Term
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Definition
| A concept in taxation that holds that taxpayers be taxed according to their ability to pay such taxes, that is, taxpayers that have sufficient financial resources should pay the tax. This concept is an integral part of vertical equity. |
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Term
| Accelerated Cost Recovery System (ACRS) |
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Definition
| Established by ERTA in 1981, the ACRS provides an accelerated depreciation and shorter cost-recovery period for real and personal property. The Tax Reform Act of 1986 changed the previously allowed depreciation tables and assigned recovery periods that approach the asset’s true economic life. The current depreciation system is referred to as MACRS. |
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Term
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Definition
| A type of employee reimbursement plan that meets two tests, (1) substantiation, and (2) return of excess reimbursement. Under an accountable plan, reimbursements are excluded from the employee’s gross income and the expenses are not deductible by the employee. |
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Term
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Definition
| The method of determining the taxable year in which income and expenses are reported for tax purposes. Generally, the same method must be used for tax purposes as is used for keeping books and records. The accounting treatment used for any item of income or expense and of specific items (e.g., installment sales and contracts) is included in this term. See also each specific accounting method. |
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Term
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Definition
| The period of time, usually 12 months, used by taxpayers to compute their taxable income. Taxpayers who do not keep records must use a calendar year. Taxpayers who do keep books and records may choose between a calendar year or a fiscal year. The accounting period election is made on the taxpayer’s first filed return and cannot be changed without IRS consent. The accounting period may be less than 12 months if it is the taxpayer’s first or final return or if the taxpayer is changing accounting periods. Certain restrictions upon the use of a fiscal year apply to partnerships, S corporations, and personal service corporations. |
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Term
| Accrual method of accounting |
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Definition
| Accounting method under which income is reported and expenses are deducted when (1) all events have occurred that fix the taxpayer’s right to receive the income and (2) the amount of the item can be determined with reasonable accuracy. Taxpayers with inventories to report must use this method to report sales and purchases. |
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Term
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Definition
| This penalty tax is intended to discourage companies from retaining excessive amounts of earnings if the funds are invested in earnings that are unrelated to the business’s needs. The current tax rate is 20%. |
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Term
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Definition
| IRS policy of announcing whether it agrees or disagrees with a regular Tax Court decision. Such statements are not issued for every case. |
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Term
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Definition
| See Accelerated Cost Recovery System. |
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Term
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Definition
| Income that is produced by the taxpayer’s involvement or participation—wages, salaries, and other business income—is considered active income. It is the opposite of passive income. |
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Term
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Definition
| A tax based on the value of real property or personal property. Typically, these taxes are levied at the time of a transaction, as is the case with a sales tax or a value-added tax (VAT). However, the taxes can also be levied annually, as with a real estate tax that a local government levies annually on the value of property. |
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Term
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Definition
| The excess of the actual amount of accelerated depreciation (or cost-recovery deductions under ACRS) over the amount of depreciation that would be deductible under the straight-line method. Such depreciation applies to Section 1250 depreciable real property acquired prior to 1987. |
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Term
| Adjusted current earnings |
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Definition
| An AMT adjustment item for corporations used to compute the Alternative Minimum Tax. The term is a concept based on the traditional earnings and profits definition found in Sec. 312. |
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Term
| Adjusted gross income (AGI) |
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Definition
| A measure of taxable income that falls between gross income and taxable income. It is the income amount that is used as the basis for calculating the floor or the ceiling for numerous other tax computations. |
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Term
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Definition
| The amount realized from the sale of a residence less any fixing-up expenses. |
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Term
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Definition
| See Adjusted gross income. |
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Term
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Definition
| Payments made pursuant to divorce or separation or written agreement between spouses subject to conditions specified in the tax law. Alimony payments (as contrasted to property settlements) are deductible for AGI by the payor and are included in the gross income of the recipient. |
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Term
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Definition
| Rule holding that an accrual basis taxpayer must report an item of income (1) when all events have occurred that fix the taxpayer’s right to receive the item of income and (2) when the amount of the item can be determined with reasonable accuracy. This test is not satisfied until economic performance has taken place. |
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Term
| Alternative minimum tax (AMT) |
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Definition
| Applies to individuals, corporations, and estates and trusts only if the tentative minimum tax (TMT) exceeds the taxpayer’s regular tax liability. Most taxpayers are not subject to this tax. |
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Term
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Definition
| The amount realized equals the sum of money plus the fair market value of all other property received from the sale or other disposition of the property less any selling expenses (e.g., commissions, advertising, deed preparation costs, and legal expenses) incurred in connection with the sale. |
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Term
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Definition
| See Alternative Minimum Tax. |
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Term
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Definition
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Term
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Definition
| A series of regular payments that will continue for either a fixed period of time or until the death of the recipient. Pensions are usually paid in this way. |
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Term
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Definition
| The rate determined monthly by the federal government which is based on the rate paid by the government on borrowed funds. The rate varies with the term of the loan. Thus, short-term loans are for a period of under three years, mid-term loans are for over three years and under nine years, and long-term loans are for over nine years. |
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Term
| Asset depreciation range (ADR) system of depreciation |
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Definition
| Depreciation method allowed for property placed in service before January 1, 1981. This method prescribed useful lives for various classes of assets. |
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Term
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Definition
| The taxpayer’s total tax liability divided by the amount of his taxable income. |
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Term
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Definition
| A modified withholding system intended to prevent abusive noncompliance situations. |
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Term
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Definition
| Bona fide debt that is uncollectible because it is worthless. Such debts are further characterized as “business bad debts,” which give rise to an ordinary deduction, and “nonbusiness bad debts,” which are treated as a short-term capital loss. A determination of whether a debt is worthless is made by reference to all the pertinent evidence (e.g., the debtor’s general financial condition and whether the debt is secured by collateral). Such debts are deductible subject to certain requirements. |
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Term
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Definition
| A debt that (1) arises from a valid and enforceable obligation to pay a fixed or determinable sum of money and (2) results in a debtor-creditor relationship. |
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Term
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Definition
| Special first year depreciation on qualified property (non-real estate) placed in service at various times over the past ten years. Most recently, 50% bonus depreciation was allowable in 2008, 2009, and through September 8, 2010. After September 8, 2010 to December 31, 2011, the rate was increased to 100%. For 2012 through 2014, the rate returned to 50%. Congress has not yet extended bonus depreciation to 2015. |
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Term
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Definition
| Cash and nonlike-kind property given to complete an exchange of like-kind property where the property exchanged is not of equal value. Gain on the exchange is limited to the amount of boot received. |
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Term
| Brother-sister controlled group |
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Definition
