Tax and accounting terms M-Z
Memorandum of Agreement (MOA) & Memorandum of Understanding (MOU): The
implementing document containing the set of rules established by the IRS for participating in IRS
Minimum Essential Value: The type of coverage an individual needs to have to meet the
individual responsibility requirement under the Affordable Care Act. This includes individual
market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE, and certain other
Minimum Value: A health plan meets this standard if it’s designed to pay at least 60% of the
total cost of medical services for a standard population. Starting in 2014, individuals offered
employer-sponsored coverage that provides minimum value and that’s affordable won’t be
eligible for a premium tax credit.
Misrepresentation: To represent falsely.
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 AGI for Education Benefits: The definition of modified AGI for education benefits will
vary depending upon the context in which it is used – education credits, education savings bond
programs, tuition and fees deductions, student loan interest deductions, etc. Please see IRS
Publication 970, Tax Benefits for Education.
Modified AGI for Purposes of IRAs: The adjusted gross income from Form 1040 “modified” by
figuring it without taking into account the following items:
Student Loan Interest Deduction
Tuition and fees (tax years prior to 2018 only)
Foreign Earned Income Exclusion
Foreign Housing Exclusion or Deduction
Exclusion of qualified bond interest shown on Form 8815
Exclusion of employer-paid adoption expenses shown on Form 8839
Modified AGI for Rental Purposes: The amount listed on line 36, Schedule 1 (Form 1040)
without taking into account:
Passive loss deductions
Taxable Social Security and railroad retirement benefits
Income exclusion for interest on U.S. Series EE bonds used for higher education
Income exclusion for employer-provided adoption assistance
Deduction for interest on higher education loans
Deduction for qualified tuition and related expenses (tax years prior to 2018)
Rental real estate losses considered nonpassive because the taxpayer is a real estate
professional who materially participates in the activity
Monitoring: Activities the IRS performs 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 annual suitability checks. These activities are performed by IRS
personnel at IRS offices and at the offices of Providers.
Mortgage Insurance Premiums: The itemized deduction for mortgage insurance premiums
expired on December 31, 2017. For tax years prior to 2018, taxpayers could treat qualified
mortgage insurance premiums paid or accrued during the tax year as home mortgage interest.
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. 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 2018
for coverage in effect during 2017. PMI was deductible on line 13 of Schedule A.
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 dependent on his
tax return 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 claim the dependent on their return.
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
NAEA: National Association of Enrolled Agents.
Name Control: The first four significant letters of a taxpayer’s last name that are used in
connection with the taxpayer’s SSN to identify the taxpayer, spouse, and dependents.
Nanny Tax: The combination of payroll taxes withheld from a household employee and the
employment taxes paid by their employer. Any family or individual that pays a household
employee more than a certain dollar amount (nanny tax threshold) during the year must withhold
and pay Social Security and Medicare taxes, also known as FICA.
NATP: National Association of Tax Practitioners.
Necessary Expense: An expense that is appropriate and helpful to the taxpayer’s trade or
Negligence: The disregard of IRS rules and regulations. Defined in tax law as any failure to
make a reasonable attempt to comply with the provisions of the tax law, and the term “disregard”
includes any careless, reckless, or intentional disregard.
Net Earnings: Earnings after deductions; net profit.
Net Income: An individual’s income after subtracting taxes and deductions. For businesses, net
income equals net earnings (profit) minus cost of goods sold, selling and administrative
expenses, operating expenses, depreciation, interest, taxes, and other expenses.
NOL (Net Operating Loss): An NOL may occur when the taxpayer’s deductions exceed his
income and the loss may be caused by one or more of the following:
From a business
From work as an employee
For casualty and theft losses
Moving expenses and rental property
Noncapital Asset: Property that is not a capital asset. Examples include stock in trade,
inventory, and other property held mainly for sale to customers in the taxpayer’s trade or
Nondeductible: An expense which is not allowed to help reduce AGI.
Nonqualified Employee Plan: An employer's plan that does not meet Internal Revenue Code
requirements for qualified employee plans. It does not qualify for most of the tax benefits of a
Nonrefundable Credits: These credits may reduce your tax to zero. If these credits are more
than your tax, the excess is not refunded to you.
Nonresident Alien and Resident Alien: If the taxpayer is an alien (not a U.S. citizen), he is
considered a nonresident alien unless he meets one of two tests:
Green card test; or
Substantial presence test (See Publication 519, U.S. Tax Guide for Aliens.)
For tax purposes, an alien is an individual who is not a U.S. citizen. Aliens are classified as
resident aliens and nonresident aliens. Resident aliens are taxed on their worldwide income, the
same as U.S. citizens. Nonresident aliens are taxed only on their U.S. source income.
