Table of Contents
Glossary of Federal Tax Terms
Definitions of the following tax terms are taken from Richard A. Westin’s WG&L Tax Dictionary (2000) available for order through OhioLINK.
Acquiescence: An announcement by the Commissioner of Internal Revenue that the IRS will abide by a decision (other than a memorandum decision) of the Tax Court regarding issues decided against the government. Alternatively, the Commissioner may announce a nonacquiescence. Acquiescence is generally signalled by “A” or “acq.” following a case citation. Nonacquiescence is indicated by “N.A.” or “nonacq.” following a case citation.
Actions on Decisions: The IRS’ Chief Counsel’s Office’s recommended actions on adverse decisions and descriptions of reasons behind (1) nonacquiescence or acquiescence in decisions of the Tax Court, and (2) IRS appeals of judicial decisions favorable to taxpayers. Such materials issued after December 24, 1981 are subject to public disclosure.
Advance Ruling: A ruling issued by the IRS to a taxpayer in anticipation of a proposed transaction.
Adverse Ruling: A ruling issued by the IRS to a taxpayer, taking a position adverse to the conclusion sought by the taxpayer with respect to a transaction.
Announcements: An IRS statement. There are several meanings. The formal variety is numbered and appears in the Internal Revenue Bulletins and later in Cumulative Bulletins, advising taxpayers of matters other than interpretation of law (e.g., that the IRS is studying an area). The term is also used to refer to a news release, and to certain internal memoranda distributed to IRS personnel.
Assessment: Establishment of a legal liability to pay a tax deficiency, penalty, or interest. The process of assessment of a deficiency involves formal entry of the alleged deficiency on ledgers maintained by the IRS; failure to assess means a tax deficiency cannot be collected administratively. Moreover, failure to assess a deficiency within periods fixed by statutes of limitations found in the Code precludes government action on the deficiency. On the other hand, failure by the taxpayer to enter a timely petition in the Tax Court after a statutory notice of deficiency results in exclusion from that court and a duty to pay the assessment. Interestingly, when taxes are paid in the ordinary course, accompanying returns are verified and the stated liability is assessed automatically, forming the justification for the government’s retention of the funds.
Chief Counsel, IRS: The legal advisor of the Commissioner of Internal Revenue and an assistant general counsel to the Treasury Department. The Chief Counsel’s duties include supervision of personnel responsible for general litigation, refund litigation, referral of criminal matters to the Justice Department interpretation, and legislation and regulations. In order to remain objective, the Chief Counsel reports to the Secretary of the Treasury rather than to the Commissioner of Internal Revenue.
Chief Counsel Advice: A class of documents, being written opinions interpreting tax laws, issued by the National Office of the IRS Chief Counsel. These are subject to release to the public under the Freedom of Information Act §6110. The more technical definition of such advice is written advice prepared by the National Office of the Office of Chief Counsel and issued to an IRS field office, Service Center, Regional Counsel or District Counsel office that conveys: (1) a legal interpretation of a revenue provision; (2) any Service or Chief Counsel position or policy concerning a revenue position; or (3) any interpretation of State law, foreign law or other federal law relating to the assessment or collection of any liability under a revenue provision. This provision provides that Chief Counsel Advice are written determinations subject to §6110. These determinations are to be made public, both in paper and electronic formats.
Chief Counsel Notices: Statements of official policies and practices of the Office of Chief Counsel of the IRS. Such statements commonly concern the form and content of requests for rulings.
Claims Court: A court of limited jurisdiction headquartered in Washington, D.C. The Court of Claims was reorganized, but the successor (Federal Court of Claims) performs the same tax-related functions as its predecessor, except that appeals of trial judges’ decisions go to the Federal Circuit. The court hears tax refund suits and will travel to other cities.
Code of Federal Regulations: An authoritative federal publication containing regulations of the various federal agencies, including those of the Treasury Department.
Commissioner: When speaking of the IRS, the reference is to the Commissioner of the Internal Revenue, an individual appointed by the President, serving under the Secretary of the Treasury, and charged with the administration of the IRS. References to powers or activities of “the Commissioner” should generally be assumed to be delegable.
Court of Appeals, Federal: Any of 13 federal courts (one per circuit plus the Federal Circuit) that, among other things, hears appeals of decisions of the Tax Court, the Federal District Court, and the Claims Court.
