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Flashcards in Tax Deck (71)
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1
Q

Ad Valorem Taxes

A

Tax imposed on the value of property. The most common ad valorem tax is that imposed by states, counties and cities on real estate. Ad valorem taxes can be imposed on personal property as well.

2
Q

Carbon Tax

A

Tax on fossil fuels to help reduce greenhouse gas emissions.

3
Q

Correspondence Audit

A

Audit conducted by the IRS by the U.S. mail. Typically, the IRS writes to the taxpayer requesting the verification of a particular deduction or exemption. The remittance of copies of records or other support is requested of the taxpayer.

4
Q

Employment Taxes

A

Taxes that an employer must pay on account of its employees. Employment taxes include FICA and FUTA taxes. Employment taxes are paid to the IRS in addition to income tax withholdings at specified intervals. Such taxes can be levied on the employees, the employer, or both.

5
Q

Estate Tax

A

Tax imposed on the right to transfer property by death. Thus, an estate tax is levied on the decedent’s estate and not on the heir receiving the property.

6
Q

Excise Taxes

A

Tax on the manufacture, sales, or use of goods; on the carrying on of an occupation or activity; or on the transfer of property. Thus, the Federal estate and gift taxes are, theoretically, excise taxes.

7
Q

FICA Tax

A

Abbreviation that stands for Federal Insurance Contributions Act, commonly referred to as the Social Security tax. The FICA tax is comprised of the Social Security tax (old age, survivors, and disability insurance) and the Medicare tax (hospital insurance) and is imposed on both employers and employees. The employer is responsible for withholding from the employee’s wages the Social Security tax at a rate of 6.2% on a maximum wage base and the Medicare tax at a rate of 1.45% (no maximum wage base). The maximum Social Security wage base for 2017 is $127,200 and for 2016 is $118,500.

8
Q

Field Audit

A

Audit conducted by the IRS on the business premises of the taxpayer or in the office of the tax practitioner representing the taxpayer.

9
Q

Financial Transaction Tax

A

Tax imposed on some type of financial transaction, such as stock sales.

10
Q

Flat Tax

A

A form of consumption tax designed to alleviate the regressivity of a value added tax (VAT). It is imposed on individuals and businesses at the same, single (flat) rate.

11
Q

Franchise Tax

A

Tax levied on the right to do business in a state as a corporation. Although income considerations may come into play, the tax usually is based on the capitalization of the corporation.

12
Q

FUTA Tax

A

Employment tax levied on employers. Jointly administered by the Federal and state governments, the tax provides funding for unemployment benefits. FUTA provides funding for unemployment benefits. FUTA applies at a rate of 6.0% on the first $7,000 of covered wages paid during the year for each employee in 2017. The Federal government allows a credit for FUTA paid for allowed under a merit rating system) to the state. The credit cannot exceed 5.4% of the covered wages.

13
Q

Gift Tax

A

Tax imposed on the transfer of property by gift. The tax is imposed upon the donor of a gift and is based on the fair market value of the property on the date of the gift.

14
Q

Indexation

A

Procedure whereby adjustments are made by the IRS to key tax components (e.g. standard deduction, tax brackets, personal and dependency exemptions) to reflect inflation. The adjustments are usually are made annually and are based on the change in the consumer price index.

15
Q

Inheritance Tax

A

Tax imposed on the right to receive property from a decedent. Thus, theoretically, an inheritance tax is imposed on the heir. The Federal estate tax is imposed on the estate.

16
Q

National Sales Tax

A

Intended as a replacement for the current Federal income tax. Unlike a value added tax, which is levied on the manufacturer, it would be imposed on the consumer upon the final sale of goods and services. To reduce regressivity, individuals would receive a rebate to offset a portion of the tax.

17
Q

Occupational Fees

A

Tax imposed on various trades or businesses. A license fee that enables a taxpayer to engage in a particular occupation.

18
Q

Office Audit

A

Audit conducted by the IRS in the agent’s office.

19
Q

Personalty

A

All property that is not attached to real estate (realty) and is movable. Examples of personalty are machinery, automobiles, clothing, household furnishings, and personal effects.

20
Q

Realty

A

Real estate.

21
Q

Revenue Neutrality

A

A description that characterizes tax legislation when it neither increases nor decreases the total revenue collected by the taxing jurisdiction. Thus, any tax revenue losses are offset by tax revenue gains.

