Top Tax Terms & Definitions
Also known as "Transfer Pricing," which is the method of calculating the value of a tangible or intangible product between related entities. This can be either a domestic or an international issue.
The Earnings & Profits provision is a method of reporting tax information and is closely tied into the Subpart F rules. E&P calculations are required of U.S. companies which own foreign operations that pay a dividend back to the U.S. parent. It is necessary to calculate the E&P in order to compute the Foreign Tax Credit.
Tax break (exemption) for companies locating facilities in a U.S. possession, i.e., Puerto Rico, Guam, Virgin Islands. Income is only exempt if initiated from the possession or territory.
If a gain in income is made due to a currency fluctuation, a tax must be paid on foreign currency that gain value. If a loss is incurred due to a currency fluctuation, a tax deduction will apply.
An information return used to report the income, gains, losses, deductions, credits, etc., from the operation of a partnership. A partnership does not pay tax on its income but “passes through” any profits or losses to its partners. Partners must include partnership items on their tax or information returns.
The international piece of the 1120 for a US company doing business outside the US. The 1118 reflects the income and expenses for the international part of the business.
The final corporate tax return sent to the IRS.
The final corporate tax return sent to the IRS if the company is foreign owned.
Used to report income or loss from a business or a profession practiced as a sole proprietor.
Information return for each foreign entity that is part of a US-owned company. The 5471s then become a part of the 1118. Companies can have any number of foreign entities, even hundreds, and a 5471 must be filed for each one.
This is the same as a 5471 but for each US entity owned by a foreign parent company.
Accredited Tax Advisor
The ATA is a premier national tax credential for practitioners who handle sophisticated tax planning issues, including planning for owners of closely held businesses, planning for the highly compensated, choosing qualified retirement plans and performing estate tax planning. To become an ATA you must take and pass a 100 question exam and score 70% or better to earn the credential.
Accredited Tax Preparer
The ATP is a leading national credential for tax practitioners who have a thorough knowledge of the existing tax code and the preparation of individual tax returns with an expertise in comprehensive 1040 issues including supporting schedules, self-employed returns, and ethics. To become an ATP you must take and pass a 100 question exam and score 70% or better to earn the credential.
Advanced Pricing Agreement
The APA is a preliminary agreement between a taxpayer and a taxing authority on an appropriate transfer pricing methodology (TPM) for some set of transactions at issue over a fixed period of time.
American Bar Association
The ABA is the largest nation-wide organization for lawyers. The organization provides law school accreditation, continuing legal education, information about the law, programs to assist lawyers and judges in their work, and initiatives to improve the legal system for the public.
American Institute of Certified Public Accountants
The AICPA is the largest national organization for CPAs. The organization sets ethical standards for the profession and U.S. auditing standards for audits of private companies, non-profit organizations and federal, state and local governments. It also develops and grades the Uniform CPA Examination.
If audit cannot be resolved, a formal request is filed by the company to appeal the taxing agency’s decision.
Formerly FAS-109, the tax code requiring public companies to disclose a reconciliation of the reported amount of income tax that would result from applying domestic federal statutory rates to pretax financial income.
The taxing authority auditor investigates records pertaining to the tax return to determine if any taxes are owed. If the company is not satisfied, the decision can be appealed.
After a company has filed a tax return, if the taxing agency (government) is in disagreement with the decision or payments and feels that the return is not in compliance, it will conduct an audit of the company.
Bachelor of Arts/Bachelor of Science
The B/A and B/S are undergraduate degrees awarded by a four-year institution. Typically an Accounting degree is a Bachelor of Science.
The exam administered by individual states, for those who want to become lawyers. Passing the state Bar Exam is required in order to practice law.
Beta Alpha Psi
BAP is the International Honor Organization for Financial Information Students and Professionals.
"Book to Tax"
Due to different reporting requirements of Generally Accepted Accounting Principles (GAAP) and the IRS, at times a conversion needs to be made from the way transactions are reported on financial statements and then reported to the IRS for tax purposes.
Example: Depreciation of property or equipment value will be calculated at declining rates differently for financial worth vs. taxable liability.
Cash Tax Planning
The planning and regulating procedures dealing with cash turnover passing through the branches of the state bank of issue and with changes in the amount of money in circulation that serves as means of exchange, payment, and saving for the working people
Certified Employee Benefits Specialist
CEBS is a designation given to those who take an accredited program to certify them to work in the Employee Benefits field.
Certified Financial Planner
CFP professionals have completed extensive training and experience requirements and are held to rigorous ethical standards. They understand all the complexities of the changing financial climate and will make recommendations in client’s best interest.
