c

C Corporation Back to Top

A regular corporation that pays tax directly to the IRS. A C corporation can be contrasted with an S corporation which generally doesn't pay tax, instead its shareholders (owners) pay tax on their share of the S corporations income.

Calculation Report Back to Top

A Certified Public Accountant that issues an appraisal, can, according to accounting standards, issue a "calculation report" or a "valuation report". A calculation report is one in which the accountant applies procedures and valuation methodologies agreed to by the client and the accountant in advance. This is an important distinction from a valuation report in which the accountant uses his or her professional judgment to determine which of various valuation methodologies should be applied. Different (lower) standards apply for a Calculation Report. Whichever approach is used, the report should clearly indicate it.

Capital Asset Back to Top

Anything you own of a permanent nature that can be used to produce income or that has a value, such as a building, house, furniture, and so forth.

Capital Expenditure Back to Top

A payment to buy, build, improve or fix an asset (property that you own) which will last for more than one year. Capital expenditures generally can't be deducted in the year paid. Instead, they must usually be added to your investment (adjusted basis) in the asset, then be written off (depreciated) over a longer period. Examples of capital expenditures include the costs to build a new building, add a new roof, build a new den, pay a broker for finding a tenant, and so forth.

Capital Gain Back to Top

The gain from selling a capital asset that is held for more than a specified time. The gain is usually the amount realized (net sales price) less your investment (adjusted tax basis) in the property. Capital gains receive favorable tax treatment in that the maximum rate is set at 10 to 28 percent when the maximum tax rate on ordinary income is 39.6 percent. Capital losses can only be deducted in any year up to the amount of capital gains plus $3,000. Special rules apply for capital gains realized on investments in qualified Small Business Stock that permit 50 percent of the capital gain to be excluded.

Capitalize Back to Top

When expenses that are not deductible are added to your investment (adjusted basis) in the property, they are capitalized.

Carry Over Basis Election in 2010 Back to Top

Thus, the option for estates of those who died in 2010 is for the executor (personal administrator) to choose whether to accept the new default rule that the estate will be subject to the TRA modified estate tax with a $5 million exemption and a full income tax basis step-up (increase) as well. This is a rather costly retroactive tax benefit for the government to provide. It will, however, provide considerable simplification for many 2010 estates. It will enable practitioners to address compliance issues with a known body of law if the estate can safely select to be subject to the estate tax instead of the complex and daunting carryover basis rules.

The mechanism the 2010 TRA uses to accomplish the above is to provide that its provisions applying the estate tax are generally effective as of January 1, 2010. TRA then provides executors the option to choose which to apply, the carryover basis tax paradigm instead of the estate tax. The carryover basis is thus an option that an executor can select instead of the estate tax approach. The actual language that the 2010 TRA uses to implement this election system is rather difficult to understand (with double and triple negatives).

This is sometimes referred to as carryover basis or COB.

See Form 8939 and other materials on this website.

Carryover Basis (generally) Back to Top

In 2010 if the executor of an estate elects not to have the estate tax rules apply then carryover basis rules apply. Conceptually these rules require heirs, as a condition of avoiding any estate tax, to receive property with the same tax basis that their decedent had (e.g., what the decedent paid for a particular stock 30 years earlier). The carryover basis system will only apply for 2010 decedents and can be avoided if the executor opts instead to apply the estate tax system as enacted by TRA. The carryover basis rules are not a true carryover basis in that the basis is the lesser of the carryover basis of each asset or its fair market value at the date of death, and further modified by several adjustments, the most of which are that $1.3 million of appreciation can be eliminated for assets passing to any beneficiaries and an additional $3 million of appreciation can be eliminated on transfers to a spouse.

Carryover Basis and GST Back to Top

If an executor makes the decision to have the carryover basis rules apply to the estate of someone who died in 2010, can the estate also take advantage of the favorable TRA rules on the generation skipping transfer (GST) tax? At first some tax experts were not clear, but it now seems that executors can have their carryover basis cake, and eat their GST exemption too. Form 8939 provides for this.

Cash Basis Method Back to Top

A method of determining when income must be reported and when expenses can be deducted. It is used by most individual taxpayers. Certain partnerships, corporations, and other taxpayers may not be able to use the cash method. Under the cash method, income is generally reported in the year you receive the money, and expenses are usually deducted in the year you pay the expense.

