Tax Glossary

The capital received by a corporation from investors for stock, as distinguished from capital generated by earnings or donated.

Assigned value printed on a share certificate.

Company with a substantial participation in the share capital of another company, called the subsidiary.

An individual who shares ownership of an unincorporated trade or business with one or more persons.

An unincorporated organization with two or more parties who join together to carry on a trade or business, with each party contributing money, property, labor, or skills and expecting to share in the profits and losses of the business.

A nontaxable entity such as a partnership. Generally, the income or expense is passed to the underlying owner.

Any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans).

Generally, a trade or business activity in which a taxpayer did not materially participate and any rental activity (except a rental activity for those who qualify as real estate professionals).

Income from a trade or business activity in which a taxpayer did not materially participate and income from all real estate activities, regardless of their participation (except rental activities for those who qualify as real estate professionals).

The exclusive right granted to an owner or inventor to manufacture, use, or sell an invention for a limited period of time.

A person who does business with a cooperative, but is not necessarily a member.

A payment to a patron of a cooperative.

Tax charged on an employer's payroll (i.e., gross salaries, wages, and other remunerations) paid to his employee without regard to their domicile, family status, or other individual circumstances.

Administrative penalties are imposed for tax offences, such as failure to make a timely return or payment, negligence, and making a false return or statement. They take the form of additions to the tax and are assessed as part of the tax. Criminal penalties, on the other hand, are enforceable only by prosecution. A prison sentence may be imposed for serious tax fraud.

Generally, a series of regular definitely determinable payments made to the individual after they retire from work.

Latin for "for each person".

Latin for "by the day"; referring to daily allowance, usually for travel, entertainment, employee compensation, or miscellaneous out-of-pocket expenses incurred while conducting a business transaction.

Payments made on a periodic basis without regard to actual expenses incurred.

The period of time after which a taxpayer can bring no legal action against the IRS regarding their tax return or vice versa.

A payment or distribution from a retirement plan that recurs on a regular basis, such as monthly or yearly.

Term used in double taxation agreement (although it may also be used in national tax legislation) to refer to a situation where a non-resident entrepreneur is taxable in a country; that is, an enterprise in one country will not be liable to the income tax of the other country unless it has a "permanent establishment" thorough which it conducts business in that other country. Even if it has a PE, the income to be taxed will only be to the extent that it is ‘attributable’ to the PE.

A condition that indicates an individual cannot engage in any substantial gainful activity because of a physical or mental condition. A physician must certify that the condition has lasted or can be expected to last continually for at least 12 months or that the condition can be expected to result in death.

Personal allowances are granted to individuals as deductions from income in computing their taxable income. There is usually a deduction for the individual himself, spouse, children, and other dependents.

A company, the shares of which are principally owned by or attributed to the taxpayer, and which is set up to receive his investment income.

Things movable as distinguished from real property or things attached to the realty; also called “personalty”.

A court-appointed executor or administrator of an estate or anyone who is in charge of a deceased individual's property.

An activity that involves the performance of personal services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital is not a material income-producing factor.

A corporation for which the main work is the performance of personal service activities and for which these activities are substantially performed by employees who are also owners of the corporation.

A written application addressed to a court or judge, and stating facts and circumstances relied upon as a cause for judicial action.

A deferred-compensation plan that uses the employer's stock in the business as a measuring rod for determining the value of the compensation payment. Hypothetical shares of stock are allocated to the employee, and accrued appreciation and/or dividends to the hypothetical shares are paid in cash to the employee.

The gradual reduction in the amount allowed as a deduction, a credit, or an expense.

The process of imposing liability for corporate activity, in disregard of the corporate entity, on a person or entity other than the offending corporation itself; a US legal doctrine.

Place of effective management is the test suggested in the tie-breaker rule of the OECD model tax treaty to determine the residence of a company where under the domestic laws of both contracting states the company is resident in both of them. The test determines that in such cases the company would, for treaty purposes, be resident in the state in which its place of effective management is situated.

For purposes of the application of a tax treaty, the place of management of an enterprise normally forms a permanent establishment. The term "place of management" as such is not defined in the OECD model tax treaty, but may be defined in national tax law.

Ready and available for a specific use whether in a trade or business, the production of income, a tax-exempt activity, or a personal activity.

The date property is ready and available for a specific use.

Mortgage interest fees paid to reduce the initial interest rate on a loan. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points.

A person who owns the proceeds of an insurance contract. The policyholder may also be the insured.

Collective basis for the purpose of depreciation of business assets falling within the same category. For example, all depreciable assets of a similar kind are effectively treated as a single asset for depreciation purposes.

Interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business; a gain or loss from the disposition of property that produces these types of income or that is held for investment.

Category of interest that may be paid from US sources free of withholding tax provided certain requirements are met. The portfolio interest exemption does not apply to bank loans made in the ordinary course of business.

A portfolio investment in a company would be a holding of shares amounting to a small portion of the total shares of the company, e.g., less than 10 percent. Portfolio investors may receive different tax relief or other treatment in respect of their dividends under tax treaties from those accorded to other direct investors.