Nonresidential Real Property: Most real property other than residential rental property.
Nonsubstantive 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
Offers-in-Compromise: An offer of settlement made by a taxpayer to the Internal Revenue
Service regarding an unpaid tax when it is unlikely that the tax liability can be collected in full.
Open Enrollment Period: The period of time during which eligible individuals can enroll in a
health insurance plan through the Marketplace. For coverage starting in 2019, the Open
Enrollment Period is November 1, 2018 to December 15, 2018. Individuals may also qualify for
Special Enrollment Periods outside of Open Enrollment if they experience certain events.
Ordinary Dividends: Dividends that are paid out of the corporation’s earnings and profits.
Ordinary Expense: An expense that is common and accepted in the taxpayer’s trade or
Originate or Origination: Origination of an electronic tax return submission occurs when an
ERO either: (1) directly transmits electronic returns to the IRS, (2) sends electronic returns to a
Transmitter, or (3) provides tax return data to an Intermediate Service Provider.
Other Individuals Who May Serve as Representatives: Because of their special relationship
with a taxpayer, the following individuals can represent the specified taxpayers before the IRS,
provided they present satisfactory identification and, except in the case of an individual described
in (1) below, proof of authority to represent the taxpayer.
1. An individual. An individual can represent himself or herself before the IRS and does not
have to file a written declaration of qualification and authority.
2. A family member. An individual can represent members of his or her immediate family.
Immediate family includes a spouse, child, parent, brother, or sister of the individual.
3. An officer. A bona fide officer of a corporation (including a parent, subsidiary, or other
affiliated corporation), association, or organized group can represent the corporation,
association, or organized group. An officer of a governmental unit, agency, or authority, in
the course of his or her official duties, can represent the organization before the IRS.
4. A partner. A general partner may represent the partnership before the IRS.
5. An employee. A regular full-time employee can represent his or her employer. An
employer can be, but is not limited to, an individual, partnership, corporation (including a
parent, subsidiary, or other affiliated corporation), association, trust, receivership,
guardianship, estate, organized group, governmental unit, agency, or authority.
6. A fiduciary. A fiduciary (trustee, executor, personal representative, administrator,
receiver, or guardian) stands in the position of a taxpayer and acts as the taxpayer, not
as a representative.
Other Costs: A proportion of overhead expenses related to creating a product.
Outsourcing: The use of a third-party provider to help provide services to clients. These
Human resource management services
Financial and investment advisory services
Paid Preparers: Paid preparers are legally liable under federal law for the returns they prepare;
volunteers are not.
Part Interest Expenses: If the taxpayer owns a part interest in rental property, he can deduct his
part of the rental expenses for that property.
Part Interest Income: If the taxpayer owns a part interest in rental property, he must report his
part of the rental income from that property.
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.”
Passive Activity: An income producing activity or venture in which the taxpayer does not
Pass-Through Deduction: A deduction established by the Tax Cuts and Jobs Act for owners of
pass-through businesses. Pass-through owners who qualify can deduct up to 20% of their net
business income from their income taxes, reducing their effective income tax rate by 20%. This
deduction begins for 2018 and is scheduled to last through 2025; that is, it will end on January 1,
2026 unless extended by Congress.
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
Penalty (ACA): Taxpayers who don’t have a health plan that qualifies as minimum essential
coverage, may have to pay a penalty for the year they don’t have coverage. In 2018, the fee is
the higher of these two-dollar amounts: 2.5% of income; or $695 per adult ($347.50 per child), up
to a maximum of $2,085. The fee increases every year. The taxpayer will pay the fee on the
federal income tax return they file for the coverage year. People with very low incomes and
others may be eligible for exemptions. Note: The Tax Cuts and Jobs Act repealed the
Obamacare tax penalty, effective beginning with the 2019 tax year.
Pension Plan: A plan set up by an employer for the benefit of employees that adheres to the
rules mandated by the IRS.
Permanently and Totally Disabled Child: A child who cannot engage in any substantial gainful
activity because of a physical or mental condition and a doctor has determined that this condition:
Has lasted or can be expected to last continuously for at least a year; or
Can lead to death.
Period of Nonqualified Use: The gain resulting from the sale of the property is allocated
between the qualified and nonqualified use period based on the amount of time the property was
held. (“Nonqualified use” is any period after 12/31/2009 during which the property was not used
as the main home.)
Personal Use: Property used for personal enjoyment. The tax treatment of rental income
expenses for a dwelling unit that the taxpayer also used for personal purposes depends on how
many days the taxpayer used the unit for personal purposes. The deduction for expenses is
reduced by an amount that is proportional to the taxpayer’s personal use of the property.
