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121 Cards in this Set

  • Front
  • Back
An income tax was first enacted in ______ by the english colonists in the Massachucets Bay Colony, but the Federal Government did not adopt this form of taxation until _______
1634; 1861
The current revenue law is entitled the...
Internal revenue code of 1986, which has been amended several times since 1986
who identified the canons of taxation
Adam Smith
What are the following canons of taxation?
Equality, convenience, certainty, economy
What are the last six Guiding Principles of Good Tax Policy
The tax system should be simple,

THe tax should be neutral in terms of its effect on business decsions

The tax system should not reduce economic growth and efficiency,

The tax should be clear and readily understood so that the taxpayers know about it and when it applies

The tax should be strutured so as to minimize non compliance

The tax system should enable the IRS to predict the amount and timing of revenue production
The amount to which the tax rate is applied
tax base
in the case of the FIT the tax base is _____
taxable income
taxable income is gross income reduced by
a tax is ___ if the rate of tax remains constant for any given income level
A tax is ___ if a higher rate of tax applies as the tax base increases
Currently there are ___ tax rates ranging from ___ to ___
six; 10 to 35
taxes on wealth or value are refered to as __ ____ taxes
ad valorem taxes
property taxes are a tax on
wealth or capital
property taxes fall into two categories:
those impowed on realty and those imposed on personality, or assets other than land and buildings, they usually generate a deduction for FIT purposes
Ad valorem taxes are used exclusively by
states and local political subdivisions
Property owned by ___ is exempt from tax
owned by federal government,
usually by state and local governments, and by some charitible organizations
Four methods are currently in use for assessing the value of real estate
actual purchase or construction price

contemporaneous sales prices or construction costs of comparable properites

cost of reproducing a building, less allowance for depreciation and obsolescence from the time of actual construction

capitalizaton of income from rental property
__ can be defined as all assets that are not realty
ad valorem taxes are commonly referred to as
as valorem taxes
for ad valorem tax purposes intangible personal personality includes
stocks, bonds, and various other securities, (bank shares)
T/F A few states levy an ad valorem tax on intangivles such as stocks and bonds
True, but states need a means of verifying security transactions and ownership to do so
excise vs direct tax
Traditionally a direct tax in the constitutional sense means a tax on property "by reason of its ownership" as well as a capitation (a "head tax").[1] In the late 1800s, U.S. courts also began to treat an income tax on income from property as a direct tax.[2] In U.S. constitutional law, an "indirect tax" or "excise" is an "event" tax. In this sense, a transfer tax (such as gift tax and estate tax) is an indirect tax. Income taxes on income from personal services such as wages are also indirect taxes in this sense;
In the U.S. constitutional law sense, an excise includes gift taxes, estate taxes, payroll taxes, sales taxes, miscellaneous excise taxes, and income taxes on any income other than income from property, etc. -- in short, any tax that is not a direct tax.
Excise duties usually have one of two purposes:
to raise revenue or to discourage particular behaviour.
transaction taxes
place a tax on transfers of property and normally are determined by multiplying the value involved by a percentage rate
two types of excise taxes imposed at the local level are
the hotel occupancy tax and the rental car "surcharge"
the difference between exicse tax and general sales tax is
excise tax is restricted to a particular transaction, and the other covers a multitude of transactions
t/f a general sales tax can take on the appearance of a collection of individual excise taxes
a use tax is a ____ tax
ad valorem
A ____ is on the consumption or storage of tangible property
use tax
A tax imposed when natural resources are extracted
severance tax
a tax on the right to transfer property or to receive property upon the death of the owner
death tax
a death tax is a ______ tax
If a death tax is imposed on the right to pass property at death it is classified as a ____ tax, and if it taxes the right to recieve property from a decedent it is a _____ tax
estate tax, inheritance tax
with respect to death taxes, the federal government only imposes a ____ tax
the revenue act of 1916 was designed to prevent
large concentrations of wealth from being kept within a family for many generations
The gross estate includes
property decedent owned at the time of death