Cash Flow Back to Top

The actual cash you receive after paying expenses on your rental property. Depreciation write-offs are an expense for tax purposes that do not require you to pay cash. When calculating the cash flow from a property, you must add back depreciation write-offs to the income (or loss) you report for tax purposes on the property.

Casualty Loss Back to Top

A loss deduction may be allowed for a loss to your real estate investment property or for a loss on your home resulting from a fire, storm, theft, and so forth. Certain disaster losses may be deducted in the year before they actually occurred. New rules ease the requirements for reinvesting insurance proceeds received as a result of a casualty.

Caveat Back to Top

In some states you can file a claim, which might be called a caveat, against a will. This is an objection to the will being admitted to probate and will afford you an opportunity to contest the will. In other states, or in other circumstances, this expedited process is not available and you will have to instead file a formal lawsuit or complaint.

Caveat Back to Top

In some states you can file a claim, which might be called a caveat, against a will. This is an objection to the will being admitted to probate and will afford you an opportunity to contest the will. In other states, or in other circumstances, this expedited process is not available and you will have to instead file a formal lawsuit or complaint.

Centralized Management Back to Top

There are four characteristics that distinguish an entity taxed as a partnership (flow through income and loss to the owner) and a corporation (the corporate entity pays tax and then the owner pays tax on distributions received - called \"double taxation\"). Centralized management is one of these four characteristics. Where centralized management exists, it is a corporate (not partnership) characteristic. If all members of the LLC are permitted to manage the LLC, there is no centralized management. Where only one member is named the manager, centralized management exists. The decision in other circumstances can vary from less clear to uncertain. Now that the IRS has passed \"check the box\" regulations, which will generally permit a partnership or LLC to simply elect to be taxed as a partnership, these technical distinctions are less important. This is important. Consult with your tax advisor.

Certificate of Alternate Name Back to Top

If your LLC will operate under a different or additional name than the name under which it was formed, this Certificate may have to be filed. The laws vary significantly from state to state. A filing may be required in your state, county, both, or even elsewhere. Check with a local attorney.

Certificate of Amendments Back to Top

It is often necessary, or prudent, to amend the Certificate of Formation by filing a Certificate of Amendment, which then also becomes part of the public record on your LLC. For example, if your state requires that the business purpose of the LLC must be specified, and this changes, a Certificate of Amendment may be necessary to file.

Certificate of Cancellation Back to Top

When you wish to terminate and liquidate your LLC, a Certificate by this or a similar name will have to be filed. Caution

Certificate of Formation Back to Top

This is the legal document filed as required under state law to form or organize your LLC. Also called Articles of Organization.

Certificate of Merger and Consolidation Back to Top

Where a partnership is to be converted into an LLC, or an LLC merged into another LLC (and/or another partnership), this type of Certificate will have to be filed. Caution

Certificate of Reservation of Name Back to Top

In some states, you may be able to reserve the name you want for your LLC. It may be cheaper and simpler to just file the Articles of Organization and form the LLC. Ask a local attorney.

Certificate of Stated Value Back to Top

A commonly used approach for valuing a closely held business in the event of disability, death or retirement is for the business owners (e.g., partners) to set a price for the company in a document called "Certificate of Stated Value". If anyone dies, etc. during the next year that value governs. This avoids the complexity of having appraisals completed. This approach is not without complications and issues. There are a myriad of approaches. Be certain to address in detail how this mechanism should work in the business governing document (shareholders' agreement, partnership agreement, operating agreement). The agreement should address in detail what should be done if there is a major economic or other change between the date the certificate was agreed to and a buyout under the price set in the certificate occurs. Also, address in detail what happens if the business owners fail to update the certificate as required (annually is common).

Charitable Gift Annuity Back to Top

A charitable gift annuity can be illustrated as follows. You own $25,000 of appreciated stock that pays no dividend. If you sell it and reinvest in income producing investments you would pay a capital gain. Instead, you donate it to a major charity in exchange for a charitable gift annuity. There are no capital gains tax, in fact you'll receive a charitable contribution deduction for some portion of your gift. The charity will pay you a set amount periodically for the rest of your life (an annuity).

Charitable Lead Trust Back to Top

A Charitable Lead Trust, or CLT, is a trust to which you (grantor) transfer assets (not necessarily appreciated assets). The trust manages and invests the assets and every year (or other designated period) pays an amount to a designated charity. After a set time period, the CLT ends and your designated heirs (e.g., children) receive the trust assets. A CLT does not provide an income tax charitable contribution deduction (unless of course its structured as a grantor trust), but it provides a potentially substantial gift tax deduction. Thus, a CLT can be used to transfer substantial assets to a later generation with little or no gift tax.

