WGU C237 TAXATION 1 Exam Questions and Answers 100% Correct Graded A+ 2026/27
30 - Number of days that are initially given to an audited individual or business to either
request a conference with an appeals officer or agree to the proposed adjustment. (Ch 2-6)
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)
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)
1231 Assets - Depreciable or real property used in a taxpayers trade or business owned for
more than one year. (Ch 11-8)
1231 Look Back Rule - A tax rule requiring taxpayers to treat current year net (Ch 11-18)
1245 Property - Tangible personal property and intangible property subject to cost
recovery deductions. (Ch 11-10)
1250 Property - Real property subject to cost recovery deductions. (Ch 11-14)
,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)
481 Adjustment - A change to taxable income associated with a change in accounting
methods. (Ch 9-30)
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)
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)
Accountable Plan - An Employer's reimbursement plan under which employees must
submit documentation supporting expenses to receive reimbursement and reimbursements are
limited to legitimate business expenses. (Ch 5-23)
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)
Accounting Period - A fixed period of time win which a business reports income and
deductions. (Ch 9-13)
,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)
Accumulated Earnings Tax - A tax assessed on corporations that retain earning without a
business reason to do so. (Ch 15-3)
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)
Action on Decision - An IRS pronouncement that explains the background reasoning
behind an IRS acquiescence or nonacquiescence . (Ch 2-17)
Ad Valorem - A type of tax based on the value of property. (Ch 1-15)
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)
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)
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)
, 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)
Alimony - A support payment of cash made to a former spouse. (Ch 5-14)
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)
All Inclusive Income - A concept that says: Gross income means all income from
whatever source derived. (Ch 4-2)
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)
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)
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 - Number of days that are initially given to an audited individual or business to either
request a conference with an appeals officer or agree to the proposed adjustment. (Ch 2-6)
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)
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)
1231 Assets - Depreciable or real property used in a taxpayers trade or business owned for
more than one year. (Ch 11-8)
1231 Look Back Rule - A tax rule requiring taxpayers to treat current year net (Ch 11-18)
1245 Property - Tangible personal property and intangible property subject to cost
recovery deductions. (Ch 11-10)
1250 Property - Real property subject to cost recovery deductions. (Ch 11-14)
,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)
481 Adjustment - A change to taxable income associated with a change in accounting
methods. (Ch 9-30)
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)
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)
Accountable Plan - An Employer's reimbursement plan under which employees must
submit documentation supporting expenses to receive reimbursement and reimbursements are
limited to legitimate business expenses. (Ch 5-23)
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)
Accounting Period - A fixed period of time win which a business reports income and
deductions. (Ch 9-13)
,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)
Accumulated Earnings Tax - A tax assessed on corporations that retain earning without a
business reason to do so. (Ch 15-3)
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)
Action on Decision - An IRS pronouncement that explains the background reasoning
behind an IRS acquiescence or nonacquiescence . (Ch 2-17)
Ad Valorem - A type of tax based on the value of property. (Ch 1-15)
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)
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)
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)
, 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)
Alimony - A support payment of cash made to a former spouse. (Ch 5-14)
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)
All Inclusive Income - A concept that says: Gross income means all income from
whatever source derived. (Ch 4-2)
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)
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)
Alternative Minimum Tax Adjustments - Adjustments, either positive or negative, to
regular taxable income to arrive at the alternative minimum tax base. (Ch 8-9)
