What Is “Physical presence test”?
06/02/2026
The physical presence test is a mechanical, day-counting standard used by the IRS to determine whether a U.S. citizen or resident alien has spent enough time outside the United States to qualify for the Foreign Earned Income Exclusion (FEIE). To pass the test, you must be physically present in a foreign country or countries for
What Is “Personal holding company tax”?
06/02/2026
The personal holding company (PHC) tax is a 20% penalty tax imposed by the IRS on certain closely held C corporations that generate most of their income from passive investments. It is designed to prevent business owners from using a corporation as a tax shelter—an “incorporated pocketbook”—to hide investment income and avoid paying individual income
What Is a “Partnership representative”?
06/02/2026
A Partnership Representative is the designated person or entity legally authorized to communicate with the IRS on behalf of a partnership during a tax audit. Under current centralized audit rules, this representative has the exclusive power to negotiate and make binding tax decisions for the business and all of its partners. Meaning of “Partnership representative”
What Are “Partnership Audit Rules”?
06/02/2026
Partnership audit rules are the specific procedures the IRS uses to examine the tax returns of business partnerships. Under the current centralized regime, the IRS audits the partnership as a whole and collects any owed taxes directly from the partnership entity, rather than tracking down and collecting from each individual partner. Meaning of “Partnership Audit
What Is “Partner’s share of liabilities”?
06/02/2026
A partner’s share of liabilities represents the portion of a partnership’s debts that is assigned to an individual partner for tax purposes. Because partnerships are “pass-through” entities, the business itself doesn’t pay federal income taxes; instead, the financial responsibilities, profits, losses, and debts flow through to the owners. This assigned debt is crucial because it
What Is a One-Participant 401(k)?
06/02/2026
A One-Participant 401(k) is a traditional 401(k) retirement plan designed exclusively for self-employed individuals and business owners who have no full-time employees other than themselves and their spouses. It allows you to make retirement contributions under two different roles: as the employee and as the employer. By combining these two funding methods, you can shield
What Is “ Nonresident alien ”?
06/02/2026
A nonresident alien is a non-U.S. citizen who does not hold a green card and has not spent enough time physically present in the United States to pass the IRS residency tests. Unlike U.S. citizens or resident aliens, a nonresident alien is only required to pay federal income taxes on income earned from sources within
What Is a Nonrecourse Liability?
06/02/2026
A nonrecourse liability is a type of loan where the borrower is not personally liable for the debt. If the borrower defaults, the lender’s only remedy is to seize and sell the specific property securing the loan, such as a building or a piece of equipment. Even if the property’s value is less than the
What Is a Nonqualified Distribution?
06/02/2026
A nonqualified distribution is a withdrawal from a tax-advantaged savings account—such as a Roth IRA, Roth 401(k), Health Savings Account (HSA), or 529 education savings plan—that fails to meet strict IRS rules. Because the withdrawal violates specific age, timing, or spending requirements, it loses its tax-free status. As a result, the investment earnings portion of
What Is a Nondeductible IRA Contribution?
06/02/2026
A nondeductible IRA contribution is a deposit made into a traditional Individual Retirement Account (IRA) using after-tax dollars that you do not deduct from your income on your tax return. This occurs when your income crosses high statutory thresholds and you or your spouse are covered by a retirement plan at work, which phases out