| A group of two or more corporations controlled by five or fewer individuals. There are two definitions, a 80%-50% definition and a 50%-only definition. The definition to be used depends on the specific application. |
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Term
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Definition
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Term
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Definition
| Form of business entity that is taxed as a separate tax-paying entity. Its income is subject to an initial tax at the corporate level. Its shareholders are subject to a second tax when dividends are paid from the corporation’s earnings and profits. Under certain conditions, S corporation status may be elected for tax purposes. C corporations are sometimes referred to as “regular corporations.” |
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Term
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Definition
| Employer-financed plan that offers employees the option of choosing cash or statutory nontaxable fringe benefits (other than scholarships, fellowships, and Sec. 132 benefits such as discounts on merchandise). Such plans may not discriminate in favor of highly compensated individuals or their dependents or spouses. |
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Term
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Definition
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Term
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Definition
| This category of assets includes all assets except inventory, notes and accounts receivable, and depreciable property or land used in a trade or business (e.g., property, plant, and machinery). |
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Term
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Definition
| An expenditure that adds to the value of, substantially prolongs the useful life of, or adapts the property to a new or different use qualifies as a capital expenditure. |
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Term
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Definition
| A distribution by a regulated investment company (i.e., a mutual fund) of capital gains realized from the sale of investments in the fund. Such dividends also include undistributed capital gains allocated to the shareholders. |
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Term
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Definition
| Property that is contributed to a public charity upon which a long-term capital gain would be recognized if that property was sold at its fair market value. |
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Term
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Definition
| Gain realized on the sale or exchange of a capital asset. |
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Term
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Definition
| Loss realized on the sale or exchange of a capital asset. |
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Term
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Definition
| A capital recovery amount is a deduction for depreciation or cost recovery. It is a factor in the determination of a property’s adjusted basis. |
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Term
| Cash method of accounting |
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Definition
| Accounting meth- od that requires the taxpayer to report income for the taxable year in which payments are actually or constructively received. Expenses are reported in the year they are paid. Most individuals and service businesses (i.e., businesses without inventories) use this method. Small businesses with inventories that have gross receipts of less than $1 million may also use the cash method. |
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Term
| Cash receipts and disbursements method of accounting |
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Definition
| See Cash method of accounting. |
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Term
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Definition
| Loss that arises from an identifiable event that was sudden, unexpected, or unusual (e.g., fire, storm, shipwreck, other casualty, or theft). Within certain limitations, individuals may deduct such losses from AGI. Business casualty losses are deductible for AGI. |
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Term
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Definition
| See Certificate of deposit. |
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Term
| Charitable contribution deduction |
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Definition
| Contributions of money or property made to qualified organizations (i.e., public charities and private nonoperating foundations) may be deducted from AGI. The amount of the deduction depends upon (1) the type of charity receiving the contribution, (2) the type of property contributed, and (3) other limitations mandated by the tax law. See also Unrelated use property. |
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Term
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Definition
| A credit for individual taxpayers of $1,000 per qualifying child. A qualifying child must be a U.S. citizen, under age 17, qualify as the taxpayer’s dependent, and be the taxpayer’s descendent, stepchild, or foster child. |
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Term
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Definition
| Situation or transaction that has already occurred. |
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Term
| Closely held C corporation |
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Definition
| For purposes of the at risk rules, a closely held C corporation is defined as a corporation where more than 50% of the stock is owned by five or fewer individuals at any time during the last half of the corporation’s taxable year. These individuals may or may not be members of the same family. |
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Term
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Definition
| In any of the eight community property states, such income consists of the income from the personal efforts, investments, etc. of either spouse. Community income belongs equally to both spouses. |
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Term
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Definition
| Payment for personal services. Salaries, wages, fees, commissions, tips, bonuses, and specialized forms of compensation such as director’s fees and jury’s fees fall into this category. However, certain fringe benefits and some foreign-earned income are not taxed. |
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Term
| Completed contract method of accounting |
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Definition
| Accounting method for long-term contracts undertaken by smaller companies. Income from the contract is reported in the taxable year in which the contract is completed. The completed contract method is limited to construction contracts undertaken by smaller companies. |
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Term
| Constant interest rate method |
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Definition
| Used to amortize the original issue discount ratably over the life of the bond, this method determines the amount of interest income by multiplying the interest yield to maturity by the adjusted issue price. |
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Term
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Definition
| Distribution that is intended to result in a deduction to the corporation. For example, excessive salary payments to shareholder-employees may be recharacterized as nondeductible dividends to the corporation to the extent that such amounts are not reasonable. The excess amount may be treated as dividend income to the shareholder-employees rather than as compensation provided that certain conditions are met. |
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Term
| Constructive receipt doctrine |
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Definition
| Rule holding that cash method taxpayers cannot turn their backs on the receipt of income if the funds are unqualifiedly made available. |
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Term
| Constructive stock ownership |
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Definition
| Shares that are indirectly or deemed to be owned by another shareholder due to related party situations. |
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Term
| Contributory pension plan |
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Definition
| A qualified pension plan to which employees make voluntary contributions. |
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Term
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Definition
| A controlled group is two or more separately incorporated businesses owned by the same individuals or entities. Such groups may consist of parent-subsidiary corporations, brother-sister corporations, or a combination of both (combined group). |
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Term
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Definition
| Calculation of the depletion of an asset (e.g., oil and gas properties) under which the asset’s adjusted basis is divided by the estimated recoverable units to arrive at a per-unit depletion. This amount is then multiplied by the number of units sold to determine the cost depletion. This method may be alternated with the percentage depletion method as long as the calculation takes that into account. |
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Term
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Definition
| The amount paid for property in cash or the fair market value of the property given in exchange. The costs of acquiring the property and preparing it for use are included in the cost of the property. |
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Term
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Definition
| The amount of the annuity payment that is excluded from gross income. This amount is determined by multiplying the exclusion ratio by the amount received during the year. |
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Term
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Definition
| A federal excise tax on imported goods. |
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Term
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Definition
| Expenses one would See on an income statement prepared for financial accounting purposes, for example, compensation paid to employees, repairs to business property, and depreciation expenses. Certain nonbusiness deductions (e.g., alimony payments, moving expenses, and deductible payments to an individual retirement account (IRA)) are also deductible for AGI. |
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Term
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Definition
