Tax Dictionary

Understanding tax terms can make tax preparation less stressful. Use TaxACT’s Tax Dictionary provided by J.K. Lasser™ to help clarify any confusion while filing taxes.

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403(b)

A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.

A

Accelerated cost recovery system (ACRS)

A statutory method of depreciation allowing accelerated rates for most types of property used in business and income-producing activities during the years 1981 through 1986. It has been superseded by the modified accelerated cost recovery system (MACRS) for assets placed in service after 1986.

Accelerated depreciation

Depreciation methods that allow faster write-offs than straight-line rates in the earlier periods of the useful life of an asset. For example, in the first few years of recovery, MACRS allows a 200% double declining balance write-off, twice the straight-line rate.

Acceptance or Assurance Testing (ATS)

Required testing for Software Developer that participate in IRS e-file to assess their software and transmission capability with the IRS, prior to live processing. PATS, BATS and CATS are acceptance or assurance testing specific to certain form types.

Acceptance Letter

Correspondence issued by the IRS to applicants confirming they may participate in IRS e-file. See also Credentials.

Accountable reimbursement plan

An employer reimbursement or allowance arrangement that requires you to adequately substantiate business expenses to your employer, and to return any excess reimbursement.

Accrual method of accounting

A business method of accounting requiring income to be reported when earned and expenses to be deducted when incurred. However, deductions generally may not be claimed until economic performance has occurred.

Acknowledgment (ACK)

A report generated by the IRS to a Transmitter that indicates receipt of all transmissions. An ACK Report identifies the returns in each transmission that are accepted or rejected for specific reasons.

Acquisition debt

Debt used to buy, build, or construct a principal residence or second home and that generally qualifies for a full interest expense deduction

Active participation

Test for determining deductibility of IRA deductions. Active participants in employer retirement plans are subject to IRA deduction phase-out rules if adjusted gross income exceeds certain thresholds.

Active Pay

The military income a service member receives while on active duty (versus retirement or retainer pay).

Actual Expense Method

One of two methods for calculating business automobile expenses. For the actual expense method, the taxpayer determines the business portion of expenses for fuel, auto maintenance, parking fees and tolls, and auto loan interest. (The other method is the standard mileage method).

Additional Child Tax Credit

A credit that may be taken if the full amount of the child tax credit cannot be claimed.

Adjusted basis

A statutory term describing the cost used to determine your profit or loss from a sale or exchange of property. It is generally your original cost, increased by capital improvements, and decreased by depreciation, depletion, and other capital write-offs.

Adjusted gross income (AGI)

Gross income less allowable adjustments, such as IRA, alimony, and Keogh deductions. AGI determines whether various tax benefits are phased out, such as personal exemptions, itemized deductions, and the rental loss allowance; see 12.1 and modified adjusted gross income (MAGI).

Administrative Review Process

The process by which a denied applicant or sanctioned Authorized IRS e-file Provider may appeal the IRS' denial or sanction.

Adopted Child

An adopted child is always treated as your own child. The term “adopted child” includes a child who was lawfully placed with you for legal adoption.

Adoption Taxpayer Identification Number

A nine-digit tax-processing number issued by the IRS for children who are in the process of being adopted and who can be claimed as a dependent or claimed for a childcare credit. The ATIN is used wherever the child's social security number is requested.

AEIC

Advance Earned Income Credit Payments

After-tax Contributions

After-tax means the employee paid taxes on the money when it was contributed, i.e., the taxpayer has a cost basis in the plan.

Age Test

One of the tests for identifying a qualifying child: Was the potential dependent under age 19 and younger than the taxpayer at the end of the year? Or, was the person under age 24 at the end of the year and a full-time student for some part of each of five months during the year? Or, Was the person any age and permanently and totally disabled?

Alimony

Payments made to a separated or divorced spouse as required by a decree or agreement. Qualifying payments are deductible by the payor and taxable to the payee.

Allocated Tips

Tips an employer assigns to an employee. They are in addition to the tips the employee reported to the employer.

Alternative minimum tax (AMT)

A tax triggered if certain tax benefits reduce your regular income tax below the tax computed on Form 6251 for AMT purposes.

Alternative Motor Vehicle Credit

Taxpayers may be able to claim a credit for an alternative motor vehicle placed in service for business or personal use. Refer taxpayers who choose to claim this credit to a professional tax preparer.

Amended return

On Form 1040X, you may file an amended return within a three-year period to claim a refund or correct a mistake made on an original or previously amended return.

AARP

American Association of Retired Persons

American Opportunity Tax Credit

A tax credit that temporary changes the Hope educational credit, making it available to a broader range of taxpayers, including higher income taxpayers and those who owe no tax.

Amortizable bond premium

The additional amount paid over the face amount of an obligation that may be deducted.

Amortization of intangibles

Writing off an investment in intangible assets over the projected life of the assets.

Amount realized

A statutory term used to figure your profit or loss on a sale or exchange. Generally, it is sales proceeds plus mortgages assumed or taken subject to, less transaction expenses, such as commissions and legal costs.

Amount recognized

The amount of gain reportable and subject to tax. On certain tax-free exchanges of property, gain is not recognized in the year it is realized.

Annualized rate

A rate for a period of less than a year computed as though for a full year.

Annuity

An annual payment of money by a company or individual to a person called the annuitant. Payment is for a fixed period or the life of the annuitant. Tax consequences depend on the type of contract and funding.

Applicable federal rate

Interest rate fixed by the Treasury for determining imputed interest.

Appreciation in value

Increase in value of property due to market conditions. When you sell appreciated property, you pay tax on the appreciation since the date of purchase. When you donate appreciated property held long term, you may generally deduct the appreciated value.

American Recovery and Reinvestment Act (ARRA)

The American Recovery and Reinvestment Act (ARRA) of 2009 provides a $250 payment to recipients of certain benefits received from the Social Security Administration or the Railroad Retirement Board. This economic recovery payment is not taxable, but it does reduce any making work pay tax credit the recipient may be entitled to.

Archer Medical Savings Account (MSA)

A type of medical plan combining high deductible medical insurance protection with an IRA-type savings account fund to pay unreimbursed medical expenses.

Assessment

The IRS action of fixing tax liability that sets in motion collection procedures, such as charging interest, imposing penalties, and, if necessary, seizing property.

Assignment

The legal transfer of property, rights, or interest to another person called an assignee. You cannot avoid tax on income by assigning the income to another person.

ATIN

Adoption Taxpayer Identification Number

At-risk rules

Rules limiting loss deductions to cash investments and personal liability notes. An exception for real estate treats certain nonrecourse commercial loans as amounts "at risk."

Audit

An IRS examination of your tax return, generally limited to a three-year period after you file.

Authorized IRS e-file Provider (Provider)

A firm accepted to participant in IRS e-file.

Authorized Placement Agency

An agency of a state, political subdivision of a state or a tax-exempt organization licensed by a state; an Indian tribal government or an organization authorized by an Indian tribal government to place Indian children; or a court.

Automated Clearing House (ACH)

A system that administers electronic funds transfers (EFTs) among participating financial institutions. An example of such a transfer is Direct Deposit of a tax refund from IRS into a taxpayer's account at a financial institution.

Away from home

A tax requirement for deducting travel expenses on a business trip. Sleeping arrangements are required for at least one night before returning home.

B

Balloon

A final payment on a loan in one lump sum

BAH

Basic allowance for housing, a type of excludable military income.

Basis

Generally, the amount paid for property. You need to know your basis to figure gain or loss on a sale.

Batch

A single transmission consisting of the electronic data from single or multiple tax returns.

Before-tax Contributions

Before-tax simply means that the employee did not pay taxes on the money at the time it was contributed, i.e., the taxpayer has no cost basis in the plan.

Beneficiary

The recipient of income or assets from a trust, will, or life insurance policy.

Blocked income

Blocked income is when a taxpayer cannot convert foreign currency to U.S. dollars due to local law or local government policy. Special tax rules allow taxpayers with blocked income to delay reporting part of their income.

Bona Fide Residence Test

To meet the bona fide residence test for the foreign earned income exclusion, taxpayers must show that they have set up permanent quarters in a foreign country for an entire, uninterrupted tax year.

Boot

Generally, the receipt of cash or its equivalent accompanying an exchange of property. In a tax-free exchange, boot is subject to immediate tax.

Business Rules (BR)

Error codes included on an Acknowledgement (Ack) for returns that the IRS rejected. The IRS publishes explanations prior to the filing season on IRS.gov. Providers can locate these on the Schemas and Business Rules for Forms 1040/4868 Modernized e-File (MeF).

Business Travel Expenses

Qualified business expenses for members of the armed forces such as uniforms, education and travel. Military employee business expenses are necessary business-related expenses incurred by active members of the U.S. Armed Forces.

C

Cancellation of debt

Release of a debt without consideration by a creditor. Cancellations of debt are generally taxable.

Cancellation of Debt For Principal Residence

Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude certain debt forgiven or canceled on their principal residence. This exclusion is applicable to the discharge of qualified principal residence indebtedness. If the canceled debt qualifies for exclusion from gross income, the debtor may be required to reduce tax attributes (certain credits, losses, and basis of assets) by the amount excluded.

Capital

The excess of assets over liabilities.

Capital asset

Property subject to capital gain or loss treatment. Almost all assets you own are considered capital assets except for certain business assets or works you created.

Capital expenses

Costs that are not currently deductible and that are added to the basis of property. A capital expense generally increases the value of property. When added to depreciable property, the cost is deductible over the life of the asset.

Capital gain or loss

The difference between amount realized and adjusted basis on the sale or exchange of capital assets. Long-term capital gains are taxed favorably. Capital losses are deducted first against capital gains, and then again up to $3,000 of other income.

Capital gain distribution

A mutual-fund distribution allocated to gains realized on the sale of fund portfolio assets. You report the distribution as long-term capital gain even if you held the fund shares short term.

Capital loss carryover

A capital loss that is not deductible because it exceeds the annual $3,000 capital loss ceiling. A carryover loss may be deducted from capital gains of later years plus up to $3,000 of ordinary income.

