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.