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tax
fee charged on items such as labor, capital, products, and activities in order to fund government expenditures TERM 2
Sales taxes
DEFINITION 2 a type of transaction taxa fixed percentage:A state or local level tax on the retail sale of specified property. Generally, the purchaser pays the tax, but the seller collects it, as an agent for the government. Various taxing jurisdictions allow exemptions for purchases of specific items, including certain food, services, and manufacturing equipment. If the purchaser and seller are in different states, a use tax usually applies. TERM 3
ad valorem
taxes
DEFINITION 3 based on property's value (real estate taxes) TERM 4
FICA Tax
DEFINITION 4 a type of employment taxsocial security: 6.2% for employee
- 6.2% paid by employer on the first $106,800 of earningsmedicare: 1.45% on all earned income by employer and employee (2.9%total)total: 15.3% TERM 5
FUTA
DEFINITION 5 a type of employment taxto aid in employment agencies6.2%-5.4% = .08% tax paid by employer only
Transfer Taxes
estate tax (at death): taxes the right to pass property at deathGift Tax (during life): if gift is more than $13,000, receiver must pay taxInheritance Tax (at death): if you get an inheritance froma decedentyou have to pay TERM 7
Proposed Taxes
DEFINITION 7 Value Added Tax (VAT): tax on consumption or spending of moneyNational Sales Tax: the more you spend the higher the taxesFlat Tax: paying same percentage on all income TERM 8
Tax Base
DEFINITION 8 the amount on which the tax is applied TERM 9
Progressive Tax Rate Structure
DEFINITION 9 higher tax rate applies as the tax base increases (the more money you make, the higher the tax rate)U.S style TERM 10
Regressive Tax Rate Structure
DEFINITION 10 higher tax rate applies as the tax base increasesex: tax on clothing because same tax rate on all clothing no matter how wealty you are
House Ways and Means Committee
Debate over tax lawshave control over huge amount of government because they can change the lawtax law originates here TERM 17
Three Sources of Tax Law
DEFINITION 17 Statutory (legislative branch)Administrative (Executive Branch)Judicial (what happens in the courts) TERM 18
Internal Revenue Code of 1986
DEFINITION 18 the domestic portion of Federal statutory tax law in the United StatesAuthoritative meaning that it takes precedence over all other sources TERM 19
Correspondence Audit
DEFINITION 19 A tax administration audit that comes simply by mailit is a clarification about something that is missing from tax returnsusually about something minor TERM 20
Field audit
DEFINITION 20 a tax administration audit when the IRS comes to you to review numerous items reported on tax returnmost serious type of audit
Franchise Tax
Franchise tax is a tax charged by some US states to corporations with a nexus with those states. a tax on the right to do business in that state TERM 22
Occupational Fees
DEFINITION 22 taxes on business licenses and permits (liquor license, taxi permits) TERM 23
Office Audit
DEFINITION 23 taxpayer goes to IRShas a restricted scope TERM 24
Personalty
DEFINITION 24 All assets that are moveable and not real property or real estate TERM 25
Realty
DEFINITION 25 generally includes real estate and any capital improvements that are classified as fixtures (permanently attached to real estate that removing it would cause irreparable damage)
Use Tax
A sales tax that is collectible by the seller where the purchaser is domiciled in a different state. TERM 32
Value Added Tax (VAT)
DEFINITION 32 A national sales tax that taxes the increment in value as goods move through the production process.Used much more in other countries TERM 33
Wherewithal to Pay
DEFINITION 33 This concept recognizes the inequity of taxing a transaction when the taxpayer lacks the means with which to pay the tax. Under it, there is a correlation between the imposition of the tax and the ability to pay the tax. It is particularly suited to situations in which the taxpayers economic position has not changed significantly as a result of the transaction. TERM 34
Acquiescence
DEFINITION 34 Agreement by the IRS on the results reached in certain judicial decisions; TERM 35
U.S. Court of Appeals
DEFINITION 35 Any of 13 Federal courts that consider tax matters appealed from the U.S. Tax Court, a U.S. District Court, or the U.S. Court of Federal Claims. Appeal from a U.S. Court of Appeals is to the U.S. Supreme Court by Certiorari.
