CPA REG (Taxation & Regulation) Glossary
23 essential terms and definitions for CPA REG (Taxation & Regulation). Each definition is written for exam preparation, covering the concepts as they are tested on the 2026 syllabus.
A
- Adjusted Basis
- Adjusted basis is the original cost of an asset adjusted upward for capital improvements and certain items, and downward for depreciation, amortization, or other recovery. It is the figure subtracted from the amount realized to compute gain or loss on disposition.
- Adjusted Gross Income (AGI)
- AGI is gross income reduced by specific above-the-line adjustments (educator expenses, HSA contributions, student-loan interest, self-employment tax deduction, IRA contributions). It is the baseline figure for many deductions and phase-outs.
- Alternative Minimum Tax (AMT)
- AMT is a parallel federal income tax computed on alternative minimum taxable income (AMTI) with limited preferences and deductions. The taxpayer pays the higher of the regular tax or AMT, and AMT credits may be available in future regular-tax years.
- Article 2 of UCC (Sales)
- UCC Article 2 governs contracts for the sale of goods. It covers formation, terms, performance, breach, and remedies, and adopts a more flexible standard than common-law contract for merchants.
B
- Boot
- Boot is non-like-kind property received in a Section 1031 exchange or in certain corporate reorganizations. Gain is recognized to the extent of boot received, even when the rest of the exchange qualifies for non-recognition.
C
- C Corporation
- A C corporation is a business entity taxed as a separate person under Subchapter C. It pays entity-level income tax on profits, and shareholders pay again on dividends, creating the classic double-taxation problem.
- Capital Asset
- A capital asset is any asset other than inventory, accounts receivable, depreciable business property, and certain other excluded categories. Sale of a capital asset produces capital gain or loss subject to special holding-period and rate rules.
- Circular 230
- Circular 230 contains the Treasury Department regulations governing practice before the IRS. It sets standards of conduct, due diligence, and confidentiality for CPAs, attorneys, EAs, and other authorized representatives.
- Constructive Receipt Doctrine
- Constructive receipt taxes cash-basis taxpayers on income that has been made available without substantial restriction, even if not actually received. The classic example is a year-end paycheck the employee chooses not to cash until January.
E
- Earned Income Tax Credit (EITC)
- The EITC is a refundable federal tax credit for low- to moderate-income working taxpayers. It phases in with earned income, plateaus, and phases out, with the phase-out range depending on filing status and number of qualifying children.
- Estate Tax
- The federal estate tax is a transfer tax on the taxable estate at death above the lifetime exemption. It is unified with the gift tax through a single lifetime exemption that the donor can use during life or at death.
G
- Gift Tax
- The federal gift tax applies to lifetime gratuitous transfers above the annual exclusion. It uses the same lifetime exemption as the estate tax, with the annual exclusion preserving a per-donee allowance that does not consume lifetime exemption.
H
- Holding Period
- Holding period is the length of time the taxpayer has owned an asset. Long-term capital-gain treatment requires holding more than one year; tacked holding periods apply in many non-recognition transactions.
L
- Like-Kind Exchange (Section 1031)
- A Section 1031 exchange defers gain recognition on real property held for investment or productive use in a trade or business when exchanged for like-kind real property. After the 2017 TCJA, personal property no longer qualifies.
- Limited Liability Company (LLC)
- An LLC is a state-law entity offering limited liability for members and pass-through taxation by default. A single-member LLC is disregarded by default; multi-member LLCs are partnerships unless they elect corporate taxation.
M
- Material Participation
- Material participation determines whether a taxpayer's activity is non-passive. Seven tests apply, including the 500-hour test, the substantially-all-the-participation test, and the prior-five-of-ten-years material-participation test.
P
- Passive Activity Loss (PAL)
- A passive activity loss is a loss from a trade or business in which the taxpayer does not materially participate. Passive losses are deductible only against passive income, with suspended losses freed when the activity is disposed of in a fully taxable transaction.
Q
- Qualified Business Income (QBI) Deduction
- The Section 199A deduction allows up to 20% of qualified business income from pass-through entities, subject to wage and UBIA limitations and special rules for specified service trades or businesses (SSTBs) above income thresholds.
S
- S Corporation
- An S corporation is a small business corporation that has elected pass-through taxation under Subchapter S. It must meet shareholder-eligibility limits (US individuals and certain trusts), 100-shareholder cap, and the single-class-of-stock requirement.
- Section 1231 Property
- Section 1231 property is depreciable property and real estate used in a trade or business and held more than one year. Net 1231 gains are treated as long-term capital gains; net 1231 losses are treated as ordinary losses, subject to recapture for prior-year losses.
- Standard Deduction
- The standard deduction is a fixed deduction from AGI that taxpayers can claim in lieu of itemizing. Amounts depend on filing status and age (with an additional amount for age 65 or older) and are adjusted annually for inflation.
- Statute of Frauds
- The Statute of Frauds requires certain contracts to be in writing to be enforceable. Categories include contracts for the sale of land, contracts that cannot be performed within one year, sales of goods of $500 or more, and suretyship promises.
W
- Wash Sale Rule
- The wash sale rule disallows the loss on sale of a security if a substantially identical security is purchased within 30 days before or after the sale. The disallowed loss is added to the basis of the replacement security and the original holding period tacks.