Phase-Out: The amount of credit or deduction allowed is reduced when modified adjusted gross
income (MAGI) is within a certain range of incomes.
Pilot Programs: An approach that the IRS uses to improve and simplify IRS e-file. Pilot
programs are usually conducted within a limited geographic area or within a limited taxpayer or
practitioner community. The IRS rules for participating in pilot programs are embodied 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: Ready and available for a specific use whether in a trade or business, the
production of income, a tax-exempt activity, or a personal activity.
Points: Interest the lender charges to make a loan. On the settlement statement, it is referred to
as points or “loan origination fees.”
Potentially Abusive Return: A “potentially abusive return” is a return (1) that is not a fraudulent
return; (2) that the taxpayer is required to file; (3) 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.
Practice Before the Internal Revenue Service: Comprehends all matters connected with a
presentation to the Internal Revenue Service or any of its officers or employees relating to a
taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the Internal
Revenue Service.” Practice includes, but is not limited to, preparing and filing documents,
corresponding and communicating with the Internal Revenue Service, and representing a client at
conferences, hearings, and meetings.
Practice Denied: Any individual engaged in limited practice before the IRS who is involved in
disreputable conduct is subject to disciplinary action. Disreputable conduct includes, but is not
limited to, the list of items under Incompetence and Disreputable Conduct shown later under
What Are the Rules of Practice.
Practitioner: Generally, an attorney, CPA, enrolled agent, enrolled retirement plan agent,
registered tax return preparer or enrolled actuary authorized to practice before the IRS. Other
individuals may qualify to practice temporarily or engage in limited practice before the IRS;
however, they are not referred to as practitioners.
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-file return.
Premium Tax Credit (PTC): A credit available to eligible taxpayers who purchased their health
coverage through the Health Insurance Marketplace. The credit is designed to benefit lower
income taxpayers by helping them pay for health care coverage, thereby making it less costly.
Preparer 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 IRC Section 6109(a)(4) of
furnishing a paid tax return preparer’s identifying number on returns that he or she prepares. To
obtain a PTIN, go to the IRS website at irs.gov.
Principal Place of Business: Place where a taxpayer conducts most of his business the
majority of the time.
Products Held for Sale: All harvested and purchased farm products held for sale or for feed or
seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc.
Professional Conduct: Competent, honest, and ethical behavior.
Property Class: A category for property under MACRS. It generally determines the depreciation
method, recovery period, and convention.
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.
Publication 17: A federal income tax guide for individuals, updated yearly.
Publicly Traded Partnership (PTP): A business organization owned by two or more co-owners
whose shares are regularly traded on an established securities market and can offer investors
quarterly income that receives favorable tax treatment.
Purchases: The inventory or raw materials for manufacturing, merchandising, or mining plus
cost of shipping minus purchases for personal use.
Qualified Alternative Fuel Vehicle Refueling Property: Any property (other than a building or
it structural components) used to store or dispense alternative fuel into the fuel tank of a motor
vehicle propelled by the fuel, but only if the storage or dispensing is at the point where the fuel is
delivered into the tank.
Qualified Business Income (QBI): QBI is defined as the net amount of qualified income, gain,
deduction, and loss from any qualified trade or business, including qualified:
Publicly traded partnership income;
S corporation income; and
Trust and estate income.
Only items included in taxable income count. However, qualified business income does not
include wage income, investment income, interest income, net gains from foreign currency and
commodities, or annuity income not received in connection with a trade or business.
Qualified Check: A qualified check is any instrument that is redeemable in money and meets
both of the following requirements.
It is part of a patronage dividend that also includes a qualified written notice of allocation
for which condition 2(c), above, was met.
It is imprinted with a statement that endorsing and cashing it constitutes the payee's
consent to include in income the stated dollar value of any written notices of allocation
paid as part of the same patronage dividend.
Qualified Education Expenses: The definition of qualified education expenses will vary
depending upon the context – education credits, Coverdell accounts, education savings bonds,
early IRA distributions, qualified tuition programs, scholarships and fellowships, student loans,
etc. Please see IRS Publication 970, Tax Benefits for Education.
Qualified Electric Vehicle: A vehicle with four wheels, manufactured for use on public streets,
powered by an electric motor that draws its power from rechargeable cells or other portable
sources. The taxpayer must have been the original purchaser and the vehicle must have been
acquired for the taxpayer’s personal use and not for resale.
Qualified Employee Annuity: A retirement annuity purchased by an employer for an employee
under a plan that meets Internal Revenue Code requirements.