| Generally, deductions are allowed for certain personal expenses such as medical deductions and charitable contributions which are referred to as itemized deductions. Alternatively, individuals may deduct the standard deduction. Personal and dependency deductions are also deductions from AGI. |
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Term
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Definition
| Methods of compensating employees based upon their current service where the benefits are deferred until future periods (e.g., a pension plan). |
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Term
| Defined benefit pension plan |
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Definition
| Qualified pension plan which establishes a contribution formula based upon actuarial techniques that are intended to fund a fixed retirement benefit amount. Thus, the amount that will be available at the time of retirement is determined when the contributions are made. |
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Term
| Defined contribution pension plan |
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Definition
| Qualified pension plan under which a separate account is maintained for each participant and fixed amounts are contributed based upon a specific percentage-of-compensation formula. The retirement benefits are based on the value of the participant’s account at the time of retirement. Defined contribution plans for self-employed individuals are referred to as H.R. 10 plans. |
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Term
| Dependent care assistance program |
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Definition
| Employer-financed programs that provide care for an employee’s children or other dependents. An employee may exclude up to $5,000 from gross income although the ceiling amount (i.e., $3,000 or $6,000) on the child care credit is reduced by the amount of assistance that is excluded from gross income. |
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Term
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Definition
| See Discriminate Function System. |
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Term
| Discriminate Function System (DIF) |
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Definition
| System used by the IRS to select individual returns for audit. This system is intended to identify those tax returns which are most likely to contain errors. |
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Term
| Dividends-received deduction |
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Definition
| The deduction on dividends received by corporate shareholders that attempts to mitigate the triple taxation that would occur if one corporation paid dividends to a corporate shareholder who, in turn, distributed such amounts to its individual shareholders. Certain restrictions and limitations apply to this deduction. |
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Term
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Definition
| See Earnings and profits. |
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Term
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Definition
| A refundable credit that encourages lower income individuals to become gainfully employed. The credit is based on the individual’s earned income. |
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Term
| Earnings and profits (E&P) |
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Definition
| A measure of the corporation’s ability to pay a dividend from its current and accumulated earnings without an impairment of capital. |
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Term
| Economic performance test |
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Definition
| Economic performance occurs when the property or services to be provided are actually delivered. |
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Term
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Definition
| Subject to certain limitations and restrictions, education expenses are deductible if they are incurred (1) to improve or maintain the individual’s existing skills or (2) to meet requirements that are requisite to continued employment or meet the requirements of state law. |
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Term
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Definition
| The taxpayer’s total tax liability divided by his total economic income. |
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Term
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Definition
| The method of filing a tax return with the IRS by electronic means instead of paper forms. |
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Term
| Employee achievement award |
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Definition
| Award given under circumstances that does not create a likelihood that it is really disguised compensation. It must be in the form of tangible personal property (other than cash) and be valued at no more than $400. |
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Term
| Employee stock ownership plan (ESOP) |
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Definition
| A qualified stock bonus plan or combined stock bonus plan and money purchase pension plan. ESOP’s are funded by contributions of the employer’s stock which are held for the employees’ benefit. |
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Term
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Definition
| Social security (FICA) and federal and state unemployment compensation taxes. |
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Term
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Definition
| Entertainment expenses (e.g., business meals) that are either directly related to or associated with the active conduct of a trade or business are deductible within certain limitations and restrictions. Directly related expenses are those that (1) derive a business benefit other than goodwill and (2) are incurred in a clear business setting. Expenses that are associated with the business are those that show a clear business purpose (e.g., obtaining new business) and occur on the same day the business is discussed. |
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Term
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Definition
| See Employee stock ownership plan. |
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Term
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Definition
| Part of the federal unified transfer tax system, this tax is based upon the total property transfers an individual makes during his lifetime and at death. |
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Term
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Definition
| See Additional depreciation. |
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Term
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Definition
| A transaction in which one receives a reciprocal transfer of property rather than cash and/or a cash equivalent. |
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Term
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Definition
| Federal tax on alcohol, gasoline, telephone usage, oil and gas production, etc. State and local governments may impose similar taxes on goods and services. |
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Term
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Definition
| The portion of the annuity payment that is excluded from taxation. This amount equals the investment in the contract (its cost) divided by the expected return from the annuity. |
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Term
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Definition
| Any item of income that the tax law says is not taxable. |
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Term
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Definition
| The number of years that the annuity is expected to continue. This amount may be a stated term or for the remainder of the taxpayer’s life. |
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Term
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Definition
| The amount which a taxpayer can expect to receive from an annuity. It is determined by multiplying the amount of the annuity’s annual payment by the expected return multiple. |
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Term
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Definition
| This amount is the price at which property would change hands between a willing buyer and a willing seller where neither party is under any compulsion to buy or sell. |
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Term
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Definition
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Term
| Federal Insurance Contributions Act |
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Definition
|
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Term
| Federal Unemployment Tax Act |
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Definition
|
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Term
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Definition
| Tax withheld through the payment of payroll taxes, FICA is intended to finance social security benefits for individuals who are not self-employed. Employees and employers contribute matching amounts until a federally-set annual earnings ceiling is reached. At that time, no further contributions need be made for that year. No ceiling exists for the hospital insurance (HI) portion of the tax. Self-employed individuals are subject to self-employment tax and currently receive a for AGI income tax deduction equal to 50% of their self-employment tax payments. |
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Term
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Definition
| Audit procedure generally used by the IRS for corporations or individuals engaged in a trade or business and conducted at either the taxpayer’s place of business or his tax advisor’s office. Generally, several items on the tax return are examined. |
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Term
| FIFO method of inventory valuation |
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Definition
| This flow of cost method assumes that the first goods purchased will be the first goods sold. Thus, the ending inventory consists of the last goods purchased. |
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Term
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Definition
| An annual accounting period that ends on the last day of any month other than December. A fiscal year may be elected by taxpayers that keep books and records, such as businesses. |
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Term
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Definition
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Term
|
Definition
| Tax credit given to mitigate the possibility of double taxation faced by U.S. taxpayers earning foreign income. |
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Term
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Definition
