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Tax Glossary
Tax Glossary
Tax & Accounting Glossary (A–Z)
Searchable A–Z glossary. terms showing (out of 1045).
A
a debt instrument is generally
Definitionthe life of the instrument, at which point a payment of the face value is due or the instrument terminates.
a mortgage when
Definitionthe amount paid totals $600 or more.
Abandoned spouse
Definitiona married taxpayer who lives apart from their spouse for the last six months of the year (excluding temporary absences), who files a tax return separate from their spouse, and who maintains a household for a qualifying child. Accelerated death benefits early receipt of life insurance proceeds that are not taxable under certain circumstances, such as the taxpayer is medically certified with an illness that is expected to cause death within 24 months.
Ability To Pay
DefinitionTax principle that ties the burden of taxation to the taxpayer's economic circumstances. Taxation based on "ability to pay" is an alternative to taxation based on benefits or services received.
absorption rules to allocate
Definitionthe indirect costs of productive activities to inventory.
Accelerated Write-Off
DefinitionComputation of an income tax deduction that reduces taxable income by allowing the deduction to be taken earlier than the rules would ordinarily permit. For example, accelerated depreciation allows deductions for the wear and tear of property to be taken over a shorter period than the accepted useful life of the asset.
account belong to this spouse no matter where
Definitionthe funds for the contribution came from.
account or note receivable acquired in
Definitiona business from the sale of services or property.
account to be tax-deferred until
Definitionthe taxpayer withdraws money from the account. Qualified retirement plans employer-sponsored retirement plans that meet government-imposed funding and antidiscrimination requirements.
Accountable plan
Definitionan employer’s reimbursement plan under which employees must submit documentation supporting expenses to receive reimbursement and reimbursements are limited to legitimate business expenses.
Accounting method
Definitionthe procedure for determining the taxable year in which a business recognizes a particular item of income or deduction, thereby dictating the timing of when a taxpayer reports income and deductions.
Accounting period
Definitiona fixed period in which a business reports income and deductions.
Accrual method
Definitiona method of accounting that generally recognizes income in the period earned and recognizes deductions in the period that liabilities are incurred.
Accrued market discount
Definitiona ratable amount of the market discount at the time of purchase (based on the number of days the bond is held over the number of days until maturity when the bond is purchased) that is treated as interest income when a bond with market discount is sold before it matures.
Accumulated adjustments account (AAA)
Definitionan account that reflects the cumulative income or loss for the time the corporation has been an S corporation. Accumulated earnings and profits undistributed earnings and profits from years prior to the current year.
Accumulated earnings tax
Definitiona tax assessed on C corporations that retain earnings without a business reason to do so.
Acquiescence issued after
Definitionthe IRS loses a trial-level or circuit court case when the IRS has decided to follow the court’s adverse ruling in the future. It does not mean that the IRS agrees with the court’s ruling. Instead,
Acquisition indebtedness debt secured by
Definitiona qualified residence that is incurred in acquiring, constructing, or substantially improving the residence but only to the extent that the amount borrowed does not exceed certain borrowing limitations.
Acquisition Value
DefinitionProperty tax concept referring to the value of property when acquired. Acquisition value is embodied in Proposition 13. This is an alternative to the "ad valorem" concept. This term was used by the California Supreme Court in its Amador Valley decision and does not appear in Proposition 13 or related statutes.
Actions on decision
Definitionan IRS pronouncement that explains the background reasoning behind an IRS acquiescence or nonacquiescence.
Active participant in
Definitiona rental activity an individual who owns at least 10 percent of a rental property and participates in the process of making management decisions, such as approving new tenants, deciding on rental terms, and approving repairs and capital expenditures.
actually writing
Definitionthe law instead of interpreting the Code. Because legislative regulations actually represent tax
Ad Valorem
DefinitionSpecial assessment levied for operating purposes by many special districts, particularly water districts.
Ad Valorem Assessment
DefinitionThe assessment is usually levied only on the value of land or land and improvements (not personal property).
Ad valorem taxes taxes based on
Definitionthe value of property.
Additional Medicare tax
Definitiona tax imposed at a rate of .9 percent for salary or wages or net self-employment earnings in excess of $200,000 ($125,000 for married filing separate; $250,000 of combined salary or wages or net self-employment earnings for married filing joint).
additional property
Definitiona party to an exchange might throw in “to boot” to equalize the exchange.
additional tax paid when
Definitionthe tentative minimum tax (based on the alternative minimum tax base) exceeds the
Adequate consideration
Definitiona price paid that is equal in value to the service or property received.
Adjusted basis
Definitionan asset’s carrying value for tax purposes at a given point in time, measured as the initial basis (for example, cost) plus capital improvements less depreciation or amortization. Also called adjusted tax basis. Adjusted gross estate gross estate reduced by administrative expenses, debts of the decedent, losses incurred
Adjusted Gross Income (AGI)
DefinitionTotal gross income reported for income tax purposes, less certain specified deductions if applicable. Typically, California AGI equals federal AGI adjusted for differences in tax treatment of certain types of income (e.g., state income tax refunds, social security income, interest on state and municipal bonds from other states, etc). (See Chapter 2B for complete list of the components of AGI.) According to value. Before Proposition 13, the property tax was considered an ad valorem tax, as it was based on current value of the property instead of its acquisition value. Currently, personal property tax is ad valorem, or based on current value.
Adjusted tax basis
Definitionan asset’s carrying value for tax purposes at a given point in time, measured as the initial basis (for example, cost) plus capital improvements less depreciation or amortization. Adjusted taxable gifts cumulative taxable gifts from previous years other than gifts already included in the gross estate valued at date of gift values. Affiliated group two or more “includable” corporations that are related through common stock ownership
administering
Definitionthe tax law. Revenue procedures have the same authoritative weight as revenue rulings. Revenue rulings second in administrative authoritative weight after regulations. Revenue rulings address the
After-tax rate of return
Definitiona taxpayer’s before-tax rate of return on an investment minus the taxes paid on the
Aggregate approach
Definitiona theory of taxing partnerships that ignores partnerships as entities and taxes partners as if they directly owned partnership net assets.
AGI phase-out, for other qualified dependents claimed as dependents of
Definitionthe taxpayer.
Alimony
Definitiona support payment of cash made to a former spouse. The payment must be made under a written
alimony,
Definitionthe payment must be made when the spouses do not live together, and the payments must cease no
All-inclusive income concept
Definitiona definition of income that says that gross income means all income from whatever source derived.
allocate
Definitiona pro rata share of the remaining basis to each unit of the resource that is extracted or sold during the year.
Allocate as used in
Definitionthe sourcing rules, the process of associating a deduction with a specific item or items of gross income for purposes of computing foreign source taxable income.
Allocation
Definitionthe method of dividing or sourcing nonbusiness income to specific states. Allowance method method used for financial reporting purposes; under this method, bad debt expense is
Also (for income tax footnote purposes),
Definitionthe tax rate computed by dividing a company’s income tax
Alternative minimum tax (AMT)
Definitiona tax on a broader tax base than the base for the “regular” tax; the
Alternative Minimum Tax (AMT)
DefinitionAn additional tax which must be computed by personal income and corporate taxpayers that take advantage of certain tax preferences. If AMT liability exceeds regular tax liability, the excess must be paid in addition to the taxpayer's regular tax liability. The purpose is to ensure that taxpayers that take advantage of special tax preferences pay minimum tax on income receiving preferential treatment. Patterned after the AMT in federal law.
Alternative minimum tax (AMT) base alternative minimum taxable income minus
Definitionthe alternative minimum tax exemption.
Alternative minimum tax (AMT) exemption
Definitiona deduction to determine the alternative minimum tax base that is phased out based on alternative minimum taxable income. Alternative minimum tax adjustments adjustments (positive or negative) to regular taxable income to arrive
Alternative minimum tax system
Definitiona secondary or parallel tax system calculated on an alternative tax base that
Alternative valuation date
Definitionthe date six months after the decedent’s date of death.
Amortization
DefinitionAn accounting procedure used to reduce the value of an intangible asset by periodic charge-offs against income. For tax purposes, amortization is similar to depreciation. Also refers to the principal reduction of an outstanding debt through regular payments of interest and principal.
amortization in
Definitionthe month of purchase and month of disposition.
amount is 92.35 percent of
Definitiona taxpayer’s self-employment income. Net investment income (for determining deductibility of investment interest expense) gross investment income reduced by deductible investment expenses.
amount of
Definitionthe basis increase made by an owner receiving the distribution.
amount of education benefits on
Definitionan annual basis.
amount of income or deduction for
Definitionthe item is different for book and tax purposes.
Amount realized
Definitionthe value of everything received by the seller in a transaction (cash, FMV of other property, and relief of liabilities) less selling costs.
amount “at risk” in
Definitionthe partnership.
amounts to pay for qualified medical and dental expenses for
Definitionthe taxpayer, spouse, and dependents.
and
Definitionthe right to be allocated profits and losses (called a profits interest). Passive activity loss (PAL) limitations tax rules designed to limit taxpayers’ ability to deduct losses from activities in which they don’t materially participate against income from other sources. Passive category income foreign source personal holding company income, such as interest, dividends, rents, royalties, annuities, and gains from sale of certain assets, that is combined in computing the FTC limitation. Passive investment income (PII) royalties, rents, dividends, interest (including tax-exempt interest), annuities,
and eligible to file
Definitiona U.S. consolidated tax return. An affiliated group consists of a parent corporation that
and gains from
Definitionthe sale or exchange of stock or securities.
and received within 180 days of
Definitionthe transfer of the property given up.
and responsibilities in
Definitionthe partnership.
and separately stated items for
Definitionthe year.
and that automatically transfers to
Definitionthe survivor(s) at the death of a co-owner.
and up to
Definitionthe maximum 15 percent rate amount are taxed at 15 percent. The threshold is based on a taxpayer’s filing status and income.
Annotated tax service
Definitiona tax service arranged by code section. For each code section, an annotated service
Annualized income method
Definitiona method for determining a corporation’s required estimated tax payments when
Annuity
Definitiona stream of equal payments over time.
appellate jurisdiction for
Definitiona case.
Applicable credit also known as
Definitionthe unified credit, the amount of current tax on the exemption equivalent; designed to prevent transfer taxation of smaller cumulative transfers.
Applicable exclusion amount
Definitionthe amount of cumulative taxable transfers a taxpayer can make without
Apportion as used in
Definitionthe sourcing rules, the process of calculating the amount of a deduction that is
Apportionment
DefinitionMethod by which California determines how much of a multi-state or multi-national corporation's total net profits are subject to California income taxes. (See Chapter 2D.) An authorization of money from a specific fund to a specific agency or program for expenditures or to incur obligations for a specified purpose and period of time. The amount expended may be less than the amount appropriated.
Appropriation
DefinitionMaximum amount of tax proceeds that may be appropriated in a fiscal year by state or local government under Article XIIIB of the California Constitution (Proposition 4 of 1979). (See Chapter 5.) The article of the California Constitution added by Proposition 13 of 1978.
Appropriations Limit
DefinitionThe article of the California Constitution added by Proposition 4 of 1979 (Appropriations Limit).
are recognized during
Definitionthe built-in gains tax recognition period. The applicable tax rate is 21 percent.
Article Xiiia
DefinitionThe articles of the California Constitution added by Proposition 218 of 1996.
Article Xiiib
DefinitionThe measure against which the property tax rate is applied to compute the tax. Generally it is market value, unless a standard other than market value has been established by the Constitution for real property or by statute for personal property.
Articles of incorporation
Definitiona document, filed by a corporation’s founders with the state, describing the
Articles of organization
Definitiona document, filed by a limited liability company’s founders with certain states, describing the purpose, place of business, and other details of the company.
Articles Xiiic And Xiiid
DefinitionA countywide list of all taxable property. It identifies each property, its owner, and its value for assessment purposes.
as of
Definitionthe end of the year (or one spouse died during the year and the surviving spouse did not remarry) and both spouses agree to jointly file. Married couples filing joint returns combine their income and deductions
assess
Definitiona tax deficiency for a specific tax year. For both amended tax returns filed by a taxpayer and proposed
Assessed Value
DefinitionFor property tax law, the period beginning with a lien date and ending immediately prior to the succeeding lien date. Under current law, the assessment year begins on January 1 and is coterminous with the calendar year.
Assessment Roll
DefinitionA formula for measuring the full time equivalent number of students attending school. Most state aid to schools is based on ADA. An example of an ADA calculation for a regular full-time elementary school is the number of student-days of attendance divided by the number of actual school days.
Assessment Year
DefinitionFor property tax allocation purposes, the amount of property tax revenues received in the prior year (See also 'Increment'.) (For a different usage, see 'Tax Base'.) The full cash value of real property in 1975-76, or in any subsequent year upon a purchase, change in ownership, or new construction. Under Proposition 13, assessed value for property tax purposes may increase by no more than 2% per year.
assets and gains from
Definitionthe sale or exchange of stock or securities (losses do not offset gains).
assets both before and after
Definitionthe issuance of no more than $50,000,000 and with 80 percent of the value of its
assets used in
Definitionthe active conduct of certain qualified trades or businesses.
Assignment of income doctrine
Definitionthe judicial doctrine holding that earned income is taxed to the taxpayer
associated with
Definitiona specific item or items of gross income for purposes of computing foreign source taxable income.
assumption that
Definitionthe assets are sold in the same order in which they are purchased (i.e., first purchased, first sold).
assumption that assets are sold in
Definitionthe reverse order in which they are purchased (i.e., last purchased, first sold).
at
Definitionthe alternative minimum tax base.
At-risk amount
Definitionan investor’s risk of loss in a worst-case scenario. In a partnership, an amount generally equal
At-risk rules tax rules limiting
Definitionthe losses flowing through to partners or S corporation shareholders to their
attributable to
Definitionthe qualified equity for up to five years.
audit adjustment data from
Definitionthe National Research Program. The DIF system then uses these (undisclosed)
authority to enter into
Definitiona tax treaty with another country after receiving the Senate’s advice.
Average Daily Attendance (ADA)
DefinitionFor purposes of income taxes, basis generally means the cost of an asset to the taxpayer acquiring the property. It is used for calculating depreciation and capital gains and losses when the property is ultimately disposed of. Most inherited property is given a basis of its fair market value on the date of inheritance. Property acquired by gift generally has a basis equal to that of the donor.
Average tax rate
Definitiona taxpayer’s average level of taxation on each dollar of taxable income. Specifically, Average tax rate = Total tax Taxable income
B
back to
Definitionthe two previous years to offset taxable income in those years.
Bargain element (of stock options)
Definitionthe difference between the fair market value of the employer’s stock and
Barter clubs organizations that facilitate
Definitionthe exchange of rights to goods and services between members.
Base
DefinitionTax principle that those who receive the benefit of government services should pay for them. Alternative to "ability-to-pay".
Base erosion and anti-abuse tax (BEAT)
Definitiona 10 percent minimum tax imposed on a U.S. corporation’s
base for
Definitionan excise tax typically depends on the quantity purchased rather than a monetary amount. Exclusions or excluded income realized income that is exempted from income taxation.
Base Year Value
DefinitionState revenue agency, responsible for administration of the sales and use tax and other special taxes. The BOE also oversees local administration of the property tax. The Board is directed by five members: The State Controller and four members elected by the voters. The BOE is a quasi-judicial body and serves as the appellate body for income and franchise tax disputes filed with the Franchise Tax Board.
based on
Definitionan estimate of the amount of the bad debts in accounts receivable at year-end.
