WGU - C237 - TAXATION 1

30

Number of days that are initially given to an audited individual or business to either request a conference with an appeals officer or agree to the proposed adjustment. (Ch 2-6)

90

Number of days that are given to an audited individual or business after the appeals conference to either pay the proposed deficiency or file a petition in the US Tax Court to hear the case. (Ch 2-6)

12 Month Rule

A regulation that allows prepaid business expenses to be currently deducted when the contract does not extend beyond a specific numbers of months and the contract period does not extend beyond the end of the tax year following the year of the payment. (Ch 6-15)

1231 Assets

Depreciable or real property used in a taxpayers trade or business owned for more than one year. (Ch 11-8)

1231 Look Back Rule

A tax rule requiring taxpayers to treat current year net (Ch 11-18)

1245 Property

Tangible personal property and intangible property subject to cost recovery deductions. (Ch 11-10)

1250 Property

Real property subject to cost recovery deductions. (Ch 11-14)

291 Depreciation Recapture

The portion of a corporate taxpayer's gain on real property that is converted from 1231 gain to ordinary income. (Ch 11-14)

481 Adjustment

A change to taxable income associated with a change in accounting methods. (Ch 9-30)

Abandoned Spouse

A married taxpayer who lives apart from the spouse for the last 6 months of the year, who files a tax return separate from the spouse, and who maintains a household for a qualifying child. (Ch 4-24)

Accelerated Death Benefits

Early receipt of life insurance proceeds that are not taxable un certain circumstances, such as the taxpayer is medically certified with an illness that is expected to cause death within 24 months. (Ch 5-28)

Accountable Plan

An Employer's reimbursement plan under which employees must submit documentation supporting expenses to receive reimbursement and reimbursements are limited to legitimate business expenses. (Ch 5-23)

Accounting Methods

The procedure for determining the taxable year in which a business recognizes a particular item of income or deduction, thereby dictating the timing of when a taxpayer reports income and deductions. (Ch 9-14)

Accounting Period

A fixed period of time win which a business reports income and deductions. (Ch 9-13)

Accrual Method

A method of accounting that generally recognizes income in the period earned and recognizes deductions in the period that liabilities are incurred. (Ch 5-6)

Accumulated Earnings Tax

A tax assessed on corporations that retain earning without a business reason to do so. (Ch 15-3)

Acquiescence

Issued after the IRS loses a trial-level or circuit court case where the IRS doesn't necessarily agree with the court's ruling, but chooses to no longer litigate the issue. (Ch 2-17)

Action on Decision

An IRS pronouncement that explains the background reasoning behind an IRS acquiescence or nonacquiescence . (Ch 2-17)

Ad Valorem

A type of tax based on the value of property. (Ch 1-15)

Additional Medicare Tax

A tax imposed at a rate of .9% for salary or wages or net self-employment earning in excess of $200,000. (Ch 8-14)

Adjusted Basis

An asset's carrying value for tax purposes at a given point in time, measured as the initial basis plus capital improvements less depreciation or amortization. (Ch 10-1,11-5)

Adjusted Gross Income

Gross income less specific "above the line" deductions. It is an important reference point in the income tax formula. (Ch 4-2)

After Tax Rate of Return

A taxpayer's before-tax rate of return on an investment minus the taxes paid on the income from the investment. (Ch 3-3)

Alimony

A support payment of cash made to a former spouse. (Ch 5-14)

All Events Test

Requires that income or expenses are recognized when all events have occurred that determine or fix the right to receive the income or liability to make the payments and the amount of the income or expense can be determined with reasonable accuracy. (Ch 9-21)

All Inclusive Income

A concept that says: Gross income means all income from whatever source derived. (Ch 4-2)

Allowance Method

Method used for financial reporting purposes; under this method, bad debt expense is based on an estimate of the amount of the bad debts in AR at YE. (Ch 9-25)

Alternative Minimum Tax

A tax that is designed to require taxpayers to pay some specific level of tax even when they have low or no regular taxable income as a result of certain tax breaks in the tax code. (Ch 4-11)

Alternative Minimum Tax Adjustments

Adjustments, either positive or negative, to regular taxable income to arrive at the alternative minimum tax base. (Ch 8-9)

Alternative Minimum Tax System

A system that was designed to ensure that taxpayers generating economic income pay some minimum amount of income tax each year. (Ch 8-8)

Alternative Minimum Tax Base

Alternative minimum taxable income minus the alternative minimum tax exemption. (Ch 8-8)

Amortization

The method of recovering the cost of intangible assets over a specific time period. (Ch 10-1)