22
Q

Sales Tax

A

A state or local level tax on the retail sale of specified property. Generally, the purchaser pays the tax, but the seller collects it, as an agent for the government. Various taxing jurisdictions allow exemptions for purchases of specific items, including certain food, services, and manufacturing equipment. If the purchaser and seller are in different states, a use tax usually applies.

23
Q

Severance Taxes

A

A tax imposed upon the extraction of natural resources.

24
Q

Statute of Limitations

A

Provisions of the law that specify the maximum period of time in which action may be taken concerning a past event. Code 6501 - 6504 contain the limitation periods applicable to the IRS for additional assessments, and 6511 - 6515 relate to refund claims by taxpayers.

25
Q

Sunset Provision

A

A provision attached to new tax legislation that will cause such legislation to expire at a specified date. Sunset provisions are attached to tax cut bills for long-term budgetary reasons to make their effect temporary. Once the sunset provision comes into play, the tax cut is rescinded and former law is reinstated. An example of a sunset provision is contained in the Tax Relief Reconciliation Act of 2001 that related to the estate tax. After the estate tax was phased out in 2010, a sunset provision called for the reinstatement of the estate tax as of January 1, 2011.

26
Q

Use Tax

A

Sales tax that is collectible by the seller where the purchaser is domiciled in a different state.

27
Q

Value Added Tax (VAT)

A

A national sales tax that taxes the increment in value as goods move through the production process. A VAT is much used in other countries but has not yet been incorporated as part of the U.S. Federal tax structure.

28
Q

Wherewithal to Pay

A

This concept recognizes the inequity of taxing a transaction when the taxpayer lacks the means with which to pay the tax. Under it, there is a correlation between the imposition of the tax and the ability to pay the tax. It is particularly suited to situations in which the taxpayer’s economic position has not changed significantly as a result of the transaction.

29
Q

Proportional Tax

A

Rate of tax remains constant for any given income level. Examples are most excise taxes, general sales tax, and employment taxes (FICA and FUTA).

30
Q

Progressive Tax

A

A higher rate of tax applies as the tax base increses. The Federal income tax, Federal gift and estate taxes, and most state income tax rate structures are progressive.

31
Q

Acquiescence

A

Agreement by the IRS on the results reached in certain judicial decisions; sometimes abbreviated Acq. or A.

32
Q

Circuit Court of Appeals

A

Any of 13 Federal courts that consider tax matters appealed from the U.S. Tax Coourt, a U.S. District Court, or the U.S. Court of Federal Claims. Appeal from a U.S. Court of Appeals is to the U.S. Supreme Court by Ceritorari.

33
Q

Citator

A

A tax research resource that presents the judicial history of a court case and traces the subsequent references to the case. When these references include the citating cases’ evaluations of the cited case’s precedents, the research can obtain some measure of the efficacy and reliaability of the original holding.

34
Q

Determination Letters

A

Upon the request of the taxpayer, the IRS will comment on the tax status of a completed transaction. Determination letters frequently are used to determine whether a retirement or profit sharing plan qualifies under the Code, and to determine the tax-exempt status of certain nonprofit organizations.

35
Q

Federal District Court

A

Trial court for purposes of litigating Federal tax matters. It is the only trial court in which a jury trial can be obtained.

36
Q

Final Regulations

A

The U.S. Treasury Department Regulations (Abbreviated Reg.) represent the position of the IRS as to how they Internal Revenue Code is to be interpreted. Their purpose is to provide taxpayers and IRS personnel with rules of general and specific applications to the various provisions of the tax law. Regulations are published in the Federal Register ana din all tax services.

37
Q

Interpretive Regulations

A

Regulation issued by the Treasury Department that purports to explain the meaning of a particular Code Section. An interpretive Regulation is given less deference than a legislative Regulation.

38
Q

Legislative Regulations

A

Some code sections give the Secretary of the Treasury or his delegate the authority to prescribe Regulations to carry out the details of administration or to otherwise complete the operating rules. Regulations issued pursuant to this type of authority truly possess the force and effect of law. In effect, Congress is almost delegating its legislative powers to the Treasury Department.

39
Q

Letter Rulings

A

Written response of the IRS to a taxpayer’s request for interpretationo f the revenue laws with respect to a proposed transaction (e.g. concerning the tax-free status of a reorganization). Not to be relied on as precedent by other than the party who requested the ruling.

