A taxpayer may choose to accept a reduced market rate of return on an investment to take advantage of a tax preference associated with the investment. In such case, the taxpayer will pay a/an:

Question

Quizplus · Accepted Answer

This scenario involves an implicit tax. By accepting a reduced market rate of return in order to take advantage of a tax preference, the taxpayer is effectively paying a hidden tax by sacrificing potential earnings. This can be considered an implicit tax. An excise tax is a tax on a specific good, an explicit tax is one that is clearly stated and understood, and a transaction tax is a tax on a specific financial transaction. None of these apply to the scenario given.

A Taxpayer May Choose to Accept a Reduced Market Rate