Basis
Definitiona taxpayer’s unrecovered investment in an asset that provides a reference point for measuring gain or
basis of
Definitionthe asset carries over from the transferor to the transferee.
be allocated
Definitiona loss of more than $250,000 if the partnership assets were sold for fair market value
be different from
Definitionthe place of incorporation.
be discounted below
Definitionthe employer’s cost) and services (up to a 20 percent discount) to employees.
becomes
Definitionan S corporation.
been credited to
Definitionthe taxpayer’s account or if the income is unconditionally available to the taxpayer, the
been disagreement among
Definitionthe circuit courts. For most tax cases, the Supreme Court refuses to hear the case
before
Definitionthe business begins. These costs are generally capitalized and amortized over 180 months, but limited immediate expensing may be available.
Before-tax rate of return
Definitiona taxpayer’s rate of return on an investment before paying taxes on the income from the investment. Beneficiary person for whom trust property is held and administered.
benefits or receive cash compensation in lieu of
Definitionthe benefits.
Benefits Received
DefinitionThe 1955 act that allows a uniform 1.25% sales tax to be imposed by cities and counties. This tax is collected by the BOE and returned to local jurisdictions based on the location of the taxed transaction.
Board Of Equalization (BOE)
DefinitionA tax levied upon a large tax base. Often such a tax is paid by the vast majority of the population. An example is the sales and use tax.
Bond debt instruments issued for
Definitiona period of more than one year with the purpose of raising capital by borrowing.
Bond discount
Definitionthe result of issuing bonds for less than their maturity value.
Bonding Power
DefinitionPersonal property of business that is held for sale or lease. Exempted by the Legislature from property taxation beginning in 1980-81.
Bonus depreciation additional depreciation allowed in
Definitionthe acquisition year for tangible personal property
Book (financial reporting) income
Definitionthe income or loss corporations report on their financial statements using applicable financial accounting standards.
Book equivalent of taxable income
Definitiona company’s pretax income from continuing operations adjusted for permanent differences.
book purposes compared to
Definitionthe amount taken into account for the same item for tax purposes.
Book–tax difference
Definitiona difference in the amount of an income item or deduction item taken into account for
Boot property given or received in
Definitionan otherwise nontaxable transaction such as a like-kind exchange that
Bracket
Definitiona subset (or portion) of the tax base subject to a specific tax rate. Brackets are common to graduated taxes.
Bradley-Burns
DefinitionMeasures inflation in California and is calculated by the California Department of Industrial Relations.
Bright-line test technical rules found in
Definitionthe tax law that provide the taxpayer with objective tests to
Broad-Based Tax
DefinitionReal property, personal property, stocks and bonds and other property held by a taxpayer. Examples of property that are not considered capital assets include copyrights and inventory held for sale.
Built-in gain
Definitionthe difference between the fair market value and tax basis of property owned by an entity when
Built-in gains tax
Definitiona tax levied on S corporations that were formerly C corporations. The tax applies to net
Built-in gains tax recognition period
Definitionthe first five years a corporation operates as an S corporation after
Built-in losses
Definitionthe difference between the fair market value and tax basis of property owned by an entity
Bunching itemized deductions
Definitiona common planning strategy in which a taxpayer pays two years’ worth of
Business activity
Definitiona profit-motivated activity that requires a relatively high level of involvement or effort from the taxpayer to generate income. Business income income derived from business activities.
Business Inventories
DefinitionExpenditures for capital assets such as buildings, roads, airports, land, etc.
business or rental activity in which
Definitionthe taxpayer does not materially participate. Payment liabilities liabilities of accrual method businesses for which economic performance occurs when
business other than
Definitiona specified trade or business.
Business purpose doctrine
Definitionthe judicial doctrine that allows the IRS to challenge and disallow business expenses for transactions with no underlying business motivation. Business tax credits nonrefundable credits designed to provide incentives for taxpayers to hire certain types of individuals or to participate in certain business activities.
business that forms
Definitionthe basis for determining the deductions allowed for foreign-derived intangible income and global low-taxed intangible income.
business. Examples include
Definitiona place of management, a branch, an office, and a factory.
business. When computing
Definitionthe deductibility of investment interest expense, however, capital gains and
businesses deduct bad debt only when
Definitionthe debt becomes wholly or partially worthless. Disability insurance sometimes called sick pay or wage replacement insurance. It pays the insured for wages lost due to injury or disability. Discharge of indebtedness debt forgiveness.
C
C corporation
Definitiona corporate taxpaying entity with income subject to taxation. Such a corporation is termed a
Cafeteria plan
Definitionan employer plan that allows employees to choose benefits from a menu of nontaxable fringe
California Consumer Price Index (CCPI)
DefinitionIncome or profit from the sale of capital assets.
can be used only when
Definitionthe regular tax exceeds the tentative minimum tax.
can take
Definitionthe form of depreciation, amortization, or depletion.
Capital account
Definitionan account reflecting a partner’s share of the equity in a partnership. Capital accounts are maintained using tax accounting methods or other methods of accounting, including GAAP, at the discretion
Capital Asset
DefinitionRepresents an appropriation for any acquisition of land or other real property, major construction, improvements, equipment, designs, plans and specifications, lease purchase agreement, and the request for and exercise of a purchase option.
Capital asset in general,
Definitionan asset other than an asset used in a trade or business or an asset such as an
Capital Expenditures
DefinitionIn cases where a tax benefit from a credit, deduction or other write-off exceeds the allowable amount for a particular year, carryover permits the excess amounts to be preserved and applied against income or tax liability in subsequent tax years.
Capital gain property any asset that would have generated
Definitiona long-term capital gain if the taxpayer had sold the property for its fair market value.
Capital Gains
DefinitionAllowed in federal law for net operating losses and certain credits. Permits net losses in excess of income or credits in excess of tax liability to be "carried back" to earlier tax years, so that tax for those years may be recomputed and refunds may be claimed. Carrybacks are not permitted under California law other than casualty losses from certain designated disaster areas.
capital gains rates provided
Definitionthe stock is retained long enough to satisfy certain holding period requirements.
Capital interest
Definitionan economic right attached to a partnership interest giving a partner the right to receive
Capital Outlay
DefinitionTerm used in Proposition 13. Refers to a transfer of real property. Upon a change in ownership, real property is reassessed to its full cash value as of the date of transfer.
carried forward to reduce taxable income or taxes payable in
Definitiona future year. Tax Court allocation method allocates expenses associated with rental use of the home between rental use and personal use. Property taxes and mortgage interest are allocated to rental use of the home based on the
Carryback
DefinitionDonations to specified nonprofit organizations or activities that taxpayers are permitted to make on their state tax returns. Taxpayers remit the amount of voluntary contributions in addition to amount of tax due or as an application of a refund due on the return. Often called "check-offs".
Carryover
DefinitionSeveral exceptions apply including inter-spousal transfer of a principal residence to a surviving spouse, or certain transfers between parents and children, grandparents and grandchildren, and registered domestic partners.
Carryover basis
Definitionthe basis of an asset the transferee takes in property received in a nontaxable exchange. The
Cash method
Definitionthe method of accounting that recognizes income in the period in which cash,
cash or property in
Definitionthe event the partnership liquidates. A capital interest is synonymous with the liquidation
Cash tax rate
Definitionthe tax rate computed by dividing a company’s taxes paid during the year by its pretax income from continuing operations.
Cashless exercise
Definitiona technique where options are exercised and at least a portion of the shares are sold in
Ceiling limitation that is
Definitionthe maximum amount for adjustments to taxable income (or credits). The amounts
Certainty one of
Definitionthe criteria used to evaluate tax systems. Certainty means taxpayers should be able to determine when, where, and how much tax to pay. Certificates of deposit (CDs) interest-bearing debt instruments offered by banks and savings and loans.
Certificate of limited partnership
Definitiona document limited partnerships must file with the state to be formally
Certificate of organization
Definitiona document, filed by a limited liability company’s founders with certain states,
Change Of Ownership
DefinitionTechnical follow-up bill that often follows a major piece of legislation. Usually deals with erroneous cross-references, chaptering problems, legislative clarification of misinterpretations of the original bill, and other corrections.
Character of income
Definitiona type of income that is treated differently for tax purposes from other types of income. Common income characters (or types of income) include ordinary, capital, and qualified dividend. Charitable contribution limit modified taxable income taxable income for purposes of determining the 10 percent of taxable income deduction limitation for corporate charitable contributions. Computed as
Check-Off Contributions
DefinitionA measure of inflation. Can either refer to the United States Consumer Price Index calculated by the United States Department of Commerce or the California Consumer Price Index (CCPI) calculated by the Department of Industrial Relations.
Child tax credit
Definitiona $2,000 tax credit, subject to an AGI phase-out, for each qualifying child who is under age
circuit (e.g.,
Definitionthe 11th Circuit Court of Appeals only hears cases originating within the 11th Circuit).
circuit courts of appeal: 1 for
Definitionthe Federal Circuit and 12 assigned to hear cases that originate from a specific
Circular 230 regulations issued by
Definitionthe IRS that govern tax practice and apply to all persons practicing
Citator
Definitiona research tool that allows one to check the status of several types of tax authorities. A citator can be
Clean-Up Bill
DefinitionGeneric term for a tax on commodities and transactions where the burden falls on the consumer in the price paid for goods and services, such as a sales tax.
Cliff vesting
Definitiona qualified plan provision allowing for benefits to vest all at once after a specified period of time has passed.
Code and are issued under
Definitionthe Treasury’s general authority to interpret the Code. Interstate commerce business conducted between parties in two or more states. Inventory items (for sale of partnership interest purposes) classic inventory defined as property held for sale
coin,
Definitionan alcoholic beverage, or other similar items held for investment for more than one year.
Collectibles
Definitiona type of capital asset that includes a work of art, a rug or antique, a metal or gem, a stamp or
collecting and remitting
Definitionthe tax; typically sales tax is collected at the point of sale.
Commercial domicile
Definitionthe state where a business is headquartered and directs operations; this location may
Commercial traveler exception
Definitiona statutory exception that exempts nonresidents from U.S. taxation of
common,
Definitionthe most narrow in scope, and the least complex. The IRS typically requests supporting
Common-law states
Definitionthe 41 states that have not adopted community property laws. Community property states nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas,
commonly called
Definitionthe Social Security tax, and the Medical Health Insurance (MHI) tax, known as the Medicare tax.
Community property systems systems in which state laws dictate how
Definitionthe income and property are legally
compensation from services if
Definitionthe individual is in the United States 90 days or less and earns compensation of $3,000 or less.
Complex trust
Definitiona trust that is not required by the trust instrument to distribute income currently.
condemnation, or accident that allows
Definitiona taxpayer to defer realized gain if certain requirements are met.
Consolidated tax return
Definitiona combined U.S. income tax return filed by an affiliated group of corporations.
Consolidations
Definitionthe combining of the assets and liabilities of two or more corporations into a new entity.
Constructive ownership rules that cause stock not owned by
Definitiona taxpayer to be treated as beneficially owned by the taxpayer for purposes of meeting certain stock ownership tests.
Constructive receipt doctrine
Definitionthe judicial doctrine that provides that a taxpayer must recognize income when it is actually or constructively received. Constructive receipt is deemed to have occurred if the income has
Consumer Price Index
DefinitionA tax imposed upon a corporation's right to do business in California. It is measured by a corporation's net earnings, but not imposed based on income.
Consumption Tax
DefinitionAmount that can be subtracted from the actual amount of tax owed, usually in the income tax. Credits represent tax expenditures aimed at benefiting specific groups (e.g., senior credit) or inducing certain behavior (e.g., an investment tax credit).
Continuity of business enterprise (COBE)
Definitiona judicial (now regulatory) requirement that the acquiring
Continuity of interest (COI)
Definitiona judicial (now regulatory) requirement that the transferors of stock in a
contract.
DefinitionThe independent contractor has more control over how and when to do the work than does an employee.
contracts provided to
Definitionthe business; and taxes.
Contribution to capital
Definitiona shareholder’s or other person’s contribution of cash or other property to a
contributions) to contribute to
Definitionthe employee’s account on an after-tax basis. Employees receive qualified
Controlled foreign corporation (CFC)
Definitiona foreign corporation that is more than 50 percent owned by U.S. shareholders.
controversial.
DefinitionAn example of a determination letter is the request by an employer for the IRS to rule that the
Convenience one of
Definitionthe criteria used to evaluate tax systems. Convenience means a tax system should be
converting from
Definitiona C corporation.
Corporate Franchise Tax
DefinitionAmounts subtracted from adjusted gross income to yield the taxable income upon which income tax liability is based.
Corporation business entity recognized as
Definitiona separate entity from its owners under state law.
corporation continue
Definitionthe target corporation’s historic business or continue to use a “significant” portion of the target corporation’s historic business assets to be tax-deferred.
corporation without receipt of
Definitionan additional equity interest in the corporation.
corporation. Eligible employees may make
Definitionan inclusion deferral election that may defer the income
corporation. No new entity is created in
Definitionthe transaction.
corporations is subject to double taxation.
DefinitionThe first level of tax is at the corporate level and the second level
corporations recognize
Definitionthe same amount of income or deductions for the items on their financial statements as they recognize on their tax returns.
corporation’s last taxable year as
Definitionan S corporation and generally ends on the later of (a) one year after the
Corpus
Definitionthe principal or property transferred to fund a trust or accumulated in the trust.
Correspondence examination
Definitionan IRS audit conducted by mail and generally limited to one or two items on
Cost depletion
Definitionthe method of recovering the cost of a natural resource that allows a taxpayer to
cost of
Definitionthe underlying property. Revenue procedures second in administrative authoritative weight after regulations. Revenue procedures are much more detailed than regulations and explain in greater detail IRS practice and procedures in
Cost recovery
Definitionthe method by which a company expenses the cost of acquiring capital assets. Cost recovery
costs to maintain
Definitiona household for a parent who qualifies as the taxpayer’s dependent. Health and accident insurance fringe benefits often offered through employers, including health insurance, group-term life insurance, and accidental death and dismemberment policies.
Court is
Definitionthe only court that allows tax cases to be heard before the taxpayer pays the disputed liability and the only court with a small claims division (hearing claims involving disputed liabilities of $50,000 or less).
Covenant not to compete
Definitiona contractual promise to refrain from conducting business or professional activities similar to those of another party. Criminal penalties penalties commonly charged in tax evasion cases (i.e., willful intent to defraud the
Credit
DefinitionPostponement of paying taxes because of specific provisions in the tax law. For example, the Senior Citizens Property Tax Postponement Program allows low and moderate income senior citizens to defer payment of property taxes until they sell their home, die, or move.
Current earnings and profits
Definitiona year-to-year calculation maintained by a corporation to determine if a
Current gifts gifts completed during
Definitionthe calendar year that are not already exempted from the gift tax.
Current income tax expense (benefit)
Definitionthe amount of taxes paid or payable (refundable) in the current year.
Current tax liability (asset)
Definitionthe amount of taxes payable (refundable) in the current year.
D
days for
Definitionthe property to the total days the property was used during the year. Itemized deductions certain types of expenditures that Congress allows taxpayers to deduct as from AGI deductions. Joint tenancy joint ownership of property by two or more people in equal proportions. Joint tenancy with right of survivorship title to property that provides the co-owners with equal rights to it
De minimis fringe benefits
Definitiona nontaxable fringe benefit that allows employees to receive occasional or incidental benefits tax-free.