40
Q

Nonacquiescence

A

Disagreement by the IRS on the result reached in certan judicial decisions. Nonacq. or NA

41
Q

Precedents

A

Previously decided court decision that is recognized as authority for the disposition of future decisions.

42
Q

Procedural Regulations

A

Regulation issued by the Treasury Department that is a housekeeping-type instruction indicating information that taxpayers should provide the IRS as well as information about the internal management and conduct of the IRS itself.

43
Q

Proposed Regulations

A

Regulation issued by the Treasury Department in proposed, rather than final, form. The interval between the proposal of a Regulation and its finalization permits taxpayers and other interested parties to comment on the properiety of the proposal.

44
Q

Revenue Procedures

A

Matter of procedural importance to both taxpayers and the IRS concerning the administration of the tax laws is issued as a Revenue Procedure (abbreviated Rev. Proc.). A Revenue Procedure is published in an Internal Revenue Bulletin (IRB)

45
Q

Revenue Rulings

A

Issued by the National Office of the IRS to express an official interpretationo f the tax law as applied to specific transactions. It is more limited in application than a Regulation. A Revenue Ruling is published in an Internal Revenue Bulletin.

46
Q

Small Cases Division

A

Division within the U.S. Tax Court where jurisdiction is limited to claims of $50,000 or less. There is no appeal from this court.

47
Q

Tax Avoidance

A

Minimization of one’s tax liability by taking advantage of legally available tax planning opportunities. Tax avoidance can be contrasted with tax evasion, which entails the reduction of tax liability by illegal means.

48
Q

Tax Research

A

Method used to determine the best available solution to a situation that possesses tax consequences. Both tax and non tax factors are considered.

49
Q

Technical Advice Memoranda (TAMs)

A

Issued by the IRS in response to questions raised by IRS field personnel during audits. They deal with completed rather than proposed transactions and are often requested for questions related to exempt organizations and employee plans.

50
Q

Temporary Regulations

A

Regulation issued by the Treasury Department in temporary form. When speed is critical, the Trasury Department issues Temporary Regulations that take effect immediately. These Regulations have the same authoritative value as Final Regulations and may be cited as precedent for three years. Temporary Regulations are also issued as proposed Regulations.

51
Q

U.S. Court of Federal Claims

A

Trial court (court of original jurisdiction) that decides litigation involving Federal tax matters. appeal from this court is to the Court of Appeals for the Federal Circuit.

52
Q

U.S. Supreme Court

A

Highest appellate court or the court of last resort in the Federal court system and in most states. Only a small number of tax decisions of the U.S. courts of Appeal are reviewed by the U.S. Supreme Court under its certiorari procedure. The Supreme Court usually grants certiorari to resolve a conflict among the Courts of Appeal (e.g., two or more appellate courts have assumed opposing positions on a particular issue) or when the tax issue is extremely important (e.g. size of the revenue loss to the Federal government).

53
Q

U.S. Tax Court

A

One of four trial courts of original jurisdiction that decides litigation involving Federal income, death, or gift taxes. It is the only trial court where the taxpayer must not first pay the deficiency assessed by the IRS. The Tax Court will not have jurisdiction over a case unless a statutory notice of deficiency (90-day letter) has been issued by the IRS and the taxpapyer files the petition for hearing within the time prescribed.

54
Q

Writ of Certiorari

A

Appeal from a U.S. Court of Appeals to the U.S. Supreme Court is by Writ of Certiorari. The Supreme Court need not accept the appeal, and it usually does not unless a conflict exists among the lower courts that must be resolved or a constitutional issue is involved.

55
Q

List of Exclusions

A

Accident and health insurance proceeds, annuities (cost element), bequests, child support payments (received), Cost of living allowance for military, damages for personal injury or sickness, gifts received, group term life insurance premium paid by employer (for coverage up to $50,000), Inheritances, interest from state and local municipal bonds, life insurance paid upon death, meals and lodging if furnished for employer’s convenience, military allowances, scholarship grants, social security benefits, veterans benefits, welfare payments, workers comp benefits.

56
Q

Abandoned Spouse

A

Abandeoned spouse provision enables a married taxpayer with a dependent child whose spouse did not live in the taxpayer’s home during the last six months of the tax year to file as a head of household rather than as married filing separately.