Capitalization

Adding a cost or expense to the basis of the property.

Carryback

A tax technique for receiving a refund of back taxes by applying a deduction or credit from a current tax year to a prior tax year. For example, a business net operating loss may be carried back for two years.

Carryforward

A tax technique of applying a loss or credit from a current year to a later year. For example, a business net operating loss may be carried forward 20 years instead of being carried back.

Cash method of accounting

Reporting income when actually or constructively received and deducting expenses when paid. Certain businesses may not use the cash method.

Casualty loss

Loss from an unforeseen and sudden event that is deductible, subject to a 10% income floor and $100 reduction for personal losses.

Child and dependent care credit

A credit of up to 30% based on certain care expenses incurred to allow you to work.

Child Tax Credit

A credit that may reduce tax by as much as $1,000 for each qualifying child.

Child Who Was Kidnapped

Taxpayers may be able to claim the EITC on the basis of a child who was kidnapped by a non-family member. A kidnapped child is treated as having lived with the taxpayer for more than half of the year if the child lived with the taxpayer for more than half the part of the year before the date of the kidnapping. See Publication 596 for additional information.

Citizen or Resident Test

One of the tests for identifying a qualifying child or qualifying relative as a dependent: Assuming all other dependency tests are met, the citizen or resident test allows taxpayers to claim a dependency exemption for persons who are U.S. citizens for some part of the year or who live in the United States, Canada, or Mexico for some part of the year.

Combat Zone

Any area (1) the President of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat, (2) the Department of Defense has certified for combat zone tax benefits due to its direct support of military operations, or (3) a Qualified Hazardous Duty Area established by statute where the service member receives imminent danger pay. Members of the U.S. Armed Forces who serve in a combat zone may exclude military pay from their taxable income.

Communications Testing

Required test for all Transmitters using accepted IRS e-file software to assess their transmission capability with the IRS prior to live processing.

Community income

Income earned by persons domiciled in community property states and treated as belonging equally to husband and wife.

Compensation

Wages, salaries, commissions, tips, bonuses, professional fees, earnings from self-employment, and alimony.

Condemnation

The seizure of property by a public authority for a public purpose. Tax on gain realized on many conversions may be deferred.

Constructive receipt

A tax rule that taxes income that is not received by you but that you may draw upon.

Constructively Received

When an amount is credited to the taxpayer's account or made available to the taxpayer (or taxpayer's agent) without restriction.

Consumer interest

Interest incurred on personal debt and consumer credit. Consumer interest is not deductible.

Convention

Rule for determining MACRS depreciation in the year property is placed in service. Either a half-year convention or mid-quarter convention applies.

Cost basis

An amount for which taxes have already been paid.

Coverdell Education Savings Account

A special account set up to fund education expenses of a student.

Credentials

Documentation issued by the IRS which indicates qualification of an Authorized IRS e-file Providers to participate in the IRS e-file Program. The documentation consists of identification numbers and acceptance letters.

Credit

A tax credit directly reduces tax liability, as opposed to a deduction that reduces income subject to tax.

Credit for the Elderly or Disabled

The credit for the elderly or the disabled is calculated on Schedule R and reported in the Tax and Credits section of Form 1040. This credit can also be claimed on Form 1040A.

D

Date of Transaction

Either the date on a check made payable to the taxpayer or the date money is credited to the taxpayer's account. When converting foreign currency to U.S. dollars, the date of transaction is the date that determines the exchange rate to use.

Debt Indicator (DI)

The Debt Indicator is a field on an ACK Report. It only indicates whether a debt offset of a taxpayer's refund occurs. It does not indicate how much the offset is. Offsets taken by IRS may be for current and prior year tax obligations. Offsets taken by the Financial Management Service (FMS) are for past due student loans, child support, federal taxes, state taxes, or other governmental agency debts.

Declaration Control Number (DCN)

A unique 14-digit number assigned by the ERO (or Transmitter, in the case of Online Filing), to each electronically filed tax return.

Declining balance method

A rapid depreciation method determined by a constant percentage based on useful life and applied to the adjusted basis of the property.

Deductions

Items directly reducing income. Personal deductions such as for mortgage interest, state and local taxes, and charitable contributions are allowed only if deductions are itemized on Schedule A, but deductions such as for alimony, capital losses, moving expenses to a new job location, business losses, student loan interest, and IRA and Keogh deductions are deducted from gross income even if itemized deductions are not claimed.

Deferred compensation

A portion of earnings withheld by an employer or put into a retirement plan for distribution to the employee at a later date. If certain legal requirements are met, the deferred amount is not taxable until actually paid, for example, after retirement.

Deficiency

The excess of the tax assessed by the IRS over the amount reported on your return.

Defined benefit plan

A retirement plan that pays fixed benefits based on actuarial projections.

Defined contribution plan

A retirement plan that pays benefits based on contributions to individual accounts, plus accumulated earnings. Contributions are generally based on a percentage of salary or earned income.

Denied Applicant

An applicant that the IRS does not accept to participate in IRS e-file. An applicant that the IRS denies from participation in IRS e-file has the right to an administrative review.

Dependency Exemptions

Amount that taxpayers can claim for a "qualifying child" or "qualifying relative". Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year. One exemption is allowed for each qualifying child or qualifying relative claimed as a dependent.

Dependency Tests

Tests used for identifying qualifying children or qualifying relatives as dependents. The tests are: Relationship test, Age test, Support test, Residence test, U.S. citizen or resident test, Joint return test, Qualifying child of more than one person test, and Dependent taxpayer test.

Dependent

An individual who may be claimed as a dependent on another person's tax return; that is, someone who is supported by another taxpayer and who meets all applicable dependency tests.

Dependent Care Benefits

These benefits include amounts employers pay to a taxpayer or directly to the care provider.

Dependent Taxpayer Test

One of the tests for identifying a qualifying child or qualifying relative as a dependent: Can the taxpayer or spouse (if filing jointly) be claimed as a dependent by another person?

Depletion

Deduction claimed for the use of mineral resources.

Depositor Account Number (DAN)

The financial institution account to which a Direct Deposit refund is to be routed.

Depreciable property

A business or income-producing asset with a useful life exceeding one year.

Depreciation

Writing off the cost of depreciable property over a period of years, usually its class life or recovery period specified in the tax law.

Depreciation recapture

An amount of gain on the sale of certain depreciable property that is treated as ordinary income in the case of personal property. Recapture is computed on Form 4797.

Direct Deposit

An electronic transfer of a refund into a taxpayer's financial institution account.

Direct Filer

see "Transmitter".

Disability Income

This income comes from an employer's disability insurance, health plan, or pension plan. The payments replace wages for the time the taxpayer missed work because of the disability. The plan must provide for disability retirement for the payments to be considered disability income.

Disability Pension

Generally paid to a taxpayer who retires because of a disability before the minimum retirement age (set by the employer). The disability pension is considered regular pension income when the taxpayer reaches the minimum retirement age.

Disabled Child (permanently and totally disabled)

A permanently and totally disabled child must meet both of the following tests:

The child cannot engage in any substantial gainful activity because of a physical or mental condition.
A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

Disaster losses

Casualty losses such as from a storm, in areas declared by the President to warrant federal assistance. An election may be made to deduct the loss in the year before the loss or the year of the loss.

DITY Move

Do-it-yourself move. The most common form of military move is the partial DITY move, where the military provides a moving company to transport some of the service member's goods. Service members who receive DITY payments must include them in their gross income.

Dividend

A distribution made by a corporation to its shareholders generally of company earnings or surplus. Most dividends are taxable taxable but there are exceptions.

Divorced, separated, or never married parents

Special rules apply if the dependent is supported by parents who are divorced or separated; these rules also apply to parents who were never married. In general, the child will be considered a dependent of the custodial parent, assuming the child meets all the rules for a qualifying child or qualifying relative. However, the custodial parent can agree to allow the noncustodial parent to treat the child as a qualifying child or qualifying relative if certain conditions are met. A signed Form 8332 or equivalent is required and must be attached to the noncustodial parent's return, or attached to Form 8453 if filing electronically.

Domicile

A taxpayer's legal, permanent residence. It is not always where the person presently lives.

Drain

The IRS scheduled time for processing electronically filed return data.

Drop or Dropped

An EFIN that is no longer valid due to inactivity or other administrative action.

Dual Status Alien

An alien who is both a nonresident and resident alien during the same tax year. The most common dual-status tax years are the years of arrival and departure.

Due Diligence

Due Diligence, when used in context with the Earned Income Tax Credit (EITC), refers to requirements that income tax return preparers must follow when preparing returns or refund claims that involve EITC.

E

Earned income

Compensation for performing personal services. You must have earned income for a deductible IRA or to claim the earned income credit.

Earned income credit

A credit allowed to taxpayers with earned income or adjusted gross income (AGI) below certain thresholds.

EITC Assistant

A new online tool that helps taxpayers and tax professionals determine EITC eligibility.

Economic Recovery Payment

A $250 Economic Recovery Payment paid automatically in 2009 to recipients of certain benefits administered by the Social Security Administration, Department of Veterans Affairs, and the Railroad Retirement Board.

Education credits

Credits that reduce the amount of tax due and are based on qualified education expenses that the taxpayer paid during the tax year.

Education IRA

See Coverdell Education Savings Account.

Electronic Federal Tax Payment System (EFTPS)

An online and phone tax payment system available 24 hours a day. For enrollment information, go to www.eftps.gov.

EITC Recertification

A requirement for a taxpayer previously denied EITC to provide additional information on Form 8862, Information to Claim Earned Income Tax Credit After Disallowance, when they file a similar EITC claim on a subsequent return.

Elective Deferrals

Are amounts contributed to a plan by the employer at the employee's election and which, except to the extent they are designated Roth contributions, are excludable from the employee's gross income. Elective deferrals include deferrals under a 401(k), 403(b), SARSEP and SIMPLE IRA plan.

