Tax Glossary

One of four quarters of a calendar year: January through March, April through June, July through September, or October through December.

The right to buy a state number of shares of stock at a predetermined price (the strike price) before a specified date.

Generally, everything an individual owns and uses for personal purposes, pleasure, or investment.

Expenditure on improvement rather than repair. Where expenditure is more closely connected with the business income-earning structure than its income earning capacity, it is capital expenditure.

A gain on the sale of capital assets.f

Amounts paid to an individual or credited to their account by regulated investment companies and real estate investment trusts (REITs). These amounts are also known as capital gain dividends.

The loss from the sale of capital assets.

To recover a cost over a period of years through deductions for depreciation, amortization, or depletion, and adding the cost to the basis of the property to which it relates.

The unpaid interest on a loan that the lender adds to the outstanding principal balance of the loan.

A process by which the deductions or credits of one taxable year that cannot be used to reduce tax liability in that year are applied against a tax liability in subsequent years (carryforward) or previous years (carryback).

The accounting method which recognizes income and deductions when money is received or paid.

Any option that, upon exercise, is settled by paying the owner of the option cash or other property and not the actual property underlying the option.

Generally, wages paid by cash, checks, money orders, or equivalent means. Cash wages do not include the value of food, lodging, clothing, or other such noncash items given to an employee.

The damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.

A donation or gift to, or for the use of, a qualified organization. It is voluntary and is made without getting, or expecting anything of equal value.

A natural child, stepchild, adopted child, or an eligible foster child.

A payment that is specifically designated as child support or treated as specifically designated as child support under a divorce or separation instrument.

An individual who has been certified by a licensed health care practitioner within the previous 12 months as one of the following: (1)an individual who is unable, for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual due to loss of functional capacity (activities of daily living are eating, toileting, transferring, bathing, dressing, and continence), or (2) an individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.

An employee (other than a minister or member of a religious order) of a church or qualified church-controlled organization that is exempt from employer Social Security and Medicare taxes.

The value of imported goods which includes cost, insurance and freight.

Annuity benefits that are paid primarily under the Civil Service Retirement System or the Federal Employees Retirement System.

The number of years that establishes the property class and the recovery period for most types of property for the General Depreciation System and the Alternative Depreciation System under the Modified Accelerated Cost Recovery System.

Generally, a corporation that, at any time during the last half of the tax year, has more than 50% in value of its outstanding stock directly or indirectly owned by five or fewer people. This type of corporation is generally not a personal service corporation.

Individuals living together in an intimate relationship when not legally married.

Two or more loans made to the same borrower that are treated by both the lender and the borrower as one loan.

Any work of art, rug, antique, metal (such as gold, silver, and platinum bullion), gem, stamp, coin, or alcoholic beverage.

Any area the president of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat. An area usually becomes a combat zone and ceases to be a combat zone on the dates the President designates by Executive Order.

Contracts, traded on recognized futures markets, in which sellers promise to deliver a given commodity by a certain date at a predetermined price.

Tax based on a selective number of commodities.

A type of share in the ownership of a company that usually provides the right to vote on decisions relating to the company's management. Shareholders are entitled to receive distributions of the company's profit in the form of dividends.

An individual who performs services for an employer in return for compensation. An employee is subject to the control of the employer regarding what work is done and how, when, and where it is done.

A marriage in which a man and woman are considered to be married even without a license or a formal ceremony. Only certain states recognize common-law marriages.

Income earned while married and domiciled in a community property state that is allocated to both spouses, regardless of which spouse actually earned it.

Laws that affect what income is reported on the federal income tax returns of married taxpayers who live in a community property state and file separate returns.

Travel between a personal home and work or job site within the area of an individual's tax home.

Often used to mean a separate legal entity (a corporation) organized to perform an activity, business or industrial enterprise. Sometimes it has a broader meaning to mean individual or collective enterprises seeking profit.

Comparison of controlled transaction conditions with conditions prevailing in transactions between independent enterprises (uncontrolled transactions). Controlled and uncontrolled transactions are comparable if none of the differences between the transactions could materially affect the factor being examined in the methodology (e.g. price or margin), or if reasonably accurate adjustments can be made to eliminate the material effects of any such differences.

Under US regulations CPM is a method to determine an arm's length consideration for transfers of intangible property. If the reported operating income of the tested party is not within a certain range, an adjustment will be made. In effect this method requires a comparison of the operating income that results from the consideration actually charged in a controlled transfer with the operating income of similar taxpayers that are uncontrolled.

A transfer pricing methodology used in the US, which determines an arm's length royalty rate for an intangible by reference to uncontrolled transfers of comparable intangible property under comparable circumstances.

An adjustment in which the taxpayer reports a transfer price for tax purposes that is, in the taxpayer's opinion, an arm's length price for a controlled transaction, even though this price differs from the amount actually charged between the associated enterprises. This adjustment would be made before the tax return is filed.

Money or other benefits given or received as payment for work or service. Compensation can include wages, salaries, bonuses, prizes, and tips an employee receives.

Options offered to employees as partial compensation for their services.

Forum to resolve disputes arising from the application and/or interpretation of a double tax treaty. Both treaty countries appoint a representative (frequently the Ministry of Finance or its authorized representative) as the CA to assist aggrieved taxpayers by acting as the official liaison with the foreign CA. The CA is generally indicated in the definitions sections of tax treaties.

The process by which private property owned by a taxpayer is legally taken for public use without their consent.

A method whereby income or deductions flow through to another party.

Company set up in connection with a tax avoidance scheme, whereby income is paid by a company to the conduit and then redistributed by that company to its shareholders as dividends, interest, royalties, etc.

An IRA account used as a holding account for eligible rollover distributions from an employer plan that can be rolled over to a new employer plan later.

