IRS Glossary of Terms

AARP American Association of Retired Persons

Accrual method Accounting method that reports income when earned (not necessarily received) and expenses when incurred (not necessarily paid), as opposed to the cash method. (Out of scope for the VITA/TCE programs.)

Active Participation When a taxpayer makes significant rental or business management decisions, such as approving rental terms, repairs, expenditures, and new tenants (versus passive activity). Taxpayers who use a leasing agent or property manager are still considered active participants if they retain final management rights.

Active Pay The military income a service member receives while on active duty (versus retirement or retainer pay).

Actual Expense Method One of two methods for calculating business automobile expenses. For the actual expense method, the taxpayer determines the business portion of expenses for fuel, auto maintenance, parking fees and tolls, and auto loan interest. (The other method is the standard mileage method). The actual expense method is out of scope for the VITA/TCE programs.

Additional Child Tax Credit

A credit that may be taken if the full amount of the child tax credit cannot be claimed.

Adjusted Basis The adjusted basis is the taxpayer's basis in a home increased or decreased by certain amounts. Increases include additions or improvements to the home such as installing a recreation room or putting on a new roof. In order to be considered an increase, the improvement must have a useful life of more than one year. Repairs that maintain the home in good condition are not considered improvements and should not be added to the basis of the property.

Adopted children If a child is adopted during the year, the child is included in the taxpayer's household only for the full months that follow the month in which the adoption occurs. Similarly, if you place a child for adoption or foster care, the child is included in the tax household only for the full months before the month in which the placement occurs.

Adjusted Gross Income (AGI) The taxpayer's total adjusted gross income (AGI) is the amount that is used to compute some limitations, such as the medical and dental deduction on Schedule A and the credit for child and dependent care expenses.

Adoption Taxpayer Identification Number A nine-digit tax-processing number issued by the IRS for children who are in the process of being adopted and who can be claimed as a dependent or claimed for a childcare credit. The ATIN is used wherever the child's social security number is requested.

Advance EIC Payments Payments of the earned income credit (EIC) paid to qualified taxpayers through the regular paycheck.

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