TAX 4001 Exam 1 Study Guide
Tax - ANS-A payment to support the cost of the government. It's non-penal, but
compulsory and is not directly related to any specific benefit provided by the
government
Jurisdiction - ANS-The right of a government to levy tax on a specific person or
organization
Tax Base - ANS-An item, occurrence, transaction, or activity with respect to which a tax
is levied. Usually expressed in monetary terms.
Incidence - ANS-The ultimate economic burden represented by a tax
Tax Formula - ANS--Tax (T) = Rate (r) x Base (B)
-Tax is a function of both the rate and the base
-The government can increase revenues by increasing either of the 2 variables
Increasing the Base - ANS-Can increase the base by expanding an already existing
base by adding more items to be taxed like diapers and formula which are currently tax
exempt or by taxing items that have never been taxed before like marijuana
Proportional Rate Structure - ANS-(aka flat rate) a single percentage that applies to the
entire tax base no matter how big or small
-Example: Sales Tax
Progressive Rate Structure - ANS-As the tax base increases, the rate increases
Regressive Rate Structure - ANS-As the tax base increases, the rate decreases.
How to Increase Tax Revenue - ANS-Exploit a new tax base, increase the rate of an
existing tax, or enlarge an existing tax base.
Sources of Federal Tax Law - ANS-Statutory Authority, Administrative Authority, and
Judicial Authority
Statutory Authority - ANS-Through the legislative process, Congress can pass
legislation that adds to, deletes form, or modifies its provisions of the Internal Revenue
Code of 1986
, Administrative Authority - ANS-Department of Treasury and the Internal Revenue
Service (IRS)
Department of Treasury - ANS-is responsible for writing regulations to interpret and
illustrate the rules in the Internal Revenue Code
Internal Revenue Service (IRS) - ANS-is responsible for the enforcement of the law and
collection of tax, provides still more guidance in the form of revenue rulings and revenue
procedures
Revenue Rulings - ANS-Explains how the IRS applies the tax law to a particular set of
facts.
Revenue Procedures - ANS-Advises taxpayers how to comply with IRS procedural or
administrative matters
Standards for a Good Tax - ANS-Sufficient to raise the necessary government
revenues, convenient for the government to administer and for people to pay, efficient in
economic terms, and fair.
Taxes Should be Convenient - ANS-The government should have a method for
collecting tax that most taxpayers understand and with which they routinely cooperate.
The collection method shouldn't be overly intrusive and offer minimal opportunity for
noncompliance.
Taxes Should be Efficient - ANS-The tax does not interfere with or influence taxpayers'
economic behavior
Inefficient Tax - ANS-Causes people to modify their economic behavior because it
distorts the market and may result in suboptimal allocations of goods and services
Taxes Should be Fair - ANS-Each person's contribution to the support of government
should reflect that person's ability to pay.
Horizontal Equity - ANS-A tax is fair if persons with the same ability to pay (as
measured by the tax base) owe the same tax. Enhanced by refining the calculation of
taxable income to include the significant variables affecting a person's economic
circumstances.
Tax - ANS-A payment to support the cost of the government. It's non-penal, but
compulsory and is not directly related to any specific benefit provided by the
government
Jurisdiction - ANS-The right of a government to levy tax on a specific person or
organization
Tax Base - ANS-An item, occurrence, transaction, or activity with respect to which a tax
is levied. Usually expressed in monetary terms.
Incidence - ANS-The ultimate economic burden represented by a tax
Tax Formula - ANS--Tax (T) = Rate (r) x Base (B)
-Tax is a function of both the rate and the base
-The government can increase revenues by increasing either of the 2 variables
Increasing the Base - ANS-Can increase the base by expanding an already existing
base by adding more items to be taxed like diapers and formula which are currently tax
exempt or by taxing items that have never been taxed before like marijuana
Proportional Rate Structure - ANS-(aka flat rate) a single percentage that applies to the
entire tax base no matter how big or small
-Example: Sales Tax
Progressive Rate Structure - ANS-As the tax base increases, the rate increases
Regressive Rate Structure - ANS-As the tax base increases, the rate decreases.
How to Increase Tax Revenue - ANS-Exploit a new tax base, increase the rate of an
existing tax, or enlarge an existing tax base.
Sources of Federal Tax Law - ANS-Statutory Authority, Administrative Authority, and
Judicial Authority
Statutory Authority - ANS-Through the legislative process, Congress can pass
legislation that adds to, deletes form, or modifies its provisions of the Internal Revenue
Code of 1986
, Administrative Authority - ANS-Department of Treasury and the Internal Revenue
Service (IRS)
Department of Treasury - ANS-is responsible for writing regulations to interpret and
illustrate the rules in the Internal Revenue Code
Internal Revenue Service (IRS) - ANS-is responsible for the enforcement of the law and
collection of tax, provides still more guidance in the form of revenue rulings and revenue
procedures
Revenue Rulings - ANS-Explains how the IRS applies the tax law to a particular set of
facts.
Revenue Procedures - ANS-Advises taxpayers how to comply with IRS procedural or
administrative matters
Standards for a Good Tax - ANS-Sufficient to raise the necessary government
revenues, convenient for the government to administer and for people to pay, efficient in
economic terms, and fair.
Taxes Should be Convenient - ANS-The government should have a method for
collecting tax that most taxpayers understand and with which they routinely cooperate.
The collection method shouldn't be overly intrusive and offer minimal opportunity for
noncompliance.
Taxes Should be Efficient - ANS-The tax does not interfere with or influence taxpayers'
economic behavior
Inefficient Tax - ANS-Causes people to modify their economic behavior because it
distorts the market and may result in suboptimal allocations of goods and services
Taxes Should be Fair - ANS-Each person's contribution to the support of government
should reflect that person's ability to pay.
Horizontal Equity - ANS-A tax is fair if persons with the same ability to pay (as
measured by the tax base) owe the same tax. Enhanced by refining the calculation of
taxable income to include the significant variables affecting a person's economic
circumstances.