Electronic Federal Tax Payment System (EFTPS)

A free service from the U.S. Treasury through which federal taxes may be paid. The taxpayer can pay taxes via the Internet, by phone or through a service provider. After authorization, EFTPS electronically transfers payments from the authorized bank account to the Treasury's general account.

Electronic Filing (e-file)

The transmission of tax information directly to the IRS using computers. Electronic filing options include (1) Online self-prepared using a personal computer and tax preparation software, or (2) using a tax professional. Electronic filing may take place at the taxpayer's home, a volunteer site, the library, a financial institution, the workplace, malls and stores, or a tax professional's place of business.

Electronic Filing Identification Number (EFIN)

An identification number assigned by the IRS to accepted applicants for participation in IRS e-file.

Electronic Funds Withdrawal (EFW)

A payment method which allows the taxpayer to authorize the U.S. Treasury to electronically withdraw funds from their checking or savings account.

Electronic Funds Transfer (EFT)

The process through which Department of the Treasury transmits Direct Deposit refunds from the government to the taxpayer's account at a financial institution.

Electronic Management System (EMS)

front-end processing system for electronic information exchange between the Internal Revenue Service (IRS) and Authorized IRS e-file Providers (Providers), to a designated Submission Processing Campus. EMS receives returns from Transmitters, acknowledges the receipt of the information and prepares the information for mainframe processing.

Electronic Postmark

The Electronic Postmark is the date and time the Transmitter first receives the electronic return on its host computer in the Transmitter's time zone. The taxpayer adjusts the time to their time zone to determine timeliness.

Electronic Return Originator (ERO)

An Authorized IRS e-file Provider that originates the electronic submission of returns to the IRS.

Electronic Signature

Method of signing a return electronically through use of a Personal Identification Number (PIN). See also Self-Select PIN Method and Practitioner PIN Method.

Electronic Tax Administration and Refundable Credits (ETARC)

ETARC is the office within IRS with management oversight of the IRS' electronic commerce initiatives. The mission of ETARC is to revolutionize how taxpayers transact and communicate with the IRS.

Electronic Tax Administration Advisory Committee (ETAAC)

An advisory group established by the IRS Restructuring and Reform Act of 1998 to provide an organized public forum for discussion of ETARC issues in support of the overriding goal that paperless filing should be the preferred and most convenient method of filing tax and information returns.

Electronic Transmitter Identification Number (ETIN)

An identification number assigned by the IRS to a participant in IRS e-file that performs activity of transmission and/or software development.

Electronically Transmitted Documents (ETD)

A system created to process electronic documents that a Provider does not attach to a tax return and the taxpayer files separately from the tax return.

Eligible Foster Child

(In TY 2005) Eligible foster child. An eligible foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.

Error Reject Code (ERC)

Codes included on an Acknowledgment (ACK) Report for returns that the IRS rejected. The IRS publishes explanations prior to the filing season on IRS.gov. Providers can locate these on the e-file for Tax Professionals page titled 2008 Tax Year IRS e-file for Individual Income Tax Returns. In addition, the IRS also provides these in Publication 1346, Electronic Return File Specifications and Record Layouts for Individual Income Tax Returns.

Estimated tax

Advance payment of current tax liability based either on wage withholdings or installment payments of your estimated tax liability. To avoid penalties, you generally must pay to the IRS either 90% of your final tax liability, or either 100% or 110% of the prior year's tax liability, depending on your adjusted gross income.

Excludable Income

Income that is not included in the taxpayer's gross income and therefore exempt from federal income tax.

Exempt (from withholding)

Free from withholding of federal income tax. Must meet certain income, tax liability, and dependency criteria. Does not exempt a person from other kinds of tax withholding, such as social security tax.

Exemption

A fixed deduction allowed to every taxpayer, except those who may be claimed as a dependent by another person. Extra exemption deductions are allowed for a spouse on a joint return and for each qualifying dependent. A deduction of $3,400 is allowed for each exemption claimed on 2007 returns, but the deduction is phased out for certain high income individuals.

Exemption Amount

The dollar amount that can be deducted from an individual's total income, thereby reducing the taxable income.

F

Fair market value

What a willing buyer would pay to a willing seller when neither is under any compulsion to buy or sell.

Federal/State e-file

The Federal/State e-file option allows taxpayers to file federal and state income tax returns electronically in a single transmission to the IRS.

Fiduciary

A person or corporation such as a trustee, executor, or guardian who manages property for another person.

Financial Institution

For the purpose of Direct Deposit of tax refunds, the IRS defines a financial institution as a state or national bank, savings and loan association, mutual savings bank or credit union. Only certain financial institutions and certain kinds of accounts are eligible to receive Direct Deposits of tax refunds.

Financial Management Service (FMS)

The agency of the Department of the Treasury through which payments to and from the government, such as Direct Deposits of refunds, are processed.

Filing statuses

Five taxpayer categories that determine the amount of tax and/or tax credits that apply to different taxpayers. The five filing statuses are (from lowest to highest tax): Married Filing Jointly; Qualifying Widow(er) with Dependent Child; Head of Household; Single; Married Filing Separately.

First-year expensing (or Section 179 deduction)

A deduction of the cost of business equipment in the year placed in service.

First-time Homebuyer Credit

The first-time homebuyer credit increased to a maximum of $8,000 ($4,000 for Married Filing Separately). Generally, for homes purchased in 2009, the repayment requirement has been removed. This is a refundable credit which means that even if the taxpayer does not owe any tax, the money will be refunded to the taxpayer.

Fiscal year

A 12-month period ending on the last day of any month other than December. Partnerships, S corporations, and personal service corporations are limited in their choice of fiscal years and face special restrictions.

Five-Year Test Period Suspension

Taxpayers can choose to have the five-year test period for ownership and use suspended during any period the homeowner (either spouse if married) served on qualified official extended duty as a member of the uniformed services or Foreign Service of the United States, as an employee of the intelligence community, or as an employee or volunteer of the Peace Corps. This means that the taxpayer may be able to meet the two-year use test even if the taxpayer and/or spouse did not actually live in the home during the normal five-year period required of other taxpayers.

Flexible spending arrangement

A salary reduction plan that allows employees to pay for enhanced medical coverage or dependent care expenses on a tax-free basis.

Foreign earned income exclusion

In 2007, up to $85,700 of foreign earned income is exempt from tax if a foreign residence or physical presence test is met.

Foreign tax credit

A credit for income taxes paid to a foreign country or U.S. possession. 401(k) plan. A deferred pay plan, authorized by Section 401(k) of the Internal Revenue Code, under which a percentage of an employee's salary is withheld and placed in a savings account or the company's profit-sharing plan. Income accumulates on the deferred amount until withdrawn by the employee at age 59½ or when the employee retires or leaves the company.

Form 1040

Tax return used to report income from wages, salaries, and tips; qualified tuition program earnings; Alaska Permanent Fund dividends; taxable scholarships and fellowship grants; interest of $1,500 or less; and unemployment compensation.

Form 1040 Schedule A

Itemized Deductions

Form 1040 Schedule B

Interest and Ordinary Dividends

Form 1040 Schedule C-EZ

Net Profit from Business

Form 1040 Schedule D

Capital Gains and Losses

Form 1040 Schedule E

Supplemental Income and Loss

Form 1040 Schedule L

Standard Deduction for Certain Filers

Form 1040 Schedule M

Making Work Pay and Government Retiree Credits

Form 1040 Schedule SE

Self-Employment Tax

Form 1040A

Tax return used to report all Form 1040A items, plus all other forms of income.

Form 1040ES

Estimated Tax for Individuals. This is a package used primarily for first-time filers of estimated taxes.

Form 1040EZ

Tax Return for Single and Joint Filers with No Dependents, used to report income from wages, salaries, and tips, plus income from dividends and interest greater than $1,500; capital gain distributions; IRA, pension, and annuity income; and social security and railroad retirement benefits.

Form 1040NR

U.S. Nonresident Alien Income Tax Return

Form 1040NR-EZ

U.S. Nonresident Alien Income Tax Return

Form 1040X

Amended U.S. Individual Income Tax Return, used to modify a previously filed tax return.

Form 1041 Schedule K-1

Beneficiary's Share of Income, Deductions, Credits, etc.

Form 1042-S

Foreign Person's U.S. Source Income Subject to Withholding

Form 1065 Schedule K-1

Partner's Share of Income, Deductions, Credits, etc.

Form 1098

Statement showing Mortgage Interest

Form 1098-E

Statement showing Student Loan Interest

Form 1099-A

Acquisition or Abandonment of Secured Property

Form 1099-B

Proceeds From Broker and Barter Exchange Transactions

Form 1099-C

Cancellation of Debt

Form 1099-DIV

Statement showing Dividends and Distributions

Form 1099-G

Statement showing certain government payments (such as Unemployment Compensation Income)

Form 1099-INT

Statement showing Interest Income

Form 1099-LTC

Long-term Care and Accelerated Death Benefits

Form 1099-MISC

Statement showing miscellaneous income (such as rents, royalties, fishing boat proceeds, non-employee compensation, medical and healthcare payments, substitute payments in lieu of dividends or interest, crop insurance proceeds, gross proceeds paid to an attorney, excess golden parachute payments, and other miscellaneous income)

Form 1099-OID

Statement showing Original Issue Discount

Form 1099-R

Statement showing Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc

Form 1099-S

Proceeds From Real Estate Transactions

Form 1116

Foreign Tax Credit (Individual, Estate or Trust)

Form 1120S Schedule K-1

Shareholder's Share of Income , Deductions, Credits, etc.

Form 13614-C

Intake/Interview & Quality Review Sheet

Form 2106

Employee Business Expenses

Form 2106-EZ

Unreimbursed Employee Business Expenses

Form 2120

Multiple Support Declaration, allows taxpayers to identify other eligible individuals who paid over 10% of the support of another person.

Form 2210

Underpayment of Estimated Tax by Individual, Estate of Trust. In most cases, it is not necessary to file Form 2210. The IRS figures out penalties and sends taxpayers bills. Part I explains in detail when this form is required.