Qualified Employee Plan: An employer's stock bonus, pension, or profit-sharing plan that is for
the exclusive benefit of employees or their beneficiaries and that meets Internal Revenue Code
requirements. Such a plan qualifies for special tax benefits, such as tax deferral for employer
contributions, rollover distributions, and capital gain treatment, or the 10-year tax option for lumpsum distributions (if participants qualify).
Qualified Health Plan: Under the Affordable Care Act, starting in 2014, an insurance plan that is
certified by the Health Insurance Marketplace, provides essential health benefits, follows
established limits on cost-sharing (like deductibles, copayments, and out-of-pocket maximum
amounts), and meets other requirements. A qualified health plan will have a certification by each
Marketplace in which it is sold.
Qualified Higher Education Expenses: Tuition and fees required for the taxpayer, his spouse,
and dependents (claimed on his tax return) to attend an eligible educational institution.
Qualified Mortgage Insurance Premiums: For tax years prior to 2018, these were deductible
on Schedule A, line 13. Usually reported on the 1098 received by the taxpayer.
Qualified Property: tangible depreciable property held at the end of the tax year and was used
during the year to produce QBI. Land and inventory are not depreciable; therefore, they are not
Qualified PTP Income: Qualified PTP income or losses include the taxpayer’s share of qualified
items of income, gain, deduction, and loss received from a PTP. Qualified PTP income may
include gain or loss realized on the disposition of the taxpayer’s partnership interest that is not
treated as a capital gain or loss.
Qualified REIT Dividends: Dividends received from a real estate investment trust that are not
capital gain dividends under §857(b)(3) and aren’t qualified dividends under §1(h)(11), plus those
received from a regulated investment company (RIC).
Qualified Trade or Business (QTB): A domestic trade or business in which a taxpayer is
involved in the activity with continuity and regularity and the taxpayer’s primary purpose for
engaging in the activity is for income or profit.
Qualified Tuition Program: A program set up to allow taxpayers to either prepay or contribute
to an account established for paying a student’s qualified expenses at an eligible educational
institution. The program must meet certain requirements set by the state. Also, known as a 529
program. For 2009, this was expanded so that qualified tuition and related expenses now
includes expenses for course materials, including books, supplies, and equipment needed for a
course of study, whether or not the materials are purchased from the educational institution as a
condition of enrollment or attendance.
Qualifying Child (for purposes of child tax credit): A child who meets all of the following
1. Under age 17 at the end of the tax year
2. A citizen or resident of the United States
3. Did not provide over half of his own support for the tax year
4. Lived with the taxpayer for more than half of the tax year
5. Has one of the following relationships to the taxpayer:
Son or daughter
Stepson or stepdaughter
Brother or sister
Stepbrother or stepsister
Any descendant of any of the above (for example, grandchild **), or
Eligible foster child
*An adopted child placed with the taxpayer by an authorized placement agency for legal
adoption is an adopted child even if the adoption is not final.
**A grandchild is considered to be any descendent of the taxpayer’s son, daughter, or adopted
child and includes great-grandchildren, great great-grandchildren, etc.
Qualifying Child (for purposes of dependent): There are six tests that must be met for a child
to be the taxpayer’s qualifying child. The six tests are:
5. Joint return
6. Special test for qualifying child of more than one person
Qualifying Child of More than One Person: If the child is the qualifying child of more than one
person, only one person can claim the child as a qualifying child for all of the following tax
benefits, unless the rules for Children of Divorced or Separated Parents or Parents Who Live
1. Dependency (Form 1040, Dependents section)
2. Child tax credits (Form 1040, lines 12a and 17b)
3. Head of household filing status (Form 1040, Filing status section)
4. Credit for child and dependent care expenses (Schedule 3, line 49)
5. Exclusion for dependent care benefits (Form 2441, Part III)
6. Earned income credit (Form 1040, line 17a)
No other person can take any of the six tax benefits listed above unless he or she has a different
qualifying child. If you and any other person claim the child as a qualifying child, the IRS will
apply the following rules:
If only one of the persons is the child’s parent, the child will be treated as the qualifying
child of the parent.
If two of the persons are the child’s parents, the child will be treated as the qualifying
child of the parent with whom the child lived for the longer period of time during the tax
year. If the child lived with each parent for the same amount of time, the child will be
treated as the qualifying child of the parent who had the higher adjusted gross income
(AGI) for the tax year.
If none of the persons is the child’s parent, the child will be treated as the qualifying child
of the person who had the highest AGI for the tax year.
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
Railroad Retirement Tier 1: A retirement plan that is the equivalent of Social Security benefits.
Railroad Retirement Tier 2: A retirement plan that is treated as a pension.