| An individual’s earnings from personal services rendered in a foreign country. |
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Term
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Definition
| An activity that was formerly considered passive, but which is not considered to be passive with respect to the taxpayer for the current year. |
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Term
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Definition
| State tax levy sometimes based upon a weighted average formula consisting of net worth, income, and sales. |
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Term
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Definition
| A test used to determine whether property is considered similar or related in service or use for purposes of involuntary conversions of property under Sec. 1033. The functional-use test requires that the replacement property be functionally the same as the converted property. |
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Term
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Definition
| Federal and state unemployment compensation tax. |
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Term
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Definition
| See Generally accepted accounting principles. |
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Term
|
Definition
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Term
|
Definition
| Special credit category consisting of tax credits commonly available to businesses. The more significant credit items are (1) the investment tax credit, (2) the work opportunity credit, (3) the research credit, (4) the low-income housing credit, (5) the empowerment zone employment credit, (6) the disabled access credit. |
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Term
| Generally accepted accounting principles (GAAP) |
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Definition
| The accounting principles that govern the preparation of financial reports to shareholders. GAAP does not apply to the tax treatment unless the method clearly reflects income. It is used only when the regulations do not specify the treatment of an item or when the regulations provide more than one alternative accounting method. |
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Term
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Definition
| A tax that is imposed upon the donor for transfers that are not supported by full and adequate consideration. A $14,000 annual exclusion is allowed per donee in 2013–2015 and $13,000 for 2009–2012. |
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Term
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Definition
| The excess of the purchase price of a business over the fair market value of all identifiable assets acquired. |
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Term
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Definition
| All income received in cash, property, or services, from whatever source derived and from which the taxpayer derives a direct economic benefit. |
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Term
|
Definition
| For income tax purposes, the amount determined by multiplying taxable income by the appropriate tax rate(s). The gross tax may also be found in the appropriate tax table for the taxpayer’s filing status. |
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Term
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Definition
| Special retirement plan rules applicable to self-employed individuals. Such plans are often referred to as “Keogh plans.” |
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Term
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Definition
| An assumption with respect to depreciation that assumes that all asset acquisitions and dispositions are made at the midpoint of the tax year. |
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Term
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Definition
| Accounts that may be contributed to a fund by eligible individuals to enable such individuals to accumulate funds on a tax-free basis to pay qualified medical expenses. These accounts may only be set up by individuals who are covered under a high-deductible health plan and, within limits, are tax-deductible. |
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Term
|
Definition
| The length of time an asset is held before it is disposed of. This period is used to determine whether the gain or loss is long- or short-term. |
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Term
|
Definition
| A concept in taxation that refers to the notion that similarly-situated taxpayers should be treated equally under the tax law. |
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Term
| Hybrid method of accounting |
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Definition
| Accounting method that combines the cash and accrual methods. Under this method, taxpayers can report sales and purchases under the accrual method and other income and expense items under the cash method. See also the cash method of accounting and the accrual method of accounting. |
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Term
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Definition
| See Intangible drilling and development costs. |
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Term
|
Definition
| This rule reallocates the payments received in an installment sale between interest (fully taxable) and principal (only gain is taxable). To avoid this, the stated interest rate must equal at least 100% of the applicable federal rate as determined monthly according to the rate paid by the government on borrowed funds. |
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Term
| Incentive stock option plan (ISO) |
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Definition
| Stock option plan that allows executives to receive a proprietary interest in the corporation. The option to participate in this type of plan must be exercised according to certain requirements and must follow certain procedures. |
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Term
|
Definition
| The economic concept of income measures the amount an individual can consume during a period and remain as well off at the end of the period as at the beginning. The accounting concept of income is a measure of the income that is realized in a transaction. The tax concept of income is close to the accounting concept. It includes both taxable and nontaxable income from any source. However, it does not include a return of capital. |
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Term
|
Definition
| A concept in taxation that described how the tax law has been changed or modified over the years. Under incrementalism, the tax law is changed on an incremental basis rather than a complete revision basis. |
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Term
| Indeterminate market value |
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Definition
| If the market value of the property in question cannot be determined by the usual methods, the “open transaction” doctrine may be applied and the tax consequences may be deferred until the transaction is closed. Alternatively, the property may be valued by using the fair market value of the property that is given in the exchange (e.g., the value of the services rendered). |
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Term
| Individual retirement account (IRA) |
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Definition
| Contribution for AGI that is deductible if (1) neither the taxpayer nor his spouse are active participants in an employer-sponsored retirement plan or (2) certain income limitations are met. Taxpayers who do not meet these requirements may make nondeductible IRA contributions. See also Roth IRA. |
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Term
|
Definition
| An administrative pronouncement concerning an issue the IRS thinks the general public will be interested in. Such releases are issued in lay terms. |
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Term
|
Definition
| Rule that exempts a spouse from penalty of from liability for the tax if such spouse had no knowledge of nor reason to know about an item of community income. |
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Term
| Installment sale method of accounting |
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Definition
| Taxpayers may use this method of accounting to reduce the tax burden from gains on the sale of property paid for in installments. Under this method, payment of the tax is deferred until the sale proceeds are collected. This method is not applicable to sales of publicly traded property or to losses. |
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Term
|
Definition
| Any disposition of property which involves receiving at least one payment after the close of the taxable year in which the sale occurs. |
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Term
| Intangible drilling and development costs (IDCs) |
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Definition
| Expenditures made by an operator for wages, fuel, repairs, hauling supplies, and so forth, incident to and necessary for the preparation and drilling of oil and gas wells. |
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Term
|
Definition
| Property that does not have physical substance, such as goodwill, patents, stocks and bonds, etc. |
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Term
|
Definition
| Gifts made during the donor’s life-time. |
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Term
|
Definition
| The cost charged by a lender for the use of money. For example, finance charges, loan discounts, premiums, loan origination fees, and points paid by a buyer to obtain a mortgage loan are all interest expenses. The deductibility of the expense depends upon the purpose for which the indebtedness was incurred. |
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Term
|
Definition
| The primary legislative source and authority for tax research, planning, and compliance activities. |
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|
Term
| Internal Revenue Service (IRS) |
|
Definition
| The branch of the Treasury Department that is responsible for administering the federal tax law. |
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Term
| Interpretative Regulations |
|
Definition
| Treasury Regulations that serve to broadly interpret the provisions of the Internal Revenue Code. |
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Term
|
Definition
| All deductions other than interest that are directly connected with the production of investment income. |
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Term
|
Definition
| Gross income from property held for investment and any net gain attributable to the disposition of such property. See also Net investment income. |
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Term
|
Definition