Debt basis
Definitionthe outstanding principal of direct loans from an S corporation shareholder to the S corporation.
debt basis. When
Definitionthe debt basis has been reduced by losses, it is restored by income/gain allocations. Deceased spousal unused exclusion (DSUE) amount of unused applicable credit from predeceased spouse. Deductible temporary differences book–tax difference that will result in tax deductible amounts in future
debts, and distribute its remaining assets to
Definitionthe partners in exchange for their partnership interests. Listed property business assets that are often used for personal purposes. Depreciation on listed property is
debts, and distributing
Definitionthe remaining assets to the rightful heirs.
deducted at ordinary tax rates. This gain is taxable at
Definitiona maximum 25 percent capital gains rate.
deductible as
Definitionan ordinary and necessary business expense if paid by an employee (e.g., reimbursement for professional dues).
deducting
Definitionthe dividends-received deduction, the net operating loss deduction, and capital loss carrybacks.
deduction because
Definitionthe interest of the spouse terminates when some event occurs or after a specified amount
deduction depends on
Definitionthe taxpayer’s filing status.
deduction, and
Definitionthe charitable deduction.
Deductions (AGI)
DefinitionIn income tax law, a relative of the taxpayer (child, stepchild, parent, stepparent, sibling, etc.) for whom the taxpayer provided over half of his or her support during a calendar year.
Deductions above
Definitionthe line for AGI deductions or deductions subtracted from gross income to determine AGI.
Deductions below
Definitionthe line from AGI deductions or deductions subtracted from AGI to calculate taxable income. Deferral items, deferred income, or deferrals realized income that will be taxed as income in a subsequent year.
defer recognizing realized income until
Definitiona subsequent period. Nonrecourse liability liability for which no partner bears any economic risk of loss. Mortgages on real
Deferral
DefinitionCan also include a non-relative who meets the support rule and who lives in the taxpayer's home.
Deferred like-kind exchange
Definitiona like-kind exchange where the taxpayer transfers like-kind property before
Deferred tax asset
Definitionthe expected future tax benefit attributable to deductible temporary differences and carryforwards.
Deferred tax liability
Definitionthe expected future tax obligation attributable to taxable temporary differences.
Defined benefit plans employer-provided qualified plans that spell out
Definitionthe specific benefit employees will receive on retirement.
Defined contribution plans employer-provided qualified plans that specify
Definitionthe maximum annual contributions
Department Of Finance (DOF)
DefinitionRevenue designated by statute or the Constitution for a specific and restricted purpose.
Department to create regulations to address
Definitionan issue in an area of law. In these instances, the Treasury is
Dependent
DefinitionDeductions permitted to owners or certain lessees of natural resources (such as oil or gas wells or timber property) to recover the costs of the resource as it is extracted, harvested or otherwise wasted or diminished. Comparable to depreciation for real or personal property or amortization of intangibles.
dependent at
Definitiona postsecondary institution of higher education. Qualified education loans loans whose proceeds are used to pay qualified education expenses.
Depletion
DefinitionA decrease in the value of a capital asset due to wear, use, action of the elements, inadequacy, accident, or obsolescence. An income tax deduction for depreciation allows a write-off for a capital expenditure that roughly coincides with the decrease in value of the asset over time.
Depreciation
DefinitionGeneric term for a tax that is not easily shifted or passed on to some other entity by the entity on whom it is levied; for example, the personal income tax.
depreciation during
Definitionthe month when the property was placed in service and in the month it was disposed of.
Depreciation recapture
Definitionthe conversion of §1231 gain into ordinary income on a sale (or exchange) based on
describing
Definitionthe purpose, place of business, and other details of the company.
designed to facilitate
Definitionthe collection of tax revenues without undue hardship on the taxpayer or the government.
Determination letters rulings requested by
Definitionthe taxpayer, issued by local IRS directors, and generally not
determine
Definitionthe tax consequences of a transaction.
determine or fix
Definitionthe right to receive the income or liability to make the payments and (2) the amount of the income or expense can be determined with reasonable accuracy.
DIF (Discriminant Function) system
Definitionthe DIF system assigns a score to each tax return that represents the
Direct conversion when
Definitiona taxpayer receives noncash property rather than a cash payment as a replacement
Direct Tax
DefinitionThe DOF serves as the financial branch of the Governor's administration. The DOF prepares the Governor's proposed budget and publishes other budget documents, provides formal revenue estimates, and expresses the Governor's position on fiscal matters before the Legislature.
Discount factor
Definitionthe factor based on the taxpayer’s rate of return that is used to determine the present value of future cash inflows (e.g., tax savings) and outflows (taxes paid).
Disproportionate distributions partnership distributions that change
Definitionthe partners’ relative ownership of hot assets.
Disqualifying disposition
Definitionthe sale of stock acquired using incentive stock options prior to satisfying certain
Distributable net income (DNI)
Definitionthe maximum amount of the distribution deduction by fiduciaries and the maximum aggregate amount of gross income reportable by beneficiaries. Distribution deduction deduction by fiduciaries for distributions of income to beneficiaries that operates to
distribution from
Definitionan entity taxed as a partnership to its owners.
distribution is
Definitiona dividend. Earnings and profits are computed for the current year by adjusting taxable income to make it more closely resemble economic income.
distributions from
Definitionthe account tax free.
Distributions generally fall into
Definitionthe category of operating distributions when the owners continue their
Dividend
Definitiona distribution to shareholders of money or property from the corporation’s earnings and profits
dividends subject to
Definitionthe preferential tax rate are not treated as investment income unless the taxpayer elects to have this income taxed at ordinary tax rates. Investment interest expense interest paid on borrowings or loans that are used to fund portfolio investments.
dividends, rents, royalties, and gains from
Definitionthe sale of certain foreign property.
Dividends-received deduction (DRD)
Definitiona corporate deduction for part or all of a dividend received from another corporation.
dividends-received deduction. Computed as
Definitionthe dividend-receiving corporation’s taxable income before
Document perfection program
Definitiona program under which all tax returns are checked for mathematical and tax calculation errors.
documentation for one or more items on
Definitionthe taxpayer’s return (e.g., documentation of charitable contributions deducted).
Donee person receiving
Definitiona gift.
donees) to prevent
Definitionthe taxation of relatively small gifts ($17,000 per donee per year currently).
Donor person making
Definitiona gift.
Double taxation
Definitionthe tax burden when an entity’s income is subject to two levels of tax. Income of C
DRD modified taxable income taxable income for purposes of applying
Definitionthe taxable income limitation for the
due to evolving interpretations of
Definitionthe tax law over time, it decides to overturn an earlier decision) and (b) the
during
Definitionthe year but not both. Permanent differences do not reverse over time, so over the long run, the total
Dwelling unit property that provides
Definitiona place suitable for people to occupy (live and sleep).
Dynamic forecasting
Definitionthe process of forecasting tax revenues that incorporates into the forecast how
E
each successive bracket is taxed at
Definitiona different (gradually higher or gradually lower) percentage rate.
Earmarked Funds
DefinitionIncludes wages, salaries, and fees for services rendered. In most cases, does not include distribution of profits, such as dividends, or earnings on an investment, such as interest.
Earmarked tax
Definitiona tax assessed for a specific purpose (e.g., for education). Earned income compensation and other forms of income received for providing goods or services in the ordinary course of business.
Earned Income
DefinitionThe funds created to receive property tax revenues redirected from cities, counties, and special districts to schools and community college districts. The permanent redirection of property taxes reduces the state's Proposition 98 funding obligation to K-14 school districts. The revenue loss to local govern ments is mitigated by receipt of a half-cent sales tax for public safety purposes.
Earned income credit
Definitiona refundable credit designed to help offset the effect of employment taxes on compensation paid to low-income taxpayers and to encourage lower-income taxpayers to seek employment.
Earnings and profits (E&P)
Definitiona measure of a corporation’s earnings that is similar to its economic earnings.
earnings from self-employment. For self-employed taxpayers,
Definitionthe terms “self-employment tax” and “FICA tax” are synonymous.
Economic income tax nexus
Definitionthe concept that businesses without a physical presence in the state may
Economic performance test
Definitionthe requirement that must be met for an accrual method taxpayer to deduct an
Economy one of
Definitionthe criteria used to evaluate tax systems. Economy means a tax system should minimize its compliance and administration costs.
Educational assistance benefits
Definitiona nontaxable fringe benefit that allows an employer to provide a certain
Educational Revenue Augmentation Fund (ERAF)
DefinitionPercentage of market value, income, or other tax base that the tax liability represents. Often differs from the nominal tax rate due to progressive tax rates.
Effective tax rate
Definitionthe taxpayer’s average rate of taxation on each dollar of total income (taxable and nontaxable income). Specifically, Effective tax rate = Total tax Total income
Effective Tax Rate
DefinitionAs applied to taxes, the degree to which growth in revenue from a tax corresponds to changes in income.
Effectively connected income (ECI) net income that results from
Definitionthe conduct of a U.S. trade or business by a nonresident.
Elasticity
DefinitionState agency that administers unemployment insurance and disability taxes and personal income tax withholding.
eliminate
Definitionthe potential for double taxation of fiduciary income.
Employee
Definitiona person who is hired to provide services to a company on a regular basis in exchange for compensation and who does not provide these services as part of an independent business.
employee spouses or dependents in
Definitionthe form of meals or lodging if provided on the employer’s premises and
employees to defer compensation to
Definitiona future period.
employers and/or employees may contribute to
Definitionthe plan.
Employers cannot deduct
Definitionthe bargain element as compensation expense.
employers until
Definitionthe selling restrictions lapse.
Employment Development Department (EDD)
DefinitionFairness or justice. It also refers to the value of property minus the liens and other claims against the property that offset its value. If the claims against a property exceeds its value, this is described as "negative equity".
Employment taxes taxes consisting of
Definitionthe Old Age, Survivors, and Disability Insurance (OASDI) tax,
Enacted tax rate
Definitionthe statutory tax rate that will apply in the current or a future period.
Entity approach
Definitiona theory of taxing partnerships that treats partnerships as entities separate from partners.
entity in
Definitiona manner out of proportion with the owners’ interests in the entity. Special allocations can be made by entities treated as partnerships for federal income tax purposes.
Equity
DefinitionGeneric term for a levy on the right to transfer property upon the death of the owner. Once the value of the estate is determined, a tax rate is applied to this base.
Equity one of
Definitionthe criteria used to evaluate a tax system. A tax system is considered fair or equitable if the tax
establish income tax nexus in
Definitionthe state through an economic presence there.
Estate fiduciary legal entity that comes into existence upon
Definitiona person’s death and is empowered by the
Estate tax
Definitionthe tax paid for an estate.
Estate Tax
DefinitionGeneric term for a levy on the manufacture, sale, or use of a particular commodity or service, for example, liquor, cigarettes, or telephone services. Excise taxes are levied on a per-unit basis (e.g., per gallon, per pack, per minute).
estimate or determine
Definitionthe number of units that remain in the resource at the beginning of the year and
Estimated tax payments quarterly tax payments that
Definitiona taxpayer makes to the government if the tax
evasion falls outside
Definitionthe confines of legal tax avoidance.
Ex-dividend date
Definitionthe relevant date for determining who receives a dividend from a stock. Anyone purchasing
examinations are generally
Definitionthe broadest in scope and most complex of the three audit types. They can last many months to multiple years and generally are limited to business returns and the most complex individual returns. Filing status filing status places taxpayers into one of five categories (married filing jointly, married filing separately, qualifying surviving spouse, head of household, and single) by marital status and family situation
exceeding
Definitionthe applicable credit. Previously called the exemption equivalent, the text refers to this term as the exclusion amount.
Excess business loss excess of aggregate business deductions for
Definitionthe year over aggregate business gross
Excess net passive income tax
Definitiona tax levied on an S corporation that has accumulated earnings and profits
excess of
Definitionthe inventory basis under the LIFO method in its final tax year as a C corporation before it
exchange for
Definitionan award under a share-based payment arrangement (ASC Topic 718, Glossary). Research and experimentation (R&E) costs expenses for research including costs of research laboratories (salaries, materials, and other related expenses). Taxpayers amortize research and development costs over not
Excise Tax
DefinitionThe part of a tax base that is excluded by law when computing the tax. For example, Social Security income is an exclusion for state income tax purposes.
Excise taxes taxes levied on
Definitionthe retail sale of particular products. They differ from other taxes in that the tax
Exclusion
DefinitionStatus of specified people, property, institutions, or sources of income or wealth not subject to taxation.
Executor
Definitionthe person who takes responsibility for collecting the assets of the decedent, paying the decedent’s
Exemptions
DefinitionDegree to which a state's income tax base and computation corresponds to federal income tax laws. California utilizes a process of selective federal conformity.
Exercise date
Definitionthe date employees use their stock options to acquire employer stock at a discounted price.
Exercise price
Definitionthe price at which holders of stock options may purchase stock in the corporation issuing the option.
expense currently.
DefinitionThe specific event that satisfies the economic performance test varies based on the type of expense. Economic substance doctrine judicially based doctrine that requires transactions to meaningfully change a
Explicit taxes taxes directly imposed by
Definitiona government.
expressed in
Definitionan hourly, daily, or piecework rate.
F
Face value
Definitiona specified final amount paid to the owner of a coupon bond on the date of maturity. The face
Facts and circumstances test
Definitiona test used to make a subjective determination such as whether the amount of
Family limited partnership
Definitiona partnership designed to save estate taxes by dividing a family business into various ownership interests representing control of operations and future income and appreciation of the assets.
Favorable book–tax difference
Definitiona book–tax difference that results in a subtraction from book income in determining taxable income.
Federal Conformity
DefinitionDesignated committee in each house of the California Legislature that hears any bill with a fiscal impact on the state. In both the Assembly and the Senate, this committee is the Appropriations Committee.
Federal short-term interest rate
Definitionthe quarterly interest rate used to determine the interest charged for tax underpayments (federal short-term rate plus 3 percent). Federal/state adjustments amounts added to or subtracted from federal taxable income when firms compute
FICA taxes FICA (Federal Insurance Contributions Act) taxes is
Definitiona term used to denote both the Social
Fiduciary
Definitiona person or legal entity that takes possession of property for the benefit of beneficiaries.
Fiduciary duty
Definitiona requirement that a fiduciary act in an objective and impartial manner and not favor one beneficiary over another.
Field examination
Definitionthe least common audit. The IRS conducts these audits at the taxpayer’s place of business
First-in, first-out (FIFO) method
Definitionan accounting method that values the cost of assets sold under the
Fiscal Committee
DefinitionTwelve-month period for budgeting, accounting or tax collection purposes. May differ from calendar year. The state and local governments' fiscal year is July 1 to June 30. The federal fiscal year is October 1 to September 30.
Fiscal year
Definitiona year that ends on the last day of a month other than December. Fixed and determinable, annual or periodic (FDAP) income U.S. source passive income earned by a nonresident.
Fiscal Year
DefinitionA special privilege extended by the government to a private enterprise. The corporate franchise tax is levied on the franchise for the privilege of doing business in California and is measured by net income.
Flat tax
Definitiona tax in which a single tax rate is applied throughout the tax base.
Flexible spending accounts (FSA)
Definitiona plan that allows employees to contribute before-tax dollars that may be used for unreimbursed medical expenses or dependent care.
Flipping
Definitiona term used to describe the real estate investment practice of acquiring a home, repairing or
Floor limitation
Definitiona minimum amount that an expenditure (or credit or other adjustment to taxable income) must meet before any amount is allowed. Flow-through entities legal entities, like partnerships, limited liability companies, and S corporations, that do not pay income tax. Income and losses from flow-through entities are allocated to their owners. For AGI deductions deductions that are subtracted from gross income to determine AGI.
For
Definitionthe requesting taxpayer, a private letter ruling has very high authority. For all other taxpayers, private letter rulings have little authoritative weight. Private nonoperating foundations privately sponsored foundations that disburse funds to other charities. Private operating foundations privately sponsored foundations that actually fund and conduct charitable activities.
for property damaged or destroyed in
Definitionan involuntary conversion. Direct write-off method required method for deducting bad debts for tax purposes. Under this method,
Foreign base company income
Definitionthe sum of CFC’s foreign personal holding company income, foreign base company sales income, and foreign base company services income.
