CPA Pilot Glossary

Tax and AI terms, explained clearly.

Practical definitions for CPA firms working with tax automation, return review, AI workflows, and client operations.

published terms

1031 Exchange Ad Valorem Tax Adjusted Basis/Tax Basis

A

4 terms

Ad Valorem Tax

Ad valorem tax is based on property value. Learn how it’s calculated, how assessments and tax rates work, and when deductions may apply.

Adjusted Basis/Tax Basis

Tax basis is the amount assigned to property or an ownership interest for tax purposes, while adjusted basis reflects that starting amount after required increases and reductions. Basis affects depreciation, deductions, distributions, and gain or loss on disposition, with special rules applying to gifts, inheritances, entities, real estate, casualties, and Section 1031 exchanges.

Adjusted Gross Income (AGI)

Adjusted Gross Income (AGI) is gross income minus eligible tax adjustments used to calculate taxable income and tax benefits.

At-Risk Rules (IRC §465)

At-risk rules under IRC §465 limit deductible business or investment losses to the amount a taxpayer could actually lose financially. This guide explains how to calculate the amount at risk, carry forward suspended losses, and report allowable deductions using Form 6198.

C

1 term

CP2000 Notice

A CP2000 Notice is an IRS notice proposing tax return changes when third-party information does not match the filed return. It allows the taxpayer to agree or dispute the changes and is not a tax bill or formal audit.

D

1 term

Depreciation Recapture

Depreciation recapture is a federal tax rule that can reclassify gain from selling depreciable property as ordinary income.

E

3 terms

Economic Nexus

Economic nexus is a state tax rule that may require remote sellers to collect and remit sales tax when qualifying sales exceed specified revenue or transaction thresholds.

Estimated Tax Safe Harbor

The estimated tax safe harbor is a federal rule that generally protects taxpayers from underpayment penalties when withholding and timely estimated payments meet the required current-year or prior-year tax threshold.

Excise Tax

Excise tax applies to specific products, services, or activities and may affect pricing, calculations, filing, exemptions, and business tax obligations.

I

1 term

IRS Installment Agreement

An IRS installment agreement is a payment arrangement that allows eligible taxpayers to pay federal tax debt over time through monthly payments instead of paying the full balance at once. Interest and applicable penalties may continue until the balance is paid.

M

2 terms

Material Participation

Material participation determines whether a taxpayer’s involvement in a business activity qualifies it as passive or nonpassive. Learn the seven IRS tests, qualifying participation rules, and documentation requirements.

Modified Adjusted Gross Income (MAGI)

MAGI is an IRS income measure used to determine eligibility for tax benefits, retirement contributions, and healthcare programs. It modifies AGI based on specific tax rules.

N

1 term

Net Investment Income Tax (NIIT)

Net Investment Income Tax (NIIT) is a 3.8% federal tax on certain investment income for taxpayers above specific MAGI thresholds.

O

1 term

Offer in Compromise (OIC)

An Offer in Compromise (OIC) is an IRS program that may allow qualifying taxpayers to settle federal tax debt for less than the full amount owed. Eligibility depends on factors such as ability to pay, income, expenses, asset equity, and the specific grounds for the offer.

P

1 term

Passive Activity Loss (PAL)

Passive activity loss (PAL) rules limit when taxpayers can deduct losses from passive activities. Learn how IRC §469, Form 8582, suspended losses, rental real estate rules, basis, at-risk limits, and participation requirements affect deductions.

R

1 term

Reasonable Cause Relief

Reasonable Cause Relief may reduce or remove certain IRS penalties when circumstances prevented a taxpayer from complying despite reasonable efforts. Eligibility depends on the penalty, the taxpayer’s actions, and supporting evidence.

S

2 terms

S-Corp Reasonable Compensation

S-Corp reasonable compensation is the wage paid to a shareholder-employee for services performed. This guide explains IRS factors, salary calculations, wage benchmarks, distributions, payroll taxes, QBI, documentation, and compliance considerations for CPAs.

Step-up in Basis

A step-up in basis generally adjusts the tax basis of inherited property to its fair market value on the applicable valuation date.

T

2 terms

Tax Apportionment

Tax apportionment determines how much of a multistate business's income is taxable in each state. Learn its formulas, calculation methods, and how it differs from tax allocation.

Tax Evasion

Tax evasion is the intentional use of illegal methods to avoid or reduce taxes owed. It can include hiding income, claiming false deductions, or concealing assets, and may result in civil penalties or criminal prosecution.

U

1 term

Underpayment Penalty

An underpayment penalty is an IRS charge for paying too little federal tax, or paying it late, through withholding or estimated tax payments during the year.

#

1 term

1031 Exchange

A 1031 exchange lets investors defer capital gains taxes by exchanging qualifying real property. Learn key rules, deadlines, tax treatment, and reporting requirements.