Form 2441

Child and Dependent Care Expenses

Form 2555

Foreign Earned Income Exclusion

Form 2555-EZ

Foreign Earned Income Exclusion

Form 2848

Power of Attorney and Declaration of Representative

Form 3903

Moving Expenses

Form 4137

Social Security and Medicare Tax on Unreported Tip Income, is used to report unreported tip income.

Form 4506

Request for Copy or Transcript of Tax Form

Form 4852

Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA's, Insurance Contracts, Etc., used by taxpayers who have been unable to obtain (or have received incorrect) wage or distribution statements.

Form 4868

Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

Form 4952

Investment Interest Expense Deduction

Form 5329

Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts

Form 5405

First-Time Homebuyer Credit

Form 5695

Residential Energy Efficient Property Credit

Form 8233

Exemption From Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual

Form 8316

Information Regarding Request for Refund of Social Security Tax

Form 8332

Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. This form allows a taxpayer who is a custodial parent (and who was married to his or her child's noncustodial parent) to release his or her claim on the child's exemption.

Form 8379

Injured Spouse Claim and Allocation, allows taxpayers to request relief from a spouse's past due federal debts, including back child support and past due taxes.

Form 843

Claim for Refund and Request for Abatement

Form 8453-OL

Income tax declaration used for e-filing

Form 8582

Passive Activity Loss Limitations

Form 8606

Nondeductible IRAs, reports nondeductible contributions to traditional IRAs and/or distributions taken from certain IRAs. Part I explains in detail when this form is used.

Form 8812

Additional Child Tax Credit

Form 8822

Change of Address

Form 8840

Closer Connection Exception Statement for Aliens

Form 8843

Statement for Exempt Individuals and Individuals with a Medical Condition

Form 8857

Request for Innocent Spouse Relief. This form explains various forms of relief and who may qualify.

Form 8863

Education Credits, may be used instead of Form 2106, Employee Business Expenses, if education expenses were the only business expenses.

Form 8879

IRS e-file Signature Authorization

Form 8880

Credit for Qualified Retirement Savings Contributions

Form 8888

Direct Deposit of Refund to More Than One Account

Form 8901

Information on Qualifying Children Who Are Not Dependents (For Child Tax Credit)

Form 9452

Filing Assistance Program, helps taxpayers determine whether they are required to file a federal income tax return.

Form 9465

Installment Agreement Request, used to request a monthly installment plan for making tax payments.

Form 982

Reduction of Tax Attributes Due to Discharge of Indebtedness

Form Field Number or Form Sequence(SEQ) Number

The identifier of specific data on an electronic tax return record layout as defined in Publication 1346, Electronic Return File Specifications and Record Layouts for Individual Income Tax Returns.

Form RRB-1099

Payments by the Railroad Retirement Board

Form RRB-1099-R

Annuities or Pensions by the Railroad Retirement Board

Form SS-5

Application for a Social Security Card.

Form SSA-1099

Social Security Benefit Statement

Form W-2

Wages and Tax Statement, issued by employers to report their employees' earned income for the year. Generally, employers should issue Form W-2 to every employee and a copy to the Social Security Administration.

Form W-2c

Corrected Wage and Tax Statement, used to correct information issued on a W-2.

Form W-4

Employee's Withholding Allowance Certificate, used by an employer to determine how much to withhold from an employee's paycheck for federal income tax purposes.

Form W-4P

Withholding Certificate for Pension or Annuity Payments, filed by taxpayers (or estates) who are recipients of pensions, annuities, including commercial annuities, and certain other deferred compensation. The form allows taxpayers to tell payers the correct amount of federal income tax to withhold from payments.

Form W-4V

Voluntary Withholding Request, filed by taxpayers (or estates) who are recipients of social security benefits and want to request withholding from their payments from the Social Security Administration.

Form W-5

Earned Income Credit Advance Payment Certificate, used by taxpayers who have a qualifying child, may be eligible for the earned income credit, and choose to get advance EIC payments.

Form W-7

Application for IRS Individual Taxpayer Identification Number.

Form W-8BEN

Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding

Fraudulent Return

A "fraudulent return" is a return in which the individual is attempting to file using someone's name or SSN on the return or where the taxpayer is presenting documents or information that have no basis in fact.
Note: Taxpayers should not file fraudulent returns with the IRS.

Free File

Free File allows qualified taxpayers to prepare and e-file their own tax returns for free using commercially available tax preparation software. More than 60 percent of Americans are eligible for Free File.

G

Gift tax

Gifts in excess of an $12,000-per-donee annual exclusion are subject to gift tax, but the tax may be offset by a gift tax credit.

Government Retiree Credit

The government retiree credit is available for certain federal, state, and local government retirees who receive a government pension or annuity from work not covered by social security. This credit is a one-time $250 credit which can be claimed on the 2009 tax return. If filing a joint return and both spouses are government retirees, the credit is $500.

Grantor trust rules

Tax rules that tax the grantor of a trust on the trust income.

Green Card Test

The determination that an individual has been issued a “green card” by the United States Citizenship and Immigration Services (USCIS), generally making that person a lawful, permanent resident of the United States

Gross income

The total amount of income received from all sources before exclusions and deductions.

Gross Income Test

One of the tests for identifying a qualifying relative as a dependent: Did the potential dependent have a gross income of $3,050 or more during the tax year?

Gross receipts

Total business receipts reported on Schedule C or Schedule C-EZ before deducting adjustments for returns and allowances and cost of goods sold.

Group-term life insurance

Employees are not taxed on up to $50,000 of group-term coverage.

H

Head of household

Generally, an unmarried person who maintains a household for dependents and is allowed to compute his or her tax based on head of household rates, which are more favorable than single person rates.

Health reimbursement arrangement (HRA)

Employer established account that provides tax-free reimbursements to employees for deductibles and other expenses that could be taken as itemized deductions.

Health Coverage Tax Credit

A program that pays 80% of qualified health insurance premiums for eligible individuals, as part of the American Recovery and Reinvestment Act of 2009.

Health savings account

For calendar year 2007, taxpayers covered by an HDHP may contribute up to the lesser of the annual deductible or $2,850 ($5,650 for family coverage).

High deductible health plan (HDHP)

For 2007, a high deductible health plan is a health plan with an annual deductible that is not less than $1,100 for self-only coverage or $2,200 for family coverage, and with annual out-of-pocket expenses that do not exceed $5,600 or $11,200, respectively.

High Taxed Income

Passive income that is taxed by a foreign government at a rate higher than the highest U.S. income tax rate, and may be classified as “general category income,” making it eligible for the foreign tax credit.

Hobby loss

Hobby expenses are deductible only up to income from the activity; loss deductions are not allowed.

Holding period

The length of time that an asset is owned and that generally determines long- or short-term capital gain treatment.

Hope Credit

One of two tax credits available to offset the costs of higher education by reducing the amount of income tax. The Hope credit is a nonrefundable credit that may be limited by the amount of income and amount of tax owed. The Hope credit is being expanded for the 2009 and 2010 tax years, to allow 40% of the Hope credit to be refundable. The modified version of the Hope credit is now referred to as the American opportunity credit.

Home equity debt

Debt secured by a principal residence or second home to the extent of the excess of fair market value over acquisition debt. An interest deduction is generally allowed for home equity debt up to $100,000 ($50,000 if married filing separately).

Hospitalization

Hospitalization that qualifies for combat zone benefits and filing extensions means any hospitalization outside the United States and any hospitalization in the United States of not more than five years that is a result of wounds, disease, or injury incurred while serving in the combat zone.

I

Imputed interest

Interest deemed earned on seller-financed sales or low-interest loans, where the parties' stated interest rate is below the applicable IRS federal rate.

Incentive stock option

Option meeting tax law tests that defers tax on the option transaction until the obtained stock is sold.

Inclusion amount for leased cars

Based on an IRS table, an amount that reduces a business deduction taken for payments on an auto leased for a minimum of 30 days.

Income in respect of a decedent

Income earned by a person before death but taxable to an estate or heir who receives it.

Income Taxes

Taxes on income, both earned (for example, salaries, wages, tips, commissions) and unearned (for example, interest and dividends). Income taxes can be levied both on individuals (personal income tax) and businesses (business and corporate income taxes).

Independent contractor

One who controls his or her own work and reports as a self-employed person.

Indirect Filer

An Authorized IRS e-file Provider who submits returns to IRS via the services of a Transmitter.

Individual retirement account (IRA)

A retirement account to which up to $4,000 (or $5,000 if you are 50 or over) may be contributed for 2007, but deductions for the contribution are restricted if you are covered by a company retirement plan. Earnings accumulate tax free.

Individual Taxpayer Identification Number (ITIN)

Income a person receives from certain financial accounts or from lending money to someone else.

Injured Spouse Relief

A provision of tax law that allows a taxpayer to get back his or her share of a joint overpayment when the overpayment was used to pay one spouse's past-due federal tax, state income tax, child support, spousal support, or federal non-tax debt, such as a student loan.

Innocent Spouse Relief

A provision of tax law that allows a taxpayer to be relieved of responsibility for paying tax, interest, and penalties if the taxpayer's spouse (or former spouse) improperly reported items or omitted items on a joint tax return.

Installment sale

A sale of property that allows for tax deferment if at least one payment is received after the end of the tax year in which the sale occurs. The installment method does not apply to year-end sales of publicly traded securities. Dealers may not use the installment method. Investors with very large installment balances could face a special tax.

Intake and Interview sheet

Form 13614-C used to conduct the initial interview and screen the taxpayer.

Intangible assets

Intangible assets that come within Section 197, such as goodwill, are amortizable over a 15-year period.

Intermediate Service Provider

An Authorized IRS e-file Provider that receives electronic tax return information from an ERO or a taxpayer who files electronically using a personal computer and commercial tax preparation software, that processes the electronic tax return information and either forwards the information to a Transmitter or sends the information back to the ERO or taxpayer.