Foreign base company sales income gross profit from
Definitionthe sale of personal property by (to) a U.S. corporation
foreign branch
Definitionan unincorporated division of a U.S. corporation located outside the United States.
Foreign personal holding company income
Definitiona category of foreign source passive income that includes interest,
Foreign tax credit (FTC)
Definitiona credit for income taxes paid to a foreign jurisdiction.
Foreign tax credit limitation
Definitionthe limit put on the use of creditable foreign taxes for the current year. Foreign-derived intangible income (FDII) net income from certain export sales, services, and licensing of
Form 1065
Definitionthe form partnerships file annually with the IRS to report partnership ordinary income (loss)
Form 1098
Definitionthe form used by taxpayers to report the annual amount of interest and related expenses paid on
Form 1120-S
Definitionthe form S corporations file annually with the IRS to report S corporation ordinary income
Form 2553
Definitionthe form filed to elect S corporation status.
Form 7004
Definitionthe form C corporations, partnerships, and S corporations file to receive an automatic extension to file their annual tax return.
Form W-2
Definitiona form filed by the employer for each employee detailing the income, Social Security, and Medicare wages and taxes withheld. Additionally, state income, state taxes withheld, dependent care benefits, and many other tax-related items are reported.
Form W-4
Definitiona form used by a taxpayer to supply her employer with the information necessary to determine the amount of tax to withhold from each paycheck.
fraction thereof) that
Definitionthe tax is not paid.
Franchise
DefinitionState agency responsible for administering the personal income and corporation tax laws.
Franchise Tax Board (FTB)
DefinitionThe three Board members include the State Controller, the Chair of the Board of Equalization, and the Director of the Department of Finance.
Fringe benefits noncash benefits provided to
Definitionan employee as a form of compensation. As a general rule, fringe benefits are taxable. However, certain fringe benefits are excluded from gross income. From AGI deductions deductions subtracted from AGI to calculate taxable income.
from options exercised as ordinary income in
Definitionthe tax year options are exercised. Correspondingly, employers
from years in which it operated as
Definitiona C corporation if the corporation reports excess net passive income. Exchange traded funds (ETFs) diversified portfolios of securities owned and managed by a regulated investment company similar to mutual funds except they are traded on exchanges and the shares trade
FTC basket
Definitiona category of income that requires a separate FTC limitation computation.
Full Cash Value
DefinitionThe highest amount a willing and knowledgeable seller of a property could obtain from a willing and knowledgeable buyer, neither being under any compulsion to buy or sell. Same as "market value" or "fair market value".
Full-month convention
Definitiona convention that allows owners of intangibles to deduct an entire month’s
funds in
Definitionthe account to pay the property taxes when the taxes are due.
Future interest
Definitionthe right to receive property in the future. GAAP capital accounts partners’ capital accounts maintained using generally accepted accounting principles (GAAP). General category income foreign source income that is not considered passive category income for foreign
G
General partnership (GP)
Definitiona partnership with partners who all have unlimited liability with respect to the
generally up to two weeks
Definitiona year, without creating nexus.
generated for
Definitiona completed transaction. Temporary book–tax differences book–tax differences that reverse over time such that, over the long term,
Generation-skipping tax (GST) supplemental transfer tax designed to prevent
Definitionthe avoidance of estate and
Gift
Definitiona transfer of property where no, or inadequate, consideration is paid for the property.
Gift tax
Definitionthe tax paid on a gift.
gift taxes through transfers that skip
Definitiona generation of recipients.
Global intangible low-taxed income (GILTI)
Definitiona new category of subpart F income added by the Tax Cuts and
Golsen rule
Definitionthe rule that states that the U.S. Tax Court will abide by the rulings of the circuit court that has
government). They are imposed only after normal due process, including
Definitiona trial. Compared to civil cases, the
Graded vesting
Definitiona qualified plan rule that requires an increasing percentage of plan benefits to vest with each additional year of employment.
Graduated taxes taxes in which
Definitionthe tax base is divided into a series of monetary amounts, or brackets, where
Grant date
Definitionthe date on which employees receive stock options to acquire employer stock at a specified price.
Grantor person creating
Definitiona trust.
Gross estate property owned by
Definitionthe decedent at death and certain property transfers taking effect at death. Gross income realized income minus excluded and deferred income.
Gross Income
DefinitionAll sources of income except exempt income. Gross Income is the starting point for computing taxable income prior to adjustments and deductions.
Gross receipts (for S corporations)
Definitionthe total amount of revenues (including passive investment income)
Gross receipts test determines if
Definitiona business qualifies as a “small” business under an annual gross receipts test
gross tax liability. Any credit not used in
Definitionthe current year is lost.
Group-term life insurance term life insurance provided by
Definitionan employer to a group of employees. Guaranteed payments payments made to partners or LLC members that are guaranteed because they are not contingent on partnership profits or losses. They are economically similar to shareholder salary payments.
H
Half-year convention
Definitiona depreciation convention that allows owners of tangible personal property to take onehalf of a year’s worth of depreciation in the year of purchase and in the year of disposition regardless of when the asset was actually placed in service or sold.
have
Definitionan obligation to repay the amount).
Head Of Household
DefinitionAn unmarried individual whose home is the principal place of abode of a son, stepson, daughter, stepdaughter, father, mother or any other dependent person for whom a dependent credit may be claimed. A head of household may also be someone who maintains any household as the principal place of abode for a father or mother provided that such parent qualifies a the taxpayer's dependent.
Head of household one of five primary filing statuses.
DefinitionA taxpayer may file as head of household if they are
Health savings accounts accounts that allow individuals covered by
Definitiona high-deductible plan to set aside
hear
Definitionthe case. The 90-day letter is also known as the statutory notice of deficiency.
Heirs persons who inherit property from
Definitionthe deceased.
holding period requirements. Failing to satisfy
Definitionthe holding period requirements converts the options into nonqualified stock options. Disregarded entities unincorporated entity with one owner that is considered to be the same entity as the owner. Disregarded entities (international tax) entities with one owner that are treated as flow-through entities for U.S. income tax purposes.
Home office deductions deductions relating to
Definitionthe use of an office in the home. A taxpayer must meet strict
Homeowners' Exemption
DefinitionA constitutionally provided property tax exemption for homeowners. The exemption reduces the assessed value of a principal residence by $7,000 and in doing so reduces the property tax liabilities of most homeowners by approximately $70 per year.
Horizontal equity one of
Definitionthe dimensions of equity. Horizontal equity is achieved if taxpayers in similar
Hybrid entity
Definitionan entity for which an election is available to choose the entity’s tax status for U.S. tax purposes.
I
if its average annual gross receipts for
Definitionthe three prior taxable years does not exceed a threshold that is
ignoring how taxpayers may alter their activities in response to
Definitiona tax law change.
immediately after
Definitionthe transfer. Substantially appreciated inventory (for partnership disproportionate distributions purposes) inventory with a fair market value that exceeds its basis by more than 120 percent.
immediately sells
Definitionthe stock received through the option exercise.
Impact
DefinitionThe individual or business firm with the legal liability to initially pay a tax, whether or not it actually bears the final burden. (See also 'Incidence'.
Impermissible accounting method
Definitionan accounting method prohibited by tax laws.
Implicit taxes indirect taxes that result from
Definitiona tax advantage the government grants to certain transactions to satisfy social, economic, or other objectives. Implicit taxes are defined as the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status.
Imputed income income from
Definitionan economic benefit the taxpayer receives indirectly rather than directly. The
in excess of
Definitionthe ceiling are either lost or carried to another tax year.
In-Lieu Tax
DefinitionChanges in the liability associated with one tax that affect the liability associated with another tax (e.g., a reduction in property taxes will likely increase income taxes, because itemized deductions for property taxes will be reduced).
Inbound transaction
Definitiona transaction conducted by a foreign person that is subject to U.S. taxation.
Incentive stock options (ISO)
Definitiona type of stock option that allows employees to defer the bargain element for
Incidence
DefinitionIndividuals or groups that bear the actual burden of a tax.
includes
Definitionthe code section; a listing of the code section history; copies of congressional committee reports
Income
DefinitionMoney or other consideration received during a given period by an individual, corporation, or other entity for labor or services or from property, investments, or other form of compensation.
income and there are no restrictions on
Definitionthe taxpayer’s use of the income (for example, the taxpayer does not
Income effect one of
Definitionthe two basic responses that a taxpayer may have when taxes increase. The income effect predicts that when taxpayers are taxed more (e.g., tax rate increases from 25 to 28 percent), they will
income from
Definitionthe investment. The formula for an after-tax rate of return that is taxed annually is the before-tax rate of return × (1 − marginal tax rate) [i.e., r = R × (1 − t)]. A taxpayer’s after-tax rate of return on an investment held for more than one tax period is r = (FV/I)
income in computing
Definitionthe foreign tax credit limitation.
income or gain of
Definitionan individual taxpayer plus a threshold amount depending on filing status. Excess net passive income net passive investment income × passive investment income in excess of
Income tax
Definitiona tax in which the tax base is income. Income taxes are imposed by the federal government and by most states.
Income Tax
DefinitionA tax levied on the income of individuals and/or corporations; may be applied to gross (total) income or net income (gross income less deductions for certain expenses).
Income tax nexus
Definitionthe connection between a business and a tax jurisdiction sufficient to subject the business
income tax provision refers to
Definitionthe income tax expense or (benefit) reported on a company’s financial
income within
Definitiona specific range. The tables differ by filing status and reflect tax rates that increase with taxable income.
increases. As
Definitionthe tax base increases, the taxes paid increase, but the marginal tax rate decreases.
Increment
DefinitionFor local property tax allocation purposes, the amount of property tax revenue generated by growth in assessed valuation from one year to the next. (See also 'Base' for another usage, see 'Tax Increment Financing'.) Method by which tax rates, brackets, exemptions or benefits are automatically adjusted for inflation.
Independent contractor
Definitiona person who provides services to another entity, usually under terms specified in a
indexed for inflation. For purposes of
Definitionthe test, includes total sales (net of returns and allowances but not cost of goods sold), amounts received for services, and income from investments (including tax-exempt interest).
Indexing
DefinitionAn increase in the price level or, conversely, a decline in the purchasing power of money.
Indirect conversion
Definitionthe receipt of money or other property as a replacement for property that was destroyed
Individual retirement account (IRA)
Definitiona tax-advantaged account in which individuals who have earned income can save for retirement.
Individuals are allowed
Definitionan itemized deduction for qualified investment interest paid during the year.
individuals.
DefinitionThe Medicare tax rate for employees and employers is 1.45 percent on salary or wages. An additional Medicare tax of .9 percent is assessed on employees (not employers) on salary or wages in excess of $200,000 ($125,000 for married filing separate; $250,000 of combined salary or wages for married filing
Inflation
DefinitionGeneric term for a tax levied upon the value of property that individual beneficiaries receive from an estate of a deceased person. The voters of California repealed the State Inheritance Tax in June 1982. (See also 'Pickup Tax' and 'Estate Tax'.) Tax levied in place of another tax or group of taxes. May refer to provisions sheltering a class of taxpayers from other taxes. For example, the Constitution provides that the California on insurers tax is imposed in-lieu of other state taxes on insurers and their property.
Information matching program
Definitiona program that compares the taxpayer’s tax return to information submitted
Inheritance
Definitiona transfer of property when the owner is deceased (the transfer is made by the decedent’s estate).
Inheritance Tax
DefinitionAssets that cannot be perceived by the senses, such as the goodwill of a business, customer base, or the workforce of a business.
Initial public offering (IPO)
Definitionthe first sale of stock by a company to the public.
Inside basis
Definitionthe tax basis of an entity’s assets and liabilities.
installment based on their taxable income from
Definitionthe first nine months of the year.
Installment sales
Definitiona sale for which the taxpayer receives payment in more than one period.
Intangible Property
DefinitionOne personal income tax return filed by both members of a married couple.
intangibles that is eligible for
Definitiona 37.5 percent deduction by U.S. corporations.
Inter vivos transfers gifts made by
Definitiona donor during their lifetime.
Interaction
DefinitionProcedure by which a city, county or special district transfers functions or changes boundaries; by which a new local agency forms; or by which two or more local agencies consolidate. Jurisdictional changes may result in changes in the allocation of property tax revenues.
interests in
Definitionthe entity after the distribution.
Internal Revenue Code of 1986
Definitionthe codified tax laws of the United States. Although the Code is frequently
Interpretative regulations
Definitionthe most common regulations; they represent the Treasury’s interpretation of the
into
Definitiona tax-exempt transfer by dividing it into multiple inter vivos gifts spread over several periods or donees.
Investment activity
Definitiona profit-seeking activity that is intermittent or occasional in frequency, including the
investor can earn
Definitiona 5 percent after-tax return, $1 invested today should be worth $1.05 in one year. Hence, $1 today is equivalent to $1.05 in one year.
Involuntary conversion
Definitiona direct or indirect conversion of property through natural disaster, government
involuntary conversion. It must be of
Definitiona similar or related use to the original property even if the replacement property is real property (e.g., rental real estate for rental real estate).
IRS allocation method allocates expenses associated with rental use of
Definitionthe home between rental use and
is based on
Definitionthe taxpayer’s ability to pay; taxpayers with a greater ability to pay tax pay more tax.
issued by Congress), judicial branch (i.e., rulings by
Definitionthe U.S. district courts, U.S. Tax Court, U.S. Court of Federal Claims, U.S. circuit courts of appeals, or U.S. Supreme Court), or executive/administrative branch (i.e., Treasury or IRS pronouncements).
issues for
Definitionthe taxpayer. They are common for proposed transactions with potentially large tax implications.
it simply means that
Definitionthe IRS will no longer litigate this issue.
itemized expenses in one year to exceed
Definitionthe standard deduction in that year.
items in §751.
DefinitionThe §751(a) inventory items are defined in §751(d) to include all inventory items. The §751(b) definition includes only substantially appreciated inventory.
J
Jobs Act that relates to “high-return” income earned by
Definitiona U.S. corporation’s CFC and subject to a low foreign tax rate.
Joint Return
DefinitionThe imposition or collection of a tax. Also may refer to the amount of tax imposed.
joint). Self-employed taxpayers pay both
Definitionthe employee and employer Medicare tax and additional Medicare tax.
Jurisdictional Change
DefinitionA tax on the right to do something, such as the sale of liquor, hunting, marriage license, or the right to operate a business.
jurisdiction’s tax system. Also,
Definitionthe connection that is required to exist between a jurisdiction and a potential
K
Kiddie tax
Definitiona tax imposed at parents’ marginal tax rate on a child’s unearned income.
L
last S corporation day or (b)
Definitionthe due date for filing the return for the last year as an S corporation (including extensions).
Last will and testament
Definitionthe document that directs the transfer of ownership of the decedent’s assets to the heirs.
Last-in, first-out (LIFO) method
Definitionan accounting method that values the cost of assets sold under the
Late filing penalty
Definitiona penalty assessed if a taxpayer does not file a tax return by the required date (the original due date plus extension).
Late payment penalty
Definitiona tax penalty equal to .5 percent of the amount of tax owed for each month (or
later than when
Definitionthe recipient dies. All-events test requires that income or expenses are recognized when (1) all events have occurred that
law instead of
Definitionan interpretation of tax law, legislative regulations have more authoritative weight than interpretative and procedural regulations.
