Tax Lecture: Tax News, Midterm Review, and IRS Scams

Vocabulary flashcards covering current tax news, midterm exam review questions regarding gross income inclusions/exclusions, and the IRS Dirty Dozen tax schemes.

California Proposition 40

A proposed state ballot measure calling for a tax on the wealth of California taxpayers and trusts with assets over $1,000,000,000$, with revenue intended to pay for state healthcare programs, food assistance programs, and public education.

Federal Tax Gap

The difference between taxes legally owed and taxes actually collected by the government.

House Ways and Means Committee

The congressional committee in the United States House of Representatives where federal tax legislation officially originates.

The Dirty Dozen

An annual compilation published by the IRS listing the twelve worst tax scams, frauds, and aggressive schemes.

Ghost Preparer

An uncredentialed or deceitful tax return preparer who charges a fee to prepare returns but refuses to sign them or omit a valid Preparer Tax Identification Number (PTIN).

Preparer Tax Identification Number (PTIN)

An identification number issued by the IRS that paid tax return preparers are legally required to obtain and include when signing tax returns.

Barter Compensation

Non-cash property or services received as payment for work performed (such as receiving a $150$ necklace for tutoring), which must be reported as taxable gross income.

Punitive Damages

Monetary damages awarded by a court specifically to punish a wrongdoer, which are fully taxable and must always be included in gross income.

Compensatory Physical Injury Damages

Payments received to compensate an injured individual for physical injuries and associated loss of future income, which are generally excluded from gross income.

Qualified Scholarship Exclusion

A tax provision allowing scholarship payments for tuition, books, and necessary supplies to be excluded from gross income, while amounts allocated for lodging and food must be included in gross income.

Life Insurance Installment Interest

The interest component earned when life insurance proceeds are distributed over time in installments, which constitutes taxable gross income while the principal remains excluded.

De Minimis Fringe Benefit

A minor, low-value property or service provided by an employer (such as coffee or limited personal photocopying) that is tax-exempt and legally permitted to be offered on a discriminatory basis.

Employee Discount Fringe Benefit

A price reduction provided to employees on company goods (excludable up to the gross profit margin) that must be provided on a nondiscriminatory basis to remain tax-free.

Standard Deduction vs. Itemized Deduction Rule

The fundamental tax rule dictating that a taxpayer should elect the greater of their allowable standard deduction or their allowable itemized deductions.

Deductions for AGI

Above-the-line subtractions from gross income used to calculate Adjusted Gross Income, including self-employment tax deductions, expenses associated with royalty income, and contributions to traditional IRAs.

IRS Initial Contact Protocol

The official policy under which the IRS initiates contact with taxpayers through physical postal mail rather than unsolicited telephone calls, robocalls, emails, or text messages.

Non-Cash Charitable Contribution Scheme

An abusive tax scam involving inflated, fraudulent appraisals on donated property such as real estate, used vehicles, or clothing to claim excessive tax deductions.

Inflated Withholding Scheme

A fraudulent scheme where promoters encourage taxpayers to report fictitious, higher tax withholding amounts on their returns than what was actually paid to secure illegitimate refunds.

Offer in Compromise

A legitimate administrative agreement between an eligible taxpayer and the IRS that resolves and settles a tax liability for less than the full amount owed.

Installment Payment Agreement

A formal arrangement set up directly with the IRS enabling taxpayers who cannot pay their tax bill immediately to pay their liability over time in recurring increments.