In accounting for mergers and acquisitions, the convention of accounting of the purchase of a subsidiary at the purchase cost rather than its historical cost. This method of accounting is required under U.S. GAAP, but is not accepted in IFRS accounting standards. Since the subsidiary is consolidated into the parent company for financial reporting purposes, push down accounting appears the same on a firm's external financial reporting. It is sometimes helpful to think of push down accounting is as if a new company were started using borrowed funds. Both the debt, as well as the assets acquired, are recorded as part of the new subsidiary. From a managerial perspective, keeping the debt on the subsidiary's books helps in judging the profitability of the acquisition. From a tax and reporting perspective, the advantages or disadvantages of push down accounting will depend on the details of the acquisition, as well as the jurisdictions involved.
A pension plan under which an employer credits a participant's account with a set percentage of his or her yearly compensation plus interest charges. A cash balance pension plan is a defined-benefit plan. As such, the plan's funding limits, funding requirements and investment risk are based on defined-benefit requirements: as changes in the portfolio do not affect the final benefits to be received by the participant upon retirement or termination, the company solely bears all ownership of profits and losses in the portfolio. Although the cash balance pension plan is a defined-benefit plan, unlike the regular defined-benefit plan, the cash balance plan is maintained on an individual account basis, much like a defined-contribution plan. The cash balance plan acts similar to a defined-contribution plan also because changes in the value of the participant's portfolio does not affect the yearly contribution.
Legal recompense that is levied as punishment for a wrong or offense committed by the payor. Punitive damages are awarded by a court of law in a lawsuit. They are often required in order to make up for a perceived shortfall in compensatory damages and are merely intended to indemnify the plaintiff. Punitive damages are generally taxable to the recipient, while compensatory damages are not. Punitive damages are among the most difficult type of financial redress to acquire in court, as they generally require proof of substantial and intentional injuries on the part of the defendant.
A mathematical term relating to the likeliness of two independent events occurring. The compound probability is equal to the probability of the first event multiplied by the probability of the second event. Compound probabilities are used by insurance underwriters to assess risks and assign premiums to various insurance products. The most basic example of compound probability is flipping a coin twice. If the probability of getting heads is 50% (.50), then the chances of getting heads twice in a row would be (.50 X .50), or .25 (25%). As it relates to insurance, underwriters may wish to know, for example, if both members of a married couple will reach the age of 75, given their independent probabilities. Or, the underwriter may want to know the odds that two major hurricanes hit a given geographical region within a certain time frame. The results of their math will determine how much to charge for insuring people or property.
A type of trust that allows taxpayers who are not U.S. citizens to claim the marital deduction for estate-tax purposes. Spouses without citizenship are not eligible for the marital deduction without a qualifying domestic trust. QDOTs are similar to QTIP trusts in that the marital deduction is conditional upon the inclusion of assets inside the trust. Although establishing a QDOT is often easier and faster than applying for citizenship, this type of trust is not without risk. There are numerous provisions pertaining to this type of trust that must be obeyed carefully in order for the trust to remain valid. QDOTs apply only to spouses of decedents who died after November 10, 1988. At least one trustee must be either a U.S. citizen or domestic corporation that is authorized to retain estate tax out of the trust assets.
The least common of the five types of tax filing status each taxpayer must select from when preparing their personal tax return. A qualified widow or widower is entitled to use the "married filing jointly" tax rates on an individual return for up to two years following the death of the spouse. The qualified widow or widower status is provided as a measure of financial relief for those who have lost their spouse and may be struggling with medical or funeral bills. After two years, surviving spouses who have not remarried must file as either single or head of household.
A type of trust that allows a married investor to avoid estate taxes when passing assets on to heirs. The trust is structured so that upon the death of the investor, the assets specified in the trust agreement (up to a specified maximum dollar value) are transferred to the beneficiaries named in the trust (normally the couple's children). However, a key benefit to this type of trust is that the spouse maintains rights to the trust assets and the income they generate during the remainder of his or her lifetime.This type of trust is also referred to as an "AB Trust". In certain circumstances, such as the need to fund healthcare expenses, the surviving spouse may even tap into the principal of the trust assets, not just their generated income. When the surviving spouse eventually dies, the assets are transferred wholly to the beneficiaries (children) without any estate taxes levied. This can amount to significant tax savings and can be very valuable, especially considering that the surviving spouse essentially maintains full use of the assets while they are in the trust anyway.
A member of the military reserve who is not actively serving but may be called to duty and who is eligible to make an early withdrawal from his/her individual retirement account (IRA) without incurring the usual early distribution penalty. Under most circumstances, the IRS imposes a penalty of 10% on the taxable amount withdrawn from a retirement account by a taxpayer younger than 59.5 years old. To qualify for this exception, the reservist must be called to active duty for more than 179 days and the withdrawal must occur while the reservist is serving on active duty. These early withdrawals may still be subject to state and federal taxes.
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