Cumulative Bulletins: Official publications that contain compilations of Internal Revenue Bulletins, classified by year, volume number and page. Thus, 1976-2 C.B. 211 indicates page 211 of the second volume of Cumulative Bulletins for 1976.
Delegation Order: An order of the Commissioner of the Internal Revenue Service granting lower echelon officers authority formerly lodged at some higher level. Common examples include the delegation of authority to settle tax disputes.
District Court: A federal court of general jurisdiction. District courts are subdivisions of circuit courts to which appeals are taken. District courts are the forums most often availed of for possible recovery of denied claims for refunds (following the payment of assessed deficiencies), proceedings for enforcement of IRS summonses, and criminal tax matters.
Federal Circuit: An Article III federal court located in Washington, D.C. that, among other things, takes appeals from the Claims Court. Appeals from the Federal Circuit go to the United States Supreme Court.
Federal Court of Claims: The successor of the Claims Court.
Federal Register: The official publication in which federal agencies’ regulations first appear.
Field Attorney: An attorney from a Regional Office of the IRS who is assigned to a criminal fraud case. After such an attorney has studied the case, he will typically offer to meet with the taxpayer, the taxpayer’s representative, or both. If the taxpayer elects to meet with the field attorney, the field attorney will advise the taxpayer of constitutional rights and proceed to gather information to fill in the legal elements of the case.
Field Service Advice: A reference to advice to Revenue Agents and Appeals Division, which is provided or filtered by the District Counsel of the IRS. This has recently been forced into coordination with the National Office of the IRS in certain cases. The IRS considers the advice to be protected by attorney-client privilege. It permits IRS field personnel to find out what the IRS position is on an issue, get analyses of the hazards of litigation and so forth.
Final Regulation: A regulation in its final, effective form, as opposed to proposed or temporary regulations.
General Counsel’s Memorandum: A memorandum prepared by the Office of the Chief Counsel of the IRS explaining adoption of positions in public and private revenue rulings and Technical Advice Memoranda.
Information Letter: A writing issued by the National Office or District Director to a taxpayer that refers to established rules or principles of tax law, but without applying the rules to a particular fact pattern.
Internal Revenue Bulletin: An office bulletin containing compilations of revenue rulings, notices of acquiescence and nonacquiescence, legislative history of revenue laws, and the like, compiled by year, issue number, and page number. They are later incorporated into Cumulative Bulletins.
Internal Revenue Code: The primary source of United States taxes. It is found in 26 USC § 1 et seq.
Internal Revenue Manual: A compilation of internal IRS practices and procedures, now made public under the Freedom of Information Act and reproduced by Commerce Clearing House. Among other things, the manual advises Revenue Agents on how to audit particular industries, tax shelter issues, and commonly sets forth the government position on the applicable law.
Internal Revenue Service: The largest component of the Treasury Department, comprised of a National Office in Washington, D.C., and an extensive field organization. The field organization consists of seven Internal Revenue Regions, each of which is commanded by a Regional Commissioner; 58 Internal Revenue Districts, each of which is commanded by a District Director; and ten Internal Revenue Service Centers. Some districts have further sub-offices.
Interpretative Regulation: A regulation issued pursuant to § 7805(a), authorizing the Treasury Department to issue “needful rules and regulations.” They are designed to interpret preexisting but incompletely expressed law found in the Internal Revenue Code. The validity of such regulations is complex and uncertain. Generally, such regulations will stand unless found inconcistent with the Code or legislative history, or unreasonable.
IRS News Release: An irregularly issued IRS publication concerning matters on which the public needs to be informed and that generally have nationwide applicability or interest. The Public Affairs Division of the IRS is responsible for determination of need, development in final form, and issuance of news releases. They sometimes relate to matters of tax policy.
Legislative Regulation: A Treasury Administration and Procedural Regulation that represents a delegation of legislative authority from the Congress. These are virtually impossible to overturn. The consolidated return regulations are the leading example.
Letter Ruling: A writing issued in response to a taxpayer, or taxpayer representative, by personnel of the IRS National Office pursuant to authority granted the Assistant Commissioner (Technical), and redelegated to branches of the National Office. Such rulings, generally, may be issued before or after a transaction, and take the form of written statements which interpret the law and apply it to taxpayer’s circumstances. Taxpayers are generally entitled to rely on such rulings, absent misrepresentation in the taxpayers’ inquiry. Rulings are in the public domain, and related background file documents may be requested after appropriate deletions of factual matters are made to both the ruling and the background file documents. Rulings have no formal protective value for different taxpayers. The term letter ruling is synonymous with private letter rulings. They are distinct from revenue rulings, which are public and may be relied upon.