57
Q

Child Tax Credit

A

Tax credit based solely on the number of qualifying children under age 17. The maximum credit available is $1,000 per child. A qualifying child must be claimed as a dependent on a parent’s tax return to qualify for the credit. Taxpayers who qualify for the child tax credit may also qualify for a supplemental credit. The supplemental credit is treated as a component of the earned income credit and is therefore refundable. The credit is phased out for higher income taxpayers.

58
Q

Collectibles

A

Special type of capital asset, the gain from which is taxed at a maximum rate of 28% if the holding period is more than one year. Examples include art, rugs, antiques, gems, metals, stamps, some coins and bullion, and alcoholic beverages held for investment.

59
Q

Dependency Exemption

A

Tax law provides an exemption for each individual taxpayer and an additional exemption for the taxpayer’s spouse if a joint return is filed. An individual may also claim a dependency exemption for each dependent, provided certain tests are met. The amount of the personal and dependency exemptions is $4050 in 2017. the exemption is subject to phaseout once adjusted gross income exceeds certain statutory threshold amounts.

60
Q

E-file

A

Electronic filing of a tax return. Filing is either direct or indirect. As to direct, the taxpayer goes online using a computer and tax return preparation software. Indirect filing occurs when a taxpayer utilizes an authorized IRS e-file provider. The provider often is the tax return preparer.

61
Q

Filing Status

A

Individual taxpayers are placed in one of five filing statuses each year (single, married filing jointly, married filing separately, surviving spouse, or head of household). Marital status and household support are key determinants. Filing status is used to determine the taxpayer’s filing requirements, standard deduction, eligibility for certain deductions and credits, and tax liability.

62
Q

Head of Household

A

Unmarried individual who maintains a household for another and satisfies certain conditions set forth in 2(b). This status enables the taxpayer to use a set of income tax rates that are lower than those applicable to other unmarried individuals but higher than those applicable to surviving spouses and married persons filing a joint return.

63
Q

Itemized Deductions

A

Personal and employee expenditures allowed by the Code as deductions from adjusted gross income. Examples include certain medical expenses, interest on home mortgages, state income taxes, and charitable contributions. Itemized deductions are reported on Schedule A of Form 1040. Certain miscellaneious itemized deductions are reduced by 2 percent of the taxpayer’s AGI. In addition, a taxpayer whose AGI exceeds a certain level must reduce the itemized deductions by 3% of the excess of AGI over that level.

64
Q

Kiddie Tax

A

Passive income, such as interest and dividends, that is recognized by a child under age 19 (or under age 24 if a full-time student) is taxed to him or her at the rates that would have applied had the income been incurred by the child’s parents, generally to the extent the income exceeds $2100 for 2017. The additional tax is assessed regardless of the source of the income or the income’s underlying property.

65
Q

Multiple Support Agreement

A

To qualify for a dependency exemption, the support test must be satisfied. This requires that over 50% of the support of the potential dependent be provided by the taxpayer. Where no one pwerson provides more than 50% of the support, a multiple support agreement enables a taxpayer to still qualify for the dependency exemption. Any person who contributed more than 10% of the support is entitled to claim the exemption if each person in the group who contributed more than 10% files a written consent. Each person who is a party to the multiple support agreement must meet all of the other requirements for claiming the dependency exemption.

66
Q

Qualifying Child

A

An individual who, as to the taxpayer, satisfies the relationship, abode, and age tests. To be claimed as a dependent, such individual must also meet the citizenship and joint return tests and not be self supporting.

67
Q

Qualifying Relative

A

An individual who, as to the taxpayer, satisfies the relationship, gross income, support, citizenship, and joint return tests. Such an individual can be claimedd as a dependent of the taxpayer.

68
Q

Standard Deduction

A

Individual taxpayer can either itemize deductions or take the standard deduction. Amount of the standard deduction depends on the taxpayer’s filing status.

69
Q

Surviving Spouse

A

When a husband or wife prececeases the other spouse, the survivor is known as a surviving spouse. Under certain conditions, a surviving spouse may be entitled to use the income tax rates in 1(a) (those applicable to married persons filing a joint return for the two years after the year of death of his or her spouse.

70
Q

Tax Table

A

A table that is provided for taxpayers with less than $100,000 of taxable income. Separate columns are provided for single taxpayers, married taxpayers filing jointly, heads of households, and married taxpayers filing separately.

71
Q

Unearned Income

A

Income received but not yet earned. Normally, such income is taxed when received, even for accrual basis taxpayers.