| Term |
Definition |
| Identifying Numbers |
All taxpayers and
dependents must have identifying numbers.
Individuals, with rare exceptions, use their
social security numbers. Businesses, estates,
trusts, partnerships, and payers of dividends and
interest, use employer identification numbers.
Certain resident and nonresident aliens use an
individual taxpayer identification number.
Certain children in the process of being adopted
may receive an adoption tax identification number. |
| Imputed (or Unstated)
Interest |
In the case of certain
long-term sales of property, the IRS has the
authority to convert some of the gain from the
sale into interest income if the contract does
not provide for a minimum rate of interest to be
paid by the purchaser. Such converted interest is
called imputed interest. |
| Incentive Stock
Option |
A statutory stock option
that allows an employee to purchase stock of the
employer below current market price. No income
tax consequences result from the grant or
exercise of such an option and, if holding period
requirements are met, gain on the eventual sale
of thestock is long-term capital gain. |
| Income |
The word "income,"
in its broad sense, is the gain derived from
capital, labor, or a combination of the two. It
is distinguishable from the capital itself.
Ordinarily, for income tax purposes, the word
"income" is not used alone. Rather it
is used within such descriptive terms as gross
income, taxable income, and adjusted gross
income, all of which are defined elsewhere in
this glossary. |
| Income Averaging |
A method by which
farmers may sometimes reduce tax liability by
computing their income tax as if their current
farm income had been spread evenly over the
preceding three years. |
| Independent
Contractor |
A taxpayer who contracts
to do work according to his own methods and who
is not subject to control except as to the
results of such work. An employee, by contrast,
is subject to the control of the employer as to
the methods to be used to obtain the desired
results. |
| Individual Retirement
Arrangement (IRA) |
There are three types of
IRAs: traditional IRAs, Roth IRAs, and education
IRAs. |
| Information Returns |
These are returns, such
as Form W-2 and the various 1099 forms, which
report to the IRS income and property
transactions. The payer, broker, or other
designated person is required to file these
returns and is subject to penalties for
noncompliance. |
| Inheritance |
As distinguished from a
bequest or devise, an inheritance is property
acquired through laws of descent and distribution
from a person who dies without leaving a will.
Property so acquired usually takes as its basis,
for gain or loss on later disposition or for
depreciation, the fair market value at the date
of the decedent's death. An inheritance of
property is not a taxable event, but the income
from an inheritance is taxable. |
| Insolvency |
A financial condition in
which a taxpayer's total liabilities (debts owed)
exceed the total fair market value of all his or
her assets (cash and other property). A taxpayer
is insolvent to the extent his or her liabilities
exceed his or her assets. |
| Installment Method |
A method of accounting
enabling a taxpayer to spread the recognition of
gain on the sale of property over the payment
period. Under this procedure, the seller computes
the gross profit percent from the sale (that is,
the gain divided by the contract price) and
applies it to each payment received to arrive at
the amount of the gain to be recognized. |
| Insurance Dividends |
Amounts paid to policy
holders are not dividends on capital stock, but
are a rebate of a portion of the premiums paid
for the insurance. Such dividends reduce the cost
of the insurance and are not taxable unless in
excess of the total premiums paid. Interest paid
when the dividends are left with the insurance
company is reported to the taxpayer as interest
and is taxable. |
| Intangible Personal
Property |
Property, other than
real property, with no intrinsic value; its value
lies in the rights conveyed. Examples include
cash, insurance, stock, goodwill, and patents. |
| Interest Received |
An amount received for
the use of money that is to be repaid in full at
a specified time or on demand. |
| Interlocutory Decree
See Divorce Decree (Interlocutory) |
Internal Revenue Sums
raised by the United States through imposition of
taxes on incomes, transfers, facilities,
products, manufactures, and sales, all relating
to domestic transactions, as broadly
distinguished from customs duties on goods
imported. |
| Internal Revenue
Service (IRS) |
The division of the U.S.
Treasury Department responsible for collecting
taxes. |
| Inventory |
A list of articles of
property. For income tax purposes, inventory
refers only to a list of articles comprising
stock in trade--articles held for sale to
customers in the regular course of a trade or
business. The cost of goods sold during the year
is determined by adding to the inventory at the
beginning of the year the purchases during the
year, and subtracting from this sum the inventory
at the close of the year. |
| Investment Interest |
Interest paid on loans
acquired to purchase or hold investment property.
Investment interest is deductible as an itemized
deduction to the extent of net investment income. |
| Investment Property |
Property owned primarily
for its potential increased value. Examples
include land, stock, works of art, and
collectibles. |
| Investment Tax Credit |
Prior to 1986, a credit
was allowed for the purchase of certain
depreciable personal property used in business. |
| Involuntary
Conversion |
The receipt of money or
other property as reimbursement for the loss or
destruction of property through theft, casualty,
or condemnation. Any gain realized on an
involuntary conversion can, at the taxpayer's
election, be considered nonrecognizable for
federal income tax purposes if the owner
reinvests the proceeds within a prescribed period
of time in similar property. |
| Itemized Deductions |
Certain personal
expenditures allowed by the tax Code as
deductions from adjusted gross income. Examples
are certain medical expenses, qualified interest
on home mortgages, and charitable contributions.
Itemized deductions are reported on Schedule A,
Form 1040. A taxpayer who itemizes deductions may
not claim the standard deduction. |