National Office: A shorthand term for the National Office of the IRS, headquartered in Washington, D.C. The Commissioner of the IRS is its highest official. Beneath the Commissioner, there are seven Assistant Commissioners: Inspection, Administration, Compliance, Accounting, Collection and Taxpayer Service, Planning and Research, and Technical. The IRS is provided formal legal advice by the Office of the Chief Counsel, a separate subdivision of the Treasury Department. In their dealings with the National Office, taxpayers are most likely to interact with subordinates of the Office of the Assistant Commissioner, Technical with respect to rulings and technical advice, and of the Legislation and Regulations Division of the Office of the Assistant Chief Counsel, Technical with respect to inquiries and submissions relating to proposed regulations.
Nonacquiescence: Formal disagreement by the Commissioner of the Internal Revenue Service regarding a decision on an issue decided adversely to the government by the Tax Court. Nonacquiescence may be as to one or more issues. Such announcements appear first in the Internal Revenue Bulletin and later in final form in the Cumulative Bulletins. They are frequently cited in the form “nonacq” or “NA.” For the antonym, see acquiescence.
Notice of Deficiency: A communication (also called a ninety-day letter) issued by the IRS notifying the taxpayer that a deficiency has been assessed and that the assessment will become final within 90 days from the date of the letter. Without such a notice, the IRS may not assess and collect the deficiency, absent: (1) a taxpayer’s waiver; (2) a jeopardy assessment; or (3) the IRS’ closing of the taxable year. Only during the 90-day period may taxpayers file a petition in the Tax Court (which permits adjudication without prior payment of the assessment). After the 90-day period expires, the IRS will demand payment and enforce collection, and the taxpayer may only pay the tax and submit a claim for refund or credit, followed by a refund suit to recover the alleged overpayment in the federal courts if the IRS denies the claim. The notice is issued under circumstances in which the statute of limitations is about to run against the IRS, no settlement is reached at an Appeals Conference, or the issue is one which cannot be resolved administratively. It may even be issued at the taxpayer’s request. A notice based exclusively on mathematical or clerical error is not a notice of deficiency. The statute of limitations on assessment and collection is tolled during the 90-day (or 150-day in the case of persons outside the U.S.) period, and further notice of deficiency is barred. Some informality in the nature of the communication is allowed. It is commonly referred to as a statutory notice of deficiency. A notice of deficiency may be constructive as well as actual.
Procedural Regulation: A class of regulations whose purpose is to establish tax administration procedures, as opposed to legislative or interpretative regulations, which are concerned with the substantive rules of taxation.
Proposed Regulations: Regulations that have been issued in a tentative form. Technically, they have no legal weight, but the IRS typically attempts to abide by them, and they do reflect the views of the government.
Regulations, Treasury Administrative and Procedural: Regulations issued by the Commissioner of the IRS, with the approval of the Secretary of the Treasury, pursuant to § 7805(b), which authorizes needful interpretative and procedural regulations, or by a direct grant of quasi-legislative power under a special Code section. The latter, legislative regulations, are virtually unassailable, whereas interpretative regulations are fairly often rejected by the courts, despite the common assertion that they are presumptively correct. Interpretative regulations are not subject to the Administrative Procedure Act, although they are frequently made the subject of comments and hearings, including an opportunity for the SBA to comment. Procedural regulations are rarely controversial. Interpretative regulations, however, are frequently controversial and may be struck down by the court for various reasons, including (1) fundamental unfairness; (2) inconsistency with the statute under interpretation; (3) exceeding the bounds of the statutory provision; or (4) inconsistency with the intent of the legislature in enacting the provision under inquiry. Valid regulations bind the IRS and taxpayers. They are a joint project of the chief counsel of the IRS and the office of the legislative counsel in the Treasury Department.
Revenue Agent: An individual employee of the IRS whose function is to audit taxpayers’ returns and submit reports of proposed changes in their tax liabilities. They operate out of District Offices of the IRS.
Revenue Agent’s Report: A two-part examination report prepared by revenue agents and finalized by the District Office as the result of an audit of a taxpayer. The first part of the report consists of identifying information, an explanation of the examination, findings, and recommendations with attached worksheets and schedules. The second part is retained by the IRS; it contains impressions and opinions of the agent. Unless the taxpayer and the agent agree to the contents, the portion of the report containing findings and recommendations is mailed to the taxpayer along with a thirty-day letter.
