| Term |
Definition |
| Necessary |
An expense that is
appropriate and helpful in furthering the
taxpayer's business or income-producing activity.
See also Ordinary defined elsewhere in this
glossary. |
| Negligence |
A lack of such
reasonable care and caution as would be expected
of a prudent person. A penalty may be assessed if
any part of an underpayment of tax is due to
negligent or intentional disregard of rules and
regulations. |
| Net Operating Loss (NOL) |
A net loss for the year
attributable to business or casualty losses. In
order to mitigate the effect of the annual
accounting period concept, the law allows
taxpayers to use an excess loss of one year as a
deduction for certain past or future years. In
this regard, a carryback period of two years (three
or five years for certain losses) and a
carryforward period of 20 years is allowed. |
| Nonbusiness Bad Debts |
A bad debt loss not
incurred in connection with a creditor's trade or
business. A nonbusiness bad debt is deductible as
a short-term capital loss and is allowed only in
the year the debt becomes entirely worthless. |
| Noncustodial Parent |
The parent who does not
have physical custody of the child. |
| Nonrecourse Debt |
An obligation for which
the endorser is not personally liable. |
| Nonrecovery Property |
Property that does not
qualify for a cost recovery deduction under ACRS
or MACRS or property the taxpayer elects to
exclude from ACRS or MACRS by choosing a
depreciation method not based on a number of
years. |
| Nonrefundable Credit |
A credit that cannot
exceed the taxpayer's tax liability. |
| Nonresident Alien |
A person who is not a U.S.
citizen and does not live in the United States,
or lives in the United States under a nonresident
visa, or does not meet the substantial presence
test. |
| Nontaxable
Distributions |
A general term applied
to stock dividend distributions that are not
taxable. These distributions generally take the
form of return of capital, stock dividends, stock
splits, and/or tax-free distributions. |
| Nontaxable Earned
Income |
Income a taxpayer
receives for services that is excludable from
gross income. Examples include military housing
allowances, ministers' housing allowances,
excludable combat pay, and deferred compensation.
Nontaxable earned income is earned income for
purposes of computing the earned income credit. |
| Nontaxable Exchange |
An exchange on which no
gain or loss is recognized in the current year. |
| Nontaxable Income |
Income that is by law
exempt from tax. |
