WGU - C237 - TAXATION 1 QUESTIONS WITH VERIFIED ANSWERS 2026-2027
1. 30: Number of days that are initially given to an audited individual or business to either request a conference with
an appeals oflcer or agree to the proposed adjustment. (Ch 2-6)
2. 90: Number of days that are given to an audited individual or business after the appeals conference to either pay
the proposed deficiency or file a petition in the US Tax Court to hear the case. (Ch 2-6)
3. 12 Month Rule: A regulation that allows prepaid business expenses to be currently deducted when the
contract does not extend beyond a specific numbers of months and the contract period does not extend beyond the
end of the tax year following the year of the payment. (Ch 6-15)
4. 1231 Assets: Depreciable or real property used in a taxpayers trade or business owned for more than one year.
(Ch 11-8)
5. 1231 Look Back Rule: A tax rule requiring taxpayers to treat current year net (Ch 11-18)
6. 1245 Property: Tangible personal property and intangible property subject to cost recovery deductions. (Ch
11-10)
7. 1250 Property: Real property subject to cost recovery deductions. (Ch 11-14)
8. 291 Depreciation Recapture: The portion of a corporate taxpayer's gain on real property that is
converted from 1231 gain to ordinary income. (Ch 11-14)
9. 481 Adjustment: A change to taxable income associated with a change in accounting methods. (Ch 9-30)
10. Abandoned Spouse: A married taxpayer who lives apart from the spouse for the last 6 months of the year,
who files a tax return separate from the spouse, and who maintains a household for a qualifying child. (Ch 4-24)
11. Accelerated Death Benefits: Early receipt of life insurance proceeds that are not taxable un certain
circumstances, such as the taxpayer is medically certified with an illness that is expected to cause death within 24
months. (Ch 5-28)
12. Accountable Plan: An Employer's reimbursement plan under which employees must submit documenta-
tion supporting expenses to receive reimbursement and reimbursements are limited to legitimate business expenses.
(Ch 5-23)
13. Accounting Methods: The procedure for determining the taxable year in which a business recognizes a
particular item of income or deduction, thereby dictating the timing of when a taxpayer reports income and deductions.
(Ch 9-14)
14. Accounting Period: A fixed period of time win which a business reports income and deductions. (Ch 9-13)
15. Accrual Method: A method of accounting that generally recognizes income in the period earned and
recognizes deductions in the period that liabilities are incurred. (Ch 5-6)
16. Accumulated Earnings Tax: A tax assessed on corporations that retain earning without a business
reason to do so. (Ch 15-3)
,WGU - C237 - TAXATION 1 QUESTIONS WITH VERIFIED ANSWERS 2026-2027
17. Acquiescence: Issued after the IRS loses a trial-level or circuit court case where the IRS doesn't necessarily
agree with the court's ruling, but chooses to no longer litigate the issue. (Ch 2-17)
18. Action on Decision: An IRS pronouncement that explains the background reasoning behind an IRS
acquiescence or nonacquiescence . (Ch 2-17)
19. Ad Valorem: A type of tax based on the value of property. (Ch 1-15)
20. Additional Medicare Tax: A tax imposed at a rate of .9% for salary or wages or net self-employment
earning in excess of $200,000. (Ch 8-14)
21. Adjusted Basis: An asset's carrying value for tax purposes at a given point in time, measured as the initial
basis plus capital improvements less depreciation or amortization. (Ch 10-1,11-5)
22. Adjusted Gross Income: Gross income less specific "above the line" deductions. It is an important
reference point in the income tax formula. (Ch 4-2)
23. After Tax Rate of Return: A taxpayer's before-tax rate of return on an investment minus the taxes paid
on the income from the investment. (Ch 3-3)
24. Alimony: A support payment of cash made to a former spouse. (Ch 5-14)
25. All Events Test: Requires that income or expenses are recognized when all events have occurred that
determine or fix the right to receive the income or liability to make the payments and the amount of the income or
expense can be determined with reasonable accuracy. (Ch 9-21)