In general, any US island, cay, or reef that is not part of any of the 50 states. For tax purposes, possessions include Puerto Rico, the Virgin Islands, the Marshall Islands, the Federated States of Micronesia, American Samoa, Guam, the Canal Zone, Mariana Islands, Johnson Island, and Wake Island.

Education beyond high school at a college, university, or vocational school.

Instrument in writing by which one person, as principal, appoints another as his agent and confers upon him the authority to perform certain specified acts or kinds of acts on behalf of the principal.

The voluntary contribution an employer deducts from an employee's pay that is not subject to income tax. Also known as deferred compensation or elective deferral.

Profit after deducting depreciation, costs, etc., but before deducting taxes.

The obligation of the courts to adhere to principles enunciated in previously decided cases when making adjudications in cases involving the same material facts and legal issues.

Shares which carry a right to a prior and usually fixed dividend, ahead of dividends paid to ordinary shareholders.

A type of share in the ownership of a company that usually does not provide voting rights, but the preferred stock shareholders' claim to dividends comes before shareholders owning common stock.

In the context of a derivative financial instrument, a premium is the amount a purchaser pays for an option. In the context of a bond or other debt instrument, it is the amount paid in excess of the face amount.

Excess of issue value over par value in issuing corporate shares. It is a contribution to capital and not taxed as profits.

An area declared by the president of the United States to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act.

Concept of taxation according to which income tax is based on "average" income instead of actual income.

Reserve to take account of expected increase in prices of goods, raw materials, etc. which must be replaced in the course of business.

An adjustment that a tax administration in a first jurisdiction makes to a company's taxable profits as a result of applying the arm's length principle to transactions involving an associated enterprise in a second tax jurisdiction.

The face value of an obligation, such as a bond or a loan, which must be repaid at maturity, as separate from the interest.

The place where a person does business most of the time.

Losses not allowed in prior years due to basis limitations, at-risk limitations, or passive activity loss limitations that are carried forward to the current tax year.

A tax-exempt bond issued by a state or locality to finance the private development of public projects for the benefit of the general public.

Ruling granted by the tax authorities to a single taxpayer, usually with respect to a single transaction or series of transactions. Normally the ruling can be relied upon only by the taxpayer to whom it is issued, not by other taxpayers, and is binding upon the tax authority provided all relevant facts have been disclosed.

Under the general rules of international law or under the provisions of special agreements, diplomatic agents and consular officers are in most cases exempt from tax in the state to which they are seconded. Many tax treaties include a clause that the right to tax income arising from outside the state is reserved to the sending state.

Euphemism for the tax regime of a tax haven.

Latin for "proportionally".

Under most VAT systems, a credit for part of the input tax is allowed for VAT previously paid on goods and services when they are used in taxable and exempt (without credit) transactions and total transactions occurring during a calendar year.

Services independently performed by members of the liberal professions (i.e. physicians, lawyers, accountants, etc.) and other activities of an independent character.

The excess of revenue over expenditure.

Income statement.

Method to find an arm's length price by taking the vendor's cost and adding an appropriate profit mark-up.

Method used in transfer pricing cases that looks at the profits arising from controlled transactions of one or more of the associated enterprises participating in such transactions.

Term used to denote the ratio of profits of an enterprise to its capital or net worth, and sometimes used as a basis for taxation.

Allocation of income and expenses between related corporations or branches of the same legal entity (e.g. by using transfer pricing) in order to reduce the overall tax liability of the group or corporation.

Transfer pricing method that allocates the combined operating income or loss from a transaction among the separate parties by determining the relative value of each party's contribution to such overall profits or loss.

Tax imposed on business profits in addition to ordinary income tax or as distinct from income tax imposed on other forms of income.

The rates of individual income tax are usually progressive, i.e. an increasing proportion of income must be paid in tax as the income increases.

Damage resulting from a steadily ongoing operation or a normal process, rather than from a sudden event.

A category for property under the Modified Accelerated Cost Recovery System (MACRS) that generally determines the depreciation method, recovery period, and convention.

Group of taxes imposed on property owned by individuals and businesses based on the assessed value of each property.

An unincorporated business owned by a single person. The individual proprietor has the right to all the profits from the business and also the responsibility for all its liabilities.

Signed document containing the points on which agreement has been reached by the negotiating parties preliminary to a final treaty. For tax purposes, a protocol is signed and ratified by the parties in addition to an existing tax treaty. The protocol may be signed simultaneously with the tax treaty or later, and it clarifies, implements or modifies treaty provisions.

Assessment of tax made before it is possible to make a final assessment which is often based on, for example, estimated figure or the previous year's figures.

A corporation that has a class of common stock registered on a national stock exchange; a US concept.

A partnership in which the partnership's interests are traded on an established securities market or are readily tradable on a secondary market (or its substantial equivalent).

A contract granting the owner of a security the right to sell the security at a predetermined price during a specified period of time.