| Interest expense on indebtedness incurred to purchase or carry property held for investment (e.g., income from interest, dividends, annuities, and royalties). Interest expenses incurred from passive activities are not subject to the investment interest limitations and interest incurred to purchase or carry tax-exempt securities is not deductible. Interest incurred from passive activities is subject to the passive activity loss limitation rules. |
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Term
|
Definition
| Such a conversion occurs when property is compulsorily converted into money or other property due to theft, seizure, requisition, condemnation, or partial or complete destruction. For example, an involuntary conversion occurs when the government exercises its right of eminent domain. |
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Term
|
Definition
| See Individual retirement account. |
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Term
|
Definition
| See Internal Revenue Code. |
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Term
|
Definition
| See Internal rate of return. |
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Term
|
Definition
| See Internal Revenue Service. |
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Term
|
Definition
| See Incentive stock option. |
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Term
|
Definition
| Also known as “deductions from AGI,” these personal expenditures are allowable for such items as medical expenses, state and local taxes, charitable contributions, unreimbursed employee business expenses, interest on a personal residence, and casualty and theft losses. There are specific requirements for and limitations on the deductibility of each of these items. In addition, only those taxpayers whose total itemized deductions exceed the standard deduction amount can itemize their deductions. Total itemized deductions are subject to reductions based on AGI. No reduction was required in 2010–2012. |
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Term
|
Definition
| Income from jointly-held property. |
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Term
|
Definition
| Decisions of a court of law. |
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Term
|
Definition
| Retirement plan for self-employed individuals. This type of plan is also known as an “H.R. 10 plan.” |
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Term
|
Definition
| See Lower of cost or market method of inventory valuation. |
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Term
|
Definition
| Treasury Regulations issued at the mandate of the Internal Revenue Code. Legislative regulations have a higher degree of authority than interpretative regulations. |
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Term
|
Definition
| Letter rulings originate from the IRS at the taxpayer’s request. They describe how the IRS will treat a proposed transaction. It is only binding on the person requesting the ruling providing the taxpayer completes the transaction as proposed in the ruling. Those of general interest are published as Revenue Rulings. |
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Term
| LIFO method of inventory valuation |
|
Definition
| This method assumes a last-in, first out flow of cost. It results in the lowest taxable income during periods of inflation because it shows the lowest inventory value. Price indexes are used for the valuation. The information in these indexes is grouped into groups (pools) of similar items. See alsoSimplified LIFO method. |
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Term
|
Definition
| Classes of assets defined by the Regulations that are considered to be property of a like kind for purposes of Sec. 1031. Like class property is tangible personal property that is in the same General Asset Class or the Same Product Class as other property. |
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Term
|
Definition
| A direct exchange of like-kind property. The transferred property and the received property must be held for productive use either (1) in a trade or business or (2) as an investment. Nonrecognition of gain or loss is mandatory. Certain like-kind exchanges between related parties are restricted if either party disposes of the property within two years of the exchange. |
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Term
|
Definition
| Property with a similar nature and character. This term does not refer to either the grade or quality of the property. |
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Term
| Limited liability company (LLC) |
|
Definition
| A corporation that is generally taxed under the partnership rules. Although similar to an S corporation, there is no limit to (1) the number of shareholders, (2) the number of classes of stock, or (3) the types of investments in related entities. |
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Term
| Limited liability partnerships (LLP) |
|
Definition
| LLPs are taxed as partnerships but enjoy limited liability under state partnership laws (i.e., individual partners are liable for their own acts and acts of persons under their direction and control but not for negligence or misconduct by other partners). |
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Term
|
Definition
| A distribution that liquidates a partner’s entire partnership interest due to retirement, death, or other business reason. Such distributions result in a capital gain or loss to the partner whose interest is liquidated. In a corporate liquidation, the liquidating corporation generally recognizes gains and losses on the distribution of the properties and its shareholders recognize capital gain or loss on the surrender of their stock. |
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Term
| Long-term capital gain (LTCG) |
|
Definition
| Gain realized on the sale or exchange of a capital asset held longer than one year. |
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Term
| Long-term capital loss (LTCL) |
|
Definition
| Loss realized on the sale or exchange of a capital asset held longer than one year. |
|
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Term
|
Definition
| Building, manufacturing, installation, and construction contracts that are not completed in the same taxable year in which they are entered into. Service contracts do not qualify as long-term contracts. See also Completed contract method of accounting. |
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Term
|
Definition
| Interest that is assessed on any additional tax that would have been paid if the actual total cost of the contract was used to calculate the tax rather than the estimated cost. Thus, it is applicable to any contract of portion of a contract that is accounted for under either the hybrid or percentage of completion method of accounting. |
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Term
| Lower of cost or market method (LCM) of inventory valuation |
|
Definition
| The valuation method is available to all taxpayers other than those using LIFO valuation. It is applied to each separate item in the inventory. |
|
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Term
|
Definition
| The tax that is applied to an incremental amount of taxable income that is added to the tax base. This rate can be used to measure the tax effect of a proposed transaction. Currently, the highest marginal tax rate for individuals is 39.6%. |
|
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Term
|
Definition
| This term refers to replacement cost under the lower of cost or market inventory method. That is, it is the price at which the taxpayer can replace the goods in question. See also Fair market value. |
|
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Term
|
Definition
| The level of participation by a taxpayer in an activity that determines whether the activity is either passive or active. If a taxpayer does not meet the material participation requirements, the activity is treated as a passive activity. |
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Term
| Medical expense deduction |
|
Definition
| Unreimbursed medical expenses incurred for medical procedures or treatments that are (1) legal in the locality in which they are performed and (2) incurred for the purpose of alleviating a physical or mental defect or illness that affects the body’s structure or function are deductible from AGI. Out-of-pocket travel costs incurred while en route to a medical facility, certain capital expenditures affecting the sick person, premiums for medical insurance, and in-patient hospital care are also deductible. Certain restrictions and limitations apply to this deduction. |
|
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Term
|
Definition
| Decision issued by the Tax Court. They deal with factual variations on matters which were decided in earlier cases. |
|
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Term
|
Definition
|
|
Term
| Miscellaneous itemized deductions |
|
Definition
| Certain unreimbursed employee expenses (e.g., required uniforms, travel, entertainment, and so on) fall into this category. Miscellaneous itemized deductions also include certain investment expenses, appraisal fees for charitable contributions and fees for tax return preparation. The nature of the deduction depends on whether the taxpayer is an employee or a self-employed individual. |
|
|
Term
| Modified percentage of completion method |
|
Definition
| A variation of the regular percentage of completion method where an election may be made to defer reporting profit from a long-term contract until at least 10% of the estimated total cost has been incurred. |
|
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Term
|
Definition
| Expenses incurred in relation to employment-related job transfers. |
|
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Term
|
Definition
| Expense that is deductible under Sec. 162 because it is appropriate and helpful in the taxpayer’s business. Such expenses must also qualify as ordinary. |
|
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Term
|
Definition
| The excess of the taxpayer’s investment income over his investment expenses. See also Investment income. |
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Term
|
Definition
| A net operating loss occurs when business expenses exceed business income for any taxable year. Such losses may be carried back two years or carried forward 20 years to a year in which the taxpayer has taxable income. Loss must be carried back first and must be deducted from years in chronological order. |
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Term
|
Definition
| Method used by investment analysts to determine the anticipated return on an investment. This method uses a fixed discount rate to compute the net present value of future cash flows. |
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Term
|
Definition
| The amount of unearned income of a child under age 18 (or under 24 if a full-time student and earned income less than 1/2 of his support) that is taxed at the child’s parent’s top marginal tax rate. |
|
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Term
|
Definition
|
|
Term
|
Definition