Amount Realized

The value of everything received by the seller in a transaction less selling costs. (Ch 11-2)

Analyze Tax Authorities

Step 4 of tax research. (Ch 2-18)

Annuity

A stream of equal payments over time. (Ch 5-11)

Annotated

A type of tax service arranged by code section where many types of relevant supporting documents may be found. (Ch 2-18)

Arms Length

A type of transaction among unrelated taxpayers in which each transacting party negotiates for his or her own benefit. (Ch 3-12)

Arms Length Amount

Price in transactions among unrelated taxpayers, where each transacting party negotiates for his or her own benefit. (Ch 9-4)

Assignment of Income Doctrine

A judicial doctrine in which earned income is taxed to the taxpayer providing the service, and that income from property is taxed to the individual who owns the property when the income accrues. (Ch 3-12, 5-8)

Average Tax Rate

The tax rate that applies to the taxpayer's average level of taxation on each dollar of taxable income. (Ch 1-7)

Barter Clubs

Organizations that facilitate the exchange of rights to goods and services between members. (Ch 5-4)

Before Tax Rate of Return

A taxpayer's rate of return on an investment before paying taxes on the income from the investment. (Ch 3-16)

Boot

Property given or received in an otherwise nontaxable transaction such as a like-kind exchange that may trigger gain to a party to the transaction. An expression describing additional property a party to an exchange might throw in "to boot" to equalize the exchange. (Ch 11-26)

Bracket

A subset or portion of the tax base subject to a specific tax rate. (Ch 1-5)

Bunching Itemized Deductions

A common planning strategy in which a taxpayer pays two years worth of itemized expenses in one year to exceed the standard deduction in that year. (Ch 6-25)

Business Activity

A profit-motivated activity that requires a relatively high level of involvement or effort from the taxpayer to generate income. (Ch 6-2)

Business Purpose

A type of judicial doctrine in which the IRS is allowed to challenge and disallow business expenses for transactions with no underlying business motivation. (Ch 3-18)

Business Tax Credits

Nonrefundable credits designed to provide incentives for taxpayers to hire certain types of individuals or to participate in certain business activities. (Ch 8-31)

Capital Assets

In general, an asset other than an asset used in a trade or business or an asset such as an account or not receivable acquired in a business from the sale of services or property (Ch 7-2)

Capital Gain Property

Any asset that would have generated a long-term capital gain if the taxpayer had sold the property for it fair market value. (Ch 6-17)

Cash Method

The method of accounting that recognizes income in the period in which cash, property;, or services are received and recognizes deductions in the period paid. (Ch 5-6)

Casualty Losses

A loss that can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. (Ch 9-12)

Ceiling

A limitation that is the maximum amount for adjustments to taxable income (or credits). (Ch 6-18)

Certainty

Refers to the ability of taxpayers to determine when, where, and how much tax to pay. (Ch 1-22)

Character of Income

Includes ordinary, capital, and qualified dividend. (Ch 4-6)

Child Tax Credits

A credit that is given to taxpayers for each dependent child under the age of 17 at the end of the tax year. (Ch 8-24)

Circular 230

Regulations issued by the IRS that govern tax practice and apply to all persons practicing before the IRS that contains 5 parts. (Ch 2-24)

Citator

A research tool that allows one to check the status of several types of tax authorities. (Ch 2-21)

Civil

A type of penalty that is of a monetary value which is imposed on tax practitioners or taxpayers who violate the tax statues without reasonable cause. (Ch 2-26)

Claim of Right Doctrine

A judicial doctrine that states income has been realized if a taxpayer receives income and there are no restriction on the taxpayer's use of the income. (Ch 5-7)

Collectibles

A type of capital asset that includes art, rugs, antiques, stamps, or coin held for investment for more than one year. (Ch 7-2)

Community Property System

A system in which state laws dictate how the income and property is legally shared between a husband and wife. (Ch 5-8)

Constructive Receipt

A judicial doctrine in which a taxpayer must recognize income when it is actually received. (Ch 3-10, 5-7)

Convenience

A tax system that is designed to facilitate the collection of tax revenues without undue hardship on the taxpayer of the government. (Ch 1-22)

Correspondence

A type of IRS audit examination that is conducted by mail and generally limited to one or two items on the taxpayer's return. (Ch 2-5)

Cost Recovery

The method by which a company expenses the cost of acquiring capital assets by depreciation, amortization, or depletion. (Ch 10-1)

Criminal

A type of penalty that is of a monetary value which is imposed or charged most commonly in tax evasion cases. (Ch 2-26)

