AppendixC - Appendix C GLOSSARY The words and phrases in...

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Appendix C G L O S S A R Y The words and phrases in this glossary have been defined to reflect their conventional use in the field of taxation. The definitions may therefore be incomplete for other purposes. A Abandoned spouse. The abandoned spouse provision enables a married taxpayer with a dependent child whose spouse did not live in the taxpayer’s home during the last six months of the tax year to file as a head of household rather than as married filing separately. Accelerated cost recovery system (ACRS). A method in which the cost of tangible property is recovered over a prescribed period of time. Enacted by the Economic Recovery Tax Act (ERTA) of 1981 and substantially modified by the Tax Reform Act (TRA) of 1986(the modified system is referred to as MACRS), the approach disregards salvage value, imposes a period of cost recovery that depends upon the classification of the asset into one of various recovery periods, and prescribes the applicable percentage of cost that can be deducted each year. § 168. Accelerated death benefits. The amount received from a life insurance policy by the insured who is terminally ill or chronically ill. Any realized gain may be excluded from the gross income of the insured if the policy is surrendered to the insurer or is sold to a licensed viatical settlement pro- vider. § 101(g). Accelerated depreciation. Various methods of depreciation that yield larger deductions in the earlier years of the life of an asset than the straight-line method. Examples include the double declining-balance and the sum-of-the-years’ digits methods of depreciation. § 167. Accident and health benefits. Employee fringe benefits pro- vided by employers through the payment of health and acci- dent insurance premiums or the establishment of employer-funded medical reimbursement plans. Employers generally are entitled to a deduction for such payments, whereas employees generally exclude the fringe benefits from gross income. §§ 105 and 106. Accountable plan. An accountable plan is a type of expense reimbursement plan that requires an employee to render an adequate accounting to the employer and return any excess reimbursement or allowance. If the expense quali- fies, it will be treated as a deduction for AGI. Accounting income. The accountant’s concept of income is generally based upon the realization principle. Financial accounting income may differ from taxable income (e.g., accelerated depreciation might be used for Federal income tax and straight-line depreciation for financial accounting purposes). Differences are included in a reconciliation of taxable and accounting income on Schedule M–1 or Sched- ule M–3 of Form 1120 for corporations. Seventy-five percent of the excess of adjusted current earnings over alternative mini- mum taxable income is an adjustment for alternative mini- mum tax purposes for a corporation. See also alternative minimum tax and economic income .
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