Glossary of Terms Related to IRS Interest & Penalty Issues

[based on IRM 20.2.1-2]

ABATED INTEREST — The portion of the interest liability on a given account which has been reversed.

ACCRUED INTEREST — The unassessed portion of the total interest liability on a specified account at any given date. It is the difference between interest assessed and total interest due.

ADDITIONS TO THE TAX — Amounts imposed and added to the tax based on a specified percentage of the tax. These additions are commonly referred to as penalties.

ADVANCE PAYMENT — A payment made prior to assessment of a determined, pending, or proposed liability.

ALLOWABLE INTEREST — Interest (provided by law) which is allowed on an overpayment. Also known as overpayment interest or credit interest.

ANNUAL INTEREST NETTING — Method of computing interest which equalizes the rate difference between credit and debit interest within a single tax account during periods of mutual indebtedness.

ASED — Assessment Statute Expiration Date. The date established by law by which the Service must assess any tax due for a given tax period.

ASSESSED INTEREST — The portion of the interest liability on a given account which has been recorded to a given assessment date (23C date).

ASSESSMENT DATE (23C DATE) — The date that a taxpayer's liability for tax, penalty, and applicable interest is recorded. It is also the date that the notice for payment of that amount is issued to the taxpayer.

AVAILABILITY DATE OF CREDIT — The date an amount becomes available to credit against an outstanding IiabiIity or refund to the taxpayer.

CARRYBACK — The application of a net operating loss, net capital loss, and certain unused non-refundable tax credits to taxable years preceding the year in which the excess amount is generated.

CARRYBACK YEAR — The year to which a net operating loss, net capital loss, or other unused non-refundable tax credits is carried.

CARRYFORWARD — A carryover of unused net operating loss, net capital loss, or other unused non-refundable tax credits to years following the tax year in which the excess amount is generated.

CLAIM — A request by the taxpayer to reduce a liability owed, to receive an amount paid, or to request abatement. A claim may be formal or informal.

COMPOUND INTEREST — Interest computed on interest already assessed or accrued. Compound interest applies to interest accruing after December 31, 1982.

CREDIT INTEREST — Interest on an overpayment. Also known as overpayment interest or allowable interest.

CREDIT INTEREST RULES — The rules that define how allowable interest is computed on overpayments.

CSED — Collection Statute Expiration Date. The date established by law by which the Service must collect any amount due from a taxpayer for a given tax period.

CYCLE — One week's processing at a Service Center, Martinsburg, or Detroit Computing Center. There are 52 cycles in a year.

DEBIT INTEREST — Interest charged when the taxpayer owes a liability to the government. Also known as deficiency interest or underpayment interest.

DEBIT INTEREST RULES — The rules that define how debit interest is computed on underpayments.

DEFICIENCY — The amount by which the tax imposed by Subtitle A or B, or chapter 41, 42, 43, or 44 exceeds the excess of the sum of the amount shown as the tax on a return filed by the taxpayer, plus any amounts previously assessed (or collected without assessment) as a deficiency over the amount of rebates made. (See rebate)

DESIGNATED PAYMENT — A payment designated by the taxpayer to be applied to a particular tax, penalty, or interest liability. These payments are identified by TCs 640, 680, or 690.

DESIGNATED PAYMENT CODES (DPC) — A two digit code which identifies a payment designated by the taxpayer for a type of tax. See Document 6209, ADP and IDRS Information, for a listing of specific DPCs.

DIFFERENTIAL INTEREST RATES — The rate difference between the debit interest and credit interest rates. Differential interest rates began on January 1, 1987 and ended for individual taxpayers only on January 1, 2000.

DUE DATE — The date a liability is due.

EFFECTIVE DATE — Generally, the date a transaction (either debit or credit) posts to a taxpayer's account. The effective date for beginning a computation of debit or credit interest may be different than the posted transaction date.

ERRONEOUS REFUND — A refund to which a taxpayer is not entitled.

EXTENDED RETURN DUE DATE — The date for which an extension of time to file a return has been granted. The extended return due date affects the date interest begins on certain penalties. May also refer to a return due date extended by certain provisions such as combat zone participants or residents of a disaster area.

FREEZE — An instruction applied to a Master File account that restricts normal computer actions.

INSTALLMENT PRIVILEGE — The right, as provided in the Internal Revenue Code (IRC), to pay a liability in installments.

