US Business Tax Glossary: From EIN to Franchise Tax in Plain English

Once you deal with a US company, you quickly learn a new language. The IRS writes about EINs and TINs, the state about nexus and franchise tax, the bank asks for a W-8BEN-E, and your accountant at home wants to know whether the income is ECI or FDAP. This glossary explains the key terms of US business taxation in plain English, alphabetically and in one or two sentences each. Every entry links to the page that covers the topic in detail. The terms appear exactly as they do on American forms and letters, followed by a short explanation.

1A and B

Abatement. The IRS cancels or reduces an assessed tax, penalty or addition to tax, for example for reasonable cause or under a relief policy. More under penalties and late filing.

Annual Report. A company's yearly filing with the state where it was formed or registered, often combined with a fee or tax. In Delaware, corporations file one, while LLCs there only pay an annual tax. More in the annual compliance calendar.

Appeals (Independent Office of Appeals). The independent appeals office within the IRS. If you want to challenge a denied abatement request, you usually have 30 days from the date of the denial letter. More under mail from the IRS.

Automatic Exemption from Penalty. The IRS rule under which penalties for late filing, late payment or late deposit are not assessed at all if you have a clean three-year history, for Forms 1040, 1065 and 1120 from tax year 2025. Filings attached to another return, such as Form 5472, are excluded. More under penalties and late filing.

BE-13. The Bureau of Economic Analysis survey of new foreign direct investment in the US. A US business must report when a foreign person acquires at least 10 percent of its voting rights for the first time, even without a request from the agency. More under BE-13 and BEA reports.

Beneficial Ownership Information (BOI). The report of beneficial owners to FinCEN under the Corporate Transparency Act. Under FinCEN's final rule, US companies are exempt from the reporting requirement. More in the annual compliance calendar.

Branch Profits Tax. A 30 percent tax on the dividend equivalent amount of a foreign corporation doing business in the US, on top of corporate income tax. It applies to the branch, not to a US subsidiary. More under Form 1120.

2C and D

C Corporation. A corporation without an S corporation election; it pays its own corporate income tax of 21 percent and files Form 1120. An Inc. owned by someone from Europe is almost always a C Corporation. More under Form 1120.

Check-the-Box. The right of an LLC and other eligible entities to elect, using Form 8832, to be treated as a corporation, a partnership or a disregarded entity. After a change, a new election is generally barred for 60 months. More under LLC tax returns by structure.

Collection Due Process. The right to request a hearing with Appeals before a levy or after a lien is filed. You request it with Form 12153 within 30 days of an LT11 or Letter 1058. More under mail from the IRS.

CP Notice. An IRS notice with a Computer Paragraph number, such as CP14 or CP259; letters carry an LTR number instead. The number is in the top right corner and leads you to an explanation of the notice on irs.gov. More under mail from the IRS.

CP215. The notice in which the IRS informs you of an assessed civil penalty, including the Form 5472 penalty. More under penalties and late filing.

CP575. The EIN confirmation the IRS makes available digitally in the Business Tax Account; banks and other institutions accept it in place of Letter 147C. More under applying for an EIN.

Disregarded Entity. An entity that is not treated as separate from its owner for tax purposes; without an election, this applies to a domestic single-member LLC. The owner reports its income. More under Form 5472.

Income Tax Treaty. An agreement between the US and another country that sets out which country may tax which income and reduces withholding tax rates. More under US withholding tax.

3E

ECI (Effectively Connected Income). US-source income connected with a US trade or business, such as profit from selling goods through a US branch. It is taxed like a resident's income, after deducting expenses, at the regular rates. More under FDAP and ECI.

Economic Nexus. A sales tax obligation that a state ties purely to sales made in that state, without any physical presence. It has been possible since the Supreme Court's 2018 ruling in South Dakota v. Wayfair. More under sales tax by state.

EIN (Employer Identification Number). The federal tax number for companies and other organizations, issued free of charge by the IRS. Every company needs one for returns, a bank account and payroll. More under applying for an EIN.

Estimated Tax. Advance payments of corporate income tax, required once you expect $500 or more in tax for the year, due on the 15th day of the fourth, sixth, ninth and twelfth months of the fiscal year. More under Form 1120.