RAL (Refund Anticipation Loan): A secured loan made by a financial institution to a taxpayer
based on the amount of refund the taxpayer should receive.
Real Estate Investment Trust (REIT): A company that owns and possibly operates incomeproducing real estate. REITs own various categories of commercial real estate, such as office
buildings, apartment buildings, hotels, shopping malls, warehouses, hospitals, and timberlands.
Real Estate Reporting Person: This term refers to any of the following people involved in a real
estate transaction in the following order: the person (including any attorney or title company)
responsible for closing the transaction, the mortgage lender, the seller’s broker, the buyer’s
broker, or other person designated as such in Title 26 U.S. Internal Revenue Code § 6045.
Realistic Possibility: A good faith belief that a tax position has a realistic possibility of being
sustained on its merits if challenged by the Internal Revenue Service.
Recapture: To include as income on your return an amount allowed as a credit or deduction in a
Recognized Representative: An individual who is recognized to practice before the IRS
Recovery Period: The number of years over which the basis (cost) of an item of property is
Refund Anticipation Loan (RAL): Money borrowed by a taxpayer that is based 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 RAL may be marketed under various commercial or
financial product names.
Refund Cycle: The anticipated date that a refund would be issued by the IRS 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 a refund will be mailed or deposited into a
taxpayer’s financial institution account.
Refundable Credits: These credits are added to the federal income tax withheld and any
estimated tax payments the taxpayer made. If this total is more than his total tax, the excess will
be refunded to him.
Registered Tax Return Preparer: An individual who has passed an IRS competency test and
is authorized to prepare and sign tax returns.
Registered Tax Return Preparers and Unenrolled Return Preparers: A registered tax return
preparer is an individual who has passed an IRS competency test and is authorized to prepare
and sign tax returns as the preparer. An unenrolled return preparer is an individual other than an
attorney, CPA, enrolled agent, enrolled retirement plan agent, or enrolled actuary who prepares
and signs a taxpayer's return as the preparer, or who prepares a return but is not required (by the
instructions to the return or regulations) to sign the return.
Registered tax return preparers and unenrolled return preparers may only represent taxpayers
before revenue agents, customer service representatives, or similar officers and employees of the
Internal Revenue Service (including the Taxpayer Advocate Service) during an examination of the
taxable year or period covered by the tax return they prepared and signed. Registered tax return
preparers and unenrolled return preparers cannot represent taxpayers, regardless of the
circumstances requiring representation, before appeals officers, revenue officers, counsel or
similar officers or employees of the Internal Revenue Service or the Department of Treasury.
Registered tax return preparers and unenrolled return preparers cannot execute closing
agreements, extend the statutory period for tax assessments or collection of tax, execute waivers,
execute claims for refund, or sign any document on behalf of a taxpayer.
If the unenrolled return preparer does not meet the requirements for limited representation, you
may file Form 8821 to allow the preparer to inspect your tax information and receive copies of
notices sent to you by the IRS. See Form 8821.
Regularly: Must be used on more than an occasional basis.
Reinvested Dividends: Dividends that are used to purchase additional stock.
Relevant Pass-Through Entity (RPE): Refers to pass-through entities that directly operate a
business, trade, or other pass-through entity whose income is reported on the individual
taxpayer’s tax return.
Repairs: Keeps the property in good operating condition. Example: Adding gravel to a driveway
is considered a repair.
Repairs and Maintenance: Expenses incurred to merely keep the asset in good condition do
not add value or prolong the life of the property and, therefore, costs for repairs and maintenance
are not added to the basis of the asset.
Reportable Real Estate: Taxpayers are generally required to report a transaction that consists
in whole or in part of the sale or exchange for money, indebtedness, property, or services of any
present or future ownership interest in (1) improved or unimproved land, (2) inherently permanent
structures, (3) a condominium unit (including fixtures and common elements, and land), (4) stock
in a cooperative housing corporation, and (5) any non-contingent interest in standing timber.
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.
Residential Energy Efficient Property Credit: For tax years prior to 2018, taxpayers could
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 was claimed on Part II of Form 5695. This credit was not extended
and expired on December 31, 2017.
Residential Rental Property: Real property, generally buildings or structures, if 80% or more of
its annual gross rental income is from dwelling units.
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 he made a contribution to a qualified plan.
Return of Capital: A distribution paid out of the shareholder’s investment in stock of the company.
Return Period: The 12-month period beginning on the same day of each year. For a calendar
year taxpayer, this is January 1.
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
disbursement of revenue is issued only to entitled taxpayers.
Rollover: A tax-free distribution to the taxpayer of cash or other assets from a tax-favored plan
that the taxpayer contributes to another tax-favored plan.