| A type of employee reimbursement plan that does not meet either of the two tests for an accountable plan (See accountable plan). Under a nonaccountable plan, reimbursements are included in the employee’s gross income and the expenses are deductible by the employee, subject to the 2% of AGI floor. |
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Term
|
Definition
|
|
Term
| Noncontributory pension plan |
|
Definition
| Only the employer makes contributions to this type of pension plan. |
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|
Term
| Nonliquidating distribution |
|
Definition
| Distribution that reduces but does not eliminate, a partner’s partnership interest. Such distributions are generally treated as tax-free returns of capital. |
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|
Term
| Nonqualified deferred compensation plan |
|
Definition
| Type of plan used by employer to provide incentives or supplementary retirement benefits for executives. Such plans are not subject to the nondiscrimination and vesting rules. |
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|
Term
| Nonqualified stock option |
|
Definition
| Stock option that does not meet the requirements for an incentive stock option. |
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|
Term
|
Definition
| Allowances, such as the dependent child care credit, that have been created for various social, economic, and political reasons. The tax credits in this category do not result from payments made to the government in advance. Thus, they can be deducted from the tax, but they are not payable to the taxpayer in situations where the credit exceeds the tax. |
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Term
|
Definition
|
|
Term
|
Definition
| IRS audit of a specific item on an individual’s tax return. An office audit takes place at the IRS branch office. |
|
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Term
|
Definition
| A situation that has not yet occurred. That is, one for which the facts and events are still controllable and can be planned for. |
|
|
Term
|
Definition
| An expense that is deductible because it is reasonable in amount and bears a reasonable and proximate relationship to the income-producing activity or property. |
|
|
Term
|
Definition
| For purposes of the charitable contribution deduction, any property that would result in the recognition of ordinary income if the property were sold. Such property includes inventory, works of art or manuscripts created by the taxpayer, capital assets that have been held for one year or less, and Section 1231 property that results in ordinary income due to depreciation recapture. |
|
|
Term
| Organizational expenditures |
|
Definition
| The amortizable legal, accounting, filing, and other fees incidental to organizing a partnership or a corporation. |
|
|
Term
| Parent-subsidiary controlled group |
|
Definition
| To qualify, a common parent must own at least 80% of the stock of at least one subsidiary corporation and at least 80% of each other component member of the controlled group must be owned by other members of the controlled group. |
|
|
Term
|
Definition
| The capital and/or profits interest in a partnership received in exchange for a contribution of properties or services (e.g., money or business equipment). The nature of a partnership interest is similar to that of corporate stock. |
|
|
Term
|
Definition
| Syndicate, group pool, joint venture, or other unincorporateed organization which carries on a business or financial operation or venture. |
|
|
Term
|
Definition
| To define what constitutes a passive activity for the purpose of applying the passive loss rules, it is necessary to (1) identify what constitutes an activity and (2) determine whether the taxpayer has materially participated in the activity. Temp. Reg. Sec. 1.469-4T contains detailed rules for making these determinations. |
|
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Term
|
Definition
| Income from an activity that does not require the taxpayer’s material involvement or participation. Thus, income from tax shelters and rental activities fall into the category. |
|
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Term
|
Definition
| Loss generated from a passive activity. Such losses are computed separately. They may be used to offset income from other passive activities, but may not be used to offset either active or portfolio income. |
|
|
Term
| Percentage depletion method |
|
Definition
| Depletion method for assets such as oil and gas that is equal to a specified percentage times the gross income from the property but which may not exceed 100% of the taxable income before depletion is deducted. Lease bonuses, advance royalties, and other amounts payable without regard to production may not be included in the calculation. This method is only available to small oil and gas producers and royalty owners and for certain mineral properties. |
|
|
Term
| Percentage of completion method of accounting |
|
Definition
| Accounting method generally used for long-term contracts under which income is reported in proportion to the amount of work that has been completed in a given year. |
|
|
Term
|
Definition
| A deduction in an amount mandated by Congress. The amount for 2015 is $4,000 ($3,950 for 2014) and is adjusted for increases in the cost of living. An additional exemption is allowed for each individual who is a dependent. Personal and dependency exemptions are phased out for high income taxpayers. |
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|
Term
| Personal holding company (PHC) |
|
Definition
| A closely held corporation (1) that is owned by a five or fewer shareholders who own more than 50% of the corporation’s outstanding stock at any time during the last half of its taxable year and (2) whose PHC income equals at least 60% of the corporation’s adjusted gross income for the tax year. Certain corporations (e.g., S corporations) are exempt from this definition. |
|
|
Term
| Personal holding company tax |
|
Definition
| This tax is equal to 20% of the undistributed personal holding company income. It is intended to prevent closely held companies from converting an operating company into a nonoperating investment company. |
|
|
Term
|
Definition
| All interest other than active business interest, investment interest, interest incurred in a passive activity, qualified residence interest, and interest incurred when paying the estate tax on an installment basis. Personal interest is currently treated as a nondeductible personal expenditure. See alsoInterest. |
|
|
Term
|
Definition
| Property that is other than real property, such as equipment. |
|
|
Term
| Personal service corporation (PSC) |
|
Definition
| A regular C corporation whose principal activity is the performance of personal services that are substantially performed by owner-employees who own more than 10% of the value of the corporation’s stock. |
|
|
Term
|
Definition
| See Personal holding company. |
|
|
Term
|
Definition
| Dividends, interest, annuities, and royalties not derived in the ordinary course of business. Gains and losses on property that produces portfolio income are included in such income. |
|
|
Term
|
Definition
| A personal tax credit for a portion of the cost of a taxpayer’s health insurance premiums. To be eligible for the credit, the taxpayer must have household income between 100% and 400% of the federal poverty line. The credit is based on the excess of the qualifying premiums over what is deemed to be affordable based on the taxpayer’s household income. |
|
|
Term
|
Definition
| The highest level official reporter which reports a particular case is called the primary cite. |
|
|
Term
|
Definition
| A partner owning 5% or more of the partnership profits and capital interests. |
|
|
Term
|
Definition
| The residence that the taxpayer occupies most of the time. |
|
|
Term
|
Definition
| Obligation issued by a state of local government to finance nongovernmental activities (e.g., a sports arena). |
|
|
Term
|
Definition
|
|
Term
| Production activities deduction |
|
Definition
| A special deduction for all taxpayers involved in U.S. manufacturing or production activities. The deduction is 9% of the lesser of qualified production activities income or taxable income (before the deduction). |
|
|
Term
|
Definition
| An activity of the taxpayer that is generally related to investment activities or matters connected with the determination of any tax. Deductions related to production of income activities are usually from AGI, although is some instances they may be for AGI, such as expenses connected with rental property. |
|
|
Term
|
Definition
| A qualified defined benefit plan which may be established in lieu of or in addition to a qualified pension plan. Contributions to a profit-sharing plan are usually based upon profits. Incidental benefits may or may not be included. In addition, the plan must meet certain requirements concerning determination of the amount and timing of the employer’s contribution, how the employee wants to receive the employer’s contribution, vesting, and forfeitures. |
|
|
Term
|
Definition
| Tax that increases as the taxpayer’s taxable income increases. The U.S. income tax is an example of a progressive tax. |
|
|
Term
|
Definition
| The division of property between spouses upon their separation or divorce. |
|
|
Term
|
Definition
| Federal, state, or local tax levied on real and/or personal property (e.g., securities, a personal automobile). |
|
|
Term
|
Definition
| A method of taxation under which the tax rate is the same for all taxpayers regardless of their income. State and local sales taxes are examples of this form of tax. |
|
|
Term
|
Definition
| Issued following changes in the tax law. May or may not be amended after hearings are conducted and comments received. Proposed regulations are not binding on taxpayers. |
|
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Term
|
Definition
| See Personal service corporation. |
|
|
Term
|
Definition
| Pension plan that includes (1) systematic and definite payments made to a pension trust based upon actuarial methods and (2) usually provides for incidental benefits such as disability, or medical insurance benefits. |
|
|
Term
|
Definition
| Employee achievement awards given under a written plan or program that does not discriminate in favor of highly compensated employees. Such awards must be in the form of tangible personal property other than cash and be worth no more than $1,600. |
|
|
Term
| Qualified residence interest |
|
Definition
| Interest on an indebtedness which is secured by the taxpayer’s qualified residence when it is paid or accrued. A taxpayer may have two qualified residences: a principal residence and a residence that he has personally used more than the greater of 14 days or 10% of the rental days during the year. |
|
|
Term
|
Definition
| A child of the taxpayer who meets the four tests of relationship, age abode, and support. A child who meets these tests may be claimed as a dependency exemption by the taxpayer. |
|
|
Term
|
Definition
| An individual who may be claimed as a dependent if he or she meets the relationship, gross income, and support tests. |
|
|
Term
| Readily ascertainable fair market value |
|
Definition