Least aggregate deferral
Definitionan approach to determine a partnership’s required year-end if a majority of the
Legislative grace
Definitionthe concept that taxpayers receive certain tax benefits only because Congress writes laws
Legislative regulations
Definitionthe rarest type of regulation, issued when Congress specifically directs the Treasury
lender for services or for
Definitiona lower interest rate. Portfolio investments investments producing dividends, interest, royalties, annuities, or capital gains.
less than 60 months from
Definitionthe time benefits are first derived from the research.
Levy
DefinitionA claim on property to satisfy a debt. Some taxes result in a lien against property.
liabilities of
Definitionthe entity.
liability is expected to persist in
Definitionthe future and either it is not material or a current deduction better matches revenue.
License Tax
DefinitionThe time when the taxes become a lien on property and the date on which property is valued for tax purposes. Property taxes become a lien at 12:01 a.m. on January 1 preceding the fiscal year for which taxes are collected for both locally-assessed real property and state-assessed property.
Lien
DefinitionPortion of the state budget devoted to intergovernmental expenditures and shared taxes. State operations and capital outlay comprise the remainder of the state budget.
Lien Date
DefinitionGeneric term for a tax imposed upon articles not considered essential to a normal standard of living. Currently there are no luxury taxes in California law, although the federal government periodically adopts various luxury taxes.
Life estate
Definitionthe right to possess property and/or collect income from property for the duration of someone’s life.
Life insurance trust
Definitiona trust that is funded with an irrevocable transfer of a life insurance policy and that gives
LIFO recapture amount
Definitionthe excess of a C corporation’s inventory basis under the FIFO method in
LIFO recapture tax
Definitiona tax levied on a C corporation that elects to be taxed as an S corporation when it is
Like-kind exchange
Definitiona nontaxable (or partially taxable) trade or exchange of assets that are similar or related in use.
Limited liability company (LLC)
Definitiona type of flow-through entity for federal income tax purposes. By state law,
Limited partnership (LP)
Definitiona partnership with at least one general partner with unlimited liability for the entity’s debts and at least one limited partner with liability limited to the limited partner’s investment in the partnership.
limited to
Definitionthe business-use portion of the asset. Local taxes taxes imposed by local governments (cities, counties, school districts, etc.).
Liquidating distribution
Definitiona distribution that terminates an owner’s interest in the entity.
Liquidation value
Definitionthe amount a partner would receive if the partnership were to sell all its assets, pay its
little cost to
Definitionthe employer (e.g., airline tickets or phone service).
Local Assistance
DefinitionIncome tax rate to which the taxpayer's highest dollar of income is subject.
Long-term capital gains or losses gains or losses from
Definitionthe sale of capital assets held for more than 12 months.
loss when
Definitionan asset is sold.
losses.
DefinitionThe exact definition of hot assets depends on whether it is in reference to dispositions of a partnership interest or distributions.
Luxury automobile
Definitionan automobile on which the amount of annual depreciation expense is limited because
Luxury Tax
DefinitionFull, fair market value of an asset. Equals "full cash value" for Proposition 13 purposes in the property's "base year".
M
Majority interest taxable year
Definitionthe common tax year of a group of partners who jointly hold greater than
Marginal tax rate
Definitionthe tax rate that applies to the next additional increment of a taxpayer’s taxable income (or to deductions). Specifically,
Marginal Tax Rate
DefinitionFeature of the federal income tax structure that cause the combined tax on two single people with equal incomes to be less than the tax on a married couple composed of the same two people. The California personal income tax does not impose a marriage penalty.
Marital deduction
Definitionthe deduction for transfers of qualified property to a spouse.
Market discount
Definitionthe difference between the amount paid for a bond in a market purchase rather than at
Market Value
DefinitionMinimum amount of tax imposed annually on any corporation under the California bank and corporation franchise tax. The minimum franchise tax is currently $800. There is no minimum franchise tax imposed on corporations their first year of incorporation. Limited partnerships and limited liability companies also pay an annual tax in an amount equal to the minimum franchise tax. However, limited partnerships, and limited liability companies are not included in the "new corporation" exemption.
market value by more than $250,000 when
Definitiona transfer of an interest occurs or if the purchasing partner would
Marriage benefit
Definitionthe tax savings married couples receive by filing a joint return relative to the tax they would have paid had they each filed as single taxpayers. This typically occurs when one spouse is either not working
Marriage penalty
Definitionthe extra tax cost a married couple pays by filing a joint return relative to what they would have paid had they each filed as single taxpayers. This typically occurs when both spouses earn approximately the same amount of income.
Marriage Penalty
DefinitionIncome remaining from earnings gains profits after all allowable costs, expenses, losses, and allowances for depreciation have been deducted.
Married filing jointly one of five primary filing statuses.
DefinitionA taxpayer may file jointly if they are legally married
Maturity
Definitionthe amount of time to the expiration date, or maturity date, of a debt instrument. The maturity of
Maturity value
Definitionthe amount paid to a bondholder when the bond matures and the bondholder redeems the bond for cash.
Maximum 15 percent rate amount threshold for
Definitionthe 15 percent rate to apply to long-term capital gains. Any 0/15/20 percent capital gains included that result in taxable income above the maximum zero rate amount
Maximum zero percent rate amount threshold for
Definitionthe zero percent rate to apply to long-term capital gains. Any 0/15/20 percent capital gains included in taxable income up to the maximum zero percent amount are
may deduct
Definitionthe bargain element as compensation expense in the tax year options are exercised.
may trigger gain to
Definitiona party to the transaction. The term boot derives from a trading expression describing
Medicare tax
Definitionthe Medical Health Insurance (MHI) tax. This tax helps pay medical costs for qualifying
Mergers
Definitionthe acquisition by one (acquiring) corporation of the assets and liabilities of another (target)
method,
Definitionthe taxpayer specifically chooses the assets that are to be sold.
methods are adopted
Definitionthe first time a taxpayer uses the method on a tax return.
Mid-month convention
Definitiona convention that allows owners of real property to take one-half of a month’s
Mid-quarter convention
Definitiona depreciation convention for tangible personal property that allows for one-half of a
Minimum Franchise Tax
DefinitionOccurs when allowable deductions exceed gross income computed under the law in effect for the loss year. Both state and federal income tax law provide for the carryover of NOLs, although specific provisions vary.
Mixed-motive expenditures activities that involve
Definitiona mixture of business and personal objectives.
Modified Accelerated Cost Recovery System (MACRS)
Definitionthe current tax depreciation system for tangible personal and real property. Depreciation under MACRS is calculated by finding the depreciation method, the
monetary claims against
Definitionthe federal government.
Money removed from
Definitionthe CD before maturity is subject to a penalty.
more closely reflects economic income than
Definitionthe regular income tax base. The system was designed to ensure that taxpayers generating economic income pay some minimum amount of income tax each year.
mortgage payments to
Definitionthe lender that include payment for the interest and principal and payments for
Municipal bonds
Definitionthe common name for state and local government debt.
Mutual fund
Definitiona diversified portfolio of securities owned and managed by a regulated investment company.
N
name implies, this approach minimizes
Definitionthe combined tax deferral of the partners.
Negative basis adjustment (for special basis adjustment purposes)
Definitionthe sum of the recognized loss and the
Net capital gain
Definitionthe excess of net long-term capital gain for the taxable year over net short-term capital loss for such year.
net capital gains in any of
Definitionthe three preceding tax years.
Net capital loss carryback
Definitionthe amount of a corporation’s net capital loss from one year that it uses to offset
Net capital loss carryover
Definitionthe amount of a corporation’s or an individual’s net capital loss from one year that it may use to offset net capital gains in future years.
Net earnings from self-employment
Definitionthe amount of earnings subject to self-employment income taxes. The
Net Income
DefinitionTerm used in Proposition 13. New construction is reappraised at its full cash value on the date it is complete and available for use.
Net investment income tax
Definitiona 3.8 percent tax on the lesser of (a) net investment income or (b) the excess of modified adjusted gross income over $250,000 for married-joint filers and surviving spouses, $125,000 for married-separate filers, and $200,000 for other taxpayers.
Net long-term capital gain
Definitionthe excess of long-term capital gains for the taxable year over the long-term capital losses for such year.
Net long-term capital loss
Definitionthe excess of long-term capital losses for the taxable year over the long-term capital gains for such year.
Net operating loss (NOL)
Definitionthe excess of allowable deductions over gross income.
Net Operating Loss (NOL)
DefinitionAll income other than capital gain.
Net operating loss carryback
Definitionthe amount of a pre-2018 net operating loss that a corporation elects to carry
Net operating loss carryover
Definitionthe amount of a current-year net operating loss that is carried forward for up to 20 years to offset taxable income in those years (20 years for pre-2018 losses; unlimited for post-2017 losses). Net passive investment income passive investment income less any expenses connected with producing it.
Net short-term capital gain
Definitionthe excess of short-term capital gains for the taxable year over the short-term capital losses for such year.
Net short-term capital loss
Definitionthe excess of short-term capital losses for the taxable year over the short-term capital gains for such year.
Net unearned income unearned income in excess of
Definitiona specified threshold amount of a child under the age of
Net unrealized built-in gain
Definitionthe net gain (if any) an S corporation that was formerly a C corporation would recognize if it sold each asset at its fair market value. It is measured on the first day of the corporation’s first
New Construction
DefinitionGeneric term for a tax based on the payroll of a business. California's unemployment insurance tax is an example.
Nexus
Definitionthe connection between a business and a tax jurisdiction sufficient to subject the business to the tax
No-additional-cost services
Definitiona nontaxable fringe benefit that provides employer services to employees with
Nonacquiescence issued after
Definitionthe IRS loses a trial-level or circuit court case when the IRS has decided to continue to litigate this issue. Nonbusiness income all income except for business income—generally, investment income and rental income.
Nondeductible terminable interests transfers of property interests to
Definitiona spouse that do not qualify for a marital
Nondomiciliary business
Definitiona business operating in a state other than its commercial domicile.
Nonqualified deferred compensation compensation provided for under
Definitiona nonqualified plan allowing
Nonqualified stock options (NQO)
Definitiona type of stock option requiring employees to treat the bargain element
Nonrecaptured net §1231 loss
Definitiona net §1231 loss that is deducted as an ordinary loss in one year and has not caused subsequent §1231 gain to be taxed as ordinary income. Nonrecognition provisions tax laws that allow taxpayers to permanently exclude income from taxation or to
Nonrefundable credits tax credits that reduce
Definitiona taxpayer’s gross tax liability but are limited to the amount of
Nonresident alien
Definitiona non-U.S. citizen who does not meet the criteria to be treated as a resident for U.S. tax purposes.
Nonservice partner
Definitiona partner who receives a partnership interest in exchange for property rather than services.
nontaxable activities (e.g., leisure pursuits) for taxable ones because
Definitionthe marginal value of taxable activities has decreased.
Nontaxable fringe benefits
Definitionan employer-provided benefit that may be excluded from an employee’s income.
not purchased within
Definitionthe state.
November 20, 1988). During their life, temporary regulations carry
Definitionthe same authoritative weight as final regulations. Tenancy in common ownership in which owners hold divided rights to property and have the ability to transfer these rights during their life or upon their death.
number of periods
Definitionthe investment is held.
O
of
Definitionthe property.
of tax on corporate income occurs at
Definitionthe shareholder level.
of time and
Definitionthe property is then transferred to another person.
Office examination
Definitionthe second most common audit. As the name suggests, the IRS conducts these audits at the local IRS office. These audits are typically broader in scope and more complex than correspondence examinations. Small businesses, taxpayers operating sole proprietorships, and middle- to high-income individual taxpayers are more likely, if audited, to have office examinations.
Once taxpayers deduct losses to
Definitionthe extent of their stock basis, they may deduct losses to the extent of their
one transaction to determine
Definitionthe tax consequences of the transaction.
Operating distributions payments from
Definitionan entity to its owners that represent a distribution of entity profits.
Operating income
Definitionthe annual income from a trade or business or rental activity.
Operating loss
Definitionthe annual loss from a trade or business or rental activity.
Option exercise
Definitionthe use of a stock option to acquire employer stock at a specified price.
or
Definitionthe location where the taxpayer’s books, records, and source documents are maintained. Field
or among businesses owned by
Definitionthe same owners.
or damaged in
Definitionan involuntary conversion.
or earns significantly less than
Definitionthe other spouse.
or expense
Definitionan amount based on a statutorily determined percentage. Permanent book–tax differences items of income or deductions for either book purposes or tax purposes
or which involves
Definitionthe performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities. Architecture and engineering services (their
order for
Definitiona taxpayer to obtain tax benefits.
order to facilitate
Definitionthe purchase.
Ordinary and necessary
Definitionan expense that is normal or appropriate and that is helpful or conducive to the business activity.
Ordinary asset
Definitionan asset created or used in a taxpayer’s trade or business (e.g., accounts receivable or inventory) that generates ordinary income (or loss) on disposition.
Ordinary business income (loss)
Definitiona partnership’s or S corporation’s remaining income or loss after separately stated items are removed. It is also referred to as nonseparately stated income (loss). Ordinary income property property that if sold would generate income taxed at ordinary rates.
Ordinary Income
DefinitionAmount per individual.
Organizational expenditures expenses that are (1) connected directly to
Definitionthe creation of a corporation or
original issuance when
Definitionthe amount paid is greater than the maturity value of the bond.
Original issue discount (OID)
Definitiona type of bond issued for less than the maturity or face value of the bond.
Outbound transaction
Definitiona transaction conducted outside the United States by a U.S. person that is subject to U.S. taxation.
Outside basis
Definitionan investor’s tax basis in the stock of a corporation or the interest in a partnership or LLC.
overturned, and to identify subsequent cases that cite
Definitionthe case. Citators can also be used to check the status of revenue rulings, revenue procedures, and other IRS pronouncements. Civil penalties monetary penalties imposed when tax practitioners or taxpayers violate tax statutes without
owners receiving distributed property and
Definitionthe amount of any required basis reduction.
owns directly 80 percent or more of
Definitionthe voting stock and value of another corporation and one or more
P
Partial liquidation
Definitiona distribution made by a corporation to shareholders that results from a contraction of the corporation’s activities.
particular phrase in
Definitiona code section. Real property land and structures permanently attached to land.
partners don’t have
Definitionthe same year-end and if the principal partners don’t have the same year-end. As the
Partnership agreement
Definitionan agreement among the partners in a partnership stipulating the partners’ rights
Partnership interest
Definitionan intangible asset reflecting the economic rights a partner has with respect to a
partnership, (2) chargeable to
Definitiona capital account, and (3) generally amortized over 180 months (limited immediate expensing may be available).
partnership, including
Definitionthe right to receive assets in liquidation of the partnership (called a capital interest)
Passive investments direct or indirect investments (other than through
Definitiona C corporation) in a trade or
payments of interest and royalties to
Definitiona related foreign party.
Payroll Tax
DefinitionMovable property and equipment, as opposed to immovable property such as land and buildings.
Per Capita
DefinitionA California estate tax enacted after the elimination of the inheritance tax in 1982. It is imposed up to the level of the maximum state inheritance tax credit allowed against the federal estate tax. It does not change the taxpayer's combined state and federal estate tax liability but collected a portion of the federal state tax, in effect, to California. Commencing in 2005, the federal credit for state death taxes was fully repealed. Therefore, the California estate tax is inapplicable.
Percentage depletion
Definitiona method of recovering the cost of a natural resource that allows a taxpayer to recover
Permanent establishment generally,
Definitiona fixed place of business through which an enterprise carries out its
Permissible accounting method accounting method allowed under
Definitionthe tax law. Permissible accounting
Person
Definitionan individual, trust, estate, partnership, association, company, or corporation. Personal expenses expenses incurred for personal motives. Personal expenses are not deductible for tax purposes. Personal holding companies closely held corporations generating primarily investment income.