Roth IRA: A personal savings plan that offers the taxpayer tax advantages to set aside money
for his retirement. Contributions are not deductible; however, qualified distributions are tax-free.
The earnings from a Roth IRA are also distributed tax free.
Routing Transit Number (RTN): A number assigned by the Federal Reserve to each financial
Royalties: Income the taxpayer may receive from copyrights, patents, oil, gas and mineral
Safe Harbor (Sec. 199A): As it relates to section 199A Trade or Business Safe Harbor, IRS
Notice 2019-07 provides a safe harbor election whereby rental real estate properties that meet
certain conditions can be treated as a trade or business for Qualified Business Income (QBI)
purposes. To qualify for the safe harbor, each Rental Real Estate Enterprise (REE) must:
1. Maintain separate books and records to reflect income and expenses;
2. Have 250 hours of rental services performed with respect to the REE by owners or
agents of the owner (property management companies); and
3. Keep contemporaneous records to document hours.
Sale by Agent: If an agent sells the products of a farm, the farmer must include the net
proceeds from the sale in gross income for the year the agent receives payment. This applies
even if the agent pays the farmer in a later year since the farmer has constructive receipt of the
income when the agent receives payment.
Salvage Value: An estimated value of property at the end of its useful life. Not used under
Savings Bonds: U.S. government obligations that pay interest.
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.
Schedule 1 (Form 1040): Additional Income and Adjustments to Income. Schedule 1 is
required if the taxpayer has additional income such as taxable refunds, alimony received, capital
gains, ordinary gains, rental real estate, royalties, unemployment compensation, or gambling
winnings. This schedule is also used by self-employed persons who report their earnings on a
Schedule 2 (Form 1040): Tax. Schedule 2 is required for taxpayers who are subject to the
Alternative Minimum Tax (AMT) or have to repay the Premium Tax Credit (PTC) because they
received too much credit towards their Marketplace health insurance.
Schedule 3 (Form 1040): Nonrefundable Credits. Schedule 3 is used for dependent care
expenses and a number of credits: foreign tax, education, retirement savings, residential energy,
and credits from other forms.
Schedule 4 (Form 1040): Other Taxes. Schedule 4 is used to report a number of taxes: selfemployment, tip income, additional tax on early withdrawals from IRAs or other qualified
retirement plans, household employment, repayment of the first-time homebuyer credit, health
care individual responsibility, additional Medicare, net investment tax, and a few others.
Schedule 5 (Form 1040): Other Payments and Refundable Credits. Schedule 5 covers several
payments and refundable credits, such as the net premium tax credit for Marketplace health
insurance not claimed by the taxpayer during the year, excess Social Security and railroad
retirement (RRTA) taxes withheld, estimated taxes, and amounts paid with extensions. It is also
used for less common credits and the fuel tax.
Schedule 6 (Form 1040): Foreign Address and Third Party Designee. Schedule 6 is used by
taxpayers who have a foreign address or wish to designate a third party (other than the paid
preparer) to discuss their tax return with the IRS.
Section 179 Expense Deduction: Allows immediate expensing of tangible person property.
(Limits apply and are adjusted annually.)
Section 1231 Property: The part of the Internal Revenue Code that deal with assets used in a
trade or business. Generally, gains on Section 1231 assets are taxed at capital gains rates
(except depreciation recapture) and losses are tax deductible as ordinary losses.
Section 1245 Property: Property that is or has been subject to an allowance for depreciation or
amortization. Section 1245 property includes personal property, single purpose agricultural and
horticultural structures, storage facilities used in connection with the distribution of petroleum or
primary products of petroleum, and railroad grading or tunnel bores.
Section 1250 Property: Real property (other than section 1245 property) that is or has been
subject to an allowance for depreciation.
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: Social Security and Medicare taxes that self-employed individuals are
required to pay. Currently, the self-employed individual pays 15.3% of his net self-employment
earnings in self-employment taxes. See Instructions for Schedule SE (Form 1040).
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.
Seller-Paid Points: A ruling in March 1994 made these deductible on the buyer’s tax return, on
Schedule A. The buyer’s basis is then lowered by the amount of the seller paid points when he
sells the home.
Selling Expense: Items paid by the seller, such as:
Points or Loan Placement Fees
(Note: Seller-paid points can be deducted as interest by the buyer on his Schedule A.)
Selling Price: Total received for the sale of the property (includes money, mortgages, FMV of
Shared Responsibility Payment: A penalty imposed on taxpayers who do not comply with the
Affordable Care Act mandate. Generally, if the taxpayer could afford health insurance but chose
not to comply with the mandate, they will be assessed a fee (penalty) on their tax return, known
as the Shared Responsibility Payment. The penalty is prorated based on the number of months
the taxpayer failed to comply.