Internet Protocol (IP) Information

The IP address, date, time and time zone of the origination of a tax return filed through Online Filing via the Internet. IRS requires Transmitters that provide Online Services via the Internet to capture the Internet Protocol Information of Online returns. By capturing this information, it transmits the location of the return's originator with the individual's electronic return. See Publication 1346 for additional Information.

Inter vivos or lifetime trust

A trust created during the lifetime of the person who created the trust. If irrevocable, income on the trust principal is generally shifted to the trust beneficiaries.

Interest Income

Income a person receives from certain financial accounts or from lending money to someone else.

Investment in the contract

The total cost investment in an annuity. When annuity payments are made, the portion allocable to the cost investment is tax free.

Investment Income

Investment Income includes taxable interest and dividends, tax-exempt interest, capital gain net income, net income from rents and royalties not derived from a trade or business, and net income from passive activities

Investment interest

Interest on debt used to carry investments, but not including interest expense from a passive activity. Deductions are limited to net investment income.

Involuntary conversion

Forced disposition of property due to condemnation, theft, or casualty. Tax on gain from involuntary conversions may be deferred if replacement property is purchased.

IRS e-file

The brand name of the electronic filing method established by the IRS.

IRS e-file Marketing Tool Kit

A specially designed kit containing professionally developed material that EROs may customize for use in advertising campaigns and promotional efforts.

IRS Master File

A centralized IRS database containing taxpayers' personal return information.

Itemized deductions

Items, such as interest, state and local income and sales taxes, charitable contributions, and medical deductions, claimed on Schedule A of Form 1040. Itemized deductions are subtracted from adjusted gross income to arrive at taxable income. The amount of itemized deductions is also subject to a reduction when adjusted gross income exceeds certain limits.

J

Joint return

A return filed by a married couple reporting their combined income and deductions. Joint return status provides tax savings to many couples.

Joint Return Test

One of the tests for identifying a qualifying child or qualifying relative as a dependent. Generally, a married person cannot be claimed as a dependent if he or she files a joint return.

Joint tenants

Ownership of property by two persons. When one dies, the decedent's interest passes to the survivor.

K

Keogh plan

Retirement plan set up by a self-employed person, providing tax-deductible contributions, tax-free income accumulations until withdrawal, and favorable averaging for qualifying lump-sum distributions.

Kiddie tax

The tax on the investment income in excess of $1,700 (may change after 2007) of a child under age 18, based on the parents' marginal tax rate and computed on Form 8615.

L

Legally separated

A husband and wife who are required to live apart from each other by the terms of a decree of separate maintenance. Payments under the decree are deductible by the payor and taxable to the payee as alimony.

Letter of Determination

Document from the Department of Veterans Affairs (VA) sent to discharged service members who qualify for severance pay subject to medical disability, which is nontaxable.

Levels of Infractions (LOI)

Categories of infractions of IRS e-file rules based on the seriousness of the infraction with specified sanctions associated with each level. Level One is the least serious, Level Two is moderately serious and Level Three is the most serious.

Lifetime Learning Credit

One of two tax credits available to offset costs of higher education by reducing the amount of income tax. The Lifetime Learning credit is a nonrefundable credit of up to $2,000 for qualified education expenses for students enrolled in eligible educational institutions. It is available to students for all years of postsecondary education and for courses to acquire or improve job skills.

Like-kind exchange

An exchange of similar assets used in a business or held for investment on which gain may be deferred.

Low Income Taxpayer Clinics (LITC)

LITCs represent low-income taxpayers before the Internal Revenue Service in audit, appeals and collection issues, and offer federal tax litigation for free or for a nominal charge. LITCs and their volunteers are completely independent of and are not associated with the federal government.

Lump-sum distribution

Payments within one tax year of the entire amount due to a participant in a qualified retirement plan. Qualifying lump sums may be directly rolled over tax free, or, in some cases, are eligible for current tax under a favorable averaging method.

M

Making Work Pay Tax Credit

A refundable tax credit of up to $400 for working individuals ($800 for Married Filing Jointly) calculated at a rate of 6.2 percent of earned income and phased out for taxpayers with a modified Adjusted Gross Income (AGI) in excess of $75,000 ($150,000 for Married Filing Jointly). Claimed on Schedule M (Form 1040A or 1040).

Marital deduction

An estate tax and gift tax deduction for assets passing to a spouse. It allows estate and gift transfers completely free of tax.

Market discount

The difference between face value of a bond and lower market price, attributable to rising interest rates. On a sale, gain on the bond is generally taxed as ordinary income to the extent of the discount.

Married Filing Jointly

A married couple may file a joint return together. If your spouse died during the year, you may still file a joint return with that spouse for the year of death.

This information provided by the Internal Revenue Service: http://www.irs.gov/newsroom/article/0,,id=105098,00.html

Married Filing Separately

A married couple may elect to file their returns separately.

This information provided by the Internal Revenue Service: http://www.irs.gov/newsroom/article/0,,id=105098,00.html

Material participation tests

Rules for determining whether a person is active in a business activity for passive activity rule purposes. Unless the tests are met, passive loss limits apply.

Medical Severance Pay

A type of includable military income given to service members who have been separated from the service for medical reasons

Member of Household or Relationship Test

One of the tests for identifying a qualifying relative as a dependent: Was the person related to the taxpayer in any of the following ways: Son, daughter, foster child, or a descendant of any of them; brother, sister, or a son or daughter of either of them; father, mother, or an ancestor or sibling of either of them; stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law? Any other person (other than the taxpayer's spouse) who lived with the taxpayer all year as a member of the taxpayer's household?

Memorandum of Agreement (MOA) & Memorandum of Understanding (MOU)

The implementing document containing the set of rules established by the IRS for participating in IRS pilot programs.

Miscellaneous itemized deductions

Generally, itemized deductions for job and investment expenses subject to a 2% of adjusted gross income floor.

Modernized e-File (MeF)

The Modernized e-File (MeF) system is an internet-based electronic filing platform. It is a transaction-based system that allows tax return originators to transmit returns electronically to the IRS in real-time. MeF improves the response time required to issue an acknowledgement file to the transmitter that indicates whether the return was accepted or rejected for downstream processing.

Modified ACRS (MACRS)

Depreciation methods applied to assets placed in service after 1986.

Modified adjusted gross income (MAGI)

This is generally adjusted gross income increased by certain items such as tax-free foreign earned income. MAGI usually is used to determine phaseouts of certain deductions and credits.

Monitoring

Activities the IRS performs in order to ensure that Authorized IRS e-file Providers are in compliance with the IRS e-file requirements. Monitoring may include, but is not limited to, reviewing IRS e-file submissions, investigating complaints, scrutinizing advertising material, checking signature form submissions and/or recordkeeping, examining records, observing office procedures and conducting periodic suitability checks. IRS personnel perform these activities at IRS offices and at the offices of Providers.

Mortgage interest

Fully deductible interest on up to two residences if acquisition debt secured by a home is $1 million or less, and home equity debt is $100,000 or less.

Mortgage Interest Credit

Taxpayers who hold qualified mortgage credit certificates (MCCs) under a qualified state or local government program may claim a nonrefundable credit for mortgage interest paid.

Mortgage Insurance Premiums

Qualified mortgage insurance is provided by the Department of Veterans Affairs, the Federal Housing Administration, the Rural Housing Service, and private mortgage insurance (PMI) companies. Taxpayers can treat qualified mortgage insurance premiums paid or accrued during the tax year as home mortgage interest. The insurance coverage must relate to home acquisition debt, the insurance contract must have been issued after 2006, and the taxpayer must have paid the premiums before 2010 for coverage in effect during 2009. PMI is deductible on line 13 of Schedule A.

Motor Vehicle Purchase

Taxpayers who purchased a new qualified motor vehicle in 2009 may be entitled to deduct state and local sales and excise taxes paid on their income tax returns. A qualified motor vehicle includes a passenger automobile, light truck, or motorcycle with a gross vehicle weight rating of 8,500 pounds or less. A qualified motor vehicle can also be a motor home.

Multiple Support Agreements

If one person has not provided over half the support, go to step 8 to determine if multiple support exists. Multiple support means that two or more people together, who could claim the person as a dependent except for the support test, provide more than half the dependent's support. However, only one taxpayer can claim the exemption for a dependent with multiple support. In this situation, the individuals who provide more than 10% of the person's total support (step 9), and who meet the other tests for a qualifying relative, can agree that one of them will take the person's exemption.

Mutual Funds

A mutual fund is a regulated investment company generally created by pooling funds of investors, which allows investors to take advantage of a diversity of investments and professional management. Owners of mutual funds may receive both Form 1099-DIV and Form 1099-B. Form.

N

Name Control

The first four significant letters of a taxpayer's last name that the IRS uses in connection with the taxpayer SSN to identify the taxpayer, spouse and dependents.

Net operating loss

A business loss that exceeds current income may be carried back against income of prior years and carried forward as a deduction from future income until eliminated.

Nonbusiness energy property credit

Taxpayers may be able to claim a nonbusiness energy property credit of 30% of the cost of certain energy efficient property or improvements placed in service in 2009. This property can include high-efficiency heat pumps, air conditioners, and water heaters. It also may include energy-efficient windows, doors, insulation materials, and certain roofs.

Nondeductible Traditional IRA Contributions

Traditional IRA contributions that taxpayers may not deduct from their adjusted gross income because the taxpayers do not meet the requirements; also includes remaining contributions from a partial IRA deduction.

Nonperiodic distributions

A 20% withholding rule applies to nonperiodic distributions, such as lump-sum distributions, paid directly to employees from an employer plan.

Nonrefundable Credit

Occurs when the amount of a credit is greater than the tax owed. However, taxpayers can only reduce their tax to zero; they cannot receive a "refund" for any excess nonrefundable credit.

Nonrecourse Debt

Nonrecourse debt is satisfied by the surrender of the secured property regardless of the fair market value (FMV) at the time of surrender and the borrower is not personally liable for the debt. If property subject to nonrecourse debt is abandoned, foreclosed upon, subject of a short sale, or repossessed by the lender, the circumstances will be treated as a sale of the property by the taxpayer.

