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Income Tax > Chapter 1 - Taxes and Taxing Jurisdictions > Flashcards

Chapter 1 - Taxes and Taxing Jurisdictions Flashcards

1
Q

Why are taxes pervasive? 4

A
  • They are so widespread
  • Come in many varieties
  • Affect virtually every aspect of modern life.
  • Come from a multiplicity of jurisdictions in which people conduct business.
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2
Q

Why are taxes dynamic?

A

The tax laws change so frequently.

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3
Q

What is a tax?

A

A payment to support the cost of government.

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4
Q

How does a tax differ from a penalty?

A
  • The tax is not intended to deter or punish unacceptable behavior
  • Taxes are compulsory
  • Unlike a fee, the payment of a tax does not entitle the payer to a specific good or service in return.
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5
Q

Who is a taxpayer?

A

Any person or organization required by law to pay a tax to a governmental authority.

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6
Q

Under the US tax law, how is a Person defined?

A

Refers to natural persons and corporations.

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7
Q

What does the Incidence of a tax refer to?

A

The ultimate economic burden represented by the tax.

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8
Q

Define Jurisdiction.

A

The right of a government to levy tax on a specific person or organization.

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9
Q

Why does jurisdiction exist?

A

There is some rational linkage between the government and the taxpayer.

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10
Q

Who does the federal government claim jurisdiction over?

A
  • Any individual who is a US citizen or permanently resides in this country.
  • People that are neither citizens nor residents but who earn income from a source within the United States.
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11
Q

What is a tax base?

A

An item, occurrence, transaction, or activity with respect to which a tax is levied.

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12
Q

What is the tax base for the income tax? Property tax?

A
  • The amount of income a person makes

- The value of the property the tax is levied on.

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13
Q

What is the formula that calculated the dollar amount a tax earns?

A

Tax (T) = Rate (r) x Base (B)

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14
Q

What is a flat rate?

A

A single percentage that applies to the entire tax base.

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15
Q

What is a graduated rate?

A

A structure consisting of multiple percentages that apply to specific portions of the tax base.

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16
Q

What is a tax bracket?

A

A portion of the tax base.

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17
Q

What is revenue?

A

Refers to the total tax collected by the government and available for public use.

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18
Q

What does it mean when a tax is an event or transaction based?

A

The tax is triggered only when an event occurs or a transaction takes place. (Sales tax or estate tax)

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19
Q

What does it mean when a tax is activity based? What is required? 3

A

-It is imposed on the cumulative result of an ongoing activity.
(Income tax)

  • Taxpayers must maintain records of the activity
  • Summarize the result at periodic intervals
  • Pay tax accordingly.
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20
Q

What is a income tax?

A

A tax imposed on the period inflow of wealth resulting from a person’s economic activities.

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21
Q

What does it mean when a tax is earmarked?

A

The tax revenue is designed to finance designated projects.

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22
Q

What are Ad Valorem Taxes?

A

Another name for real property taxes and personal property taxes.

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23
Q

What two taxes account for more than 70% of local government’s tax revenues?

A

Real Property Tax

Personal Property Tax

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24
Q

What is Realty (Real Property)?

A

Land and whatever is erected or growing on the land or permanently affixed to it.
This includes any subsurface features such as mineral deposits.

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25
Q

What are Real Property Taxes?

A

Taxes that are levied annually and are based on the market value of the property as determined by the local government.

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26
Q

What is a tax assessor?

A

Elected or appointed officials that are responsible for deriving the value or realty and informing owners of the assessed value.

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27
Q

What can property owners do who disagree with the assessed value of their property?

A

Challenge the assessment in an administrative or judicial proceeding.

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28
Q

What is a unique feature of property taxes?

A

The tax rate is determined annually based on the jurisdiction’s need for revenue for that particular budget year.

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29
Q

How is a property tax calculated?

A

The city’s required amount of taxes to be raised divided by the total value of real property located within the city limits.

Ex. If they need 12 million and the real property is values at 230 million, 12 million /230 million equals 5.22% tax rate.

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30
Q

What is an abatement?

A

A temporary tax exemption.

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31
Q

Why do governments grant abatements?

A

To lure commercial enterprises into their jurisdiction, thereby creating jobs for the local economy.

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32
Q

What is a Personalty?

A

Any asset that is not realty.

33
Q

How are personal property taxes based?

A

On the value of the asset subject to tax. (but not assessed by a government official).

34
Q

How is personal property’s value determined?

A

Individuals and organizations must determine the value of their taxable personalty and render the value to the tax assessor.

35
Q

What are the three general classes of taxable personalty?

A
  • Household tangibles (cars, boats)
  • Business tangibles (Inventory, fixtures, equipment)
  • Intangibles (Marketable securities)
36
Q

Why has personal property taxation declined as a revenue source over the last century?

A

The tax is much more difficult to enforce than other taxes. Personalty is characterized by its mobility; owners can hide their assets or move them to another jurisdiction.

37
Q

How have governments responded to the practical problems of taxing personalty?

A

By linking payment of personal property tax to asset registration or licensing requirements.

38
Q

What two types of taxes do state governments rely on to supply nearly 90% of their total state tax revenue?

A

Income Taxes

Sales Taxes

39
Q

What is a Sales Tax?

A

A tax based on the retail price of tangible personalty.

40
Q

What is a Use Tax?

A

A tax, complimentary to the sales tax, on the ownership, possession, or consumption of tangible goods within the state. It applies only if the owner of the goods did not pay the state’s sales tax when the goods were purchased.

