Chapter 7.1 Our Tax System
voluntary compliance
A system that relies on individual citizens to report their income freely and voluntarily, calculate their tax liability correctly, and file a tax return on time, according to the rules established by the Internal Revenue Service.
excise tax
A tax on the production, sale, or consumption of goods produced within a country. ex) gas,telephone service, tobacco and alcohol.
field audit
IRS agent of local representative visits the taxpayer's home or business to examine records or assest.
audit
IRS examination of tax returns
tax brackets
Income ranges to which tax rates apply
proportional taxes
Taxes for which the rate stays the same, or is flat, regardless of income. Also known as flat tax
ability to pay principle
The idea that those who have greater income (or wealth) should pay a greater proportion of it as taxes than those who have less income (or wealth).
revenue
incoming funds to the government in the form of taxes
progressive taxes
take a larger share of income as the amount of income grows. Ex) Federal Income taxes.
regressive taxes
taxes that take a smaller share of income as the amount of income grows
correspondence audit
the IRS sends a letter, asking the taxpayers to respond to specific questions or produce evidence of deductions or other entries on the tax return
IRS
the bureau of the Treasury Department responsible for tax collections and enforcing tax laws. Internal Revenue Service
office audit
the taxpayer sits down with the auditor to answer questions and produce records
deficit
when the government spends more than it recieves in revenue creeating the need to borrow money to pay expenses
tax evasion
willfull failure to pay or a deliberate underpayment of taxes.