26. All Inclusive Income: A concept that says: Gross income means all income from whatever source derived.
(Ch 4-2)
27. Allowance Method: Method used for financial reporting purposes; under this method, bad debt expense
is based on an estimate of the amount of the bad debts in AR at YE. (Ch 9-25)
28. Alternative Minimum Tax: A tax that is designed to require taxpayers to pay some specific level of tax
even when they have low or no regular taxable income as a result of certain tax breaks in the tax code. (Ch 4-11)
29. Alternative Minimum Tax Adjustments: Adjustments, either positive or negative, to regular
taxable income to arrive at the alternative minimum tax base. (Ch 8-9)
30. Alternative Minimum Tax System: A system that was designed to ensure that taxpayers generating
economic income pay some minimum amount of income tax each year. (Ch 8-8)
31. Alternative Minimum Tax Base: Alternative minimum taxable income minus the alternative minimum
tax exemption. (Ch 8-8)
32. Amortization: The method of recovering the cost of intangible assets over a specific time period. (Ch 10-1)
33. Amount Realized: The value of everything received by the seller in a transaction less selling costs. (Ch 11-2)
34. Analyze Tax Authorities: Step 4 of tax research. (Ch 2-18)
,WGU - C237 - TAXATION 1 QUESTIONS WITH VERIFIED ANSWERS 2026-2027
35. Annuity: A stream of equal payments over time. (Ch 5-11)
36. Annotated: A type of tax service arranged by code section where many types of relevant supporting documents
may be found. (Ch 2-18)
37. Arms Length: A type of transaction among unrelated taxpayers in which each transacting party negotiates
for his or her own benefit. (Ch 3-12)
38. Arms Length Amount: Price in transactions among unrelated taxpayers, where each transacting party
negotiates for his or her own benefit. (Ch 9-4)
39. Assignment of Income Doctrine: A judicial doctrine in which earned income is taxed to the taxpayer
providing the service, and that income from property is taxed to the individual who owns the property when the income
accrues. (Ch 3-12, 5-8)
40. Average Tax Rate: The tax rate that applies to the taxpayer's average level of taxation on each dollar of
taxable income. (Ch 1-7)
41. Barter Clubs: Organizations that facilitate the exchange of rights to goods and services between members.
(Ch 5-4)
42. Before Tax Rate of Return: A taxpayer's rate of return on an investment before paying taxes on the
income from the investment. (Ch 3-16)
43. Boot: Property given or received in an otherwise nontaxable transaction such as a like-kind exchange that may
trigger gain to a party to the transaction. An expression describing additional property a party to an exchange might
throw in "to boot" to equalize the exchange. (Ch 11-26)
44. Bracket: A subset or portion of the tax base subject to a specific tax rate. (Ch 1-5)
45. Bunching Itemized Deductions: A common planning strategy in which a taxpayer pays two years
worth of itemized expenses in one year to exceed the standard deduction in that year. (Ch 6-25)
46. Business Activity: A profit-motivated activity that requires a relatively high level of involvement or ettort from
the taxpayer to generate income. (Ch 6-2)
47. Business Purpose: A type of judicial doctrine in which the IRS is allowed to challenge and disallow business
expenses for transactions with no underlying business motivation. (Ch 3-18)
48. Business Tax Credits: Nonrefundable credits designed to provide incentives for taxpayers to hire certain
types of individuals or to participate in certain business activities. (Ch 8-31)
49. Capital Assets: In general, an asset other than an asset used in a trade or business or an asset such as an
account or not receivable acquired in a business from the sale of services or property (Ch 7-2)
50. Capital Gain Property: Any asset that would have generated a long-term capital gain if the taxpayer had
sold the property for it fair market value. (Ch 6-17)
1. 30: Number of days that are initially given to an audited individual or business to either request a conference with
an appeals oflcer or agree to the proposed adjustment. (Ch 2-6)
2. 90: Number of days that are given to an audited individual or business after the appeals conference to either pay
the proposed deficiency or file a petition in the US Tax Court to hear the case. (Ch 2-6)
3. 12 Month Rule: A regulation that allows prepaid business expenses to be currently deducted when the
contract does not extend beyond a specific numbers of months and the contract period does not extend beyond the
end of the tax year following the year of the payment. (Ch 6-15)
4. 1231 Assets: Depreciable or real property used in a taxpayers trade or business owned for more than one year.
(Ch 11-8)
5. 1231 Look Back Rule: A tax rule requiring taxpayers to treat current year net (Ch 11-18)
6. 1245 Property: Tangible personal property and intangible property subject to cost recovery deductions. (Ch
11-10)
7. 1250 Property: Real property subject to cost recovery deductions. (Ch 11-14)
8. 291 Depreciation Recapture: The portion of a corporate taxpayer's gain on real property that is
converted from 1231 gain to ordinary income. (Ch 11-14)
9. 481 Adjustment: A change to taxable income associated with a change in accounting methods. (Ch 9-30)
10. Abandoned Spouse: A married taxpayer who lives apart from the spouse for the last 6 months of the year,
who files a tax return separate from the spouse, and who maintains a household for a qualifying child. (Ch 4-24)
11. Accelerated Death Benefits: Early receipt of life insurance proceeds that are not taxable un certain
circumstances, such as the taxpayer is medically certified with an illness that is expected to cause death within 24
months. (Ch 5-28)
12. Accountable Plan: An Employer's reimbursement plan under which employees must submit documenta-
tion supporting expenses to receive reimbursement and reimbursements are limited to legitimate business expenses.
(Ch 5-23)
13. Accounting Methods: The procedure for determining the taxable year in which a business recognizes a
particular item of income or deduction, thereby dictating the timing of when a taxpayer reports income and deductions.