property interests, such as life insurance proceeds paid to the estate or to a beneficiary other than the estate if the deceased-insured had any ownership rights in the policy
Deductions from the gross estate in arriving at the gtaxable estate include
funeral and administration expenses, certain taxes, debts of the decedent, casualty losses incurred during the administration of the estate, transfers to charitable organizations, and in some clases, the marital deductions.
the marital deduction is
amounts actually passing to a surviving spouse
The ____ is to eliminate or reduce the estate tax liability for modest estates
unified transfer tax credit
If the taxable estate amounts to ___ or less, no Federal estate tax is due because of the unified transfer tax credit
Congress responded in 2001 to criticism of the Federal Estate Tax by creating the ____ act, and the estate tax is due to be eliminated by the year_____
Tax relief reconciliation act of 2001; 2010
an exise tax levied on the right to transfer property is a ____
gift tax
the gift tax applies only to transfers that..
are not supported by full and adequate consideration (carl sells property worth $20,000 to Elaine for $1,000, $19,000 would be considered a gift to Elaine)
the _____ rate schedule is the same as that applicable to the ____ tax
gift tax rate schedule; estate tax
After the phasing out of the Federal state tax, the federal gift tax is to be retained with the unified transfer tax credit frozen at _____ which covers a taxable gift of ______
$345,000; $1mil
The states currently imposing a state gift tax are:
Connecticut, Louisiana, North Carolina, Tennessee
In the case of state gift taxes, the amount of tax depends on...
the relationship between the donor and the donee, larger exemptions and lower rates apply when the donor and donee are closely related to each other
The taxable income of a corporation is the difference between_____
gross income (net of exclusions) and deductions
All but the following states impose an income tax on individuals:
Alaska, Florida, Nevada, South Dakota, Florida, Nevada, South Dakota, Texas, and Wyoming
the term 'piggyback' when referring to state taxes means
making use of what was done for Federal Income tax purposes to calculate tax owed
Federal Insurance Contributions Act (Social Security)
Federal Unemployment Tax Act
Employment taxes come into play only if two conditions are satisfied
1) is the individual involved an EMPLOYEE (as opposed to self-employed) If the individual is an employee, is he covered under FICA, FUTA or both?
Currently FICA has two components
Social Security tax and Medicare tax
The social security tax rate is___ and the Medicare Tax is
6.2%; 1.45%
A spouse employed by another spouse is subject to/exemted from FICA; Children employed in a parent's trade or business are subject to/exemted from FICA
subject to; exempted from
Which tax has the unusual situation of being handled by both Federal and state governments?
FUTA applies at a rate of ___ on the first ______ of covered wages paid during the year to each employee
The federal government allows a credit for futa paid to the state, the credit cannot exceed ____%
States follow a policy of reducing the unemployment tax on employers
experience stable employement
____ and ____ paid off the national debt in 1835 and allowed the federal government to pay a surplus of $28 mil to the states
tariffs and excise taxes
tariffs today serve more to ____ than to generate revenue
carry out protectionist policies
a tax levied on the right to do business in a state
franchise taxes
taxes applicable to various trades or businesses; and is used to defray the cost incurred by the jurisdiction in regulating the business or profession in the interest of public good
occupational taxes
Representative ____ from ____ proposed a flat tax that would replace the current graduated income tax with one rate of _____ %
Dick Armey; Texas; 17%
Compliance costs of the flat tax would be high/low?
____ is a major obstacle to the enactment of a flat tax; ____and ____ are not apt to be happy over the elimination of the deductions
political considerations; charitable organizations, mortgage companies
The VAT (value added tax) taxes
the increment value as goods move through prodution and manufacturing stages to the marketplace
the OCED is the
Organization for Economic Cooperation and Development
Rep _______ from ______favors the National Sales Tax, he was the longtime chairman of the _______
Bill ARcher, Texas;House Ways and Means Committee
The "fair tax" is sponsored by former House Majority leader _____ from ____. It would tax all purchases at approximately _____% Exempt items would be:
Tom DeLay, Texas; 23%; business expenses, used goods, and the costs of education
taxes that impose more of a burden on low-income tax payers are called ____ taxes
The responsibility for administering the Federal tax laws rests with the _______
Treasury Department
The ____ is a part of the treasury department and is responsible for
IRS; enforcing the tax laws
The commissioner of the IRS is appointed by the ______ for a _____ year term, and is responsible for establishing policy and supervising the activites of the entire IRS organization; the current commissioner is:___ whose term will expire in _____
President;5;Mark W. Everson; 2008
The office of the Commissioner of the IRS was created by
The mathematical formula for selecting tax returns that are most likely to contain errors yeilds a ____ score
DIF (Discriminant Information Function)
These observations may be made concerning the probablity of being chosen for an audit
1. Belonging to a certain group of taxpayers (large amts of gross income, self-employed, taxpaysers w/prior tax deficiencies, and cash businesses)