Personal holding company tax penalty tax on
Definitionthe undistributed income of a personal holding company. Personal property all tangible property other than real property.
Personal Property
DefinitionGeneric term for a tax levied as a percentage of the liability imposed by another tax. There are no California piggyback taxes.
Personal property tax
Definitiona tax on the fair market value of all types of tangible and intangible property, except real property.
personal use.
DefinitionThe percentage of total expenses allocated to rental use is the ratio of the number of rental use
persons to prepare for compensation, all or
Definitiona substantial portion of any tax return or claim for refund.
Pickup Estate Tax
DefinitionInterest of a lessee in government-owned property. Lessees pay property taxes related to possessory interests.
Piggyback
DefinitionTax structure or policy in which either persons with high incomes pay a larger percentage of their income in tax than persons with lower incomes or where persons with high incomes receive a smaller share of tax relief than persons with lower incomes.
place of incorporation) that meets one of
Definitionthe seven statutory definitions found in §368(a)(1).
Point one percent of
Definitionthe principal amount of a loan. A home buyer might pay points to compensate the
points by
Definitionthe amount of tax underpayment per quarter. Unearned income income from property that accrues as time passes without effort on the part of the owner
Positive basis adjustment (for special basis adjustment purposes)
Definitionthe sum of the gain recognized by the
Possessory Interest
DefinitionA tax on all real and tangible property located in the state and not specifically exempt.
Post-termination transition period (PTTP)
Definitionthe period that begins on the day after the last day of a
practitioners violating
Definitionthe Circular 230 provisions. Subpart E concludes with a few miscellaneous provisions
Preferential tax rate
Definitiona tax rate that is lower than the tax rate applied to ordinary income. Present interest right to presently enjoy property or receive income from the property.
Present value
Definitionthe concept that $1 today is worth more than $1 in the future. For example, assuming an
Primary authorities official sources of
Definitionthe tax law generated by the legislative branch (i.e., statutory authority
principal asset of such trade or business is
Definitionthe reputation or skill of one or more of its employees or owners,
Principal partner
Definitiona partner having a 5 percent or more interest in partnership capital or profits.
Principal residence
Definitionthe main place of residence for a taxpayer during the taxable year.
Private letter rulings IRS pronouncements issued in response to
Definitiona taxpayer request for a ruling on specific
probability that
Definitionthe tax liability on the return has been underreported (a higher score = a higher likelihood of
Probate
Definitionthe process in the probate court of gathering property possessed by or titled in the name
probate court to gather and transfer
Definitionthe decedent’s real and personal property.
Probate estate property possessed by or titled in
Definitionthe name of a decedent at the time of death. Procedural regulations regulations that explain Treasury Department procedures as they relate to
Production of income
Definitiona for-profit activity that doesn’t rise to the level of a trade or business.
production or collection of income or
Definitionthe management, conservation, or maintenance of property held for the production of income. Investment income income received from portfolio type investments. Portfolio income includes capital gains and losses, interest, dividend, annuity, and royalty income not derived in the ordinary course of a trade or
Profits interest
Definitionan interest in a partnership giving a partner the right to share in future profits but not the
Progressive
DefinitionInitiative constitutional amendment approved on the November 1979 ballot. Imposed limits on allowable appropriation of tax revenues by state and local governments. Added Article XIIIB to the California Constitution.
Progressive tax rate structure
Definitiona tax rate structure that imposes an increasing marginal tax rate as the tax base
property are
Definitiona common form of nonrecourse liability.
Property Tax
DefinitionInitiative constitutional amendment approved on the June 1978 ballot. Limited property tax rates to 1% of assessed value, limited the growth in assessed valuation to a maximum of 2% annually, placed restrictions on the imposition of new taxes. Added Article XIIIA to the Constitution.
property taxes.
DefinitionThe lender maintains the payments for property taxes in the escrow account and uses the
property, or services are received and recognizes deductions in
Definitionthe period paid.
Proportional tax rate structure also known as
Definitiona flat tax, this tax rate structure imposes a constant tax rate
Proposition 111
DefinitionInsurance premiums paid in part or in full by persons who have canceled their policy before its expiration date.
Proposition 13
DefinitionLegislative initiative that substantially modified the provisions of Propositions 4 and 98. (See Chapter 5 for details.) Initiative constitutional amendment approved on the November 1996 ballot. Sets forth voter approval requirements for the imposition of special and general taxes by local governments. The application of Proposition 218 to certain existing local taxes is currently being litigated in the courts.
Proposition 218
DefinitionA limit on the increase in the aggregate amount of revenue that can be raised from one year to the next. For school finance, this is a school district's income from state and local sources, exclusive of categorical aid.
Proposition 4
DefinitionInitiative statute approved on the November 1986 ballot. The measure was intended to require a popular vote for any new locally-imposed tax or any increase in an existing locally-imposed tax. It was embroiled in a legal controversy until December 1995, when the California Supreme Court upheld its Initiative statute and constitutional amendment approved on the November 1988 ballot. Established minimum funding guarantee for schools and community colleges, allocated a portion of state revenues in excess of the appropriations limit to education.
Proposition 62
DefinitionThe ownership of, claim to, possession of or right to the possession of land and permanently attached improvements, such as buildings. Does not include "personal property" such as furniture and equipment.
Proposition 98
DefinitionA tax that imposes a higher burden on lowerincome taxpayers than it does on higher-income taxpayers. Opposite of "progressive".
provide basic pension coverage for
Definitionthe retired and disabled. Employees pay Social Security tax at a rate of
provided for
Definitiona purpose that is helpful or convenient for the employer.
providing
Definitionthe service, and that income from property is taxed to the individual who owns the property when the income accrues.
provision (expense or benefit) for
Definitionthe year by its pretax income from continuing operations.
purchased within 30 days before or after
Definitionthe sale date. Losses on wash sales are deferred.
purpose, place of business, and other details of
Definitionthe corporation.
Q
Qualified business asset investment (QBAI)
Definitionthe tax basis of tangible personal property used in a trade or
Qualified business income (QBI) net business income from
Definitiona qualified trade or business conducted in the
Qualified employee discounts
Definitiona nontaxable fringe benefit that provides a discount on employer goods (not to
Qualified equity grant
Definitiona broad-based equity grant of either stock options or restricted stock units by a private
Qualified nonrecourse financing nonrecourse debt secured by real property from
Definitiona commercial lender
Qualified residence
Definitionthe taxpayer’s principal residence and one other residence. Qualified retirement accounts plans meeting certain requirements that allow compensation placed in the
qualified retirement plan to
Definitiona Roth or traditional IRA, or from a traditional IRA to a Roth IRA.
Qualified small business stock stock received at original issue from
Definitiona corporation with a gross tax basis in its
Qualified trade or business for purposes of
Definitionthe deduction for qualified business income, any trade or
Qualified transportation fringe benefits
Definitiona nontaxable fringe benefit provided by employers in the form of mass transit passes, parking, or company-owned carpool benefits.
Qualifying child
Definitionan individual who qualifies as a dependent of a taxpayer by meeting a relationship, age,
qualifying person who lives with
Definitionthe taxpayer for more than half of the year; or they pay more than half the
Qualifying relative
Definitionan individual who is not a qualifying child of another taxpayer and who meets a relationship, support, and gross income test and thus qualifies to be a dependent of another taxpayer.
quarter of
Definitionthe tax year Minimum tax credit credit available in certain situations for the alternative minimum tax paid. The credit
quarter’s worth of depreciation in
Definitionthe quarter of purchase and in the quarter of disposition. This convention must be used when more than 40 percent of tangible personal property is placed into service in the fourth
Question of fact
Definitiona research question that hinges upon the facts and circumstances of the taxpayer’s transaction.
Question of law
Definitiona research question that hinges upon the interpretation of the law, such as interpreting a
R
ratio of
Definitionthe number of rental use days to the total days in the year. All other expenses are allocated to rental
Real Property
DefinitionA tax levied on the gross receipts from the retail sale of tangible personal property unless otherwise exempted.
Real property tax
Definitiona tax on the fair market value of land and structures permanently attached to land.
Realization gain or loss that results from
Definitionan exchange of property rights in a transaction.
Realization principle
Definitionthe proposition that income only exists when there is a transaction with another party
Realized gain or loss
Definitionthe difference between the amount realized and the adjusted basis of an asset sold or otherwise disposed of.
Realized income income generated in
Definitiona transaction with a second party in which there is a measurable change in property rights between parties.
reasonable cause—for example, as
Definitionthe result of negligence, intentional disregard of pertinent rules, willful disobedience, or outright fraud. Claim of right doctrine judicial doctrine that states that income has been realized if a taxpayer receives
Reasonable in amount
Definitionan expenditure is reasonable when the amount paid is neither extravagant nor exorbitant.
received from
Definitionthe taxpayer and uses it to acquire like-kind property identified by the taxpayer.
received or accrued under
Definitionthe corporation’s accounting method, not reduced by returns, allowances, cost of goods sold, or deductions. Gross receipts include net capital gains from the sales or exchanges of capital
receiving
Definitionthe like-kind property in exchange. The property to be received must be identified within 45 days
recognized by
Definitionthe state. The document is similar to articles of incorporation or articles or organization.
Recognized gain or loss
Definitionthe gain or loss included in gross income on a taxpayer’s tax return. This is usually
Recourse liability liability held by
Definitiona partnership for which at least one partner has economic risk of loss.
Recovery period
Definitiona length of time prescribed by statute in which business property is depreciated or amortized.
recovery period, and
Definitionthe applicable convention.
Recurring item
Definitionan election under economic performance to currently deduct an accrued liability if the
Refinance when
Definitiona taxpayer pays off a current loan with the proceeds of a second loan.
regardless of its form and, where appropriate, reclassify
Definitionthe transaction according to its substance.
Regressive Tax
DefinitionThat part of the local property tax assessment roll that contains real property where the taxes are adequately secured by a lien.
Regressive tax rate structure
Definitiona tax rate structure that imposes a decreasing marginal tax rate as the tax base
regular tax (based on
Definitionthe regular tax base). The alternative minimum tax is designed to require taxpayers to pay some minimum level of tax even when they have low or no regular taxable income as a result of certain
regular tax purposes until
Definitionthe stock acquired from option exercises is sold. The bargain element is taxed at
Regulations
Definitionthe Treasury Department’s official interpretation of the Internal Revenue Code. Regulations are
relevant facts and circumstances surrounding
Definitionthe situation in order to make a decision. The relevant facts and circumstances are situation-specific.
Remainder
Definitionthe right to ownership of a property that transfers to a new owner, the remainderman, following a temporary interest.
Remainderman
Definitionthe person entitled to a remainder interest.
remaining property to
Definitionthe decedent’s heirs.
remodeling
Definitionthe home, and then immediately, or soon thereafter, selling it (presumably at a profit).
Reorganization
Definitiona tax-deferred transaction (acquisition, disposition, recapitalization, or change of name or
reorganization collectively retain
Definitiona continuing ownership (equity) interest in the target corporation’s assets or historic business to be tax-deferred.
reported on
Definitiona single tax return. The criteria for determining whether a group of entities must file a unitary tax return are functional integration, centralization of management, and economies of scale.
representing clients before
Definitionthe IRS, etc.). Subpart B describes the duties and restrictions that apply to individuals governed by Circular 230. Subparts C and D explain sanctions and disciplinary proceedings for
requirements to qualify for
Definitionthe deduction.
Requisite service period
Definitionthe period or periods during which an employee is required to provide service in
residence, and support test with respect to
Definitionthe taxpayer.
Residence-based jurisdiction taxation of income based on
Definitionthe taxpayer’s residence.
Resident alien
Definitionan individual who is not a U.S. citizen but is treated as a resident for U.S. tax purposes. Restricted stock stock employees receive as compensation that may be sold only after the passage of time or after certain performance targets are achieved. Because employees are not entitled to immediately sell the
resold outside
Definitionthe country of incorporation of the CFC.
restricted stock they receive,
Definitionthe value of the stock is generally not taxable to employees or deductible by
result of
Definitionan owner’s disposition of an interest in the entity or distributions from the entity to its owners.
resulting in
Definitiona measurable change in property rights.
Return of capital
Definitionthe portion of proceeds from a sale (or distribution) representing a return of the original
return, FV is
Definitionthe after-tax future value of the investment, I is the original investment amount, and n is the
Revenue Limit
DefinitionSite or place. Applies to the location of property for the purpose of determining which government agency may impose taxes on it and which government agency receives tax revenue from it.
Reverse hybrid entity
Definitiona “check-the-box” entity owned by multiple persons for which corporation status is elected.
Reversion terms by which ownership of property returns to
Definitionthe original owner following a temporary interest.
revised, there have been only three different codes since
Definitionthe Code was created in 1939 (i.e., the IRC of 1939, IRC of 1954, and IRC of 1986).
Rollover
Definitiona transfer of funds from a qualified retirement plan to another qualified retirement plan, from a
Roth 401(k)
Definitiona type of defined contribution plan that allows employees (and their employers for fully vested
Roth IRA
Definitionan individually managed retirement plan permitting individuals to contribute on an after-tax basis and receive distributions tax-free.
rulings of higher courts with appellate jurisdiction (i.e.,
Definitionthe courts to which its cases are appealed). Start-up costs expenses that would be classified as business expenses except that the expenses are incurred
S
S corporation
Definitiona corporation under state law that has elected to be taxed under the rules provided in
S Corporations
DefinitionCommonly refers to the carryover balance in the state's General Fund at the start of a new fiscal year, or to reserves held by the state for unforeseen contingencies. Also known as the Special Fund for Economic Uncertainties.
Safe-harbor provision provision of
Definitionthe tax law that reduces or eliminates a taxpayer’s liability under the law if the taxpayer meets certain requirements.
Salary
Definitiona fixed regular payment by an employer to an employee in exchange for the employee’s services;
salary paid to
Definitionan employee is reasonable. The test requires the taxpayer and the IRS to consider all the
Sales tax
Definitiona tax imposed on the retail price of goods (plus certain services). Retailers are responsible for
Sales Tax
DefinitionA tax for local improvements imposed only on the properties benefited.
Sales tax nexus
Definitionthe connection between a business and a tax jurisdiction sufficient to subject the business to the tax jurisdiction’s sales tax.
Same-day sale
Definitiona phrase used to describe a situation where a taxpayer exercises stock options and then
Schedule C
Definitiona schedule on which a taxpayer reports the income and deductions for a sole proprietorship.
Schedule K
Definitiona schedule filed with a partnership’s annual tax return listing its ordinary income (loss) and its separately stated items. Schedule M adjustments book–tax differences that corporations report on Schedule M-1 or M-3 of Form 1120 as adjustments to book income to reconcile to taxable income.
Secondary authorities unofficial tax authorities that interpret and explain
Definitionthe primary authorities, such as tax research services, tax articles, newsletters, and textbooks. Secondary authorities may be very helpful in
Secured Roll
DefinitionTerm used in Proposition 13 and further defined in Proposition 218. Special taxes are those imposed and restricted for specific, rather than general, governmental purposes. Local agencies may impose special taxes upon approval of two-thirds of those voting on the measure.
Security and Medicare taxes upon earned income. For self-employed taxpayers,
Definitionthe terms “FICA tax” and “self-employment tax” are synonymous.
self-employment subject to
Definitionthe Social Security tax. The amount is provided annually and is indexed for inflation.
