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is a payment required by a government that is unrelated to any specific benefit or service received from the government agency


payment required, payment imposed by government agency (fed, state, or local), and payment not tied directly to benefit received by the taxpayer

tax rate

level of taxes imposed on the tax base and is usually expressed as a percentage

tax base

defines what is actually taxed and is usually expressed in monetary terms


tax base * tax rate

average tax rate

the taxpayers average level of taxation on each dollar of taxable income

average tax rate

total tax/taxable income

effective tax rate

the taxpayers average rate of taxation on each dollar of total income (taxable and nontaxable)

effective tax rate

total tax/total income

marginal tax rate

the tax rate that applies to the next additional increment of a taxpayers taxable income

sin tax

impose relatively high surcharges on alcohol and tobacco products and are meant to discourage some behaviors

earmarked tax

a tax that is assessed for a specific purpose ie. 1% sales tax for education

marginal tax rate

(new total tax - old total tax)/(new taxable income - old taxable income)

proportional tax rate

flat tax- imposes a constant tax rate throughout the entire tax base

in proportional tax rate

the marginal tax rate remains constant and equals the average tax rate (ex: sales tax)

progressive tax rate

imposes an increasing marginal tax rate as the tax base increases

in this tax structure the average tax rate will always be less than or equal to the MTR

progressive tax structure

social security tax and state/federal income tax use this tax structure

regressive tax structure

federal and most state income taxes use this tax structure

progressive tax structure

income taxes

represent approximately 60% of all tax revenues collected in the United States

employment and unemployment taxes are examples of what type of taxes

federal taxes

federal taxes

affect individuals, corporations, estates and trusts

employment and unemployment taxes

second largest group of taxes imposed by the US government

employment taxes

include the OASDI social security tax 10.4% and MHI medicare tax 2.9%

OASDI social securities tax

is capped at wages of $106,800 and is split between the employer (6.2%) and employee (4.2%)

implicit taxes

indirect taxes that result from a tax advantage the government grants to certain transactions

implicit taxes

defined as the reduced before-tax return that a tax-favored asset produces because of its tax advantage status


involves assessing the size of the tax revenues that must be generated and making sure that the tax system provides these revenues


means that a government must raise enough revenues to keep itself alive


designing a system to generate enough revenue to cover costs

static revenue forecasting

it ignores how taxpayers might alter their activities in response to the tax law change and bases projected tax revenues on the existing states of transactions

dynamic revenue forecasting

tries to predict possible responses by taxpayers to new tax laws

income effect

as tax rates go up, people will work harder to maintain the same after-tax income

substitution effect

as tax rates go up, people will substitute non-taxable activities because the marginal value of taxable ones has decreased

explicit tax

directly imposed by a government and is easily quantified


fairness- in general terms a tax system is considered fair if the tax is based on the payers ability to pay

horizontal equity

two tax payers in similar situations pay the same tax

vertical equity

tax payers with greater ability to pay tax pay more than tax payers with less ability to pay


means that taxpayers should be able to determine when to pay the tax, where to pay the tax, and how to pay the tax


a tax system should be designed to be collected without undue hardship to the taxpayer


should minimize the compliance and administration costs associated with the tax system

estates and trusts

are required to file if gross income exceeds $600


are required to file regardless of taxable income


filing is determined by taxpayer's filing status, age, and gross income

tax return due date for individuals

15th day of the 4th month following the end of tax year (usually April 15th)

tax return date for corporations

15th day of the 3rd month following the end of tax year

due dates on saturday, sunday or holidays

are extended to the next business day

individuals and corporations

are allowed to apply for an automatic 6th month extension

statue of limitations

the time in which the taxpayer can file an amended return or the IRS can assess a tax deficiency

primary authorities

official sources of tax law

primary authorities

statutory sources, judicial sources, administrative sources

secondary authorities

unofficial tax authorities

secondary authorities

tax services, tax articles

correspondence examinations

the most common type of IRS audit conducted by mail and is generally limited to 1 or 2 items. It is the narrowest in scope and least complex

office examinations

second most common type of IRS audit

field examination

least common type of IRS audit and is conducted at the taxpayers place of business and is the most complex

30 day letter

given to the taxpayer if after the audit they dispute the changes and it gives them 30 days to 1)request conference with appeals officer 2)agree to the adjustment

90 day letter

statutory notice of deficiency, taxpayer has 90 days to 1) pay the proposal 2) file petition in the us tax court

us constitution

the highest authority in the us

tax treaties

negotiated agreements between countries that describe the tax treatment of entities subject to tax in both countries

internal revenue code

the main statutory authority and changes are enacted by congress

judicial sources

the courts; tasked with the ultimate authority to interpret the internal revenue code and settle disputes between taxpayers and the IRS

supreme court

the highest judicial authority and is on the same level with the internal revenue code with regard to authority

court of appeals

13 circuit courts which is the next level of judicial authority. if you loose here you do not have the right to supreme but you can apply

us district court

is the only court with a jury

us tax court

do not have to pay to play

stare decisis

is the judicial doctrine that means that a court will rule consistently with its previous rulings and the rulings of higher courts with appellate jurisdiction

golsen rule

states that the tax court will abide by the rulings of the circuit court that has appellate jurisdiction for a case

statutory authorities

U.S. Constitution, tax treaties, internal revenue code

judicial sources

the courts; supreme court, court of appeals, trial level courts (us district court, us court of federal claims, us tax court)

administrative sources

the US treasury


the treasury departments official interpretation of the internal revenue code


have three different forms: final, temporary, and proposed (temporary has the same authority as final)

under circ 230

you can represent yourself, a family member (immediate), your employer if your a full time employee, a partnership if your the general partner, your corporate employer if your an officer or full time employee

in a progressive tax rate structure

the average tax rate would be expected to be less than or equal to the marginal tax rate

tax-advantaged assets

are often subject to implicit assets

tax brackets

when different tax rates are applied to the tax base divided into a series of monetary amounts

temporary regulations

have a limited life of 3 years

revenue rulings

address the application of the code and regulations to a specific factual situation

revenue procedures

explain in greater detail IRS practice and procedures in administering the tax law

revenue rulings & revenue procedures

are 2nd in administrative authoritative weight

letter rulings

are less authoritative but more specific than revenue rulings & procedures

private letter rulings

represent the IRS's application of the code and other tax authorities to a specific transaction and taxpayer; issued in response to a taxpayers request

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