Glossary

NOT LEGAL OR TAX ADVICE. Definitions are research summaries; consult primary sources before relying.

Accountable plan#

A formal employer arrangement under Treas. Reg. § 1.62-2. Reimbursements to an employee are excluded from W-2 wages if the plan satisfies three tests: business connection, substantiation within a reasonable time (60-day safe harbor), and return of excess within a reasonable time (120-day safe harbor).

AFR (Applicable Federal Rate)#

Minimum interest rate the IRS publishes monthly (in revenue rulings). Loans between related parties below AFR are recharacterized under IRC § 7872.

Augusta Rule#

Common name for IRC § 280A(g). Up to 14 days/year of personal-residence rental are excluded from gross income.

BRF nondiscrimination#

Benefits, Rights, and Features test under Treas. Reg. § 1.401(a)(4)-4. Common ROBS audit failure.

Constructive dividend#

Re-characterization of a corporate-to-shareholder transfer as a § 301 distribution when there is no clear business purpose or proportional consideration.

Disqualified person#

For § 4958 purposes: an officer, director, substantial contributor, or family member of any of the foregoing of a § 501(c)(3). For § 4975 purposes: similar concept defined in § 4975(e)(2) for retirement plans.

DSHEA#

Dietary Supplement Health and Education Act of 1994. Governs structure-function claims vs. drug claims for dietary supplements; relevant to cohort food businesses making "bedtime" or "calming" claims.

Economic substance doctrine#

Codified at IRC § 7701(o). A transaction must change the taxpayer's economic position meaningfully apart from federal tax effects AND have a substantial non-tax purpose. Conjunctive test; strict-liability penalty.

ERISA#

Employee Retirement Income Security Act of 1974. Federal statute governing employer-sponsored retirement plans. Compliance required for ROBS, qualified plans, fiduciary duties.

FALCPA / FASTER Act#

Food Allergen Labeling and Consumer Protection Act (2004) and FASTER Act (2021). Together identify nine major allergens (milk, eggs, fish, crustacean shellfish, tree nuts, peanuts, wheat, soy, sesame).

FMV (Fair Market Value)#

The price at which property would change hands between a willing buyer and willing seller, neither under compulsion. Backbone of arm's-length pricing.

QBI (Qualified Business Income)#

Net income from a qualified trade or business that qualifies for the 20% deduction under IRC § 199A. Currently scheduled to sunset after 2025 unless extended.

QSBS (Qualified Small Business Stock)#

Stock issued by a domestic C-corp meeting § 1202 requirements (gross assets ≤ $50M, active business). Up to 100% gain exclusion on sale after 5-year hold.

ROBS (Rollover as Business Startup)#

A funding structure that lets entrepreneurs use retirement funds to capitalize a new C-corporation without triggering distribution tax or early-withdrawal penalty. Permitted by the IRS but heavily regulated under § 4975.

Roth designated contribution#

After-tax employee deferral inside a 401(k) plan permitted by IRC § 402A. Grows tax-free; tax-free on qualified distribution.

Rule of 55#

IRC § 72(t)(2)(A)(v) — early-distribution penalty exemption for participants who separate from service in or after the year they reach age 55. Applies only to that employer's plan, not rolled-over IRAs.

SECURE 2.0#

SECURE 2.0 Act of 2022. Among many changes: super-catch-up contributions for ages 60–63 ($11,250 in 2026); Roth employer contributions in 401(k); extended plan-adoption deadlines.

SEPP (Substantially Equal Periodic Payments)#

IRC § 72(t)(2)(A)(iv). Stream of equal payments avoiding the 10% early-distribution penalty. Three IRS-approved calculation methods (Rev. Rul. 2002-62). Lock-in for 5 years or to age 59½, whichever is later.

Solo 401(k)#

A regular 401(k) plan with no common-law employees other than the owner and spouse. No magic separate Code section — qualified under § 401(a) / § 401(k).

SSTB (Specified Service Trade or Business)#

Defined in IRC § 199A(d)(2). Includes law, accounting, consulting, health, financial services, performing arts, athletics. QBI deduction phases out above income thresholds for SSTBs.

Step transaction doctrine#

Tax-court doctrine collapsing multiple steps into one transaction when the steps are functionally a single transaction. Three articulations: binding commitment, mutual interdependence, end result. Comm'r v. Court Holding Co., 324 U.S. 331 (1945).

UBIT / UBTI#

Unrelated Business Income Tax (IRC § 511) on the Unrelated Business Taxable Income (§ 512) of an exempt organization. Applies to nonprofits and to qualified plan trusts holding active business interests.

Watson reasonable compensation#

S-corp reasonable-compensation requirement from Watson v. United States, 668 F.3d 1008 (8th Cir. 2012). Shareholder-employees must take reasonable W-2 wages before taking distributions.