Nonrecourse financing

Debt on which a person is not personally liable. In case of nonpayment, the creditor must foreclose on property securing the debt. At-risk rules generally bar losses where there is nonrecourse financing, but an exception applies to certain nonrecourse financing for real estate.

Non-Resident

A non-resident is an individual who temporarily resided and/or worked in a state at any time during the tax year, although that state was NOT their state of residence.

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Nonresident Alien

A residency status of an individual who does not meet the Green Card Test or the Substantial Presence Test,

Non-substantive Change

A correction or change limited to a transposition error, misplaced entry, spelling error or arithmetic correction which does not require new signatures or authorizations to be transmitted or retransmitted.

Nontaxable Income

Any income exempt from federal income tax. Although some types of nontaxable income are reported on the return, it is not added into the amount of income subject to tax.

Nondeductible Traditional IRA Contributions

O

Ordinary and necessary

A statutory requirement for the deductibility of a business expense.

Ordinary income

Income other than capital gains.

Ordinary loss

A loss other than a capital loss.

Original issue discount (OID)

The difference between the face value of a bond and its original issue price. OID is reported on an annual basis as interest income.

Originate or Origination

Origination of an electronic tax return submission occurs when an ERO either:

directly transmits electronic returns to the IRS,
sends electronic returns to a Transmitter or
provides tax return data to an Intermediate Service Provider.

OHA

Overseas housing allowance, a type of excludable military income

P

Paid Preparers

Paid preparers are legally liable under federal law for the returns they prepare; volunteers are not.

Partnership

An unincorporated business or income-producing entity organized by two or more persons. A partnership is not subject to tax but passes through to the partners all income, deductions, and credits, according to the terms of the partnership agreement.

Part Year Resident

A part year resident is an individual who was a resident of a particular state for only part of the tax year. This includes anyone who moved into a state with the intention of making their home there, or a resident of a state who moved out of their original state with the intention of making their home elsewhere any time during the income tax year.

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Participants Acceptance Testing (PATS)

Required testing for all Software Developers that participate in IRS e-file of individual income tax returns to assess their software and transmission capability with the IRS prior to live processing. See also Acceptance or Assurance Testing.

PATS Communications Test

Required for all Transmitters using accepted IRS e-file software for individual income tax returns to assess their transmission capability with the IRS prior to live processing.

Passive Activity

When a taxpayer receives income mainly from the use of property rather than for services. Passive activity means the taxpayer is not involved in making significant rental or business management decisions (versus active participation). Because rental activities are generally considered passive activities, rental losses are not fully deductible.

Passive Activity Law

One of two restrictions on how much a loss from passive activity can offset other sources of income. Passive activity losses can be deducted only from passive activity income; losses that exceed rental income are not deductible. (The other restriction is the at-risk rule.)

Passive activity loss rules

Rules that limit the deduction of losses from passive activities to income from other passive activities. Passive activities include investment rental operations or businesses in which you do not materially participate.

Passive Income

Taxable income that comes from passive activity, such as dividends, interest, royalties, rents, and annuities.

Patronage dividend

A taxable distribution made by a cooperative to its members or patrons.

Pension

A series of definitely determinable payments made to an employee or survivor (the beneficiary of a deceased employee's pension) after the employee retires from work.

Percentage depletion

A deduction method that applies a fixed percentage to the gross income generated by mineral property.

Period of Stay

Amount of time a taxpayer stays in a foreign country, which is one of the factors used to determine whether the taxpayer is eligible for the foreign earned income exclusion. To meet the period of stay requirement, the taxpayer must meet either the Bona Fide Residency test or the Physical Presence test.

PCS

Permanent change of station for a military service member.

Personal Exemption

An exemption that allows taxpayers to claim themselves as exemptions on their tax return. Also included in this category is the taxpayer's spouse, when filing a joint return.

Personal interest

Tax term for interest on personal loans and consumer purchases. Such interest is not deductible.

Physical Presence Test

To meet the physical presence test for the foreign earned income exclusion, a taxpayer must be physically present in a foreign country 330 full days during a period of twelve consecutive months.

Pilot Programs

An approach that the IRS uses to improve and simplify IRS e-file. The IRS usually conducts pilot programs within a limited geographic area or within a limited taxpayer or practitioner community. The IRS embodies rules for participating in pilot programs in an implementing document typically referred to as a "Memorandum of Understanding" (MOU) or "Memorandum of Agreement" (MOA). Pilot participants must agree to the provisions of the implementing document in order to participate in the pilot program.

Placed in service

The time when a depreciable asset is ready to be used. The date fixes the beginning of the depreciation period.

Points

Charges to the homeowner at the time of the loan. A point is equal to 1 percent. Depending on the type of loan, points may be currently deductible or amortized over the life of the loan.

Potentially Abusive Return

A "potentially abusive return" is a return

that is not a fraudulent return;
that the taxpayer is required to file; or
that may contain inaccurate information that may lead to an understatement of a liability or an overstatement of a credit resulting in production of a refund to which the taxpayer may not be entitled.
Note: The decision not to provide a RAL or other bank product does not necessarily make it an abusive return.

Practitioner PIN Method

An electronic signature option for taxpayers who use an ERO to e-file. This method requires the taxpayer to create a five-digit Personal Identification Number (PIN) to use as the signature on the e-filed return.
Note: Requires Form 8879 to be completed.

Premature distributions

Withdrawals before age 59½ from qualified retirement plans are subject to penalties unless specific exceptions are met.

Preparer's Tax Identification Number (PTIN)

An identification number issued by the IRS which paid tax return preparers may use in lieu of disclosing their Social Security Number (SSN) on returns that they prepared. A PTIN meets the requirements under section 6109(a)(4) of furnishing a paid tax return preparer's identifying number on returns that he or she prepares. Click here obtain a PTIN.

Principal residence

On a sale of a principal residence, you may avoid tax under the rules.

Private letter ruling

A written determination issued to a taxpayer by the IRS that interprets and applies the tax laws to the taxpayer's specific set of facts. A letter ruling advises the taxpayer regarding the tax treatment that can be expected from the IRS in the circumstances specified by the ruling. It may not be used or cited as precedent by another taxpayer.

Probate estate

Property held in a decedent's name passing by will.

Profit-sharing plan

A defined contribution plan under which the amount contributed to the employees' accounts is based on a percentage of the employer's profits.

Property Taxes

Taxes on property, especially real estate. It can also be levied on boats, automobiles (often paid along with license fees), recreational vehicles, and business inventories.

Provisional income

If your provisional income exceeds a base amount, part of your Social Security benefits may be subject to tax.

Publication 3

Armed Forces Tax Guide

Publication 17

Tax Guides for Individuals

Publication 54

Tax Guide for U.S. Citizens and Resident Aliens Abroad

Publication 463

Travel, Entertainment, Gift, and Car Expenses

Publication 519

U.S. Tax Guides for Aliens

Publication 521

Moving Expenses

Publication 523

Selling Your Home

Publication 527

Residential Rental Property

Publication 551

Basis of Assets

Publication 552

Recordkeeping for Individuals

Publication 555

Community Property

Publication 575

Pension and Annuity Income

Publication 590

Individual Retirement Arrangements (IRAs)

Publication 594

The IRS Collection Process

Publication 596

The IRS tax booklet that contains the EITC requirements, examples and worksheets to calculate the EITC. This booklet is available in both English and Spanish.

Publication 915

Social Security and Equivalent Railroad Retirement Benefits

Publication 925

Passive Activity and At-Risk Rules

Publication 939

General Rules for Pensions and Annuities

Publication 946

How to Depreciate Property

Publication 947

Practice Before the IRS and Power of Attorney

Publication 970

Tax Benefits for Education

Publication 971

Innocent Spouse Relief, addresses how one spouse may request relief from past taxes due solely based on the other spouse's debt.

Q

Qualified charitable organization

A nonprofit philanthropic organization that is approved by the U.S. Treasury to receive charitable contribution deductions.

Qualified dividends

Dividends received after 2002 and before January 1, 2011, that are taxed at the long-term capital gain rate.

Qualified domestic relations order (QDRO)

A specialized domestic relations court order that conforms to IRS regulations and provides instructions to pension plan administrators and IRA custodians as to how to pay benefits to a divorced spouse.

Qualified plan

A retirement plan that meets tax law tests and allows for tax deferment and tax-free accumulation of income until benefits are withdrawn. Pension, profit-sharing, stock bonus, employee stock ownership, and Keogh plans and IRAs may be qualified plans.

Qualified Principal Residence Indebtedness

Qualified principal residence indebtedness is any debt incurred in acquiring, constructing, or substantially improving a principal residence and which is secured by the principal residence. Qualified principal residence indebtedness also includes any debt secured by the principal residence resulting from the refinancing of debt incurred to acquire, construct, or substantially improve a principal residence but only to the extent the amount of the debt does not exceed the amount of the refinanced debt.

Qualifying Child

To be identified as a qualifying child and dependent, a person must meet eight tests: Relationship test, Age test, Support test, Residence test, U.S. citizen or resident test, Joint return test, Qualifying child of more than one person test, and Dependent taxpayer test.

Qualifying Child of More than One Person Test

Long term capital gain from property held more than five years and sold or otherwise disposed of before May 6, 2003.

Qualifying Relative

To be identified as a qualifying relative and dependent, a person must meet seven tests: Member of household or relationship test, Qualifying child of another taxpayer test, Citizen or resident test, Gross income test, Support test, Joint return test, and Dependent taxpayer test.

Qualifying widow or widower

A filing status entitling the taxpayer with dependents to use joint tax rates for up to two tax years after the death of a spouse.

Qualifying Widow(er) With Dependent Child

Filing status is for widow or widower with one or more dependent children.

R

Railroad Retirement Benefits (RRBs)

Benefits paid to railroad employees working in jobs that are covered by the Railroad Retirement Act. The RRA has two components. Tier 1 is the equivalent of social security benefits and Tier 2 is like an employer's pension plan.

