C239 EXAMINATION QUESTIONS AND VERIFIED
ANSWERS
Progressive Tax Rate - increases as tax base increases (i.e. income tax)
Proportional Tax Rate - rate is constant (i.e. sales tax)
Regressive Tax Rate - decreases as tax base increases (i.e. employment tax)
Statutory Tax Rate - specified by the law
Marginal Tax Rate - applicable to next dollar of income
Average Tax Rate - tax liability divided by taxable income
Effective Tax Rate - taxes paid (liability) divided by taxpayer's ability to pay
Excise Tax - tax on the manufacture, sale, or use of goods; on the carrying on of an occupation or
activity; or on the transfer of property (federal estate & gift taxes)
Use Tax - complement sales tax; to prevent consumers from evading sales tax by purchasing goods
outside the state for in-state use
Value Added Tax - national sales tax that taxes the increment in value as goods move through the
production process (not yet part of U.S. Federal tax structure)
Estate Tax - tax imposed on the right to transfer property by death (imposed on the estate)
Inheritance Tax - tax imposed on the right to receive property from a decedent. (imposed on the
heir)
Gift Tax - excise tax levied on the right to transfer property
Ad Valorem Taxes - tax imposed on the value of property. imposed by states, counties, and cities
on real estate. can be imposed on personal property as well.
Personalty - all property that is not attached to real estate (realty) and is movable. (i.e. machinery,
automobiles, clothing, household furnishings, and personal effects)
Franchise Tax - tax levied on the right to do business in a state as a corporation
Occupational Tax - tax imposed on various trades or businesses. a license fee that enables a
taxpayer to engage in a particular occupation
Severance Tax - tax levied on the extraction of natural resources
Proprietorship - business entity for which there is a single owner. net profit of the entity is
reported on the owner's federal income tax return (sch c of form 1040)
, C Corporation - separate taxable entity subject to the rules of Subchapter C of the code. business
form may create a double taxation effect relative to its shareholders. the entity is subject to the regular
corporate tax and a number of penalty taxes at the federal level.
Partnership - not a separate taxable entity. files tax return form 1065 and each partner then
reports their share of net income or loss on personal returns
S Corporation - designation for a corporation that elects to be taxed similarly to a partnership. pay
no federal income tax at the corporate level.
Tax Avoidance - minimization of one's tax liability by taking advantage of legally available tax
planning opportunities
Tax Evasion - reduction of taxes by the use of subterfuge or fraud or other nonlegal means
Tax Formula - [tax rate x tax base] - tax credits = tax liability
Tax Minimization Strategies - - avoid income recognition
- postpone recognition of income to achieve tax deferral
- maximize deductible amounts
- accelerate recognition of deductions to achieve tax deferral
- shift net income from high-bracket years to low-bracket years
- control the character of income and deductions
- avoid double taxation
- maximize tax credits
Flow-Through Entity - entity is a tax reporter rather than a taxpayer. owners are subject to tax. (i.e.
partnerships, s corps, and llcs)
Statutory Sources of Tax Law - constitution, tax treaties, internal revenue code
Proposed Regulations - regulation issued by the treasury department in proposed, rather than
final, form
Temporary Regulations - regulation issued by the treasury department in temporary form. when
speed is critical, the treasury department issues temporary regulations that take effect immediately.
Final Regulations - U.S. treasury department regulations represent the position of the IRS as to
how the Internal Revenue Code is to be interpreted.
Revenue Rulings - issued by the national office of the irs to express an official interpretation of the
tax law as applied to specific transactions
Revenue Procedures - matter of procedural importance to both taxpayers and the irs concerning
the administration of the tax laws
ANSWERS
Progressive Tax Rate - increases as tax base increases (i.e. income tax)
Proportional Tax Rate - rate is constant (i.e. sales tax)
Regressive Tax Rate - decreases as tax base increases (i.e. employment tax)
Statutory Tax Rate - specified by the law
Marginal Tax Rate - applicable to next dollar of income
Average Tax Rate - tax liability divided by taxable income
Effective Tax Rate - taxes paid (liability) divided by taxpayer's ability to pay
Excise Tax - tax on the manufacture, sale, or use of goods; on the carrying on of an occupation or
activity; or on the transfer of property (federal estate & gift taxes)
Use Tax - complement sales tax; to prevent consumers from evading sales tax by purchasing goods
outside the state for in-state use
Value Added Tax - national sales tax that taxes the increment in value as goods move through the
production process (not yet part of U.S. Federal tax structure)
Estate Tax - tax imposed on the right to transfer property by death (imposed on the estate)
Inheritance Tax - tax imposed on the right to receive property from a decedent. (imposed on the
heir)
Gift Tax - excise tax levied on the right to transfer property
Ad Valorem Taxes - tax imposed on the value of property. imposed by states, counties, and cities
on real estate. can be imposed on personal property as well.
Personalty - all property that is not attached to real estate (realty) and is movable. (i.e. machinery,
automobiles, clothing, household furnishings, and personal effects)
Franchise Tax - tax levied on the right to do business in a state as a corporation
Occupational Tax - tax imposed on various trades or businesses. a license fee that enables a
taxpayer to engage in a particular occupation
Severance Tax - tax levied on the extraction of natural resources
Proprietorship - business entity for which there is a single owner. net profit of the entity is
reported on the owner's federal income tax return (sch c of form 1040)
, C Corporation - separate taxable entity subject to the rules of Subchapter C of the code. business
form may create a double taxation effect relative to its shareholders. the entity is subject to the regular
corporate tax and a number of penalty taxes at the federal level.
Partnership - not a separate taxable entity. files tax return form 1065 and each partner then
reports their share of net income or loss on personal returns
S Corporation - designation for a corporation that elects to be taxed similarly to a partnership. pay
no federal income tax at the corporate level.
Tax Avoidance - minimization of one's tax liability by taking advantage of legally available tax
planning opportunities
Tax Evasion - reduction of taxes by the use of subterfuge or fraud or other nonlegal means
Tax Formula - [tax rate x tax base] - tax credits = tax liability
Tax Minimization Strategies - - avoid income recognition
- postpone recognition of income to achieve tax deferral
- maximize deductible amounts
- accelerate recognition of deductions to achieve tax deferral
- shift net income from high-bracket years to low-bracket years
- control the character of income and deductions
- avoid double taxation
- maximize tax credits
Flow-Through Entity - entity is a tax reporter rather than a taxpayer. owners are subject to tax. (i.e.
partnerships, s corps, and llcs)
Statutory Sources of Tax Law - constitution, tax treaties, internal revenue code
Proposed Regulations - regulation issued by the treasury department in proposed, rather than
final, form
Temporary Regulations - regulation issued by the treasury department in temporary form. when
speed is critical, the treasury department issues temporary regulations that take effect immediately.
Final Regulations - U.S. treasury department regulations represent the position of the IRS as to
how the Internal Revenue Code is to be interpreted.
Revenue Rulings - issued by the national office of the irs to express an official interpretation of the
tax law as applied to specific transactions
Revenue Procedures - matter of procedural importance to both taxpayers and the irs concerning
the administration of the tax laws
