tax final exam questions AND
ANSWERS 2026/2027
Which of the following payments would not be considered a tax?
a)An assessment based on the selling price of the vehicle
b)A local assessment for new sewers based on the amount of water used
c)A local assessment for schools based on the value of the taxpayer's property
d) A surcharge based on the amount of income tax already calculated
e) None of the above are considered a tax. ANSWER✔ � -b)A local assessment for new sewers based on
the amount of water used
Which of Adam Smith's requirements for a good tax system best supports the argument that the federal
income tax rate structure should be based on progressive tax rates?
a)Equality
b)Convenience
c)Certainty
d)Neutrality ANSWER✔ � -a)Equality
Roseanne sells her personal automobile for $1,000 in the current tax year. She purchased the car for
$12,000 nine years ago. What are the tax effects of the sale in the current tax year?
I) Roseanne recognizes a deductible loss of $11,000 in her current-year tax return because of the capital
recovery concept.
II) Roseanne recognizes no loss on her tax return because of lack of business purpose with the
automobile
a)Only statement I is correct.
b)Only statement II is correct.
,c)Both statements are correct.
d)None of the statements are correct. ANSWER✔ � -b)Only statement II is correct.
The Federal income tax is a:
a) revenue neutral tax
b) regressive tax.
c) value-added tax
d) progressive tax.
e) form of sales tax. ANSWER✔ � -d) progressive tax.
Adiusted gross income (AGI):
I) is used to provide limitations on certain deductions from AGI.
II) is unique to the individual income tax formula
III) is the result before subtracting certain allowable personal expenditures from gross income
a)Only statement I is correct.
b)Only statement II is correct.
c)Only statement III is correct.
d)Statements I and II are correct e)Statements I, II, and III are correct ANSWER✔ � -e)Statements I, II,
and III are correct
Which of the following are types of IRS examinations (audits)
I) Information matching program examination.
II) Office examination
III) Field examination
IV) Correspondence examination
,a)Statements II and III are correct.
b)Only statement III is correct.
c)Statements I and IV are correct.
d)Statements I, Il, and III are correct.
e)Only statement 2 3 4 is correct. ANSWER✔ � -e)statement 2 3 4
If a taxpayer has a choice of receiving income in the current year versus the following year, which of the
following tax rates is important in determining the year in which he should include the income?
a) Average
b) Effective
c) Composite
d) Marginal
e) supplemental ANSWER✔ � -d) Marginal
The rules that limit self-dealing through the related party provisions is a result of the
a) Ability to Pay Concept.
b) Administrative Convenience Concept
c) Arm's-Length Transaction Concept d) Capital Recovery Concept.
e) Pay-as-You-Go Concept. ANSWER✔ � -c) Arm's-Length Transaction Concept
9. Capital assets include which of the following?
I) Depreciable equipment used in Robbie's business
II)A new car held for resale by Andrews Auto Sales
III) Accounts receivable held by Jessica because of sales on credit while operating her store
, IV) A set of golf clubs, belonging to a surgeon
a) Only statement I is correct.
b) Only statement IV is correct.
c) Statements III and IV are correct.
d) Statements I, III, and IV are correct.
e) All statements are correct. ANSWER✔ � -b) Only statement IV is correct.
Which of the following is a taxable entity?
a) Sole Proprietorship
b) Partnership
c) S Corporation
d) C Corporation
e) All are taxable entities ANSWER✔ � -d) C Corporation
Ordinary income is:
I) the common type of income that individuals and businesses earn
II) not bound to receive any special treatment under tax laws.
III) the gain from the sale of shares of stock held more than one year
a) Only statement I is correct.
b) Only statement Il is correct.
c) Statements I and II are correct.
d)Statements I and III are correct.
e) Statements I, II, and III are correct ANSWER✔ � -c) Statements I and II are correct.
ANSWERS 2026/2027
Which of the following payments would not be considered a tax?
a)An assessment based on the selling price of the vehicle
b)A local assessment for new sewers based on the amount of water used
c)A local assessment for schools based on the value of the taxpayer's property
d) A surcharge based on the amount of income tax already calculated
e) None of the above are considered a tax. ANSWER✔ � -b)A local assessment for new sewers based on
the amount of water used
Which of Adam Smith's requirements for a good tax system best supports the argument that the federal
income tax rate structure should be based on progressive tax rates?
a)Equality
b)Convenience
c)Certainty
d)Neutrality ANSWER✔ � -a)Equality
Roseanne sells her personal automobile for $1,000 in the current tax year. She purchased the car for
$12,000 nine years ago. What are the tax effects of the sale in the current tax year?
I) Roseanne recognizes a deductible loss of $11,000 in her current-year tax return because of the capital
recovery concept.
II) Roseanne recognizes no loss on her tax return because of lack of business purpose with the
automobile
a)Only statement I is correct.
b)Only statement II is correct.
,c)Both statements are correct.
d)None of the statements are correct. ANSWER✔ � -b)Only statement II is correct.
The Federal income tax is a:
a) revenue neutral tax
b) regressive tax.
c) value-added tax
d) progressive tax.
e) form of sales tax. ANSWER✔ � -d) progressive tax.
Adiusted gross income (AGI):
I) is used to provide limitations on certain deductions from AGI.
II) is unique to the individual income tax formula
III) is the result before subtracting certain allowable personal expenditures from gross income
a)Only statement I is correct.
b)Only statement II is correct.
c)Only statement III is correct.
d)Statements I and II are correct e)Statements I, II, and III are correct ANSWER✔ � -e)Statements I, II,
and III are correct
Which of the following are types of IRS examinations (audits)
I) Information matching program examination.
II) Office examination
III) Field examination
IV) Correspondence examination
,a)Statements II and III are correct.
b)Only statement III is correct.
c)Statements I and IV are correct.
d)Statements I, Il, and III are correct.
e)Only statement 2 3 4 is correct. ANSWER✔ � -e)statement 2 3 4
If a taxpayer has a choice of receiving income in the current year versus the following year, which of the
following tax rates is important in determining the year in which he should include the income?
a) Average
b) Effective
c) Composite
d) Marginal
e) supplemental ANSWER✔ � -d) Marginal
The rules that limit self-dealing through the related party provisions is a result of the
a) Ability to Pay Concept.
b) Administrative Convenience Concept
c) Arm's-Length Transaction Concept d) Capital Recovery Concept.
e) Pay-as-You-Go Concept. ANSWER✔ � -c) Arm's-Length Transaction Concept
9. Capital assets include which of the following?
I) Depreciable equipment used in Robbie's business
II)A new car held for resale by Andrews Auto Sales
III) Accounts receivable held by Jessica because of sales on credit while operating her store
, IV) A set of golf clubs, belonging to a surgeon
a) Only statement I is correct.
b) Only statement IV is correct.
c) Statements III and IV are correct.
d) Statements I, III, and IV are correct.
e) All statements are correct. ANSWER✔ � -b) Only statement IV is correct.
Which of the following is a taxable entity?
a) Sole Proprietorship
b) Partnership
c) S Corporation
d) C Corporation
e) All are taxable entities ANSWER✔ � -d) C Corporation
Ordinary income is:
I) the common type of income that individuals and businesses earn
II) not bound to receive any special treatment under tax laws.
III) the gain from the sale of shares of stock held more than one year
a) Only statement I is correct.
b) Only statement Il is correct.
c) Statements I and II are correct.
d)Statements I and III are correct.
e) Statements I, II, and III are correct ANSWER✔ � -c) Statements I and II are correct.