Citator
A tax research resource that presents the judicial history of a court case and traces the subsequent references to the case. When these references include the citating cases evaluations of the cited cases precedents, the research can obtain some measure of the efficacy and reliability of the original holding. TERM 37
Court of Original Jurisdiction
DEFINITION 37 A dispute between a taxpayer and the IRS is first considered by a court of original jurisdiction (i.e., a trial court). The four Federal courts of original jurisdiction are the U.S. Tax Court, U.S. District Court, the Court of Federal Claims, and the Small Cases Division of the U.S. Tax Court. TERM 38
Determination Letter
DEFINITION 38 Upon the request of a taxpayer, the IRS will comment on the tax status of a completed transaction. Determination letters frequently are used to clarify employee status, determine whether a retirement or profit sharing plan qualifies under the Code, and determine the tax-exempt status of certain nonprofit organizations. TERM 39
Federal District
Court
DEFINITION 39 A Federal District Court is a trial court for purposes of litigating Federal tax matters. It is the only trial court in which a jury trial can be obtained. TERM 40
Finalized
Regulations
DEFINITION 40 The U.S. Treasury Department Regulations (abbreviated Reg.) represent the position of the IRS as to how the Internal Revenue Code is to be interpreted. Their purpose is to provide taxpayers and IRS personnel with rules of general and specific application to the various provisions of the tax law. Regulations are published in the Federal Register and in all tax services.
Proposed Regulation
Carry little weightthe time period between the the proposal and the decision to finalize the regulation allows for taxpayers and other interested parties to comment on the proposal TERM 47
Revenue
Ruling
DEFINITION 47 IRS expresses an official interpretation of the tax law as applied to specific transactions. It is more limited in application than a Regulation. A Revenue Ruling is published in an Internal Revenue Bulletin (I.R.B.) TERM 48
Revenue Procedure
DEFINITION 48 A matter of procedural importance to both taxpayers and the IRS concerning the administration of the tax lawsissued in the Internal Revenue Bulletin TERM 49
Small Cases
Division
DEFINITION 49 A division within the U.S. Tax Court where jurisdiction is limited to claims of $50,000 or less. There is no appeal from this court. TERM 50
Tax avoidance
DEFINITION 50 merely tax minimization through legal techniques.
Tax evasion
eliminating or reducing taxes with the use of subterfuge and fraud as a means to this end. TERM 52
Temporary
Regulations
DEFINITION 52 A Regulation issued by the Treasury Department in temporary form. When speed is critical, the Treasury Department issues Temporary Regulations that take effect immediately. These Regulations have the same authoritative value as Final Regulations and may be cited as precedent for three years. Temporary Regulations are also issued as proposed Regulations. TERM 53
U.S. Court of Federal Claims
DEFINITION 53 A trial court (court of original jurisdiction) that decides litigation involving Federal tax matters. Appeal from this court is to the Court of Appeals for the Federal Circuit. TERM 54
U.S Tax Court
DEFINITION 54 The U.S. Tax Court is one of four trial courts of original jurisdiction that decides litigation involving Federal income, death, or gift taxes. It is the only trial court where the taxpayer must not first pay the deficiency assessed by the IRS. The Tax Court will not have jurisdiction over a case unless a statutory notice of deficiency (90-day letter) has been issued by the IRS and the taxpayer files the petition for hearing within the time prescribed. TERM 55
Abandoned Spouse
DEFINITION 55 enables a married taxpayer with a dependent child whose spouse did not live in the taxpayers home during the last six months of the tax year to file as a head of household rather than as married filing separately.