2. Information returns are not in substantial agreement with reported income

3. Itemized deductions are in excess of norms

4. filing of a refund claim

5. information reeived from other sources, news sources, informants
The tax law does permits IRS to pay rewards to persons who provide information that leads to the punishment of tax avoiders, not to exceed ___ of revenue received
minor audit issues can often be resolved by ________
correspondence audit
Audits that are not correspondence audits are
office audits or field audits
an audit restricted in scope and is conducted in the facilities of the IRS
office audit
an audit that involves an examination of numerous items reported on the return and is conducted on the premises of the taxpayer or the taxpayers representative
field audit
upon the completion of an audit, the examining agent issues a ____ that summarizes the findings
Revenue Agent's Report
A Revenue Agent's Report results in a ____,____ or a ____
Refund, deficiency, or a no change
If, during the course of an audit, a specail agent accompanies or takes over from the regular auditor this means
fraud is suspected
If an appeal of an audit is desired, then an appropriate request must be made to
the Appeals division of the IRS
If a satisfactory settlement is not reached within the administrative appeal process the taxpayer may wish to litigate the case in the ____, a_____ or ______
tax court; federal district court; or Court of Federal Claims
a provision in the law that offers a party a defense against a suit brought by another party after the expiration of a specified period of time
statute of limitiations
The IRS may assess an additional tax liability against a taxpayer within _____ years of the filing of the income tax return
three years
the time period of limitation starts from the ___ of the tax return if filed early and ____ if the return is filed late
due date; date of filing
The statue of limitations is increased to _____ if a taxpayer omits an amount of gross income in excess of 25% of the gross income reported on the return
six years
The statute of limitations is ___ if no return is filed or a fraudulent return is filed
A request to the IRS that it return to the taxpayer the excessive income taxes paid
claim for refund
A claim for refund generally must be filed within ___ from the date the return was filed or ____ from the date the tax was paid, whichever was later
three years; two years
Interest rates for underpayments and overpayments are determined quarterly by the IRS based on
existing Federal Short Term Rates
For assessments of additional taxes, the interest begins running on
the unexpeced due date of the return
For a FAILURE TO FILE a tax return by the due date a penalty of ___ per ____ up to a maximum of ____ is imposed on the amount of tax shown as due on the return
When calculating interest on a failure to FILE, any fraction of a month is calculated how?
It is calculated as a full month
A penalty for a FAILURE TO PAY the tax due as shown on the return is imposed in the amount of _____ percent per month up to a maximum of _____
During any moth in which the failure to file penalty and failure to pay penalty apply, the fines are assessed...
the failure to file penalty is rduced by the amount of the failure to pay penalty
the deliberate action on the part of the taxpayer evidenced by deceit, misrepresentation, concealment, etc.
Procedural matter penalties imposed on Tax Return Preparers include:
failing to provide the taxpayer with a copy of the return

endorsinga a taxpayers refund check

failing to sign the return as a preparer

failing to furnish one's identification number

failing to keep copies of returns or maintain a client list
the concept that the changes made when enacting tax legislation will neither increase or decrease the net result reached under the prior rules is called
revenue neutrality
shorter asset lives and accelerated depreciation should...
encourage additional investment in capital outlays
Certain benefits provided to employees through accident and health plans financed by employers are ___(tax/non-taxable) to employees
Most premiums paid by an employer for group term insurance are___(tax/non-taxable) to employees
non taxable
Outsourcing tax return preperation does not violate Federal Law and is compatible with accounting ethical guidelines as long as three safeguards are followed:
1) the practiontioner must make sure that client confidentiality is maintained

2) the practitioner must verify the accuracy of the work that has been outsourced

3) the practitioner must infrom clients, preferably in writing, when any third-party contractor is used to provide a professional service
the concept recognizing the inequity of taxing a transaction when the taxpayer lacks the means with wich to pay the tax
In the Wherewithal to Pay rule, if the taxpayers economic position changes..
tax consequences MAY result
__ and __ procedures help mitigate the effect of limiting a loss or a deduction to the accounting peropd in which it was realized
carryback and carryover
when the wage increases for inflation loose their value because of increased taxation rate due to higher income
bracket creep
the nine states with community property systems are
Louisianna, TExas, New Mexico, Arizona, California, Washington, Idaho, Nevada and Wisconsin
The states that are not community property are ____ states
common law
tax provisions that help regulate the economy and encourage certain activities and types of buisnesses
economic considerations
tax provisions that are designed to encourage or discourage certain socailly desirable (or undesirable) practices
social considerations
tax provisions that alleviate the effect of multiple taxation, recognize the wherewithal to pay concept, and recognize the eroding effect of inflation
equity considerations
provisions that represent special interst legilation, reflect political expediency, and exhibit the effect of state and local law
political considerations
provisions intended to aid the IRS in the collection of revenue and the administration of the tax law
Influence of the IRS
provisions to either clarify or negate the effect of court decisions relating to tax law
influence of the courts
The ______, ______ and ______ taxes are progressive
Federal income tax, Federal gift and estate taxes, and most state income tax rate structures are progressive