Real estate investment trust (REIT)

An entity that invests primarily in real estate and mortgages and passes through income to investors.

Real estate professional

An individual who, because of his or her real estate activity, qualifies to deduct rental losses from nonpassive income.

Real property

Land and the buildings on land. Buildings are depreciable.

Recognized gain or loss

The amount of gain or loss to be reported on a tax return. Gain may not be recognized on certain exchanges of property.

Recovery property

Tangible depreciable property placed in service after 1980 and before 1987 and depreciable under ACRS.

Recourse Debt

Recourse debt holds the borrower personally liable for any amount not satisfied by the surrender of secured property. If a lender forecloses on property subject to a recourse debt and cancels the portion of the debt in excess of the fair market value (FMV) of the property, the canceled portion of the debt will be treated as ordinary income from cancellation of indebtedness and will be required to be included in gross income unless the cancellation of indebtedness qualifies for one of the exceptions or exclusions from gross income under some provision of the Internal Revenue Code.

Refund Anticipation Loan (RAL)

A Refund Anticipation Loan is money borrowed by a taxpayer that lender bases on a taxpayer's anticipated income tax refund. The IRS has no involvement in RALs. A RAL is a contract between the taxpayer and the lender. A lender may market a RAL under various commercial or financial product names.

Refund Cycle

The anticipated date that the IRS would issue a refund either by Direct Deposit or by mail to a taxpayer for a return included within a specific "drain". However, neither the IRS nor FMS guarantees the specific date that Department of the Treasury mails a refund or deposits it into a taxpayer's financial institution account.

Refundable tax credit

A credit that entitles you to a refund even if you owe no tax for the year.

Regular Method

Most common method for computing self-employment tax. Under the regular method, the net self-employment income entered on Schedule SE is the sum of net self-employment earnings from the taxpayer's Schedules C, C-EZ, F, and K-1. (Taxpayers should consult a paid preparer or a military legal assistance officer if they use a different method or require Schedule C, F, or K-1.)

Relationship Test

One of the tests for identifying a qualifying child as a dependent: Was the person the taxpayer's son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (i.e., the taxpayer's grandchild, niece, or nephew)?

Relative

Someone related to the taxpayer by blood, marriage, or adoption, including the following:

Child, grandchild, great grandchild
Stepchild, stepbrother, stepsister
Brother, sister
Half-brother, half sister
Parent, grandparent, or other direct ancestor (but not foster parent)
Stepmother or stepfather
Brother or sister of one's father or mother
Son or daughter of one's brother or sister
Father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law.

Rental Expenses

Ordinary and necessary expenses attributable to the production of rental income and maintenance of the rental property, such as advertising, cleaning and repairs, insurance premiums, and property management fees.

Rental Income

Payments received by a taxpayer from tenants who rent the taxpayer's property, including regular and advanced rent, payments for breaking a lease, expenses paid by the tenant, and the fair market value of property or services received in lieu of monetary rental payments.

Request for Agreement (RFA)

A solicitation, normally a written document, used in establishing non-monetary memoranda of agreement. RFAs are not "acquisitions" as defined by the Federal Acquisition Regulations (FAR).

Request for Procurement (RFP)

A solicitation, normally a written document, used in negotiated acquisitions estimated over $100,000 (as opposed to sealed bids) to communicate government requirements to prospective contractors and to solicit proposals to perform contracts.

Required Minimum Distributions (RMDs)

Distributions that must be taken annually to avoid a 50% IRS penalty by a traditional IRA account holder starting with the year age 70½ is reached. For qualified plan participants the starting date may be delayed for employees working beyond age 70½. Minimum distribution rules also apply to beneficiaries of qualified plans, traditional IRAs, and Roth IRAs.

Residence interest

Term for deductible mortgage interest on a principal residence and a second home.

Residence Test

One of the tests for identifying a qualifying child as a dependent: Did the potential dependent live with the taxpayer as a member of the taxpayer's household for more than half of the year?

Resident Alien

An individual is considered to be a U.S. resident alien if he or she meets either the Green Card Test or the Substantial Presence Test.

Residential Energy Efficient Property Credit

Taxpayers may qualify for an energy credit for qualified solar electric property costs, qualified solar water heating property costs, qualified small wind energy property costs, and qualified geothermal heat pump property costs. This credit is claimed on Part II of Form 5695. This information is out of scope for the VITA/TCE program and is included for your awareness only.

Residential rental property

Real property in which 80% or more of the gross income is from dwelling units. Under MACRS, depreciation is claimed over 27.5 years under the straight-line method.

Responsible Official

An individual with authority over the IRS e-file operation of the office(s) of an Authorized IRS e-file Provider, who is the first point of contact with the IRS and has authority to sign revised IRS e-file applications. A Responsible Official is responsible for ensuring that the Authorized IRS e-file Provider adheres to the provisions of the Revenue Procedure and the publications and notices governing IRS e-file.

Retirement Savings Contributions Credit

The retirement savings contributions credit is a nonrefundable credit a qualifying taxpayer may claim if they made a contribution to a qualified plan.

Retirement savers credit

Eligible taxpayers may claim a tax credit for 10%, 20%, or 50% of up to $2,000 of retirement plan contributions.

Return of capital

A distribution of your investment that is not subject to tax unless the distribution exceeds your investment.

Revenue Protection

A series of compliance programs designed to ensure that the revenue the government collects and/or disburses in the form of refunds is accurate and timely, and that it issues disbursement of revenue only to entitled taxpayers.

Revenue ruling

A revenue ruling is the Commissioner's "official interpretation of the interpretation of the law" and generally is binding on revenue agents and other IRS officials. Taxpayers generally may rely on published revenue rulings in determining the tax treatment of their own transactions that arise out of similar facts and circumstances.

Revocable trust

A trust that may be changed or terminated by its creator or another person. Such trusts do not provide an income tax savings to the creator.

Rollover

A tax-free reinvestment of a distribution from a qualified retirement plan into an IRA or other qualified plan within 60 days.

Roth IRA

A nondeductible contributory IRA that allows for tax-free accumulation of income. Qualifying distributions are completely tax free.

Routing Transit Number (RTN)

A number assigned by the Federal Reserve to each financial institution.

S

S corporation

A corporation that elects S status in order to receive tax treatment similar to that of a partnership.

Sale of Main Home

Only a gain from the sale of a taxpayer's main home may be excluded from the taxpayer's income; a gain from a sale of a home that is not the taxpayer's main home will generally have to be reported as income.

Salvage value

The estimated value of an asset at the end of its useful life. Salvage value is ignored by ACRS and MACRS rules.

Sanction

An action taken by the IRS to reprimand, suspend or expel from participation in IRS e-file, an Authorized IRS e-file Provider based on the level of infraction. See also Level of Infraction.

Section 529 College Savings

They are investment vehicles designed to help families pay for future expenses associated with college or other qualified post-secondary training. Though contributions to a 529 plan are not deductible, these plans offer other tax advantages and are named after Section 529 of the Internal Revenue Code. All 50 states and the District of Columbia sponsor at least one type of 529 plan.

Section 179 deduction (or First-year expensing)

A deduction allowed for investments in depreciable business equipment in the year the property is placed in service.

Section 457 plan

Deferred compensation plan set up by a state or local government, or tax-exempt organization, which allows tax-free deferrals of salary.

Section 1231 property

Depreciable property used in a trade or business and held for more than a year. All Section 1231 gains and losses are netted; a net gain is treated as capital gain, a net loss as an ordinary loss.

Self-employed person

An individual who operates a business or profession as a proprietor or independent contractor and reports self-employment income on Schedule C.

Self-employment Income

Earned income from a trade, business, farming or profession that is not paid by an employer. For example, seamstresses and lawncare workers who work for themselves (and not for someone else) are considered self-employed.

Self-employment tax

Tax paid by self-employed persons to finance Social Security coverage. In 2007, there are two rates. A 12.4% rate applies to a taxable earnings base of $95,700 or less and a 2.9% rate applies to all net earnings.

Self-Select PIN Method

An electronic signature option for taxpayers who e-file using either a personal computer or an ERO. This method requires the taxpayer to create a five-digit Personal Identification Number (PIN) to use as the signature on the e-file return and to submit authentication information to the IRS with the e-file return.

Separate return

Return filed by a married person who does not file a joint return. Filing separately may save taxes where each spouse has separate deductions, but certain tax benefits require a joint return.

Schedule EIC

A form taxpayers use to provide information on qualifying children (e.g., names, ages, Social Security numbers). It must be completed and attached to the taxpayer's tax return if the EITC is claimed with a qualifying child.

Short sale

Sale of borrowed securities made to freeze a paper profit or to gain from a declining market.

Short tax year

A tax year of less than 12 months. May occur with the startup of a business or change in accounting method.

Short-term capital gain or loss

Gain or loss on the sale or exchange of a capital asset held one year or less.

Simplified employee plan (SEP)

IRA-type plan set up by an employer, rather than the employee. Salary-reduction contributions may be allowed to plans of small employers set up before 1997.

SIMPLE

A SIMPLE IRA plan is a Savings Incentive Match Plan for Employees. Because this is a simplified plan, the administrative costs should be lower than for other, more complex plans. Under a SIMPLE IRA plan, employees and employers make contributions to traditional Individual Retirement Arrangements (IRAs) set up for employees (including self-employed individuals), subject to certain limits. It is ideally suited as a start-up retirement savings plan for small employers who do not currently sponsor a retirement plan.

Single

Generally applies to anyone who is unmarried, divorced or legally separated according to your state law.

This information provided by the Internal Revenue Service: http://www.irs.gov/newsroom/article/0,,id=105098,00.html

SSA

Social Security Administration

Social Security Benefits

Payments made under Title II of the Social Security Act. They include old-age, survivors, disability insurance, and some workers' compensation benefits.

SSN

Social Security Number

Software Developer

An Authorized IRS e-file Provider that develops software for the purposes of (a) formatting the electronic portions of returns according to Publication 1346 and/or (b) transmitting the electronic portion of returns directly to the IRS. A Software Developer may also sell its software.