4F

FBAR (Report of Foreign Bank and Financial Accounts). The report to FinCEN that a US person files when they hold, or have signature authority over, foreign accounts with a combined maximum value of more than $10,000 during the calendar year. More in the annual compliance calendar.

FDAP (Fixed, Determinable, Annual or Periodical Income). Fixed or determinable recurring income such as dividends, interest, rents, royalties and compensation that is not connected with a US trade or business. It is subject to 30 percent withholding tax on the gross amount unless a treaty provides a lower rate. More under US withholding tax.

First Time Abate. IRS relief that removes penalties for late filing, late payment or late deposit for one period if the three prior years were clean. It generally does not apply to Form 5472. More under penalties and late filing.

Foreign-owned U.S. DE. A domestic disregarded entity wholly owned by a single foreign person. For the Section 6038A reporting requirement it is treated as a domestic corporation and files Form 5472 with a pro forma 1120. More under Form 5472.

Form 1065. The partnership return, also for a multi-member LLC without a corporate election; for calendar-year filers it is due March 15. It allocates the result to the partners via the K-1. More under Form 1065 and K-1.

Form 1120. The corporate income tax return of a domestic corporation and of an LLC with a corporate election; for calendar-year filers it is due April 15, even without a profit. More under Form 1120.

Form 1120-F. The return a foreign corporation uses to report its US income and calculate its tax, for example a European company with a branch in the US. More under Form 1120.

Form 2848. The power of attorney a taxpayer uses to authorize an advisor to represent them before the IRS. More under mail from the IRS.

Form 5472. The information return of a company that is at least 25 percent owned by a foreign person, covering its transactions with related parties; if it is missing, the penalty is $25,000 per tax year. More under Form 5472.

Form 7004. The application for an automatic extension of time to file business returns, usually six months for corporations. It does not extend the time to pay. More under Form 1120.

Form 843. The claim for refund or abatement of certain taxes, penalties, additions to tax and interest, such as a penalty already paid, for reasonable cause. More under penalties and late filing.

Franchise Tax. A state levy for the right to exist as a company or do business there; each state decides how it is calculated. In Delaware, LLCs pay an annual tax, while corporations pay a franchise tax with their Annual Report. More under Delaware franchise tax.

5I to M

Information Return. A return that reports information to the IRS without assessing any tax itself, such as Form 5472 or the 1099 forms. More under Form 5472.

IRS (Internal Revenue Service). The US federal tax agency, which applies and enforces the tax code on behalf of the Secretary of the Treasury. State taxes are administered by each state's own agency. More under how the IRS thinks and works.

ITIN (Individual Taxpayer Identification Number). The nine-digit IRS tax number for people who need a US tax number but cannot get a Social Security number. It is for tax purposes only and grants neither the right to work nor any immigration status. More under EIN, ITIN, SSN, TIN.

K-1 (Schedule K-1). The schedule to Form 1065 that tells each partner their share of the partnership's income, deductions and credits; the partner carries these figures over to their own return. More under Form 1065 and K-1.

LT11 and Letter 1058. The final notice of intent to levy, with the right to a Collection Due Process hearing, which you must request within 30 days. More under mail from the IRS.

Marketplace Facilitator. The operator of a platform that sells third-party goods and processes their payments. In Texas, for example, the operator must collect and remit sales tax on those sales itself. More under Sales Tax and Nexus.

6N and P

Nexus. The connection between a business and a state that triggers tax obligations there, for example through an office, employees, a warehouse or a certain level of sales. A business must register in every state where it has nexus. More under Sales Tax and Nexus.

Notice of Deficiency. The letter, such as CP3219A, with which the IRS proposes to assess additional tax. You can challenge it in the US Tax Court within 90 days, or within 150 days if your address is outside the USA. More under Letters from the IRS.

Partnership Withholding (Section 1446). The obligation of a partnership doing business in the USA to withhold tax on foreign partners' share of effectively connected income, calculated on the allocated share rather than on distributions. It is reported on Forms 8804 and 8805. More under Form 1065 and K-1.

Permanent Establishment. Under US tax treaties, a fixed place of business through which a company carries on all or part of its business, such as an office, a workshop or a place of management. The other country may tax business profits only to the extent they are attributable to such a permanent establishment. More under Tax obligations of a US company.