| The fair market value of nonqualified stock options can be readily ascertained where the option is traded on an established options exchange. |
|
|
Term
|
Definition
| Property that is land or any structure permanently attached to the land, such as buildings. |
|
|
Term
|
Definition
| The gain or loss computed by taking the amount realized from a sale of property and subtracting the property’s adjusted basis. |
|
|
Term
|
Definition
| A provision requiring recapture of earlier alimony payments as ordinary income by the payor if the payments decline sharply in either the second or third year. |
|
|
Term
| Recovery of basis doctrine |
|
Definition
| Rule that allows taxpayers to recover the basis of an asset without being taxed. Such amounts are considered a return of capital. |
|
|
Term
|
Definition
|
|
Term
|
Definition
| A form of taxation under which the tax rate decreases as the tax base (e.g., income) increases. |
|
|
Term
|
Definition
|
|
Term
|
Definition
| Tax Court decision that is issued on a particular issue for the first time. |
|
|
Term
|
Definition
|
|
Term
|
Definition
| Property that is acquired to replace converted property in order to retain nonrecognition of gain status. Such property must generally be functionally the same as the converted property. For example, a business machine must be replaced with a similar business machine. There are exceptions to this rule: The taxpayer-use test applies to the involuntary conversion of rental property owned by an investor; condemnations of real property held for business or investment use may be replaced by like-kind property. |
|
|
Term
| Residential rental property |
|
Definition
| Property from which at least 80% of the gross rental income is rental from dwelling units. Residential units include manufactured homes that are used for rental purposes, but not hotels, motels, or other establishments for transient use. |
|
|
Term
|
Definition
| Such plans are used to attract and retain key executives by giving them an ownership interest in the corporation. The income recognition rules contained in Sec. 83 govern this type of plan. |
|
|
Term
|
Definition
| Issued by the national office of the IRS, Revenue Procedures reflect the IRS’ position on compliance relating to tax preparation issues. Revenue Procedures, which are published in the Cumulative Bulletin, have less weight than Treasury Regulations. |
|
|
Term
|
Definition
| Issued by the national office of the IRS, Revenue Rulings reflect the IRS’s interpretation of a narrow tax issue. Revenue Rulings, which are published in the Cumulative Bulletin, have less weight than the Treasury Regulations. |
|
|
Term
|
Definition
| Amounts received by the taxpayer from any source. It includes both taxable and nontaxable amounts and items that are a return of capital. Although closely related to income or gross income, differences between these items do exist. |
|
|
Term
|
Definition
| An IRA in which the contributions are nondeductible, but distributions generally are not subject to tax. Therefore, all earnings in a Roth IRA are not subject to taxation. |
|
|
Term
|
Definition
| Ordinary income arising from amounts paid for the right to use property that belongs to another and is transferred for valuable consideration (e.g., a patent right where substantially all rights are transferred). |
|
|
Term
|
Definition
| Small business corporations may elect S corporation status if they meet the 100-shareholder limitation, the type of shareholder restrictions, and the one class of stock restriction. Taxation of such corporations parallels the tax rules that apply to partnerships. |
|
|
Term
|
Definition
| A transaction where one receives cash and/or the equivalent of cash, including the assumption of debt, in exchange for an asset. |
|
|
Term
|
Definition
| State or local tax on purchases. Generally, food items and medicines are exempt from such tax. |
|
|
Term
|
Definition
| Citation to secondary source (i.e., unofficial reporter). |
|
|
Term
|
Definition
| Real or depreciable property that is (1) held for more than one year and (2) used in a trade or business. Certain property, such as inventory, U.S. government publications, copyrights, literary, musical, or artistic compositions, and letters, are excluded from this definition. |
|
|
Term
|
Definition
| Certain property subject to depreciation and, in some cases, amortization. Depreciable personal property such as equipment is Section 1245 property. However, most real property is not. |
|
|
Term
|
Definition
| Any real property that (1) is not Section 1245 property and (2) is subject to a depreciation allowance. |
|
|
Term
|
Definition
| Type of plan that is often used to supplement a company’s regular qualified pension and profit-sharing plan. Such plans, which generally contain a salary reduction feature, permit the employer to receive either cash or an equivalent contribution to the company’s profit-sharing plan. The amount of the contribution is limited. |
|
|
Term
|
Definition
| A long-term debt obligation. Long-term is generally defined as 10 years or more. |
|
|
Term
|
Definition
| A tax imposed on self-employed individuals. The SE is comprised of two parts, (1) 12.4% for Social Security taxes (limited to a maximum amount of SE income) and (2) 2.9% for Medicare taxes (no limit on SE income). For 2015, the maximum SE income subject to the tax is $118,500 ($117,000 in 2014). The Medicare tax increases to 3.8% once the self-employment income exceeds a threshold ($200,000 for single taxpayers; $250,000 for married taxpayers). |
|
|
Term
|
Definition
| All property that is owned before marriage and any gifts or inheritances acquired after marriage are separate property. This distinction depends on the state of residence. However, it is possible even in community property states. |
|
|
Term
|
Definition
| Compensation for a decline in the value of the property remaining after part of the taxpayer’s property is condemned. The IRS considers such damages analogous to the proceeds from property insurance. |
|
|
Term
| Shared Responsibility Payment |
|
Definition
| An excise tax assessed on taxpayers without the required minimum essential health insurance coverage. The penalty tax is collected with the federal income tax return. |
|
|
Term
|
Definition
| The process of transferring income from one family member to another. Methods for shifting income include gifts of stock or bonds to family members who are in lower tax brackets. |
|
|
Term
|
Definition
| An investment activity where an investor sells a security at its current price and purchases the same security at a future date. A short sale is generally used when the price of a security is expected to decline. |
|
|
Term
| Short-term capital gain (STCG) |
|
Definition
| Gain realized on the sale or exchange of a capital asset held for one year or less. |
|
|
Term
| Short-term capital loss (STCL) |
|
Definition
| Loss realized on the sale or exchange of a capital asset held for one year or less. |
|
|
Term
|
Definition
| This method of inventory valuation allows taxpayers to use a single LIFO pool rather than multiple pools. See also LIFO method. |
|
|
Term
|
Definition
| When taxes of $50,000 or less are in question for a particular year, the taxpayer may opt to have the case heard by a special commissioner rather than the regular Tax Court. The decision of the commissioner cannot be appealed. |
|
|
Term
|
Definition
| These benefits include (1) the basic monthly retirement and disability benefits paid under social security and (2) tier-one railroad retirement benefits. |
|
|
Term
|
Definition
| Form of business entity owned by an individual who reports all items of income, expense, on his individual return on Schedule C. |
|
|
Term
| Specific write-off method of accounting |
|
Definition
| Method of accounting used for bad debts. Under this method, the taxpayer deducts each bad debt individually as it becomes worthless. This is the only allowable accounting method for bad debts arising after 1986. |
|
|
Term
|
Definition
| The process of creating additional taxable entities, especially corporations, in order to reduce an individual’s effective tax rate. |
|
|
Term
|
Definition
| A floor amount set by Congress to simplify the tax computation. It is used by taxpayers who do not have enough deductions to itemize. The amount of the deduction varies according to the taxpayer’s filing status, age, and vision. Taxpayers who use this standard deduction are not required to keep records. |
|
|
Term
| State corporate income tax |
|
Definition
|
|
Term
| Statements on Standards for Tax Services (SSTS) |
|
Definition
| Ethical guidelines of the AICPA-Federal Tax Division for CPAs to promote high standards of tax practice. |
|
|
Term
|
Definition
| A period of time as provided by law in which a taxpayer’s return may not be changed either by the IRS or the taxpayer. The Statute of Limitations is generally three years from the later of the date the tax return is filed or its due date. There is no Statute of Limitations for a fraudulent return. |
|
|
Term
|
Definition
| A special type of defined benefit plan under which the employer’s stock is contributed to a trust. The stock is then allocated and distributed to the participants. See also Employee stock ownership plan. |
|
|
Term
|
Definition
| A dividend paid in the form of stock in the corporation issuing the dividend. |
|
|
Term
|
Definition
| This category includes incentive stock options and nonqualified Stock option arrangements. Such plans are used to attract and retain key employees. |
|
|
Term
| Substance-over-form doctrine |
|
Definition
| Judicial weighing of a transaction’s economic substance more heavily than its legal form. |
|
|
Term
|
Definition
| A special filing status available to widows and widowers who file a joint return for the year his or her spouse dies and for the following two years. The surviving spouse may not have remarried, must be a U.S. citizen or resident, have qualified to file a joint return for the year, and must have at least one dependent child living at home during the year. |
|
|
Term
|
Definition
| The nonamortizable fees (e.g., brokerage and registration fees) incurred to promote and market partnership interests. Such fees are generally associated with tax-sheltered limited partnership interests. |
|
|
Term
|
Definition
| Property that has physical substance, such as land, buildings, natural resources, equipment, etc. |
|
|
Term
|
Definition
| The amount to which the tax rate is applied to determine the tax due. For income tax purposes, the tax base is taxable income. |
|
|
Term
|
Definition
| Recovery of an amount in a subsequent year that produced a tax benefit in a prior year and is thus taxable to the recipient. |
|
|
Term
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Definition
| Amount that can be deducted from the gross tax to arrive at the net tax due or refund due. Prepaid amounts, that is, amounts paid to the government during the year, are tax credits. Such prepaid amounts are often referred to as “refundable credits.” |
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Definition
| Bonds on which the interest is not subject to current taxation but is deferred to a future period of time, such as Series EE U.S. Savings Bonds. |
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Term