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.
Social Security Number (SSN): For purposes of taking the EIC and CTC/ACTC, a valid SSN is
a number issued by the Social Security Administration unless “Not Valid for Employment” is
printed on the Social Security card and the number was issued solely to apply for or receive a
federally funded benefit. The taxpayer should contact the local Social Security Administration to
obtain a Social Security card. If the taxpayer does not have a SSN by April 15, he should file an
extension using Form 4868.
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.
Sole Proprietor/Independent Contractor: An individual that is in business for himself. One
who owns a business.
Specific Identification: An inventory method that identifies each item by cost and sale.
Specified Service Trade or Business (SSTB): A trade or business involving the performance
of services in the fields of law, accounting, consulting, health, actuarial science, performing arts,
athletics, financial services, investing and investment management, trading, dealing in certain
assets or any trade or business where the principal asset is the reputation or skill of one or more
of its employees or owners.
Standard Deduction: An amount that taxpayers may deduct from adjusted gross income to
arrive at taxable income. This amount is adjusted yearly for inflation.
Standard Mileage Rate: A rate at which a taxpayer deducts business use of his vehicle. The
Internal Revenue Service predetermines the rate per mile. For 2018, the business standard
mileage rate is 54.5 cents per mile (58 cents per mile for 2019).
Standard of Discipline: As provided in §10.52, only violations of this section that are willful,
reckless, or a result of gross incompetence will subject a practitioner to suspension or disbarment
from practice before the Service.
Start-Up Costs: Expenses incurred to establish a business. These expenses are incurred prior
to the actual beginning of the business.
State Bar and American Bar Association: An organization which governs the behaviors of
Statutory Employee: An individual who is not an employee and who is not self-employed. The
individual falls into one of the following categories:
A full-time outside salesperson
An agent or commissioned driver
A full-time life insurance salesperson
An individual who works at home with materials or goods and specifications provided by
The employer is responsible for withholding Social Security and Medicare taxes if the individual
performs services on a continuing basis, the individual performs the services personally, or the
individual has no investment in equipment or property used in the course of business.
Stockpiling: Stockpiling refers to 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.
Stockpiling may also occur when returns are collected for e-file prior to official acceptance for
participation in IRS e-file. Collecting tax returns for IRS e-file prior to the startup of IRS e-file is
not considered stockpiling. However, Providers must advise taxpayers that the returns will not be
transmitted to the IRS prior to the startup date.
Straight Line: A method of depreciation whereby the cost of the asset is divided by its useful life
to obtain the annual expense.
Straight Line Method: A way to figure depreciation for property that ratably deducts the same
amount for each year in the recovery period.
Student: A child who during any 5 months of the tax year —
Was enrolled as a full-time student at a school; or
Took a full-time, on-farm training course given by a school or a state, county, or local
A school includes technical, trade, and mechanical schools. It does not include on-the-job
training courses, correspondence schools, or night schools.
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 (i.e., 2019) contain the year, and the next three digits (193) 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.
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.
Suspended Persons: An individual who has been ordered to cease practicing within the realm
of the tax industry.
Suspension: A sanction revoking an Authorized IRS e-file Provider’s privilege to participate in
Tangible Property: Property the taxpayer can see or touch, such as buildings, machinery,
vehicles, furniture, and equipment.
Tax Court: A judicial system designed specifically for tax laws.
Tax Credit: A dollar-for-dollar reduction in the tax. Can be deducted directly from taxes owed.
Tax Cuts and Jobs Act (TCJA): This 2017 Act amended the Internal Revenue Code of 1986.
Major elements of the changes include reducing tax rates for businesses and individuals; a
personal tax simplification by increasing the standard deduction and family tax credits but
eliminating personal and dependent exemptions and making it less beneficial to itemize
deductions. The Act is based on tax reform advocated by congressional Republicans and the
Tax Deduction: An amount (often a personal or business expense) that reduces income subject
Tax Deferred: Referring to an investment whose accumulated earnings are free from taxation
until the investor takes possession of the assets.
Tax Evasion: The avoidance of paying a tax liability.
Tax Home: An individual’s main or regular place of business.
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.
Tax Preparer: One who prepares tax returns for individuals, companies, trusts, or non-profit
Tax Professional: One who prepares tax returns for individuals, companies, trusts, or non-profit
Tax-Sheltered Annuity (TSA) Plan: Often referred to as a “403(b) plan” or a “tax-deferred
annuity plan.” A retirement plan for employees of public schools and certain tax-exempt
organizations. Generally, a TSA plan provides retirement benefits by purchasing annuity
contracts for its participants.