Certified Government Auditing Professional
The CGAP certification program is designed especially for auditors working in the public sector at all levels.
Certified Internal Auditor
The CIA designation is the only globally accepted certification for internal auditors and remains the standard by which individuals demonstrate their competency and professionalism in the internal auditing field.
Certified Management Accountant
The CMA designation demonstrates one's command of the critical accounting and financial management skills demanded by today’s dynamic businesses.
Certified Member of the Institute
The CMI designation is a demonstration of expertise in business sales and use taxation.
Certified Public Accountant
The CPA designation is given to an individual after passing a state-administered four-part exam dealing with all aspects of accountancy and complying with other state licensing requirements.
The CA is an accounting designation given to accounting professionals in many countries around the world outside of the United States that provides the holder with the qualifications to audit financial statements and business practices as well as offer advisory services to clients. The equivalent to a CA designation in the U.S. is the CPA.
The actual filling-out of the tax returns and supporting forms for the IRS or state/local taxing authorities.
The review of the completed tax return done prior to filing with the taxing authority.
The combination of multiple subsidiary taxable entities (each with its own 1120 return) into the final return submitted to IRS which is the consolidated 1120 return.
Consolidated Tax Return
A corporation files a CTR which includes the tax reporting for all its taxable entities. Each individual entity has its own Form 1120 tax return that is “pulled under” the CTR. The Consolidated Tax Return is submitted to the IRS after each of the corporation’s fiscal years.
Controlled Foreign Corporation
A CFC is a foreign corporation of which more than 50% in vote or value of the stock is owned by U.S. persons. There may also be joint ventures, partnerships, or branches in foreign lands.
A tax on corporate earnings (and often includes capital gains) of a company. Earnings are generally considered gross revenue less expenses. However, corporate expenses that relate to capital expenditures are rarely deducted in full (such as the entire cost of a company truck) and are often deducted over the useful life of the asset purchase. Generally, industrialized countries also use a regressive rate of tax upon corporate income.
Council on State Taxation
COST is a nonprofit state tax organization representing taxpayers and consists of over 600 multistate corporations engaged in interstate and international business.
While under a SOX review, the level at which an auditor might determine a financial statement irregularity before the issue gets to the “Material Weakness” stage. While the Material Weakness must be made public on the auditors’ external reports, the “Deficiency” does not have to be made public and is a stern warning that if this issue is not addressed quickly it can be elevated to a Material Weakness.
Deloitte & Touche LLP
Commonly referred to as "Deloitte," it is one of the Big 4 professional service firms whose services include audit, financial advisory, tax and consulting.
The partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy. Divestiture can be done slowly and systematically over a long period of time, or in large lots over a short time period.
An investigation or audit of a potential investment.
Effective Tax Rate
The ETR is the average rate at which an individual or corporation is taxed. The ETR for individuals is the average rate at which their earned income is taxed.
Tax issues pertaining to the benefit plans when a company has to meet certain criteria set out by the IRS tax code.
Employee Retirement Income Security Act
ERISA is a federal law that sets minimum standards for pension plans in private industry and provides rules on the federal income tax effects of transactions associated with employee benefit plans.
The EA designation is given by the government to anyone who passes the Special Enrollment Exam (SEE). It allows the individual to represent taxpayers before the government.
Ernst & Young
Commonly referred to as "EY," it is one of the Big 4 professional service firms whose services include audit, financial advisory, tax and consulting.
Tax returns filed on behalf of entities established as an estate or trust that have specific tax code rulings on how income/profits are to be reported.
Tax levied on the production or sale of certain goods, especially on luxuries, tobacco, alcohol etc.
Exec refers to compensation paid to executives who can afford to defer part of their income; Equity refers to stock option plans that these highly paid executives are involved in. An individual who works in the Exec/Equity area has the expertise to assist highly paid individuals to defer income so it is not taxed as highly and can assist in ensuring their stock options do not become subject to a higher rate of taxes.
U.S. citizen who has spent a part, or all, of their tax year in a foreign country working and earning income. Their taxes are prepared looking at both the U.S income and the foreign income for the individual. To try to avoid double taxation, there is a Foreign Tax Credit (FTC) allowed for taxes to be paid to the foreign taxing authority.
Tax code to increase transparency in financial statements with respect to tax matters.
Foreign Account Tax Compliance Act
Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS. This reporting will be made on Form 8938, which taxpayers attach to their federal income tax return, starting this tax filing season. In addition, FATCA will require foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
Tax issues that result in a tax liability due to tangibles or intangibles crossing borders and therefore, changing currencies.