A CLT is in many respects the inverse of a Charitable remainder trust (CRT).

Charitable Remainder Trust Back to Top

You donate property or money to a charity, reserving the right to use the property, or to receive income from it for a specified time (a number of years, the duration of your life, or the duration of your life and the life of a second person such as your spouse). When the agreed period is over, the property belongs the charitable organization.

Child support Back to Top

Parents have the legal obligation to support their children under state law. While the rules differ from state to state, child support obligations generally apply to children under the age of majority, but some states continue certain obligations, such as the payment of education, beyond that point. Child support obligations can have both civil and criminal penalties if they are not met. While generally thought of only in the context of divorce, your legal obligation to support a child can have significant impact in the design, planning and implementation of a trust, and the tax consequences of a trust. If you are the trustee of a trust and can use the trust assets to pay your child's medical and education costs, those payments may constitute the discharge or your legal obligation to support your child and may trigger adverse tax results. This could cause the income of the trust to be taxed in whole or part to you, and the assets of the trust to be taxed in whole or in part to your estate.

Child Support Guidelines Back to Top

When negotiating a divorce settlement many states provide laws that set minimum standards for child support. The rules and their application, however, are much more complex that the standards alone may imply. If your income or assets exceed certain thresholds the standards may not apply and different rules or approaches may be possible, or even mandated. Regardless of what the child support guidelines mandate, for many the sad reality is will it be paid. Thus, obtaining competent legal advice to assure that the guidelines are properly applied is only one step. You should also have competent help to ascertain what can be done to assure your ability to collect that support. From the payor's side, there may be concerns that if funds are simply paid to an ex-spouse for child support that the funds really won't be applied for the child. In some cases it might be possible for your attorney to structure the agreement so that you can pay certain expenses for your children directly to assure that the money is properly used.

Clear Title Back to Top

"Title" refers to the ownership of an asset, for example real estate. If real property is owned by two people as "joint tenants" then title or ownership is held by both of them. Title for real estate is specified in the legal document called a "deed" which is "recorded" or officially filed in a public record (e.g., with the county clerk). If you are buying real estate you will, depending on where in the country you are located (customs vary) have a title company and/or real estate attorney, review the history of the ownership of the property, any possible claims (liens, judgments, etc.) affecting the property, etc. The goal of these reviews and the report or listing generated, often called a "title report" is to assure that you have "clear title" to the property. While there can be legal nuances to what is good title, clear title, marketable title, in simplistic terms clear title provides you with complete ownership of the property that is free from legal questions and claims. In most instances property may have some impact on title, such as a utility easement, etc. that does not affect the ability to use or sell the property.

Closely Held Business Back to Top

A closely held business is a family business or a business owned by relatively few individuals. An LLC can be an excellent entity to own the particular business, or even key assets (e.g., equipment or a building to rent back to the business).

CLT Back to Top

See Charitable Lead Trust.

Codicil Back to Top

A codicil is an amendment or addendum to a legal document such as a will. Be very careful using a codicil. In most cases its cheaper and simpler to just sign a new will. Long ago when wills were manually typed by a secretary on a typewriter if a change had to be made you would not want to risk a typographical error or incur the cost of revising the entire will. Now, if the prior will is on a computer there is little effort to bring up the old will document, change the date, make the modification you want, and reprint the will for signature. If you sign a codicil the original will and the new codicil need to be used. What if there are inconsistencies? What if you reduce the bequest to your brother Joe, should he see the original bequest in the will and the lower bequest in the codicil? When should you use a codicil? When there may be an issue of competency and you may not wish to risk replacing the old will. Review the decision with an estate attorney before making a decision.

Commissions Back to Top

Executors (personal representatives) and trustees (who manage trusts) are entitled to fees, called commissions. Unless the will or trust provides for a specific arrangement, or there is a side contract with the executor or trustee, then state law rules will apply to determine the commissions to be paid. These commissions can be based on the value of assets transferred to or held in a trust or estate, on the income earned by the trust, or the fact that a trust or estate was funded (assets transferred to it) or terminated. In some instances special or additional commissions may be able to be obtained (often this will require court action) for providing special or unusual services.