Gross income $ 99,999
Less adjustments - 9,999
Adjusted Gross Income $90,000
Less Deductions - 12,000 (Single)
Taxable Income $78,000 Amount on which the taxpayer’s tax is based
Third Party Designee: A family member, friend, or tax preparer who has been given permission
to discuss an assigned tax year with the Internal Revenue Service on behalf of the taxpayer.
Threshold Amount: Regarding the QBI deduction, threshold amount refers to taxable income,
calculated without consideration of the QBI deduction. The threshold amount will be indexed for
inflation for tax years after 2018.
Transfer: A movement of funds in a tax-favored plan from one trustee directly to another, either
at the plan owner’s request or at the trustee’s request.
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 is being sent to the IRS via a public switched telephone network.
Treasury Bill: Also known as a T-Bill. A U.S. government promissory note issued by the
Treasury. The maturity period is up to one year, generally in 13, 26, or 52 weeks depending on
Treasury Note: A U.S. government obligation that pays interest by coupon. The maturity period
ranges from more than one year up to ten years.
Treasury Offset Program (TOP): Public Law established the Tax Refund Offset Program which
permits overpayments to be offset against delinquent child support obligations, as well as debts
owed to participating Federal and state agencies. FMS assumes responsibility and oversight for
the Treasury Offset Program.
Tribunal: A court of justice.
Tuition and Fees: For tax years prior to 2018, taxpayers could deduct up to $4,000 in qualified
tuition and related expenses paid for qualified higher education during the tax year. The amount
of the deduction was determined by filing status, modified AGI (MAGI), and other factors. Form
8917, Tuition and Fees Deduction, was used to help compute the MAGI for this deduction.
Unadjusted Basis Immediately after Acquisition (UBIA): The "unadjusted" basis of qualified
property eligible for depreciation, bonus depreciation, §179 depreciation, etc. This is normally the
basis on the date the asset is placed in service.
Uncollected Rent: If the taxpayer is a cash basis taxpayer, he cannot deduct uncollected rent.
Since the cash basis taxpayer never included the uncollected rent in income, he cannot deduct
the uncollected rent as an expense or deduction. If the taxpayer is an accrual basis taxpayer, he
had to report income when it was earned. If the taxpayer is unable to collect the rent, he may be
able to deduct it as a business bad debt.
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 and must be reported on the taxpayer’s federal tax return. Taxpayers should
receive a Form 1099-G listing the total amount of compensation received during the year. If the
taxpayer opted not to have taxes withheld from unemployment payments or didn't make
estimated tax payments on the amount, he will likely owe the IRS.
Unenrolled Return Preparer: An individual other than an attorney, CPA, enrolled agent,
enrolled retirement plan agent, or enrolled actuary who prepares and signs a taxpayer's return as
the paid preparer, or who prepares a return but is not required (by the instructions to the return or
regulations) to sign the return.
Uniform Capitalization Rules: A farmer can determine costs required to be allocated under the
uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. This
applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as
Unit-livestock-Price Method: This method recognizes the difficulty of establishing the exact
costs of producing and raising each animal.
Unrelated Expenses: Expenses incurred for anything not used for business.
Useful Life: An estimate of how long an item of property can be expected to be usable in trade
or business or to produce income. Under MACRS, the taxpayer can recover the cost of property
over a set recovery period. The recovery period is based on the property class to which the
property is assigned. The class to which the property is assigned is generally determined by its
Wages: Regular compensation received by an employee as a condition of employment. Wages
are considered earned income and taxed as ordinary income.
Warning: Written notice given by the IRS to an Authorized IRS e-file Provider requesting specific
corrective action be taken to avoid future sanctioning.
Welfare Benefits (effect of credit on): Any refund received as a result of taking the EIC will not
be used to determine if the taxpayer is eligible for the following programs or how much the
taxpayer can receive from them. However, if the refund received because of the EIC is not spent
within a certain period of time, it may count as an asset (or resource) and affect eligibility.
Temporary Assistance for Needy Families (TANF)
Medicaid and supplemental security income (SSI)
Food stamps and low-income housing
Withdrawal: The removal of a taxpayer’s funds from a financial institution. This transaction may
or may not produce a taxable income.
Withholding: An employer retains a portion of an employee’s wages for the purpose of paying
for various taxes, insurance plans, pension plans, union dues, and other deductions.
Worldwide Income – Income received from all sources, regardless of where the income was
earned in the world.
Written Reprimand: A sanction for a level one infraction of the IRS e-file rules. It reprimands a
Provider for an infraction but does restrict or revoke participation in IRS e-file.
Zero Coupon Bond: Also known as original issue discount (OID) instruments.