Pro forma 1120. The cover sheet based on Form 1120 that a foreign-owned U.S. DE uses to file its Form 5472. Only the name, address, EIN and box E are filled in. It is not a tax return. More under Form 5472.

7R

Reasonable Cause. A circumstance that explains a failure despite ordinary care, such as illness, a natural disaster or missing records; it can lead to a penalty being waived. For the Form 5472 penalty, it must be set out in writing under penalties of perjury. More under Penalties and late filing.

Registered Agent. The person or company with an address in the state of formation that receives lawsuits and official correspondence on the company's behalf. Delaware requires every LLC to have a Registered Agent with a business address in the state. More in the annual compliance calendar.

Related Party. For Form 5472: the owner holding at least 25 percent, persons related to the company or to that owner under the tax code, and persons related to the company under the transfer pricing rules. More under Form 5472.

Reportable Transaction. For Form 5472, a transaction with a related party that must be reported in Parts IV, V or VI; for a foreign-owned U.S. DE this also includes formation, contributions and distributions. Not to be confused with the tax shelter transactions of the same name disclosed on Form 8886. More under Form 5472.

Reporting Corporation. A domestic corporation that is at least 25 percent owned by a foreign person, or a foreign corporation doing business in the USA; it files Form 5472. More under Form 5472.

8S

S Corporation. A corporation that elects to have its profits taxed directly to its shareholders. It may not have nonresident foreign shareholders or companies as shareholders, so it is generally not available to owners based in Europe. More under Form 1120.

Sales Tax. A tax levied by the states, and often by counties and cities, on sales to end customers; the seller charges, collects and remits it. More under Sales Tax and Nexus.

Schedule L, M-1 and M-2. The balance sheet, the reconciliation of book income to taxable income, and the analysis of retained earnings on Form 1120. A corporation whose receipts and total assets are both under $250,000 may leave them out. More under Form 1120.

SSN (Social Security Number). The number issued by the Social Security Administration; it also serves as the tax number for individuals. More under EIN, ITIN, SSN, TIN.

Statute of Limitations. The period in which the IRS may assess tax, generally three years from the filing of the return. It does not start without a return, and if a required filing such as Form 5472 is missing, it does not end for the affected return until three years after that filing is made. More under Penalties and late filing.

9T and W

Tax Year. The period for which a company determines its income, either a calendar year or a fiscal year; changing it generally requires IRS approval. More under Form 1120.

TIN (Taxpayer Identification Number). The umbrella term for all tax numbers: the SSN issued by the Social Security Administration and the numbers issued by the IRS, such as the EIN, ITIN and PTIN. More under EIN, ITIN, SSN, TIN.

W-8BEN. The form a foreign individual uses to confirm their foreign status to a payer and, where applicable, claim a reduced treaty withholding rate. More under Filling out the W-8BEN.

W-8BEN-E. The equivalent form for foreign companies, such as a limited company, used to document their status for withholding tax and FATCA. More under Filling out the W-8BEN-E.

W-9. The form a US person, including a US company, uses to give a payer its correct tax number so the payer can file information returns such as Forms 1099. More under Filling out the W-8BEN-E.

Withholding Tax. The tax a payer withholds from a payment and remits to the IRS; on FDAP income paid to foreign recipients it is generally 30 percent of the gross amount. To claim treaty benefits, you provide a W-8 form. More under US withholding tax.

In short

• The glossary explains the key terms of US business taxation in alphabetical order, in one or two sentences each.
• Each term links to the page that covers the topic in detail.
• The terms range from the tax numbers EIN, ITIN and SSN and Forms 1120, 1065, 5472 and 7004 to nexus, FDAP, ECI and IRS letters.
• The definitions follow the statute, the regulations and official agency guidance.

How we help you

• Sales taxRegistration and returns in the states where you have nexus.
• Corporation tax returnForm 1120 and Form 5472 for your US corporation.
• LLC and LP Tax ReturnForm 1065 and K-1 for your LLC or LP.
• Zero Tax Return LLCPro forma Form 1120 and Form 5472 for the single-member LLC.
• US Tax ConsultationYour US tax question, answered by people who know both sides.