.S. persons who had not previously reported offshore income and/or investments to report their accounts as required by the Bank Secrecy Act of 1970.

OIC: See offer in compromise.

OVDP: See Offshore Voluntary Disclosure Program.

Passive foreign investment company (PFIC): A type of offshore investment that requires a specific form of reporting to the U.S. Treasury and is subject to an additional complex taxation. PFIC: See passive foreign investment company.

Penalty abatement: Although the tax authorities are reluctant to abate penalties, there are criteria for "first-time" penalty abatement of certain penalties depending on circumstances, and almost all penalties are subject to abatement due to reasonable cause.

Probate: A formal accounting carried out by a probate court to determine or satisfy claims against a person's assets after s/he has died with the person's personal representative obtaining court orders for the disposition of the assets.

Registered Retirement Income Fund (RRIF): A type of Canadian account available to Canadian workers for holding savings and investment assets with tax advantages both in Canada and with the necessary filings in the United States.

Registered Retirement Savings Plan (RRSP): A type of Canadian account available to Canadian workers for holding savings and investment assets with tax advantages both in Canada and with the necessary filings in the United States.

RRIF: See Registered Retirement Income Fund.

RRSP: See Registered Retirement Savings Plan.

"S" election: The election of a corporation to be taxed as a small business corporation under subchapter "S" of the Internal Revenue Code. This election is made by completing and filing an IRS Form 2553

Sales tax: One type of tax collected by businesses for goods sold. This tax is paid and reported to the Board of Equalization (BOE).

SDOP: See Streamline Domestic Offshore Procedures.

SFOP: See Streamline Foreign Offshore Procedures.

Short sale: This is a type of home sale where a bank permits a home to be sold for less money than the amount of the current mortgage(s). The bank agrees to a cancellation of debt whose value may need to be reported as income on an individual's tax return.

SOS.CA.gov: The website of the California Secretary of State. SOS.CA.gov/business-programs/business-entities contains state business forms as well as a search feature for existing corporations and limited liability companies (LLCs) and their status.

Statement of Information: This is an annual statement to be made by corporations (Form SI-200) and limited liability companies (LLC) (Form LLC-12) that is required by the California Secretary of State. Depending on circumstances this filing may be made online or via U.S. mail.

Statutory (Stat) notice: This is another commonly used term for a notice of deficiency. See notice of deficiency.

Streamline Domestic Offshore Procedures (SDOP): A U.S. resident or U.S. citizen who lives inside the United States and who has filed a tax return for each of the most recent 3 years, has both failed to file FBARs and also to report the income from foreign financial account(s), and whose failure was not willful may apply for treatment under the SDOP. Participants under these procedures will only incur a 5% offshore penalty for the reporting failures.

Streamline Foreign Offshore Procedures (SFOP): A U.S. resident or U.S. citizen has lived outside the United States for a designated number of days during a 3-year period and who has filed a tax return for each of the most recent 3 years, has both failed to file FBARs and also to report the income from foreign financial account(s), and whose failure was not willful may apply for treatment under the SFOP. Participants under these procedures will not be required to pay an offshore penalty.

Testamentary trust: A trust created by a person's will that does not come into existence until after the person's death.

Transcript: An IRS/FTB term for an account summary for a taxpayer or an entity. An IRS transcript shows all activity, including payments, late payments, interest, and penalties. FTB transcripts are far more abbreviated and contain only summary information.

United States Tax Court: The Tax Court is the official court for claims by taxpayers against the U.S. Treasury. Although its home is in Washington, D.C., it conducts trials in a number of locations around the United States. Taxpayers who file a petition within 90 days after a notice of deficiency (NOD) is issued have the "right" to a hearing in Tax Court. before payment of the tax disputed, although most matters are settled at the IRS Appeals level or during audit.

"U.S. person": A U.S. citizen or U.S. resident.

Use tax: The type of tax incurred on taxable personal property for which no sales tax was paid.

VCSP: See Voluntary Classification Settlement Program.

Voluntary Classification Settlement Program (VCSP): A program currently offered by the U.S. government to allow employers who had previously misclassified employees as independent contractors to reclassify those workers as employees without audit and with reduced penalties. There are a number of specific criteria for consideration in this program.

Wage garnishment: Funds that an employer is required to deduct from an employee's paycheck when ordered to do so by a tax authority. The employer then is responsible for transmitting those funds to the taxing authority until ordered to stop. Depending on circumstances, garnishment of wages can be lifted often dependent upon other steps being taken to address a tax liability.

Will: Instructions on the disposition of the assets/belongings of a person after s/he has died and usually carried out by a probate.

Will, pour-over: A will with only one beneficiary that is a trust that was created by the person who died before his/her death.

The preceding definitions are an abbreviated and summarized form intended to facilitate understanding but are not final, definitive, or complete, and may not be considered to constitute legal advice. Contact John D. Teter Law Offices at 408-866-1810 to schedule a consultation with a qualified San Jose tax attorney.