INTEREST — The amount computed on an underpayment or overpayment of tax for the time the taxpayer has use of the government's money or for the time the government has use of the taxpayer's money. It is known as underpayment (debit) interest when the taxpayer owes the government and overpayment (credit) interest when the government owes the taxpayer.

INTEREST ABATEMENT — The reduction of all or part of previously assessed interest.

INTEREST DUE — Total interest due on an account, which includes assessed interest and accrued interest, less interest paid.

INTEREST FREE PERIODS ON OVERPAYMENTS — Periods on which credit interest is not allowed (paid).

INTEREST FREE PERIODS ON UNDERPAYMENTS — Periods on which debit interest is not computed (charged).

IRS COMPUTED FORM — A partially completed form submitted by the taxpayer, asking the IRS to figure the tax.

LIABILITY — The amount owed on a tax account.

MANAGERIAL ACT — An administrative act that occurs during the processing of a taxpayer's case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel. A decision concerning the proper application of federal tax law (or other federal or state law) is not a managerial act. Further, interest attributable to a general administrative decision, such as the IRS's decision on how to organize the processing of tax returns or its delay in implementing an improved computer system, cannot be abated.

MINISTERIAL ACT — A procedural or mechanical act that does not involve the exercise of judgement or discretion, and that occurs during the processing of a taxpayer's case after all prerequisites to the act, such as conferences and review by supervisors have taken place. A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act.

NET RATE INTEREST NETTING — The interest computation method to equalize/eliminate the interest rate differential between overpayments and underpayments. (for the same taxpayer between the same or different types of tax).

NON MASTER FILE — A manual accounting system which processes documents, returns, or adjustments that are not posted to the Individual or Business Master File.

NORMAL INTEREST — Interest, debit or credit, which is not restricted.

NOTICE DATE — The date a notice (bill) for payment is issued to the taxpayer.

OFFER IN COMPROMISE (OIC) — An offer by the taxpayer to settle a tax liability or a penalty for an amount less than that previously assessed or proposed.

OFFSET — The transfer of an available credit from one type of tax or tax period to an outstanding liability of another type of tax or another tax period.

OUTSTANDING BALANCE — The unpaid amount of overpayment or underpayment existing in a account. On IDRS or Master File transcripts, a hyphen (-) following the figure indicates a credit balance while the figure standing alone will indicate a debit balance.

OUTSTANDING LIABILITY — Total amount of unpaid tax, penalties, and interest due.

OVERPAYMENT — Any payment in excess of the total liability including tax, penalties, and interest for a specific type of tax and taxable period.

PAYMENT DATE — The received date of a payment.

REBATE — The amount of an abatement, credit, refund or other payment made on the ground that the tax imposed by subtitle A or B, or chapter 41,42,43, or 44 was less than the excess of the amount shown as the tax on a return filed by the taxpayer plus amounts previously assessed (or collected without assessment) as a deficiency over the rebates previously made. (See deficiency)

RECOMPUTATION — The computation of interest after all transactions with money amounts are sorted in effective date sequence.

REFUND — An overpayment, plus any allowable interest, which is issued to the taxpayer.

RESTRICTED INTEREST — Interest computed from other than the normal start and stop dates. Interest may be restricted because it is prohibited or limited to specific time periods by law or when conditions exist in which the computer cannot accurately determine a correct computation.

RETURN DUE DATE (RDD) — The required date by law that a return must be filed (with regard to extensions).

RETURN RECEIVED DATE — The received date of a timely filed return (including extensions) or the date that a late filed return is received by the Service.

RSED — Refund Statute Expiration Date. The date established by law that a taxpayer must file a claim for credit or refund for a given tax period.

SCHEDULE DATE — The date on which an overpayment is certified for refund.

SIMPLE INTEREST — Interest computed on a principal amount only. (The Service computed simple interest before January 1, 1983).

SUBSEQUENT PAYMENT — A payment (TC 670) made after a return is filed or in response to a subsequent liability.

SUBSTITUTE FOR RETURN (SFR) — A return prepared by the Service under the authority of IRC section 6020 (b), using information from third party sources because the taxpayer did not file a return.

TAXPAYER DELINQUENT ACCOUNT (TDA) — A computer generated print out or manually issued Form 4907 stating that a taxpayer's balance due account has reached delinquent status.

WAIVER — A document (usually a form 870) signed by a taxpayer in which the taxpayer certifies proposed overassessments as correct or consents to the assessment and collection of proposed deficiencies.

WAIVER DATE — The date a waiver is effective. This is also referred to as the "870 date" or "agreement date".

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