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Definition
| Bonds on which the interest is completely exempt from federal income taxation, such as state and municipal bonds. |
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Term
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Definition
| The tax law is comprised of the Internal Revenue Code, administrative and judicial interpretations, and the committee reports issued by the Congressional committees involved in the legislative process. |
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Term
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Definition
| Search for the best possible solution to a problem involving either a proposed or completed transaction. |
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Term
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Definition
| Passive activity which may lack economic substance other than creating tax deductions and credits that enable taxpayers to reduce or eliminate the income tax liability from their regular business activities. Section 469 restricts the current use of deductions and credits arising from passive activities. |
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Term
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Definition
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Term
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Definition
| A mandatory assessment levied under the authority of a political entity for the purpose of raising revenue to be used for public or governmental purposes. Such taxes may be levied by the federal, state, or local government. |
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Term
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Definition
| For individuals, taxable income is adjusted gross income reduced by deductions from adjusted gross income. |
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Term
| Taxpayer Compliance Measurement Program (TCMP) |
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Definition
| A stratified random sample used to select tax returns for audit. The program is intended to test the extent to which taxpayers are in compliance with the law. |
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Term
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Definition
| A test used to determine whether property is considered similar or related in service or use for purposes of involuntary conversions of property. This test is used by owner-investors (as opposed to owner-users) of property. |
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Term
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Definition
| See Taxpayer Compliance Measurement Program. |
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Term
| Technical Advice Memorandum |
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Definition
| Such memoranda are administrative interpretations issued in the form of letter ruling. Taxpayers may request them if they need guidance about the tax treatment of complicated technical matters which are being audited. |
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Term
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Definition
| Temporary Regulations are Treasury Regulations that are issued to provide guidance for taxpayers pending the issuance of the final regulations. They are binding upon taxpayers. Temporary Regulations are also required to be issued as proposed regulations and must expire within three years. |
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Definition
| Transfer of property made at the death of the donor (i.e., bequests, devises, and inheritances). |
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Term
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Definition
| Loss of business, investment, or personal-use property due to crimes such as, but not limited to, larceny, embezzlement, robbery, extortion, blackmail, or kidnapping for ransom. Such losses are deductible from AGI, subject to certain limitations. |
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Term
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Definition
| The amount of the taxpayer’s income, including exclusions and deductions from the tax base (e.g., tax-exempt bonds), is categorized as total economic income. |
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Term
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Definition
| A business activity of the taxpayer in which deductions are allowed as for AGI deductions. |
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Term
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Definition
| The deductibility of this type of expense depends upon whether it is trade- or business-related, whether it is related to the production of income, whether the expense is employment related and therefore subject to the 2% nondeductible floor for miscellaneous itemized deductions. Commuting expenses are nondeductible. See also Travel expense. |
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Term
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Definition
| Such expenses include transportation, meals, and lodging incurred in the pursuit of a trade, business, or employment-related activity. There are limitations and restrictions on the deductibility of these expenses. See also Transportation expense. |
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Term
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Definition
| Short-term (i.e., 90-day) obligation that is issued by the government at a discount from the maturity amount. The difference between the issue price and the maturity amount represents the interest income. |
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Term
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Definition
| The principal administrative source of the federal tax law, these regulations reflect the Treasury’s and the IRS’s interpretation of the Internal Revenue Code. They may be either legislative or interpretative and they may be issued in either proposed, temporary, or final form. |
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Term
| U.S. Production Activities Deduction |
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Definition
| See Production Activities Deduction. |
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Term
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Definition
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Term
| Unfunded deferred compensation plan |
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Definition
| This type of plan is used for highly-compensated employees who wish to defer the recognition of income until future periods. Funding is generally accomplished through an escrow account for the employee’s benefit. |
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Term
| Uniform Capitalization rules (UNICAP) |
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Definition
| The requirements under the tax law for determining inventory cost. Under UNICAP certain indirect overhead costs are required to be included in inventory for tax purposes which are generally not included for financial accounting. |
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Term
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Definition
| Capital gain property which is also tangible personal property and which is contributed to a public charity for a use that is unrelated to the charity’s function. The contribution deduction (from AGI) for such property is equal to the property’s fair market value minus the capital gain that would be recognized if the property was sold at that value. |
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Term
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Definition
| District Court decisions that are not officially reported in the Federal Supplement. Such decisions may be reported in secondary reporters that report only tax-related cases. |
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Term
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Definition
| A concept in taxation that provides that the incidence of taxation should be borne by taxpayers who have the ability to pay the tax. Taxpayers who are not similarly-situated should be treated differently under the tax law. |
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Term
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Definition
| A wash sale results when the taxpayer (1) sells stock or securities and (2) purchases substantially identical stock or securities within the 61-day period extending from 30 days before the date of sale to 30 days after the date of sale. |
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Term
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Definition
| A tax imposed upon the value of property transferred during one’s lifetime (i.e., a gift tax) or upon the death of the transferor (i.e., an estate tax). The tax is imposed upon the transferor of property or upon the estate. |
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Term
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Definition
| A petition to the U.S. Supreme Court to request that the Court agree to hear a case. A writ of certiorari is requested by the party (IRS or taxpayer) that lost at the Court of Appeals level. |
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Term
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Definition
| Bond that is issued at a cost that is substantially less than the current market rate because no interest payments are made. The original issue discount (OID) must be amortized over the term of the bond by investors using the constant rate method. Such bonds offer cash-flow advantages to corporate issuers since no cash outlay for interest is required until the bonds mature. |
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Term
| Most exclusions exist for one of two reasons |
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Definition
| Most exclusions exist for either reasons of benevolence or incentive. Exclusions for employee death benefits, life insurance benefits, and public assistance exist because of reasons of benevolence while the foreign earned income exclusions and the exclusions for certain employee benefits are intended to be economic incentives |
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Term
| What conditions must be met for an award to qualify for an exclusion under Sec. 74? |
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Definition
| For an award to be excluded it must be made for religious, charitable, scientific, educational, artistic, literary, or civic achievement. The recipient must be selected without action on his or her part, and the recipient may not be required to perform any substantial future service. In addition, the recipient must contribute the proceeds to a charity. |
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Term
| What special rules are applicable to non-degree candidates who receive scholarships? |
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Definition
Non-degree candidates may not exclude scholarships from gross income. |
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