Common Law Wife Back to Top

A common law wife, is a person who has lived in a relationship as if she were someones wife, but whom she never formally married. This concept may be asserted by the woman after the man dies as a basis to inherit from his estate. If the man died without a will (intestate) his assets would be distributed under the laws of intestacy of his state, which do not provide for any distribution to a non-married partner. If the woman could prove under that state's laws that she was a common law wife, the equivalent of a wife, the courts may permit her to inherit.

Community Property Back to Top

Nine states have community property laws that affect how the ownership of property is handled for divorce, estate and other purposes. These states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. If you live in a non community property state but may have community property (e.g. you lived in a community property state while married then moved to a non community property state) this fact should be addressed by someone with expertise in community property laws in the state that may have affected the assets in question. In general terms, community property states deem property of a married couple to be owned 1/2 by each spouse. In contrast to the treatment of jointly held property in other states, in a community property state if one spouse dies all of the community property may receive a step up in income tax basis.

Commutation Back to Top

Commutation occurs when a beneficiary's interest in a trust is repurchased in advance of the termination of the trust, possibly based on actuarial values of those remainder interests prior to the termination of the trust. A QPRT cannot be commuted.

Compensation policies Back to Top

The phrase "compensation policies" can refer to a number of things. Your employer should have an employee manual that details company policy on a range of matters, including some general aspects of compensation. You should obtain a copy of that employee manual and review it and be familiar with it. If any issues arise as to the appropriateness of your compensation or perquisites you should review the contents of the employee manual as a starting point. The second point, if the situation cannot be resolved, is for you to consult with an employment attorney. Employment law is quite specialized and you will often be best off hiring either an attorney that specializes in employment law only, or at least an attorney that devotes a significant portion of his or her time to the field (you don't want to be the first employment case for someone who is otherwise a real estate attorney).

Another application or interpretation of the phrase "compensation policies" is for a closely held or family business there are a range of tax implications to compensation. For example, if compensation is not "reasonable" the IRS may reallocate it as something else. If compensation is too high to a child employee the IRS might argue it is a disguised gift, etc. Thus, many closely held and family businesses establish compensation policies in conjunction with their accountant and tax advisers to address these concerns.

Contribution Back to Top

Property can be transferred to an LLC, partnership or corporation in exchange for your interest in the entity. This transfer is often referred to as a contribution of property to the entity. Special tax rules will affect this. You will generally not have to recognize taxable gain on the contribution of property to the entity for an interest in that entity.

Corporate legal Back to Top

There are a host of corporate legal matters for any closely held business to address. For example, if you have a closely held corporation, you should have a set of initial minutes adopting by laws, appointing officers and directors etc. The corporate legal matters you should address should also include a shareholders agreement, by laws, and perhaps other documentation as well. Failing to have the proper corporate legal documents could result in a lawsuit piercing through the corporation (called piercing the corporate veil) and reaching your personal assets (e.g. your home).

Corporate policy Back to Top

Corporate policy can refer to a wide range of matters. If you are an employee, a firm employment manual may include the firms employment policy. If you signed an employment agreement with a business, that agreement, attached schedules, or other corporate documents may all include a range of different policies and procedures which can loosely be referred to as "corporate policy".

Corporation Back to Top

A legal entity separate from the individuals who own it (called shareholders). There are different types of corporations important to real estate investors and defined elsewhere

Corpus Back to Top

The principal or assets of a trust can be referred to as "corpus" or "res". In a total return or unitrust (uni-trust) the distributions are based on a percentage of corpus, e.g., 4% x principal each January 1.

Countable Resources Back to Top

Countable Resources – The assets or resources you must keep below the permissible limit to qualify for means tested benefits, e.g. $2,000 to qualify for SSI and typically $2,000 to qualify for Medicaid. Irrevocably prepaid funeral expenses are not countable. A home is not countable.

Covenant not to compete Back to Top

This is an agreement, usually contained in a broader legal document (e.g., an employment agreement, shareholders' agreement, etc.) although it can be an independent document. It is an agreement, a "covenant", that you will not compete against a person or business. The terms of what constitutes "competition" need to be clearly defined for the covenant to be enforceable or have meaning. In many instances a covenant may be limited by geographic area (e.g. five miles from our office), time (for the next year), and activities (you cannot work for another architectural firm in the specified area for a specified time). Covenants are complex and require the advice of counsel. If the covenant is too broad (you cannot work for any accounting firm, anywhere within 200 miles of our office for the next 10 years) a court is likely to hold that the covenant is not enforceable. In many cases the courts will not simply scale the terms back to what they will enforce, but may hold the entire covenant invalid.