Revenue Officer: An employee of the IRS whose function is to collect taxes due. Revenue Officers have no interest in the merits of whether a tax is due or not, in contrast to Revenue Agents.
Revenue Procedures: A published official statement of the IRS regarding a matter of federal tax procedure, published by the National Office of the IRS, first in Internal Revenue Bulletins, then in permanent form in Cumulative Bulletins.
Revenue Rulings: A published official interpretation of the tax law by the National Office of the IRS which first appears in the Internal Revenue Bulletin. They are often based on replies to requests for rulings made by taxpayers. Such interpretations are prepared by the National Office of the IRS for the guidance of the public as well as for IRS officials and other persons, first in the Internal Revenue Bulletins, then in permanent form in the Cumulative Bulletins. They have modest authoritative weight. However, they do bind the IRS unless and until revoked. The private (unpublished) counterpart is the private letter ruling.
Service Center: An administrative office of the IRS. The centers primarily carry out relatively routine affairs such as receiving tax returns, notifying taxpayers of apparent filing errors, and the like.
Statistics of Income Bulletin: U.S. Department of the Treasury, Internal Revenue Service. Provides published annual financial statistics from various tax returns filed with the IRS. These statistics are presented in the Bulletin’s “Selected Statistical Series” section, which includes current and historic statistics on individual income rates and business tax returns, as well as returns submitted by sole proprietorships, partnerships, and corporations. Other tables highlight gross IRS collections and receipts, excise taxes, and projections of returns. In addition, the SOI Bulletin includes articles on a wide range of subjects, including demographic characteristics of taxpayers, high income tax returns, and environmental taxes.
Statutory Notice of Deficiency: The formal terminology for a notice of deficiency.
Tax Court: A trial court of original jurisdiction (as opposed to an appellate court) headquartered in Washington D.C., but which hears cases on a traveling basis and decides federal income, estate, gift (but not employment) tax disputes and, to a very limited extent, excise tax disputes. It can also restrain premature assessments and certain collections, order tax refunds, and review certain seizures, among other miscellaneous powers. It is unique because the taxpayer need not first pay the deficiency that the IRS assesses in order to have a day in court. Tax Court jurisdiction arises after the IRS issues a statutory notice of deficiency (i.e., ninety-day letter) to the taxpayer and the taxpayer files a petition for a hearing within the prescribed time. Another significant Tax Court power is its ability to issue declaratory judgments with respect to the status of certain exempt organizations, charitable donees, private foundations, private operating foundations, qualified retirement plans, and adverse rulings regarding foreign transfers. It also has certain disclosure powers over the IRS. Appeals from the Tax Court are heard in the federal courts of appeal. The Tax Court also has a small claims procedure.
Tax Treaty: A treaty negotiated between foreign governments relating to taxation. Such treaties are negotiated on behalf of the United States by the Treasury Department.
Technical Advice Memorandum: A memorandum issued in two parts by the National Office of the IRS embodying its reply to a request for technical advice by taxpayers and IRS administrative personnel involved in an audit. The first part contains the facts, precedents, reasoning, and conclusions with respect to the request. This document is intended to give direct answers and detailed discussions regarding the specific request. A copy of this part is ordinarily furnished to the taxpayer, but there are some exceptions such as advice relating to cases involving criminal or civil fraud investigations. The second part of the National Office’s reply consists of a transmittal memorandum, which usually provides the District office with administrative or other information that may not be discussed with the taxpayer. The technical advice binds audit personnel below the level of the regional Appeals Officer.
Technical Memoranda: Prepared by the IRS Chief Counsel’s office, they provide background information on newly released regulations.
Temporary Regulation: A Treasury Department regulation issued as an interim measure and considered generally equivalent to a final regulation, except for the expectation of future amendment or formalization.
Treasury Decision: The IRS’ vehicle for officially releasing final regulations. Treasury Decisions are published upon release in the Federal Register.
Treasury Department: The federal department with responsibility for administering and enforcing the federal tax laws. The Secretary of the Treasury, its chief official, has largely delegated that authority to the Commissioner of the Internal Revenue Service, an employee of the Treasury Department.
Written Determination: For purposes of a taxpayer’s right to inspect other taxpayers’ submissions to the IRS, the term means rulings, determination letters, and Technical Advice Memoranda issued to a taxpayer or to an IRS employee in the course of an audit or collection matter.