Standard deduction

A fixed deduction allowed to taxpayers who do not itemize deductions. The amount depends on filing status, age, and blindness.

Standard Mileage Method

One of two methods for calculating business automobile expenses. For the standard mileage method, the taxpayer multiplies the business miles by the mileage rate for that tax year. (The other method is the actual expense method).

Standard mileage rate

A fixed rate allowed by the IRS for business auto expenses in place of deducting actual expenses.

Statutory employees

Certain employees, such as full-time life insurance salespersons, who may report income and deductions on Schedule C, rather than on Schedule A as miscellaneous itemized deductions.

Stock dividend

A distribution of additional shares of a corporation's stock to its shareholders.

Stock option

A right to buy stock at a fixed price.

Stockpiling

Stockpiling is waiting more than three calendar days to submit returns to the IRS after the Provider has all necessary information for origination of the electronic return or collecting e-file returns prior to official acceptance for participation in IRS e-file. The IRS does not consider collecting tax returns for IRS e-file prior to the startup of IRS e-file as stockpiling. However, Providers must advise taxpayers that it can not transmit the returns to the IRS prior to the startup date.

Straddle

Taking an offsetting investment position to reduce the risk of loss in a similar investment.

Straight-line method

A method of depreciating the cost of a depreciable asset on a pro rata basis over its cost recovery period.

Student Loan Interest

The interest paid during the year on a loan for qualified higher education expenses that were for the taxpayer, the taxpayer's spouse, or a person who was the taxpayer's dependent when the loan was obtained.

Submission Identification Number (SID)

A submission identifier (ID) uniquely identifies a submission. A submission ID is present in all attachment files and many request and response messages.The first six digits (003497) contain the Electronic Filer Identification Number (EFIN), the next four digits (2006) contain the year, the next three digits (073) contain the Julian date, and the last seven digits (1234567) contain a sequence number to uniquely identify messages sent within a day with the given EFIN: EFIN + ccyyddd + xxxxxxx. The total number of characters of the submission ID is twenty.

Substantial Presence Test

The criteria that an individual without a green card must meet in order to be considered a resident alien; the criteria relate to specific numbers of days physically present in the United States.

Suitability

A check conducted on all firms and the Principals and Responsible Officials of firms when an application is initially processed, and on a regular basis thereafter. The suitability check includes a background check conducted by the IRS to ensure the firm and individuals are eligible for participation in IRS e-file.

Support Test

One of the tests for identifying a qualifying child or a qualifying relative as a dependent: Did the taxpayer provide over half of the potential dependent's total support for the year?

Suspension

A sanction revoking an Authorized IRS e-file Provider's privilege to participate in IRS e-file.

T

Tangible personal property

Movable property, such as desks, computers, machinery, and autos, depreciable over a five-year or seven-year period.

Tax-sheltered annuity

A type of retirement annuity offered to employees of charitable organizations and educational systems, generally funded by employee salary-reduction contributions.

Tax attributes

When debts are cancelled in bankruptcy cases, the cancelled amount is excluded from gross income. Tax attributes are certain losses, credits, and property basis that must be reduced to the extent of the exclusion.

Tax Counseling for the Elderly (TCE)

A program run by trained volunteers, offering free tax preparation services to people 60 years or older.

Tax Credit

A dollar-for-dollar reduction in the tax. Can be deducted directly from taxes owed.

Tax deferral

Shifting income to a later year, such as where you defer taxable interest to the following year by purchasing a T-bill or savings certificate maturing after the end of the current year. Investments in qualified retirement plans provide tax deferral.

Tax home

The area of your principal place of business or employment. You must be away from your tax home on a business trip to deduct travel expenses.

Tax identification number

For an individual, his or her Social Security number; for businesses, fiduciaries, and other non-individual taxpayers, the employer identification number.

Tax preference items

Items that may subject a taxpayer to the alternative minimum tax (AMT).

Tax Deduction

An amount (often a personal or business expense) that reduces income subject to tax.

Tax Forgiveness

For U.S. military personnel who die while serving in a combat zone or as a result of wounds, disease, or injury incurred while so serving, any unpaid tax liability is waived and any forgiven tax liability that has already been paid is refunded.

Tax Liability (or total tax bill)

The amount of tax that must be paid. Taxpayers meet (or pay) their federal income tax liability through withholding, estimated tax payments, and payments made with the tax forms they file with the government.

Taxable Income

Any income subject to federal income tax. It must be reported on a tax return, unless the amount is so small that the individual is not required to file a return.

Tax-exempt Interest

Interest that is exempt from federal income tax such as bonds issued by state and political subdivisions (county or city), District of Columbia, and U.S. possessions and political subdivisions.

Tax year

A period (generally 12 months) for reporting income and expenses.

TAD

Temporary additional duty for military service members. (See TDY)

TANF

Temporary Assistance for Needy Families (previously known as AFDC), a state benefit also known as welfare.

TDY

Temporary duty for military service members. (See TAD.)

Temporary Work Location

A work location is considered temporary if the service member's employment is realistically expected to last (and in fact does last) for one year or less. Service members assigned to temporary work locations can deduct travel expenses.

Tenancy by the entireties

A joint tenancy in real property in the name of both husband and wife. On the death of one tenant, the survivor receives entire interest.

Tenants in common

Two or more persons who have undivided ownership rights in property. Upon death of a tenant, his or her share passes to his or her estate, rather than to the surviving tenants.

Testamentary trust

A trust established under a will.

Third-Party Designee

Person authorized by a taxpayer to discuss the taxpayer's return with the IRS, give the IRS information missing from the return, request copies of notices or transcripts related to the return, and respond to certain IRS notices. The taxpayer designates third party by checking the Yes box and entering the person's name, phone number, and personal identification number (PIN) in the "Third party designee" section of the return.

TIN see ITIN

Taxpayer Identification Number, same as Individual Taxpayer Identification Number

TSP

Thrift Savings Account, a retirement savings and investment plan that has been available to civilian employees of the federal government since 1987, and was made available to U.S. service personnel in 2002.

Tip Income

Money and goods received for services performed by food servers, baggage handlers, hairdressers, and others. Tips go beyond the stated amount of the bill and are given voluntarily.

Traditional IRA

IRAs other than Roth IRAs, SIMPLE IRAs, or Coverdell education savings accounts (ESAs). Contributions to the nontraditional IRAs are not deductible as adjustments to income.

Transmitter

An Authorized IRS e-file Provider that transmits the electronic portion of a return directly to the IRS. An entity that provides a "bump-up" service is also a Transmitter. A bump-up service provider increases the transmission rate or line speed of formatted or reformatted information that it is sending to the IRS via a public switched telephone network.

Transportation Expenses

Expenses service members incur when traveling to locations within their city or general area that is their tax home or post of duty (versus travel expenses).

Travel Expenses

Expenses service members incur when traveling away from their tax home or post of duty (versus transportation expenses).

Treasury Offset Program (TOP)

Public Law that established the Tax Refund Offset Program which permits the government to offset overpayments against delinquent child support obligations as well as debts owed to participating federal and state agencies. Treasury's Financial Management Service (FMS) office assumes responsibility and oversight for TOP.

Trust

An arrangement under which one person transfers legal ownership of assets to another person or corporation (the trustee) for the benefit of one or more third persons (beneficiaries).

Tuition and fees

Qualified higher education expenses for which taxpayers can deduct up to $4,000 in qualified tuition and related expenses paid during the tax year. The amount of the deduction is determined by filing status, modified AGI (MAGI), and other factors. Form 8917, Tuition and Fees Deduction, will help compute the MAGI for this deduction.

U

Unearned Income

Income other than pay for work performed. Interest and dividends from savings or investments are common types of unearned income.

Unemployment Compensation

Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state. In most cases, it is taxable. Under the American Recovery and Reinvestment Act, every taxpayer who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits. For a married couple, the exclusion applies to each spouse, separately. If both spouses receive unemployment benefits during 2009, each may exclude the first $2,400 of benefits they receive from their income.

Unrecaptured Section 1250 gain

Long-term gain realized on the sale of depreciable realty attributed to depreciation deductions and subject to a 25% capital gain rate.

U.S. Citizen or Resident Test

See Citizen or Resident Test

Useful life

For property not depreciated under ACRS or MACRS, the estimate of time in which a depreciable asset will be used.

V

Vehicle Purchase Deduction

See Motor Vehicle Purchase.

VITA

Volunteer Income Tax Assistance

Volunteer Return Preparation Programs (VRPP)

Programs that provide free tax return preparation assistance, e.g. Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE).

W

Warning

Written notice given by the IRS to an Authorized IRS e-file Provider requesting specific corrective action be taken to avoid future sanctioning.

Wash sales

Sales on which losses are disallowed because you recover your market position within a 61-day period.

Withholding

An amount taken from income as a prepayment of an individual's tax liability for the year. In the case of wages, the employer withholds part of every wage payment. Backup withholding from dividend or interest income is required if you do not provide the payer with a correct taxpayer identification number. Withholding on pensions and IRAs is automatic unless you elect to waive withholding.

Withholding Allowance

Claimed by an employee on Form W-4. An employer uses the number of allowances claimed, together with income earned and marital status, to determine how much income tax to withhold from wages.

Withholding Tax

Money that employers withhold from employees' paychecks. This money is deposited for the government. (It will be credited against the employees' tax liability when they file their returns.) Employers withhold money for federal income taxes, federal social security taxes, and state and local income taxes in some states and localities.

Worldwide Income

U.S. citizens and U.S. resident aliens are required to report worldwide income on a U.S. tax return regardless of where they live and even if the income is taxed by the country in which it was earned. Filing requirements are the same as for U.S. citizens and U.S. resident aliens living in the United States and apply whether income is from within or outside the U.S.

Written Reprimand

A sanction for a level one infraction of the IRS e-file rules. It reprimands a Provider for an infraction but does not restrict or revoke participation in IRS e-file.

Updated for tax year 2009