Self-employment taxes Social Security and Medicare taxes paid by
Definitionthe self-employed on a taxpayer’s net
SEP IRA
Definitiona simplified employee pension (SEP) that is administered through an individual retirement account (IRA). Available to self-employed taxpayers. Contributions may be made on either a before-tax or after-tax basis.
separate from
Definitionthe other spouse.
Separate tax return
Definitiona state tax return methodology requiring that each related entity with nexus must file a separate tax return. Separately stated items income, expenses, gains, losses, credits, and other items that are excluded from a partnership’s or S corporation’s operating income (loss) and disclosed to partners in a partnership or
separation agreement or divorce decree that does not designate
Definitionthe payment as something other than
Serial gift transfer tax strategy that uses
Definitionthe annual exclusion to convert a potentially large taxable transfer
Service partner
Definitiona partner who receives a partnership interest by contributing services rather than cash or property.
services build things) are specifically excluded from
Definitionthe definition of specified service trade or business.
service’s unofficial explanation of
Definitionthe code section; and brief summaries (called annotations) of relevant court cases, revenue rulings, revenue procedures, and letter rulings that address issues specific to the code section. Annual exclusion amount of gifts allowed to be made each year per donee (regardless of the number of
Settlement statement
Definitiona statement that details the monies paid out and received by the buyer and seller in a real estate transaction.
Severance Tax
DefinitionBenefits enjoyed by those not directly paying for them.
Short-term capital gains or losses gains or losses from
Definitionthe sale of capital assets held for one year or less.
Simple trust
Definitiona trust that must distribute all accounting income currently and cannot make charitable contributions.
Sin taxes taxes imposed on
Definitionthe purchase of goods (e.g., alcohol, tobacco products, etc.) that are considered socially less desirable.
Single one of five primary filing statuses.
DefinitionA taxpayer files as single if they are unmarried as of the end of the
Single-member LLC
Definitiona limited liability company with only one member. Single-member LLCs with individual owners are taxed as sole proprietorships and as disregarded entities otherwise.
situations pay
Definitionthe same tax. Hot assets unrealized receivables or inventory items defined in §751(a) that give rise to ordinary gains and
Situs
DefinitionIn the context of property taxes, means assessment or taxation of a certain class of property in a manner different than other property. Could refer to a split assessment ratio, a split tax rate, or a split exemption level. Does not currently apply in California.
Social Security tax
Definitionthe Old Age, Survivors, and Disability Insurance (OASDI) tax. The tax is intended to
Social Security tax at
Definitiona rate of 12.4 percent on their net earnings from self-employment. The base on which
Social Security taxes are paid is limited to
Definitionan annually determined amount of wages and/or net earnings from self-employment.
Social Security wage base limitation limit on
Definitionthe amount employee compensati ion and/or net earnings from
Sole proprietorship
Definitiona business entity that is not legally separate from the individual owner of the business.
Source-based jurisdiction taxation of income based on where
Definitionthe income is earned. Special allocations allocations of income, gain, expense, loss, etc., that are allocated to the owners of an
Special Assessment
DefinitionA flat amount that all income taxpayers are allowed to deduct in lieu of claiming itemized deductions. Intended to approximate expenses that reduce the taxpayer's ability to pay. A feature of federal income tax law; California uses a personal credit.
Special basis adjustment
Definitionan optional (sometimes mandatory) election to adjust the entity asset bases as a
Special Tax
DefinitionProperty that crosses jurisdictional boundaries and is assessed by the Board of Equalization, rather than local county assessors. State assessees are primarily utilities and railroads.
specific application of
Definitionthe Code and regulations to a specific factual situation. Revenue rulings have the same authoritative weight as revenue procedures.
Specific identification method
Definitionan elective method for determining the cost of an asset sold. Under this
specified event, such as
Definitiona life estate.
Specified service trade or business any trade or business involving
Definitionthe performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the
Spillover Benefits
DefinitionCosts incurred by local agencies or schools resulting from a new program, or higher level of service for an existing program, mandated by state legislation or an executive order. Under Proposition 4 (Article XIIIB), the state is required to reimburse local agencies for these costs, with specified exceptions.
Split Roll
DefinitionClosely held corporations (i.e., they have a limited number of shareholders) that receive special tax treatment under both federal and state law.
Spot rate
Definitionthe foreign currency exchange rate on a specific day.
Spousal IRA
Definitionan IRA account for the spouse with the lesser amount of earned income. Contributions in this
spouse during
Definitiona marriage.
spouse reports
Definitionthe income they received during the year and the deductions they paid on a tax return
Standard deduction
Definitiona fixed deduction offered in lieu of itemized deductions. The amount of the standard
Standard Deduction
DefinitionThey are named after a specific section of federal tax law (Subchapter S of Subtitle A of the Internal Revenue Code).
standard of conviction is higher in
Definitiona criminal trial (beyond a reasonable doubt). However, the penalties are also much higher, such as fines up to $100,000 for individuals plus a prison sentence.
Stare decisis
Definitiona doctrine meaning that a court will rule consistently with (a) its previous rulings (i.e., unless,
State Assessed Property
DefinitionMoney transferred from the state to local government.
State Mandated Costs
DefinitionAn additional assessment roll that contains property that changes ownership or is newly constructed after the regular January 1 lien date. Enacted in 1982.
State tax
Definitiona tax imposed by one of the 50 U.S. states.
State tax base
Definitionthe federal taxable income plus or minus required state adjustments. Statements on Standards for Tax Services (SSTS) standards of practice for tax professionals issued by the AICPA. Currently, there are four SSTS that describe general professional standards for AICPA members providing tax services, professional standards for members providing tax compliance services (including tax return positions), professional standards for members providing tax consulting services, and professional standards for members providing tax representation services.
statement and is composed of
Definitionthe current income tax expense or (benefit) and the deferred income tax expense or (benefit). These components may also be referred to as the current income tax provision and the deferred tax provision, respectively.
Static forecasting
Definitionthe process of forecasting tax revenues based on the existing state of transactions while
Statute of limitations defines
Definitionthe period in which the taxpayer can file an amended tax return or the IRS can
Step-transaction doctrine judicial doctrine that allows
Definitionthe IRS to collapse a series of related transactions into
stock before this date will receive current dividends. Otherwise,
Definitionthe purchaser must wait until subsequent dividends are declared before receiving them.
stock of
Definitionthe target corporation, after which the acquiring corporation controls (owns 80 percent or more of)
Stock redemption
Definitiona property distribution made to shareholders in return for some or all of their stock in the distributing corporation that is not in partial or complete liquidation of the corporation.
Stock split
Definitiona stock redemption in which a corporation exchanges a ratio of shares of stock (e.g., 2 for 1) for
Stock-for-stock acquisitions
Definitionan exchange of solely voting stock by the acquiring corporation in exchange for
Strike price
Definitionthe price at which holders of stock options may purchase stock in the corporation issuing the option.
Structural tax rate
Definitionthe tax rate computed by dividing a company’s income tax provision adjusted for nonrecurring permanent differences by its pretax income from continuing operations.
Subchapter K
Definitionthe portion of the Internal Revenue Code dealing with partnerships tax law.
Subchapter S
Definitionthe portion of the Internal Revenue Code containing tax rules for S corporations and their shareholders.
Subchapter S of
Definitionthe Internal Revenue Code. Under Subchapter S, an S corporation is taxed as a flow-through entity.
Subpart F income income earned by
Definitiona controlled foreign corporation that is not eligible for deferral from U.S. taxation.
subsidiary corporations that meet
Definitionthe 80 percent ownership requirement collectively. Includable corporations are taxable U.S. C corporations, excluding real estate investment trusts; regulated investment companies; and life insurance companies.
Substance-over-form doctrine judicial doctrine that allows
Definitionthe IRS to consider the transaction’s substance
Substantial authority
Definitionthe standard used to determine whether a tax practitioner may recommend and a
Substantial built-in loss exists when
Definitiona partnership’s adjusted basis in its property exceeds the property’s fair
Substituted basis
Definitionthe transfer of the tax basis of stock or other property given up in an exchange to stock or other property received in return.
Substitution effect one of
Definitionthe two basic responses that a taxpayer may have when taxes increase. The substitution effect predicts that, when taxpayers are taxed more, rather than work more, they will substitute
Subvention
DefinitionAn additional tax rate added onto the rate of an existing tax.
Sufficiency
Definitiona standard for evaluating a good tax system. Sufficiency is defined as assessing the aggregate size
Supplemental Roll
DefinitionMaterial assets such as household goods or business equipment that are readily movable and are not permanently attached to real property.
Surplus
DefinitionA compulsory payment required by a government.
Surtax
DefinitionThe part of the economy or the portion of the population against which a tax is levied or measured.
Syndication costs costs partnerships incur to promote
Definitionthe sale of partnership interests to the public. Syndication expenses must be capitalized and are not amortizable.
T
Tangible Personal Property
DefinitionThe impact of a tax, usually expressed in tax dollars per capita or dollars per amount of personal income. For an individual taxpayer, tax dollars per measure of income (household, AGI, other).
Tax
DefinitionProperty on which property taxes are delinquent and which has been deeded to the state until the time it is sold for back taxes or redeemed by the owner.
Tax accounting balance sheet
Definitiona balance sheet that records a company’s assets and liabilities at their tax bases instead of their financial accounting bases.
tax assessments by
Definitionthe IRS, the statute of limitations generally ends three years from the later of (1) the date
Tax avoidance
Definitionthe legal act of arranging one’s transactions or affairs to reduce taxes paid.
Tax base
Definitionthe item that is being taxed (e.g., purchase price of a good, taxable income, etc.).
Tax Base
DefinitionA component of the tax law that deviates from the basic structure of the tax (e.g., an exemption, exclusion, deduction, credit, and/or deferral). The term "tax expenditure" is intended to reflect foregone revenues resulting from the preferential treatment.
Tax basis
Definitionthe amount of a taxpayer’s unrecovered cost of or investment in an asset; see also adjusted tax basis.
Tax benefit rule holds that
Definitiona refund of an amount deducted in a previous period is only included in income
Tax bracket
Definitiona range of taxable income taxed at a specified rate.
tax breaks in
Definitionthe tax code.
Tax Burden
DefinitionA method used by redevelopment agencies to secure bonds, whereby property tax revenue from an increase in value in property over a base amount is used to pay off the bonds.
Tax capital accounts partners’ capital accounts initially determined using
Definitionthe tax basis of contributed property and maintained using tax accounting income and expense recognition principles. Tax carryovers tax deductions or credits that cannot be used on the current-year tax return and that can be
tax credit purposes (generally income from
Definitionan active trade or business).
Tax credits items that directly reduce
Definitiona taxpayer’s tax liability.
Tax Deeded Property
DefinitionA bill in the California Legislature that imposes a state tax, repeals a state tax, or otherwise changes in any material way the rate, base, or burden of a state tax. The Legislative Counsel determines whether a bill is a tax levy. Special rules regarding legislative deadlines and effective dates apply to tax levies.
Tax evasion
Definitionthe willful attempt to defraud the government (i.e., by not paying taxes legally owed). Tax
Tax Expenditure
DefinitionThe ratio of the tax to the tax base. For property tax purposes, the rate is applied to assessed value to determine the amount of the tax. For income and franchise tax purposes, the rate is applied to taxable income to determine the amount of the tax.
Tax haven generally,
Definitiona country offering very favorable tax laws for foreign businesses and individuals.
Tax Increment Financing
DefinitionGeographic area that is served by the same combination of governmental units and has the same property tax allocation factors.
Tax Levy
DefinitionRevenues earned by the state from sale of oil extracted from state tidelands (between shoreline and three miles out into the Pacific Ocean).
Tax rate
Definitionthe level of taxes imposed on the tax base, usually expressed as a percentage.
Tax Rate
DefinitionPrimarily located adjacent to the city of Long Beach.
Tax Rate Area
DefinitionA tax imposed in California in lieu of the property tax on standing timber. Tax applies when timber is harvested and is based on the value of the timber when cut.
Tax rate schedule
Definitiona schedule of progressive tax rates and the income ranges to which the rates apply that taxpayers may use to compute their gross tax liability. Tax return preparers any person or entity who prepares for compensation, or who employs one or more
Tax shelter
Definitionan investment or other arrangement designed to produce tax benefits without any expectation of economic profits.
Tax tables IRS-provided tables that specify
Definitionthe federal income tax liability for individuals with taxable
Tax treaties agreements negotiated between countries that describe
Definitionthe tax treatment of entities subject to tax in both countries (e.g., U.S. citizens earning investment income in Spain). The U.S. president has the
Tax year
Definitiona fixed period in which a business reports income and deductions, generally 12 months.
Tax-deferred transactions
Definitiona transaction where at least a portion of the realized gain or loss is not currently recognized.
Taxable estate adjusted gross estate reduced by
Definitionthe marital deduction and the charitable deduction.
Taxable fringe benefits
Definitiona noncash fringe benefit provided by employers to an employee that is included in taxable income (e.g., auto allowance or group-term life over $50,000).
Taxable gifts
Definitionthe amount left after adjusting current gifts for gift splitting, annual exclusions, the marital
Taxable income
Definitionthe tax base for the income tax. Taxable temporary differences book–tax differences that will result in taxable amounts in future years when the related deferred tax liability is settled.
taxable income before deducting (1) any charitable contributions, (2)
Definitionthe dividends-received deduction, and (3) capital loss carrybacks.
taxable income for
Definitiona particular state.
taxed at 0 percent. It is based on
Definitiona taxpayer’s filing status and income level.
taxpayer for more than one year in
Definitiona trade or business or as rental property attributable to tax depreciation
taxpayer is aware of
Definitionthe income’s availability, and there are no restrictions on the taxpayer’s control over the income.
taxpayer may take
Definitiona tax return position without being subject to IRS penalty under IRC §6694 and IRC
taxpayer such that
Definitionthe jurisdiction asserts the right to impose a tax.
taxpayers in
Definitiona like-kind exchange. Typically, the intermediary receives the cash from selling the property
taxpayers may alter their activities in response to
Definitiona tax law change.
taxpayer’s economic position and have
Definitiona substantial purpose (apart from a federal income tax purpose) in
taxpayer’s retirement plan is
Definitiona “qualified plan.”
Technical advice memorandum ruling issued by
Definitionthe IRS national office, requested by an IRS agent, and
Temporary regulations regulations issued with
Definitiona limited life (three years for regulations issued after
Tentative minimum tax (TMT)
Definitionthe tax on the AMT tax base under the alternative minimum tax system.
Terminable interest
Definitiona right to property that terminates at a specified time or upon the occurrence of a
Testamentary transfers transfers that take place upon
Definitionthe death of the donor.
than not that
Definitiona tax benefit will not be realized on a future tax return.
that
Definitionthe taxpayer’s position will be sustained upon audit or litigation is in the 35 to 40 percent range or above. Substantial basis reduction negative basis adjustment of more than $250,000 resulting from a
that allow taxpayers to receive
Definitionthe tax benefits.
that explain changes to
Definitionthe code section; a copy of all the regulations issued for the specific code section; the
the amount employees pay to acquire
Definitionthe employer’s stock.
the amount of accumulated depreciation on
Definitionthe property at the time of sale or exchange.
the business actually pays
Definitionthe liability for, among others, worker’s compensation; tort; breach of contract or violation of law; rebates and refunds; awards, prizes, and jackpots; insurance, warranties, and service
the cost of
Definitionthe automobile exceeds a certain threshold. The definition excludes vehicles with gross vehicle weight exceeding 6,000 pounds. M adjustments book–tax differences that corporations report on Schedule M-1 or M-3 of Form 1120 as adjustments to book income to reconcile to taxable income.
the fair market value exceeds
Definitionthe tax basis.
the highest authority issued by
Definitionthe IRS. Related-person transaction financial activities among family members, among owners and their businesses,
The income of
Definitiona sole proprietorship is taxed and paid directly by the owner. Solicitation selling activities or activities ancillary to selling that are protected under Public Law 86-272.
the owners of
Definitionthe LLC have limited liability with respect to the entity’s debts or liabilities. Limited liability companies are generally taxed as partnerships for federal income tax purposes.
the realized gain or loss unless
Definitiona nonrecognition provision applies.
the target corporation. Often referred to as
Definitiona “Type B reorganization.”
the tax return was actually filed or (2)
Definitionthe tax return’s original due date.
the taxpayer earns more income later in
Definitionthe year than earlier in the year. Requires corporations to base their first and second required estimated tax installments on their income from the first three months of the year,
the taxpayer’s return. Among
Definitionthe three types of audits, correspondence audits are generally the most
the trustee
Definitionthe power to redesignate beneficiaries.