(Ch 9-14)
14. Accounting Period: A fixed period of time win which a business reports income and deductions. (Ch 9-13)
15. Accrual Method: A method of accounting that generally recognizes income in the period earned and
recognizes deductions in the period that liabilities are incurred. (Ch 5-6)
16. Accumulated Earnings Tax: A tax assessed on corporations that retain earning without a business
reason to do so. (Ch 15-3)
,WGU - C237 - TAXATION 1 QUESTIONS WITH VERIFIED ANSWERS 2026-2027
17. Acquiescence: Issued after the IRS loses a trial-level or circuit court case where the IRS doesn't necessarily
agree with the court's ruling, but chooses to no longer litigate the issue. (Ch 2-17)
18. Action on Decision: An IRS pronouncement that explains the background reasoning behind an IRS
acquiescence or nonacquiescence . (Ch 2-17)
19. Ad Valorem: A type of tax based on the value of property. (Ch 1-15)
20. Additional Medicare Tax: A tax imposed at a rate of .9% for salary or wages or net self-employment
earning in excess of $200,000. (Ch 8-14)
21. Adjusted Basis: An asset's carrying value for tax purposes at a given point in time, measured as the initial
basis plus capital improvements less depreciation or amortization. (Ch 10-1,11-5)
22. Adjusted Gross Income: Gross income less specific "above the line" deductions. It is an important
reference point in the income tax formula. (Ch 4-2)
23. After Tax Rate of Return: A taxpayer's before-tax rate of return on an investment minus the taxes paid
on the income from the investment. (Ch 3-3)
24. Alimony: A support payment of cash made to a former spouse. (Ch 5-14)
25. All Events Test: Requires that income or expenses are recognized when all events have occurred that
determine or fix the right to receive the income or liability to make the payments and the amount of the income or
expense can be determined with reasonable accuracy. (Ch 9-21)
26. All Inclusive Income: A concept that says: Gross income means all income from whatever source derived.
(Ch 4-2)
27. Allowance Method: Method used for financial reporting purposes; under this method, bad debt expense
is based on an estimate of the amount of the bad debts in AR at YE. (Ch 9-25)
28. Alternative Minimum Tax: A tax that is designed to require taxpayers to pay some specific level of tax
even when they have low or no regular taxable income as a result of certain tax breaks in the tax code. (Ch 4-11)
29. Alternative Minimum Tax Adjustments: Adjustments, either positive or negative, to regular
taxable income to arrive at the alternative minimum tax base. (Ch 8-9)
30. Alternative Minimum Tax System: A system that was designed to ensure that taxpayers generating
economic income pay some minimum amount of income tax each year. (Ch 8-8)
31. Alternative Minimum Tax Base: Alternative minimum taxable income minus the alternative minimum
tax exemption. (Ch 8-8)
32. Amortization: The method of recovering the cost of intangible assets over a specific time period. (Ch 10-1)
33. Amount Realized: The value of everything received by the seller in a transaction less selling costs. (Ch 11-2)
34. Analyze Tax Authorities: Step 4 of tax research. (Ch 2-18)
,WGU - C237 - TAXATION 1 QUESTIONS WITH VERIFIED ANSWERS 2026-2027
35. Annuity: A stream of equal payments over time. (Ch 5-11)
36. Annotated: A type of tax service arranged by code section where many types of relevant supporting documents
may be found. (Ch 2-18)
37. Arms Length: A type of transaction among unrelated taxpayers in which each transacting party negotiates
for his or her own benefit. (Ch 3-12)
38. Arms Length Amount: Price in transactions among unrelated taxpayers, where each transacting party
negotiates for his or her own benefit. (Ch 9-4)
39. Assignment of Income Doctrine: A judicial doctrine in which earned income is taxed to the taxpayer
providing the service, and that income from property is taxed to the individual who owns the property when the income
accrues. (Ch 3-12, 5-8)
40. Average Tax Rate: The tax rate that applies to the taxpayer's average level of taxation on each dollar of
taxable income. (Ch 1-7)
41. Barter Clubs: Organizations that facilitate the exchange of rights to goods and services between members.
(Ch 5-4)
42. Before Tax Rate of Return: A taxpayer's rate of return on an investment before paying taxes on the
income from the investment. (Ch 3-16)
43. Boot: Property given or received in an otherwise nontaxable transaction such as a like-kind exchange that may
trigger gain to a party to the transaction. An expression describing additional property a party to an exchange might
throw in "to boot" to equalize the exchange. (Ch 11-26)
44. Bracket: A subset or portion of the tax base subject to a specific tax rate. (Ch 1-5)
45. Bunching Itemized Deductions: A common planning strategy in which a taxpayer pays two years
worth of itemized expenses in one year to exceed the standard deduction in that year. (Ch 6-25)
46. Business Activity: A profit-motivated activity that requires a relatively high level of involvement or ettort from
the taxpayer to generate income. (Ch 6-2)
47. Business Purpose: A type of judicial doctrine in which the IRS is allowed to challenge and disallow business
expenses for transactions with no underlying business motivation. (Ch 3-18)
48. Business Tax Credits: Nonrefundable credits designed to provide incentives for taxpayers to hire certain
types of individuals or to participate in certain business activities. (Ch 8-31)
49. Capital Assets: In general, an asset other than an asset used in a trade or business or an asset such as an
account or not receivable acquired in a business from the sale of services or property (Ch 7-2)
50. Capital Gain Property: Any asset that would have generated a long-term capital gain if the taxpayer had
sold the property for it fair market value. (Ch 6-17)
