Tax Glossary

The formal legislative consent or acceptance required by the constitution or domestic law of a country before a treaty to which it is a party can come into effect.

A trust that primarily invests in real estate or real estate secured loans. Most of the assets in real estate mutual fund include REITs.

Land and generally anything built on, growing on, or attached to land, such as buildings and their structural components (real estate).

A legal concept referring to a time when rights have become legally receivable, or obligations have become legally payable.

The difference between the adjusted basis of the property and the sales price. In a like-kind exchange, the total of all money received, net liabilities given up, and the fair market value of all property received, minus the basis of the property traded is the realized gain or loss.

A term which is synonymous with a tax credit in certain countries.

To include an amount in income that was deducted or excluded in a prior year.

Treating a contribution to one type of IRA as having been made to another type of IRA.

The principle of give-and-take operates in a variety of tax contexts (particularly in the case of tax treaties) where an exchange of tax privileges between countries is desired. Reciprocity is a basis for relieving a taxpayer under domestic law, e.g. relief is granted for foreign tax if the other country gives corresponding or equivalent relief.

The part of a realized gain or loss that is a taxable gain or deductible loss. For a like-kind exchange, it is the lesser of realized gain or boot. A recognized (or taxable) gain is also known as the amount recognized.

The process of converting funds in a traditional IRA to a Roth IRA after they have been recharacterized. A reconversion cannot occur in the same tax year (or within 30 days, whichever is later) as the original conversion.

The ability of a lender to claim money from a borrower in default, in addition to the property pledged as collateral.

A debt for which an individual is personally liable.

The basis of property has been fully recovered when the total of the section 179 and cumulative allowed or allowable depreciation deductions equals the cost or investment in the property.

A return of an amount the taxpayer deducted or took a credit for in an earlier tax year.

From the taxpayer's point of view, this may mean a refund of tax. From the tax authorities’ point of view, it may mean the collection of tax which is in arrears.

A period of years during which the cost of business assets is depreciated.

The payment or exchange of an obligation such as when stock is sold or converted or a bond is presented for payment.

In many countries the ordinary rates of tax charged under various tax laws may be reduced in particular situations. For example, under tax treaties, reduced withholding tax rates often apply to dividends, interest and royalties.

Tax repaid to a taxpayer.

An item of existing debt that reduces the refund amount claimed on a tax return.

A credit that, when combined with a taxpayer's other tax payments, can reduce the amount of tax they owe, give them a refund, or increase their refund.

A nominative (or registered) security is a security in respect of which the owner's name is recorded in a register by the issuing company and the registered owner is the person entitled to all relevant rights.

Fixed or variable duty levied on documents which relate to the transfer of ownership or the right to use movable or immovable property, the formation or any change of status of a company, etc.

The federal tax liability imposed for the year without regard to the alternative minimum tax.

Commonly called a mutual fund, this type of investment company is required by law to distribute interest, dividends, and capital gains to its shareholders. The income avoids double taxation by only being taxed at the personal level, not at the corporate level.

To pay back for money spent for out-of-pocket expenses.

Employment income and fringe benefits received by an employee for services rendered.

Ordinary and necessary expenses that may be deducted for rental property.

Any payment received for the use or occupation of property.

Property maintenance that keeps property in good operating condition and that does not materially add to the value of property or substantially lengthen its life.

Individuals and legal entities investing their capital in a foreign country in order to derive income from such capital may wish to transfer this capital or income back to their home country, i.e. to repatriate it. Repatriation also takes place when expatriate employees working in a foreign country want to send income to their home country.

The action of a lender or a seller taking property from an individual, usually because of loan default.

The date at which an individual must begin receiving distributions from a qualified retirement plan.

Requirements for distributing qualified retirement plan funds. The requirements differ depending on whether the person is the owner or the beneficiary.

The smallest amount that must be distributed from a qualified plan to prevent an additional tax on excess accumulation. Also called minimum required distribution.

Gross margin measured by reference to the price at which goods purchased from another party are resold to independent enterprises.

Method used in transfer pricing between affiliated companies, under which an arm's length price is ascertained by deducting a normal profit margin from the resale price at which a buyer of inventory assets resells these assets to an unrelated party.

Any systematic or intensive study carried out in the manufacturing and industrial field, the results of which are to be used for the production or improvement of products and processes.

Funds made to fulfil future costs or expenditures. There are legal reserves which may be required by company law and may be necessary before dividends are distributed.

A basis for the imposition of taxation. Usually, a resident taxpayer is taxed on a wider range of income or other taxable items than a non-resident. Residence in a state is a criterion for invoking a tax treaty of that state, and residence for treaty purposes involves considering the domestic law of residence for tax purposes, and then the requirements in Article 4 of the OECD Model, especially in the case of tiebreaker tests in cases of dual residence.

A principle according to which residents of a country are subject to tax on their worldwide income and non-residents are only subject to tax on domestic-source income.

A person who is liable for tax in a country or state because of domicile, residence, place of management, or other similar criterion.

A person is said to be a resident alien of a country if he resides in that country but is a citizen of another country.

Any building or structure, such as a rental home (including a mobile home), for which 80% or more of its gross rental income for the tax year is from dwelling units.

An analysis used in the profit split method which divides the combined profit from the controlled transactions under examination in two stages. In the first stage, each participant is allocated sufficient profit to provide it with a basic return appropriate for the type of transactions in which it is engaged. Ordinarily this basic return would be determined by reference to the market returns achieved for similar types of transactions by independent enterprises. Thus, the basic return would generally not account for the return that would be generated by any unique and valuable assets possessed by the participants. In the second stage, any residual profit (or loss) remaining after the first stage division would be allocated among the parties based on an analysis of the facts and circumstances that might indicate how this residual would have been divided between independent enterprises.

A stock option plan under which the transferred stock option is subject to restrictions regarding transferability and to substantial risk of forfeiture. Restricted stock is includable in the gross income of the employee in the first taxable year in which the rights become transferable or no longer subject to forfeiture.

Single-stage tax on the sale of goods to ultimate consumers, whether by retailers or other traders.

The portion of a corporation's after-tax profits that is not distributed to the shareholders, but rather is reinvested in the business.

Permanently withdrawing property from use in a trade or business or from use in the production of income.

The effect of tax law provision towards the past, which is allowed only to the advantage of a taxpayer.

Declaration of income, sales and other details made by or on behalf of the taxpayer. Forms are often provided by the tax authorities for this purpose.

A distribution that is not paid out of the earnings and profits of a corporation. Rather, it is a return of the shareholder's investment in the stock of the company.

Constraints on tax reform that it should not change revenues available to government in any significant way.

An official published statement by the IRS about procedural and administrative aspects of the tax laws.

Theoretical enclosure established by tax legislation around certain profits, losses, transactions or groups of transactions in order to isolate them for tax purposes.

A tax-free withdrawal of cash or other assets from a qualified retirement plan that is reinvested into another qualified retirement plan within 60 days.

A type of IRA that allows an individual (subject to certain income limits) to save for retirement while allowing the savings to grow tax-free.

Potential transfer pricing abuse where intangible property is developed by a parent company which licenses it to a related party manufacturer located in a low-tax jurisdiction. The manufactured goods are resold to the parent for distribution to ultimate consumers.

Payments of any kind received as consideration for the use of, or the right to use intellectual property, such as a copyright, patent, trade mark, design or model, plan, secret formula or process.

Decisions or opinions of the tax authorities in respect of factual situations which come before it as part of an assessment procedure or in response to taxpayer questions.