The underpayment penalty is determined by multiplying
Definitionthe federal short-term interest rate plus 3 percentage
their third installment based on their taxable income from
Definitionthe first six months of the year, and the final
then reviewed to determine if
Definitionan audit is the best course of action.
Third-party intermediaries people or organizations that facilitate
Definitionthe transfer of property between
throughout
Definitionthe tax base. As the tax base increases, the taxes paid increase proportionally. Proposed regulations regulations issued in proposed form; they do not carry the same authoritative weight as temporary or final regulations. All regulations are issued in proposed form first to allow public comment on them. Public Law 86-272 federal law passed by Congress that provides additional protection for sellers of tangible personal property against income tax nexus.
Throwback rule
Definitionthe rule that sales into a state without nexus are included with sales from the state the property was shipped from.
Tidelands Revenue
DefinitionTen-year land use restriction on growing and harvesting timber in exchange for preferential property tax assessments for timberland.
Timber Yield Tax
DefinitionFormula by which the share of a corporation's net income subject to tax in California is determined. California's share of the reportable income of a unitary corporation is apportioned to California using factors of property, payroll and sales. Often erroneously referred to as "unitary tax" — it is not a separate tax, but a method of apportioning income.
Timberland Production Zone (TPZ)
DefinitionIncome earned by tax-exempt nonprofit organizations that is not related to the organization's exempt purpose but is derived from a trade or business activity that is regularly carried on by the organization. UBI is subject to income tax, even though the organization's exempt-purpose income is not.
to
Definitionthe extent that the deduction reduced taxable income.
to (from)
Definitiona CFC, where the product was manufactured outside the country of incorporation of the CFC and
to customers in
Definitionthe ordinary course of business, but also assets that are not capital assets or §1231 assets,
Topical tax service
Definitiona tax service arranged by subject (i.e., topic). Topical services identify tax issues that relate to each topic and then explain and cite authorities relevant to the issue (code sections, regulations, court cases, revenue rulings, etc.).
Trade or business
Definitiona profit-motivated activity characterized by a sustained, continuous, high level of individual involvement or effort.
Trade show rule
Definitiona rule that permits businesses to have physical presence at conventions and trade shows,
Traditional 401(k)
Definitiona popular type of defined contribution plan with before-tax employee and employer contributions and taxable distributions.
Traditional IRA
Definitionan individually managed retirement account with deductible contributions and taxable distributions.
Transfer taxes taxes on
Definitionthe transfer of wealth from one taxpayer to another. The estate and gift taxes are two examples of transfer taxes.
Travel expenses expenditures incurred while “away from home overnight,” including
Definitionthe cost of transportation, meals, lodging, and incidental expenses.
Treasury bond
Definitiona debt instrument issued by the U.S. Treasury at face value, at a discount, or at a premium,
Treasury note
Definitiona debt instrument issued by the U.S. Treasury at face value, at a discount, or at a premium,
Treasury’s interpretation of
Definitionthe Code.
Trust fiduciary entity created to hold and administer
Definitionthe property for other persons according to the terms
Trustee
Definitionthe person responsible for administering a trust.
U
U.S. circuit courts of appeals
Definitionthe first level of appeals courts after the trial-level courts. There are 13 U.S.
U.S. Constitution
Definitionthe founding law of the United States, ratified in 1789.
U.S. Court of Federal Claims one of
Definitionthe three trial-level courts. It is a national court that only hears
U.S. district court one of three trial-level courts. It is
Definitionthe only court that allows a jury trial. There is at least one district court in each state.
U.S. savings bonds debt instruments issued by
Definitionthe U.S. Treasury at face value or at a discount, with a set maturity date. Interest earned from U.S. bonds is paid either at maturity or when the bonds are converted to cash before maturity.
U.S. Supreme Court
Definitionthe highest court in the United States. The Supreme Court hears only a few tax cases a
U.S. Tax Court
Definitiona national court that only hears tax cases and where the judges are tax experts. The U.S. Tax
Uncertain tax position
Definitiona tax return position for which a corporation does not have a high degree of certainty as to its tax consequences.
Underpayment penalty
Definitionthe penalty that applies when taxpayers fail to adequately prepay their tax liability.
underreporting).
DefinitionThe IRS derives the weights assigned to specific tax return attributes from historical IRS
understanding
Definitiona tax issue, but they hold little weight in a tax dispute (hence, the term unofficial tax authorities).
Unemployment tax
Definitionthe tax that pays for temporary unemployment benefits for individuals terminated from their jobs without cause.
Unfavorable book–tax difference any book–tax difference that requires
Definitionan add-back to book income in computing taxable income. This type of adjustment is unfavorable because it increases taxable income relative to book income. Uniform cost capitalization (UNICAP) rules specify that inventories must be accounted for using full
Unitary Apportionment
DefinitionThat part of the assessment roll, consisting largely of business personal property, on which the taxes are not secured by a lien on real property.
Unitary tax return
Definitiona state tax return methodology requiring the activities of a group of related entities to be
United States person
Definitiona citizen or resident of the United States, a domestic corporation, a domestic partnership, or any U.S. estate or trust. Unrealized receivables any rights to receive payment for (1) goods delivered, or to be delivered, or (2) services rendered, or to be rendered. Unrealized receivables also include other assets to the extent that they would produce ordinary income if sold for their fair market value.
United States. This is
Definitionthe tax base for the deduction for qualified business income. Qualified dividends paid by domestic or certain qualified foreign corporations that are eligible for lower capital gains rates. Qualified education expenses consist of tuition and related costs for enrolling the taxpayer, spouse, or a
unmarried as of
Definitionthe end of the year and pays more than half of the cost to maintain a household for a
unmarried or legally separated from their spouse under
Definitiona divorce or separate maintenance decree.
unrealized built-in gains at
Definitionthe time the corporation converted from a C corporation to the extent the gains
Unrecaptured §1250 gain
Definitiona type of §1231 gain derived from the sale of real estate held by a noncorporate
Unsecured Roll
DefinitionA tax on goods purchased outside the state and delivered to California for use in the state. A use tax is designed to remove inequities between purchases made within and those made outside the state. Companion to the sales tax, the burden for payment is with the purchaser.
Unsecured Tax Rate
DefinitionA charge levied for use of a government-provided commodity or service. For example, day-use fees at a marina or park.
use based on
Definitionthe ratio of the number of rental use days to total days the property was used during the year.
Use tax
Definitiona tax imposed on the retail price of goods owned, possessed, or consumed within a state that were
Use Tax
DefinitionGeneric term for a tax levied on a product at each stage of its manufacture or processing based on the increase in value attributable to the particular process. It is similar to a sales tax, but is paid at each stage of production and marketing and is incorporated into the final purchase price rather than added on at the time of sale. Used in many other countries, but not in the United States The vehicle license fee (VLF) is an annual fee on all vehicles registered in California. The VLF currently is levied, in lieu of a personal property tax on the vehicle, at a rate of .65 percent of the depreciated market value of the vehicle.
used to review
Definitionthe history of the case to find out, for example, whether it was subsequently appealed and
User Charge
DefinitionRefers to a boilerplate statement, commonly at the end of a bill, that "waives" another statutory requirement, such as an automatic sunset or reimbursement of any state mandated costs created by that bill. If their rights to reimbursement are not waived, local governments may file claims for reimbursement of state-mandated costs and/or stateinitiated revenue losses via Board of Control.
using
Definitionthe LIFO method for accounting for inventories.
usually paid on
Definitiona monthly basis, but typically expressed as an annual amount.
V
Valuation allowance
Definitionthe portion of a deferred tax asset for which management determines it is more likely
Value Added Tax (VAT)
DefinitionMethod of combining the income of multinational corporations to determine the amount of net income taxable by California. The "water's-edge" is defined as the 50 states of the United States and specified "tax havens". This method is an alternative to worldwide combination.
value is also known as
Definitionthe maturity value.
value of
Definitiona partnership interest.
Value-added tax
Definitiona tax imposed on the producer of goods (and services) based on the value added to the goods (services) at each stage of production. Value-added taxes are common in Europe.
Vehicle License Fee
DefinitionProperty tax exemption available for property owned by nonprofit charitable, educational, religious, and scientific organizations and that meets other tests.
Vertical equity one of
Definitionthe dimensions of equity. Vertical equity is achieved when taxpayers with greater ability to pay tax pay more tax relative to taxpayers with a lesser ability to pay tax.
Vesting
Definitionthe process of becoming legally entitled to receive a particular benefit without risk of forfeiture; gaining ownership.
Vesting date
Definitionthe date on which the taxpayer becomes legally entitled to receive a particular benefit without risk of forfeiture.
Vesting period period of employment over which employees earn
Definitionthe right to own and exercise stock options.
W
Wages
Definitiona payment by an employer to an employee in exchange for the employee’s services; typically
Waiver (DISCLAIMER)
DefinitionStatutory provision for reduced property tax assessments on agricultural and other open space property in return for a contractual agreement that the property must be maintained in agricultural use for at least 10 years.
Wash sale
Definitionthe sale of an investment if that same investment (or substantially identical investment) is
Washington, and Wisconsin) that automatically equally divide
Definitionthe ownership of property acquired by either
Water'S-Edge Combination
DefinitionMethod of combining the income of multinational corporations to determine the amount of net income taxable by California. Corporations must use worldwide combination if they do not elect water'sedge combination.
weights to score each tax return based on
Definitionthe tax return’s characteristics. Returns with higher DIF scores are
Welfare Exemption
DefinitionGeneric term for a tax levied on the value of a resource at the time of its extraction or harvest. California's timber yield tax is an example. SIMILAR TO SEVERENCE TAX A previous feature of state and federal income taxes. A flat deduction given to all taxpayers, the amount of which varied by tax filing status. The ZBA replaced the standard deduction and was incorporated in the tax tables, but was repealed and the standard deduction reinstated in 1987.
when
Definitionthe tax basis exceeds the fair market value.
where “old” refers to
Definitionthe current tax and “new” refers to the revised tax after incorporating the additional income (or deductions) in question. Marginal tax rate = Δ Tax Δ Taxable income = (New total tax − Old total tax) (New taxable income − Old taxable income)
Wherewithal to pay
Definitionthe ability or resources to pay taxes due from a particular transaction.
which would produce ordinary income if sold by
Definitionthe entity. There are actually two definitions of inventory
Williamson Act
DefinitionWith a fixed pool of money, if one party receives an increased share, other parties must lose a commensurate amount.
with
Definitiona set interest rate and maturity date that pays interest semiannually. Treasury notes have terms of 2, 5, or 10 years.
withholding is insufficient to meet
Definitionthe taxpayer’s tax liability.
Withholdings taxes collected and remitted to
Definitionthe government by an employer from an employee’s wages.
work harder to generate
Definitionthe same after-tax dollars.
Working condition fringe benefits
Definitiona nontaxable fringe benefit provided by employers that would be
Writ of certiorari
Definitiona document filed to request the U.S. Supreme Court to hear a case.
X
Y
year and does not qualify for any of
Definitionthe other filing statuses. A taxpayer is considered single if they are
year as
Definitionan S corporation.
year with great significance to
Definitiona broad cross-section of taxpayers or cases litigating issues in which there has
years when
Definitionthe related deferred tax asset is recovered. Deduction for qualified business income subject to limitations, equal to 20 percent of the taxpayer’s qualified business income. Deductions amounts that are subtracted from gross income in calculating taxable income.
Z
Zero-coupon bond
Definitiona type of bond issued at a discount that pays interest only at maturity.
#
(e.g., CPAs, attorneys, enrolled agents) and what practicing before
Definitionthe IRS means (tax return preparation,
(i.e.,
Definitionthe writ of certiorari is denied) and, thus, litigation ends with the circuit court decision.
(loss) and separately stated items for
Definitionthe year.
(such as
Definitionthe Circular 230 effective date).
1/n − 1, where r is
Definitionthe after-tax rate of
17 at
Definitionthe end of the year and claimed as a dependent of the taxpayer, and a $500 credit, also subject to the
19 or under
Definitionthe age of 24 if a full-time student.
25 percent of
Definitionthe S corporation’s gross receipts divided by its passive investment income.
30-day letter
Definitionthe IRS letter received after an audit that instructs the taxpayer that they have 30 days to either (1) request a conference with an appeals officer or (2) agree to the proposed adjustment.
50 percent of
Definitionthe profits and capital interests in the partnership.
6.2 percent on
Definitionthe wage base (employers also pay 6.2 percent). Self-employed taxpayers are subject to a
83(b) election
Definitiona special tax election that employees who receive restricted stock or other property with ownership restrictions can make to accelerate income recognition from the normal date when restrictions lapse to the date when the restricted stock or other property is granted. The election also accelerates the employer’s compensation deduction related to the restricted stock or other property.
90-day letter
Definitionthe IRS letter received after an audit and receipt of the 30-day letter that explains that the taxpayer has 90 days to either (1) pay the proposed deficiency or (2) file a petition in the U.S. Tax Court to
§1231 assets depreciable or real property used in
Definitiona taxpayer’s trade or business owned for more than one year.
§1231 look-back rule
Definitiona tax rule requiring taxpayers to treat current year net §1231 gains as ordinary income when the taxpayer has deducted a §1231 loss as an ordinary loss in the five years preceding the current tax year. §1245 property tangible personal property and intangible property subject to cost recovery deductions. §1250 property real property subject to cost recovery deductions. 12-month rule regulation that allows prepaid business expenses to be currently deducted when the contract does not extend beyond 12 months and the contract period does not extend beyond the end of the tax year following the year of the payment.
§179 expense
Definitionan incentive for small businesses that allows them to immediately expense a certain amount of tangible personal property placed in service during the year. §197 intangibles intangible assets that are purchased that must be amortized over 180 months regardless of their actual useful lives.
§291 depreciation recapture
Definitionthe portion of a corporate taxpayer’s gain on real property that is converted from §1231 gain to ordinary income.
§338(g) election
Definitionan election by a corporate buyer of 80 percent or more of a corporation’s stock to treat the acquisition as an asset acquisition and not a stock acquisition.
§338(h)(10) election
Definitiona joint election by the corporate buyer and corporate seller of the stock of a subsidiary of the seller to treat the acquisition as a sale of the subsidiary’s assets by the seller to the buyer.
§481 adjustment
Definitiona change to taxable income associated with a change in accounting methods.
§6662, respectively.
DefinitionA good CPA evaluates whether supporting authority is substantial or not based upon the supporting and opposing authorities’ weight and relevance. Substantial authority suggests that the probability
§704(b) capital accounts partners’ capital accounts maintained using
Definitionthe accounting rules prescribed in the Section 704(b) regulations. Under these rules, capital accounts reflect the fair market value of property contributed to and distributed property from partnerships.
“C” corporation because
Definitionthe corporation and its shareholders are subject to the provisions of Subchapter C
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