Coverdell Eduation Savings Account Back to Top

A tax advantaged account in which you can save a limited amount of funds to pay for eduction including grade school (in contrast to 529 plans that are restricted to college only). The contributions are limited to $2,000/year per child under age 18 and subjet to income limits on the donor. These plans sunset in 2010 unless Congress acts to extend them. Often these can be used in conjunction with a 529 plan and other plans.

Covered Entity Back to Top

Under HIPAA, the Health Insurance Accountability Act a medical provider that must address the HIPAA rules is referred to as a “Covered Entity”. This can include any organization (health plan, health care provider, or health clearing house) that routinely handles Protected Health Information, "PHI", in any capacity is probably characterized as a “covered entity”. A covered entity must provide info to its patients about their privacy rights and how their PHI can be used (notice of privacy practices). It must adopt clear and appropriate privacy policies and procedures for its practice, hospital, or plan. It must train its workforce to understand its privacy procedures. A covered entity must designate a privacy officer responsible for assuring that privacy procedures are adopted and followed. A covered entity must also adopt adequate security procedures for patient records containing individually identifiable PHI.

Credit Agreement Back to Top

A credit agreement could be a credit facility, such as a line of credit or revolving loan from a bank or other lender permitting your business to draw down funds when needed on certain terms and conditions.

A credit agreement could even refer to a credit card terms with the bank issuing your credit card.

Credit card fraud Back to Top

Credit card fraud can occur when someone steals a carbon or copy of your credit card information and uses without your permission. Some of the steps you can take to protect yourself are:

o Never leave copies or carbons of credit card receipts.
o Exercise caution over which websites you use your credit card on.
o Never give out your credit card number on the telephone to someone who called you with a solicitation.
o Make a copy of the front and back of all credit cards you have and keep them in a secure place. If you ever loose a card, immediately call and cancel it.
o Order periodic credit reports to look for signs of credit card fraud.

Credit Shelter Trust Back to Top

A trust designed not to qualify for the unlimited estate tax marital deduction so that it will use up your lifetime $600,000 (and gradually up to $1,000,000 by the year 2006) exclusion (unified credit). Often the same as a by-pass trust because such a trust by-passes (is not included in) your surviving spouse's estate.

Crummey Powers Back to Top

These are rights (powers) given to beneficiares (persons who benefit from) a trust so that gifts of money or property to the trust will qualify for the gift tax annual exclusion (presently in 2006 $12,000/year/donee). This mechanism is used in many irrevocable (cannot be changed) trusts, such as children's trusts and insurnace trusts. It raises a host of complex tax issues. To implement a Crummey power (also called annual demand power) the trustee should give written notice to the beneficiaries of the gifts made to the trust and their right to withdraw some portion or all of those funds. The beneficiaries should sign acknowledging receipt of the notice and the trustee should save these signed notices in the permanent records of the trust.

Crummey Trust Back to Top

An irrevocable trust that includes a limited power or right given to beneficiaries, named after the court case that sanctioned them, Crummey powers, to withdraw gifts made to the trust up to the amount of the annual exclusion ($13,000 in 2009). The purpose is for the gifts to the trust for the annual gift tax exclusion. Typically a beneficiary has the right to withdraw a gift during a specified window of time, say 30-days after the gift is made. The beneficiaries are to generally be given formal notice, called a Crummey notice or annual demand power. The beneficiaries typically sign the notices acknowledging that they were notified of the right. An option instead of this is a 2053(c) trust.

Custodian Account Back to Top

These are accounts set up by an adult for a minor under a state's uniform gifts to minors act (UGMA) or uniform transfers to minors act (UTMA). The money in the account actually belongs to the child (minor) from the date it is deposited. This means it is a completed gift for gift tax purposes. The problems with these accounts (which you're usually not informed of when you open one) are significant. They don't have the tax saving features of Code Section 529 savings plans. The minor, under many state laws, can demand an accounting of how the funds are used from age 14 (would you really want that?). These accounts are subject to tax at the child's parent's income tax rate if the child is under age 14 (the Kiddie Tax). If you die and are listed on the custodian account as the named custodian all the funds are taxed in your estate. While there are appropriate uses for these accounts, consider the options (trusts, 529 Plans, etc.) before proceeding.

Cy Pres Back to Top

This is a legal doctrine that is applied by courts to prevent a charitable gift or bequest from lapsing. The goal is to carry out as best as possible your original charitable intent.