A written agreement between a taxpayer and the IRS that extends the statutory period of limitations (which is usually three years) to allow additional time, when it is necessary, to fairly resolve a tax examination. These agreements are called "consents" and apply to all kinds of taxes except estate tax.

Anything of value, including property, given in return for a promise or performance by another party to form a contract.

Loans used to refinance more than one loan of the same borrower.

A combined tax return in the name of the parent company filed by companies organized as a group.

Association of business enterprises, whether individuals, partnerships or companies, operating together on a temporary basis for some specific venture.

A variety of payments whether in cash or in kind made by companies to shareholders or associated persons, which are not expressed as dividends, may nevertheless be regarded by the tax law as distributions of profits and treated for tax purposes as if they were dividends.

A taxpayer may be considered to own property or stock which he only indirectly owns.

The unqualified, vested right to receive immediate income or property. The right may be credited to an account, set apart, or otherwise made available so that it may be drawn upon at any time.

Tax generally intended to fall on the ultimate consumption of goods and services such as sales tax.

A manufacturer, in most cases, located in a low-cost jurisdiction, which has a license to use an intangible property developed by its parent company. The manufacturer uses the intangible property to produce tangible property which is then resold to the parent for distribution to ultimate customers.

The selling price plus mortgages, debts, and other liabilities assumed or taken by the buyer that are in excess of the seller's adjusted basis. This amount is the total of all principal payments a seller is scheduled to receive on the installment sale, including the down payment and each later payment of principal on any debt that the buyer assumed. It also includes payments the seller is considered to receive. This does not include interest.

The amount put into a retirement plan for the individuals participating in the plan, including self-employed individuals.

The capacity of one person to ensure that another person acts in accordance with the first person's wishes, or the exercise of that capacity. The exercise of control by one person over another could enable individuals and corporations to avoid or reduce their tax liability. A company is usually regarded as controlling another company if it holds more than 50% of the latter company's voting shares. However, the definitions vary according to country and situation.

Companies, usually located in low tax jurisdictions, that are controlled by a resident shareholder. CFC legislation is usually designed to combat the sheltering of profits in companies resident in low- or no-tax jurisdictions. An essential feature of such regimes is that they attribute a proportion of the income sheltered in such companies to the shareholder resident in the country concerned. Generally, only certain types of income fall within the scope of CFC legislation, i.e. passive income such as dividends, interest and royalties.

Transactions between two enterprises that are associated enterprises with respect to each other.

Ownership of more than 50% of a corporation's voting shares.

A method established under the Modified Accelerated Cost Recovery System (MACRS) to determine when the recovery period begins and ends. The convention affects a taxpayer's depreciation deduction for the year they place their property in service and the year they dispose of it.

The movement of funds from a traditional IRA to a Roth IRA.

Enterprise whose only purpose is to coordinate the activities of affiliated companies, to do research or to conduct support activities for the benefit of such corporations.

Legal protection for artists and authors for the publication or use of their works.

The termination of the legal existence of a corporation.

A payout of cash or property from a corporation to a shareholder.

As a corporation is a separate legal entity, and shareholders have an interest in the company rather than in its assets, the corporate veil is used to describe the inability to look behind the legal entity and attribute the actions assets, debts, and liabilities of a company to those standing behind it, notably the shareholders. Courts may sometimes be able to “pierce” (look through) the corporate veil to make an attribution to the underlying person or persons.

In technical terms, it means a legal entity chartered by a relevant government and separate and distinct from the persons who own it. However, it is now commonly used as another way of referring to a company.

An adjustment to the tax liability of the associated enterprise in a second jurisdiction made by the tax administration of that jurisdiction, corresponding to a primary adjustment made by the tax administration in a first tax jurisdiction, so that the allocation of profits by the two jurisdictions is consistent.

Purchase price paid for property or the value of the exchange for which property is given.

A CCA is a framework agreed among enterprises to share the costs and risks of developing, producing, or obtaining assets, services, or rights, and to determine the nature and extent of the interests of each participant in the result of the activity of developing, producing, or obtaining those assets, services, or rights.

Contribution of an affiliate company to the general research and development (R&D) costs of another affiliate or group member, in proportion to its turnover or some other criterion.

Inventory at the beginning of the year, plus purchases (reduced by cost of items withdrawn for the taxpayer's personal use), plus cost of labor (not including amounts the taxpayer paid to themselves), plus materials and supplies, plus other costs, minus inventory at the end of the year.

A markup that is measured by reference to margins computed after the direct and indirect costs incurred by a supplier of property or services in a transaction.

A transfer pricing method using the costs incurred by the supplier of property (or services) in a controlled transaction. An appropriate cost-plus markup is added to this cost, to make an appropriate profit considering the functions performed (considering assets used and risks assumed) and the market conditions. What is arrived at after adding the cost plus mark up to the above costs may be regarded as an arm's length price of the original controlled transaction.

A trust or custodial savings account that is set up to pay the qualified education expenses of a designated beneficiary. Contributions are not deductible, but earnings may be tax-free.

A presidentially declared disaster area in which the IRS has decided to postpone tax-related filing deadlines for up to one year.

A person who extended credit and to whom money is owed, a lender.

The practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet.

The cash, accounts receivable, inventory, and other assets that are likely to be converted into cash, sold, exchanged, or expensed in the normal course of business, usually within a year.

The parent who has custody of a child for the greater part of the year or for the entire year.

An individual or organization, such as a bank or trust company, that is responsible for overseeing and safeguarding assets on behalf of the beneficiary or owner of the assets (for example, a minor).

The value associated with a customer base, a circulation base, an undeveloped market or market growth, insurance in force, a mortgage servicing contract, an investment management contract, or any other relationship with customers involving the future provision of goods or services.

Taxes on goods imported into a country.