Deduction for Qualified Business Income

Equal to 20% of the taxpayer's qualified business income. (Ch 6-26)

Deductions

These reduce a taxpayer's taxable income and are not allowed unless a specific tax law allows them. (Ch 4-7)

Deductions Above the Line

For AGI deductions or deductions subtracted from gross income to determine AGI. (Ch 4-7)

Deductions Below the Line

From AGI deductions or deductions subtracted from AGI to calculate taxable income. (Ch 4-8)

Deferrals

Realized income that will be taxed as income in a subsequent year. (Ch 4-5)

Deferred Like Kind Exchange

An exchange where the taxpayer transfers property before receiving the property in exchange. (Ch 11-25)

Depletion

The cost recovery method to allocate the cost of natural resources as they are removed such as in mining. (Ch 10-1)

Depreciation

The cost recovery method to allocate the cost of tangible personal and real property over a specific time period. (Ch 10-1)

Depreciation Recapture

The conversion of 1231 gain into ordinary income on a sale (or exchange) based on the amount of accumulated depreciation on the property at the time of sale or exchange. (Ch 11-9)

Determination

A type of ruling request by the taxpayer, issued by local IRS directors, and generally not controversial. (Ch 2-16)

DIF

A system used by the IRS that assigns a score to each tax return that represents the probability that the tax liability on the return has been under-reported. A higher score = a higher likelihood of under-reporting. (Ch 2-4)

Direct Conversion

When a taxpayer receives noncash property rather than a cast payment as a replacement for property damaged or destroyed in an involuntary conversion. (Ch 11-29)

Direct Write Off Method

Required method for deducting bad debts for tax purposes where businesses deduct bad debt only when the debt becomes wholly or partially worthless. (Ch 9-25)

Disability Insurance

This pays the insured for wages lost due to injury or disability. (Ch 5-30)

Discharge of Indebtedness

This occurs when a taxpayer's debt is forgiven (does not have to pay the debt back). (Ch 5-21)

Discount Factor

Based on the taxpayer's rate of return that is used to determine the present value of future cash inflows and outflows. (Ch 3-3)

Dividends Received Deduction (DRD)

A corporate deduction for part or all of an amount received from other domestic corporations. (Ch 15-3)

Document Perfection

A program used by the IRS under which all tax returns are checked for mathematical and tax calculation errors. (Ch 2-4)

Double Taxation

The tax burden when an entity's income is subject to 2 levels of tax as in a C Corporation. (Ch 15-3)

Dynamic Forecasting

The process of forecasting tax revenues that incorporates into the forecast how taxpayers may alter their activities in response to a tax law change. (Ch 1-18)

Earmarked Tax

Tax assessed for a specific purpose. (Ch 1-4)

Earned Income

Compensation and other forms of income received for providing goods or services in the ordinary course of business. (Ch 5-10)

Earned Income Credit

A refundable credit designed to help offset the effect of employment taxes on compensation paid to low-income taxpayers and to encourage lower income taxpayers to seek employment. (Ch 8-29)

Economic Performance Test

The third requirement that must be met for an accrual method taxpayer to deduct an expense currently. (Ch 9-21)

Economic Substance

A type of judicial doctrine which requires transactions to meaningfully change a taxpayer's economic position and have a substantial purpose (apart from a federal income tax purpose) in order for a taxpayer to obtain tax benefits. (Ch 3-19)

Economy

A tax system that should minimize its compliance and administration costs. (Ch 1-22)

Effective

The taxpayer's average rate of taxation on each dollar of total income (taxable and nontaxable income). (Ch 1-7)

Employee

A person who is hired to provide services to a company on a regular basis in exchange for compensation and who does not provide these services as part of an independent business. (Ch 8-21)

Employment

A type of tax referred to as Social Security Tax and Medicare Tax. (Ch 1-12)

Equity

A tax system that is deemed fair is one that is based on the taxpayer's ability to pay; taxpayers with a greater ability to pay tax, pay more tax. (Ch 1-20)

Estate

A type of tax levied on the heirs of an individual upon death when property is transferred that exceeds $11.2M. It is often referred to as the Death Tax. (Ch 1-13)

Estimated Tax Payments

Quarterly tax payments that a taxpayer makes to the government if the tax withholding is insufficient to meet the taxpayer's tax liability. (Ch 4-11)

Excess Business Loss

Excess of aggregate business deductions for the year over aggregate business gross income or gain of an individual taxpayer plus a threshold amount depending on filing status. (Ch 6-6)