Exam 1 Note Sheet

Exam 1 Note Sheet - -Proportional Tax(flat imposes a constant tax rate throughout the base As the tax increases the taxes paid increase

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-Proportional Tax (flat) – imposes a constant tax rate throughout the base. As the tax increases, the taxes paid increase proportionally. MTR = ATR, sales tax (tax = tax base x tax rate) -Progressive – imposes an increasing marginal tax rate as the tax base increases. As tax base increases, both MTR and taxes paid increase, federal/state income taxes -Regressive – decreasing MTR as the tax base increases. As the tax base increases, taxes paid increase, but MTR decreases. (FICA, unemployment) -ad valorem – tax base is the FMV of the property -Sufficiency – assessing the size of tax revenues it must generate and ensuring that it provides them -Static forecasting – ignore how taxpayers may alter their activities in response to a tax law change and to base projected tax revenues on the existing state of transactions. May result in large discrepancies in projected vs. actual tax revenue - Dynamic forecasting – attempt to account for possible taxpayer responses to the tax law. Only as good as the assumptions -Equity (Fairness) – tax is based on the taxpayer’s ability to pay. Horizontal (2 taxpayers in similar situations pay the same tax, failures do to tax preferences i.e. investment vs. salary, sales tax rates, etc.) Vertical (taxpayers with greater ability to pay, pay more) -Certainty – taxpayers should be able to determine when and where to pay the tax and how to determine the tax. -Convenience (wherewithal to pay) – tax system should be designed to facilitate the collection of tax revenues without undue hardship on the taxpayer or govt. (federal withholding, pay sales tax at time of purchase) -Economy – minimize the compliance and administration costs associated with the tax system. -MTR = Change in Tax/Change in Income (financial planning) -Average Tax Rate = Total Tax/Taxable Income -Effective Tax Rate = Total Tax/Total Income (tax equity) Chapter 2 - DIF (discriminant function) system – assigns a score to each tax return that represents the probability the tax liability on the return has been underreported -3 types of audits – Correspondence (most common, narrowest in scope and the least complex, asks for supporting documentation for items on the return), Office (second most common, conducted at a local office, broader in scope and more complex than correspondence examinations), Field (least common, conducted at taxpayer’s place of business, broadest in scope, most complex) - 30 day letter – (1) request a conference with appeals officer (2) agree to pay the deficiency
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This note was uploaded on 08/22/2011 for the course ACIS 3314 taught by Professor Hicks during the Spring '09 term at Virginia Tech.

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Exam 1 Note Sheet - -Proportional Tax(flat imposes a constant tax rate throughout the base As the tax increases the taxes paid increase

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