Foreign Sales Corporation
FSC was enacted in 1985 to increase exports by domestic companies. To qualify for an FSC, a domestic company must establish a corporation in a foreign country and export goods through that corporation. If a company qualifies as an FSC, it can reduce its tax rate from 34% to 28% on income from the foreign corporation. The foreign sales corporation was eliminated in 2001 by the Extraterritorial Income Exclusion Act in 2000 which introduced new rules for income not subject to U.S taxation.
Foreign Tax Credit
You may claim a tax credit or an itemized deduction for taxes paid to foreign countries. You do not need to live or to work in that foreign country in order to claim this benefit. If you cannot claim the foreign tax credit, deducting foreign taxes would be the only alternative.
Tax imposed on any corporate entity (can be determined by the amount of sales or flat fee).
Future Business Leaders of America-Phi Beta Lambda
FBLA-PBL is a nonprofit education association preparing students for careers in business and business-related fields.
The point at which an audit is taken to a formal state hearing; administered by a law judge who will examine the facts presented by both sides.
High Net Worth Individual
Individuals who possess over $1 million in financial assets and usually have some other investments outside of their job. Many times these are owners of privately held businesses.
Deduction, exclusion or exemption from a tax liability offered as an enticement to engage in a specified activity such as investment in capital goods for a certain period of time.
Tax imposed by the state on any earned income by a company.
A tax that governments impose on financial income generated by all entities within their jurisdiction. By law, businesses and individuals must file an income tax return every year to determine whether they owe any taxes or are eligible for a tax refund. Income tax is a key source of funds that the government uses to fund its activities and serve the public.
These are individuals who are citizens of other countries, but spent a portion or all of their tax year in the U.S. working and earning income.
International tax issues include all tax rules that are imposed by a government regarding an international corporation that has a presence within that country’s borders (either a headquarters location or another type of entity such as a manufacturing plant, sales office, regional or country headquarters, or a distribution center).
A business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity.
The JD is an advanced degree awarded by law schools. A person with a JD is eligible to sit for the Bar exam and become a lawyer.
If a company disagrees with the ruling of the judge regarding the ruling of an audit, it has the option of taking the case to the court system for litigation.
Local Country Audits
Audits conducted by a local country’s taxing authority and usually a local accounting or law firm will handle these audits. For example, if a U.S. company doing business in Italy gets audited by the Italian government, the U.S. Company might hire their U.S. tax advisers, Ernst & Young, to handle the Italian audit from one of the E&Y Italian office locations.
City or county imposed taxes that are collected and regulated by their taxing agencies.
Master's of Accountancy
The MAcc is an advanced degree, usually awarded by a college or university’s Business School. Sometimes this degree is offered with the option of a tax concentration.
Master's in Accounting and Taxation
The MSAT is an advanced degree, usually awarded by a college or university’s Business School.
Master's of Business Administration
The MBA is an advanced degree, usually awarded by a college or university’s Business School. Sometimes this degree is offered with the option of a tax concentration.
Master's of Law
The LL.M. is an advanced degree awarded by law schools. Law students and professionals frequently pursue the LL.M. to gain expertise in a specialized field of law, for example in the area of tax law or international law.
Master's of Taxation
The MST is an advanced degree, usually awarded by a college or university’s Business School.
When one or more of a company's internal controls, put in place to prevent significant financial statement irregularities, is considered to be ineffective. If a deficiency in an internal control is thought to be of material weakness, this means that it could lead to a material misstatement in a company's financial statements.
Mergers & Acquisitons
M&A is an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.
Modeling & Quantitative Analysis
A business or financial analysis technique that seeks to understand behavior by using complex mathematical and statistical modeling, measurement and research. By assigning a numerical value to variables, quantitative analysts try to replicate reality mathematically. Quantitative analysis can be done for a number of reasons such as measurement, performance evaluation or valuation of a financial instrument. It can also be used to predict real world events such as changes in a share price.
National Association for Law Placement
The NALP is a non-profit educational association established to assist with professional development and planning for those with a career in law.
National Association of Tax Professionals
The NATP is the largest tax association serving Tax Preparers, Enrolled Agents, Certified Public Accountants, Certified Financial Planners, Accountants, and Attorneys.
Plans that are at the discretion of management/owners of a corporation. This can be aimed at specific individuals and not given to the entire employee pool. Examples are the SEP’s (Simplified Employee Pension Plans) and certain stock option plans that are discretionary.
When a U.S. company transfers assets or property offshore (even if they give it a zero value), the U.S. government taxes the deemed value as if it was sold.
Planning that is part of the day-to-day business of the company in order to minimize the corporate tax burden.
The concept of taxing a partnership business entity.