41
Q

How is use tax calculated?

A

Their own state’s tax rate minus the sales tax a person did pay for in another state (which is credited).

42
Q

What is an Excise Tax?

A

(Sin Tax) A tax imposed on the retail sale of specific good, such as gasoline, cigarettes, or alcohol.

43
Q

What 7 states do not levy some kind of personal income tax?

A
  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming
44
Q

What 4 states do not levy some kind of corporate income tax?

A
  • Nevada
  • South Dakota
  • Washington
  • Wyoming
45
Q

What are two major advantage of state conformity to federal income tax law?

A
  • Simplicity - states can refer to regulatory and judicial interpretations of the federal law.
  • Eases the compliance burdens of corporate taxpayers.
46
Q

What is the main source of revenue for the federal government?

A

Income Taxes, individual and corporate.

47
Q

When was the Internal Revenue Code Established? In what subsequent years were their major changes to the Code?

A
  • Began -1939
  • 1954
  • 1986
48
Q

What are the two largest programs sponsored by the federal government?

A

Social Security

Medicare

49
Q

Who does Social Security assist?

A

The Old Age, Survivors, and Disabled.

50
Q

Who does Medicare assist?

A

Provides hospital insurance for the elderly and disabled.

51
Q

What are the federal Employment Taxes?

A

The two taxes, on top of income taxes, earmarked to pay for FICA. (SS and Medicare)

52
Q

What are Employment Taxes based upon?

A

The annual wages and salaries paid by employers to their employees and on the net income earned by self-employed individuals.

53
Q

What are Unemployment Taxes?

A

Taxes based on the annual compensation paid to employees and that provide monetary benefits to individuals who are temporarily disabled through no fault of their own.

54
Q

What are federal Transfer Taxes?

A

Taxes based on the value of an individual’s wealth transferred by gift or at death.

55
Q

What is a Value Added Tax?

A

Taxes levied on firms engaged in any phase of the production of goods and are based on the incremental value that the firms add to the goods.

56
Q

Why might jurisdictional competition create tension?

A
  • A government that fails to protect its jurisdictional turf may lose revenue to more assertive taxing authorities.
  • A government that is overly aggressive may drive businesses away from its jurisdiction.
57
Q

In the US, how have the competing jurisdictions traditionally accommodated each other?

A

By relying of different taxes as their primary source of funding.

58
Q

What must a government do to their tax systems that no longer raise sufficient funds?

A

Be forced to change their system.

59
Q

What is the loss of revenue-generating power of taxes often attributed to?

A

Eroding tax base.

60
Q

How have states changed their sales tax over the last several decades?

A

They started to/increased taxes on services, instead of solely on tangible goods.

61
Q

What are states trying to do about sales tax in regards to internet and mail-order transaction?

A

Lobbying congress to enact federal legislation permitting states to require sales tax collection on mail-order and internet transactions.

62
Q

What is Tax Law?

A

For modern tax systems, this term encompasses three basic sources of authority: statutory law, administrative pronouncements, and judicial decisions. In combination, these sources provide the rules of the gem by which both taxpayers and government must abide.

63
Q

In the narrowest sense, where does the federal tax law come from?

A

The Internal Revenue Code of 1986.

64
Q

What are sections?

A

The numerically ordered divisions of the Internal Revenue Code.
Each section contains an operational, definitional, or procedural rule relating to one of the federal taxes.

65
Q

How are sections of the Internal Revenue Code divided?

A

Into subsections, paragraphs, subparagraphs, and so on.

66
Q

Who is responsible for writing regulations to interpret and illustrate the rules con tainted in the Internal Revenue Code.

A

The Department of the Treasury.

67
Q

What are Treasury Regulations?

A

The written regulations interpreting and illustrating the rules contained in the Internal Revenue Code.
While they carry great authority as the government’s official explanation of the law, they are not laws in and of themselves.

68
Q

What does the first number in the citation of a Treasury regulation identify?

A

The type of federal tax under consideration.

69
Q

What does the second number in the citation of a Treasury regulation identify?

A

The Code section to which the regulation relates.

70
Q

What does the third(last) number in the citation of a Treasury regulation identify?

A

The number of the regulation itself.

71
Q

How would the Treasury regulation citation 1.469-4 be interpreted to regard?

A

The 4th regulation relating to Section 469 of the Internal Revenue Code, regarding the federal income tax (represented by the 1)

72
Q

Who is the Internal Revenue Service?

A

The subdivision of the Treasury responsible for the enforcement and collection of tax. It also provides guidance in the form of revenue rulings and revenue procedures.

73
Q

What is a Revenue Ruling?

A

Explains how the IRS applies a tax law to a particular set of facts.

74
Q

What is a Revenue Procedure?

A

Advises taxpayers how to comply with the IRS procedural or administrative matters. While these pronouncements carry much less authority than the Code and the regulations, they do represent the IRS’s official position and provide valuable insight on specific issues.

75
Q

What is the Internal Revenue Bulletin? (IRBs)

A

A weekly publication of rulings and procedures.

76
Q

What is a Cumulative Bulletin? (CB)

A

The semiannual compiling of the Internal Revenue Bulletins.

77
Q

What do the hundreds of legal decisions regarding tax law handed down by the judicial system do?

A

Clarifies the correct implement ion of the tax law.

78
Q

Which court’s verdict is the equivalent of law and becomes the final word in any tax law?

A

The Supreme Court’s verdict.

Income Tax (11 decks)

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