Multiple Support Agreement
a multiple support agreement enables a taxpayer to still qualify for the dependency exemption. Any person who contributed more than 10 percent of the support is entitled to claim the exemption if each person in the group who contributed more than 10 percent files a written consent (Form 2120). Each person who is a party to the multiple support agreement must meet all the other requirements for claiming the dependency exemption. TERM 62
Qualifying Child
DEFINITION 62 An individual who, as to the taxpayer, satisfies the relationship, abode, and age tests. To be claimed as a dependent, such individual must also meet the citizenship and joint return tests and not be self supporting. TERM 63
Qualifying Relative
DEFINITION 63 An individual who, as to the taxpayer, satisfies the relationship, gross income, support, citizenship, and joint return tests. Such an individual can be claimed as a dependent of the taxpayer. TERM 64
Standard Deduction
DEFINITION 64 The amount of the standard deduction depends on the tax payers filing status (single, head of household, married filing jointly, surviving spouse, or married filing separately). For 2011, the amount of the standard deduction ranges from $5,800 (for married, filing separately) to $11,600 (for married, filing jointly). Additional standard deductions of either $1,150 (for married taxpayers) or $1,450 (for single taxpayers) are available if the taxpayer is either blind or age 65 or over. TERM 65
Surviving Spouse
DEFINITION 65 When a husband or wife predeceases the other spouse, the survivor is known as a surviving spouse. Under certain conditions, a surviving spouse may be entitled to use the income tax rates in 1(a)(those applicable to married persons filing a joint return) for the two years after the year of death of his or her spouse.
Unearned Income
Income received but not yet earned. Normally, such income is taxed when received, even for accrual basis taxpayers.includes such income as taxable interest, dividends, capital gains, rents, royalties, pension and annuity income, and income (other than earned income) received as the beneficiary of a trust. TERM 67
Accounting Income
DEFINITION 67 The accountants concept of income is generally based upon the realization principle. Financial accounting income may differ from taxable income (e.g., accelerated depreciation might be used for Federal income tax and straight-line depreciation for financial accounting purposes). Differences are included in a reconciliation of taxable and accounting income on Schedule M1 or Schedule M of Form 1120 for corporations. TERM 68
Accounting Method
DEFINITION 68 The method under which income and expenses are determined for tax purposes. Important accounting methods include the cash basis and the accrual basis. Special methods are available for the reporting of gain on installment sales, recognition of income on construction projects (the completed contract and percentage of completion methods), and the valuation of inventories (last-in, first-out and first-in, first-out). TERM 69
Accrual Method
DEFINITION 69 A method of accounting that reflects expenses incurred and income earned for any one tax year. In contrast to the cash basis of accounting, expenses need not be paid to be deductible, nor need income be received to be taxable. Unearned income (e.g., prepaid interest and rent) generally is taxed in the year of receipt regardless of the method of accounting used by the taxpayer. TERM 70
Alimony and Separate Maintenance
Payments
DEFINITION 70 Alimony deductions result from the payment of a legal obligation arising from the termination of a marital relationship. Payments designated as alimony generally are included in the gross income of the recipient and are deductible for AGI by the payor.
Community Property States
Under a community property system, one-half of the earnings of each spouse is considered owned by the other spouse.If Jeff earns $50,000....his income is $25,000 and his wifes income is $25, TERM 77
Common Law States
DEFINITION 77 In a common law system, each spouse owns whatever he or she earns.If Jeff earns $50,000...his income is $50,000, his wife would be 0 TERM 78
Constructive
Receipt
DEFINITION 78 If income is unqualifiedly available although not physically in the taxpayers possession, it is subject to the income tax. An example is accrued interest on a savings account. Under the constructive receipt concept, the interest is taxed to a depositor in the year available, rather than the year actually withdrawn. The fact that the depositor uses the cash basis of accounting for tax purposes is irrelevant. TERM 79
Economic Income
DEFINITION 79 The change in the taxpayers net worth, as measured in terms of market values, plus the value of the assets the taxpayer consumed during the year. Because of the impracticality of this income model, it is not used for tax purposes. TERM 80
Fruit and Tree Metaphor
DEFINITION 80 The courts have held that an individual who earns income from property or services cannot assign that income to another. For example, a father cannot assign his earnings from commissions to his child and escape income tax on those amounts.
Gross Income
Income subject to the Federal income tax. Gross income does not include all economic income. That is, certain exclusions are allowed (e.g., interest on municipal bonds). For a manufacturing or merchandising business, gross income usually means gross profit (gross sales or gross receipts less cost of goods sold). TERM 82
Group Term Life
Insurance
DEFINITION 82 Life insurance coverage provided by an employer for a group of employees. Such insurance is renewable on a year to year basis, and typically no cash surrender value is built up. The premiums paid by the employer on the insurance are not taxed to the employees on coverage of up to $50,000 per person. TERM 83
Hybrid Method of Accounting
DEFINITION 83 A combination of the accrual and cash methods of accounting. That is, the taxpayer may account for some items of income on the accrual method (e.g., sales and cost of goods sold) and other items (e.g., interest income) on the cash method. TERM 84
Imputed Interest
DEFINITION 84 For certain long-term-sales of property, the IRS can convert some of the gain from the sale into interest income if the contract does not provide for a minimum rate of interest to be paid by the purchaser. The seller recognizes less long- term capital gain and more ordinary income (interest income). TERM 85
Income
DEFINITION 85 For tax purposes, an increase in wealth that has been realized.
Accident and Health
Benefits
Employee fringe benefits provided by employers through the payment of health and accident insurance premiums or the establishment of employer-funded medical reimbursement plans. Employers generally are entitled to a deduction for such payments, whereas employees generally exclude such fringe benefits from gross income. TERM 92
Cafeteria Plan
DEFINITION 92 An employee benefit plan under which an employee is allowed to select from among a variety of employer provided fringe benefits. Some of the benefits may be taxable, and some may be statutory nontaxable benefits (e.g., health and accident insurance and group term life insurance). The employee is taxed only on the taxable benefits selected. A cafeteria benefit plan is also referred to as a flexible benefit plan.In order for plan to be excluded from employee's gross income, the plan must be used for the benefit of the employer TERM 93
Compensatory Damages
DEFINITION 93 Damages received or paid by the tax-payer can be classified as compensatory damages or as punitive damages. Compensatory damages are those paid to compensate one for harm caused by another. Compensatory damages are excludible from the recipients gross income. TERM 94
Death Benefit
DEFINITION 94 A payment made by an employer to the beneficiary or beneficiaries of a deceased employee on account of the death of the employee.Includible in beneficiary's gross income TERM 95
De Minimis Fringe
Benefits
DEFINITION 95 Benefits provided to employees that are too insignificant to warrant the time and effort required to account for the benefits received by each employee and the value of those benefits. Such amounts are excludible from the employees gross income.
Educational Savings
Bond
U.S. Series EE bonds whose proceeds are used for qualified higher educational expenses for the taxpayer, the taxpayers spouse, or a dependent. The interest may be excluded from gross income, provided the taxpayers adjusted gross income does not exceed certain amounts. TERM 97
Flexible Spending Plan
DEFINITION 97 employee benefit plan that allows the employee to take a reduction in salary in exchange for the employer paying benefits that can be provided by the employer without the employee being required to recognize income (e.g., medical and child care benefits). TERM 98
Foreign Earned Income Exclusion
DEFINITION 98 The Code allows exclusions for earned income generated outside the United States to alleviate any tax base and rate disparities among countries. In addition, the exclusion is allowed for housing expenditures incurred by the taxpayers employer with respect to the non-U.S. assignment, and self-employed individuals can deduct foreign housing expenses incurred in a trade or business. The exclusion is limited to $92,900 per year for 2011($91, TERM 99
Gift
DEFINITION 99 A transfer of property for less than adequate consideration. Gifts usually occur in a personal setting (such as between members of the same family). They are excluded from the income tax base but may be subject to a transfer tax. TERM 100
Health Savings Account
(HSA)
DEFINITION 100 A medical savings account created in legislation enacted in December 2003 that is designed to replace and expand Archer Medical Savings Accounts.
