BUS-A 328 Introduction to Taxation (3 cr.) P
BUS-A 328 - INTRODUCTION TO TAXATION | EXAM
QUESTIONS AND CORRECT ANSWERS | LATEST
VERSION 2026/2027
BUS-A 328 Introduction to Taxation
1. A tax system in which the average tax rate increases as the tax base
increases is best described as:
A. Neutral
B. Progressive
C. Proportional
D. Regressive
CORRECT ANSWER : B. Progressive
The defining feature of a progressive tax is that the average rate rises as
the base rises, which is how the federal individual income tax brackets
are designed.
2. Which of the following best defines a taxpayer's marginal tax rate?
A. The rate of tax applied to the next dollar of taxable income
B. The rate applied to the first dollar of taxable income
C. Total tax divided by economic income
D. Total tax divided by taxable income
CORRECT ANSWER : A. The rate of tax applied to the next dollar of
taxable income
The marginal rate is the rate on the next (or last) dollar earned. Total tax
divided by taxable income is the average rate.
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, BUS-A 328 Introduction to Taxation (3 cr.) P
3. Ruth has taxable income of $100,000 and a tax liability of $18,000. If
she earns an additional $1,000 of taxable income, her tax increases to
$18,240. What is her marginal tax rate?
A. 18%
B. 21%
C. 24%
D. 18.06%
CORRECT ANSWER : C. 24%
The extra $240 of tax on the extra $1,000 of income gives a marginal rate
of 24%. The 18.06% figure is her new average rate, not the marginal rate.
4. Using the facts in the previous question, what is Ruth's average tax
rate before the additional income is earned?
A. 24%
B. 18%
C. 21%
D. 15%
CORRECT ANSWER : B. 18%
Average rate equals total tax divided by taxable income: $18,000 /
$100,000 = 18%.
5. Which of the following carries the highest legal authority as a source
of federal tax law?
A. The Internal Revenue Code
B. An IRS Publication
C. A Private Letter Ruling
D. A Revenue Ruling
CORRECT ANSWER : A. The Internal Revenue Code
The Internal Revenue Code is statutory law enacted by Congress.
Regulations and rulings interpret it and carry less weight.
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, BUS-A 328 Introduction to Taxation (3 cr.) P
6. Which of the following is a secondary source of tax authority?
A. A final Treasury Regulation
B. A decision of the U.S. Tax Court
C. The Internal Revenue Code
D. An article in a professional tax journal
CORRECT ANSWER : D. An article in a professional tax journal
Journal articles, textbooks and tax services explain the law but are not
law themselves, so they are secondary sources.
7. A Private Letter Ruling issued by the IRS:
A. Carries the same precedential value as a Revenue Ruling
B. Applies only to the taxpayer who requested it and may not be relied
upon as precedent by others
C. Is binding on all taxpayers with similar facts
D. Is enacted by Congress and has the force of statute
CORRECT ANSWER : B. Applies only to the taxpayer who requested
it and may not be relied upon as precedent by others
A PLR CORRECT ANSWER s one taxpayer's specific question. Other
taxpayers cannot cite it as precedent, unlike a Revenue Ruling.
8. Adam Smith's canons of a good tax include equity, certainty,
convenience and economy. Which of the following is NOT one of his
four canons?
A. Certainty
B. Economy
C. Progressivity
D. Equity
CORRECT ANSWER : C. Progressivity
Smith's four canons are equity, certainty, convenience and economy.
Progressivity is a later policy concept and is not one of the four.
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, BUS-A 328 Introduction to Taxation (3 cr.) P
9. The concept of horizontal equity holds that:
A. Everyone should pay the same dollar amount of tax
B. Taxpayers in similar economic situations should pay similar amounts of
tax
C. Tax rates should be the same across all states
D. Taxpayers with greater ability to pay should pay more tax
CORRECT ANSWER : B. Taxpayers in similar economic situations
should pay similar amounts of tax
Horizontal equity means equal treatment of equals. Vertical equity
addresses how taxpayers with different ability to pay are treated.
10. In which trial court may a taxpayer litigate a federal tax dispute
without first paying the disputed deficiency?
A. United States Court of Federal Claims
B. United States District Court
C. United States Supreme Court
D. United States Tax Court
CORRECT ANSWER : D. United States Tax Court
The Tax Court hears cases before payment. The District Court and Court
of Federal Claims require the taxpayer to pay first and sue for a refund.
SECTION B: THE TAX FORMULA, FILING STATUS AND DEPENDENTS
11. In the individual income tax formula, adjusted gross income less the
greater of the standard deduction or itemized deductions (and less the
qualified business income deduction) equals:
A. Gross income
B. Taxable income
C. Net tax due or refund
D. Gross tax liability
CORRECT ANSWER : B. Taxable income
After reaching AGI, the taxpayer subtracts the standard or itemized
deduction and any QBI deduction to arrive at taxable income, to which
the rates are applied.
Page 4 of 68
BUS-A 328 - INTRODUCTION TO TAXATION | EXAM
QUESTIONS AND CORRECT ANSWERS | LATEST
VERSION 2026/2027
BUS-A 328 Introduction to Taxation
1. A tax system in which the average tax rate increases as the tax base
increases is best described as:
A. Neutral
B. Progressive
C. Proportional
D. Regressive
CORRECT ANSWER : B. Progressive
The defining feature of a progressive tax is that the average rate rises as
the base rises, which is how the federal individual income tax brackets
are designed.
2. Which of the following best defines a taxpayer's marginal tax rate?
A. The rate of tax applied to the next dollar of taxable income
B. The rate applied to the first dollar of taxable income
C. Total tax divided by economic income
D. Total tax divided by taxable income
CORRECT ANSWER : A. The rate of tax applied to the next dollar of
taxable income
The marginal rate is the rate on the next (or last) dollar earned. Total tax
divided by taxable income is the average rate.
Page 1 of 68
, BUS-A 328 Introduction to Taxation (3 cr.) P
3. Ruth has taxable income of $100,000 and a tax liability of $18,000. If
she earns an additional $1,000 of taxable income, her tax increases to
$18,240. What is her marginal tax rate?
A. 18%
B. 21%
C. 24%
D. 18.06%
CORRECT ANSWER : C. 24%
The extra $240 of tax on the extra $1,000 of income gives a marginal rate
of 24%. The 18.06% figure is her new average rate, not the marginal rate.
4. Using the facts in the previous question, what is Ruth's average tax
rate before the additional income is earned?
A. 24%
B. 18%
C. 21%
D. 15%
CORRECT ANSWER : B. 18%
Average rate equals total tax divided by taxable income: $18,000 /
$100,000 = 18%.
5. Which of the following carries the highest legal authority as a source
of federal tax law?
A. The Internal Revenue Code
B. An IRS Publication
C. A Private Letter Ruling
D. A Revenue Ruling
CORRECT ANSWER : A. The Internal Revenue Code
The Internal Revenue Code is statutory law enacted by Congress.
Regulations and rulings interpret it and carry less weight.
Page 2 of 68
, BUS-A 328 Introduction to Taxation (3 cr.) P
6. Which of the following is a secondary source of tax authority?
A. A final Treasury Regulation
B. A decision of the U.S. Tax Court
C. The Internal Revenue Code
D. An article in a professional tax journal
CORRECT ANSWER : D. An article in a professional tax journal
Journal articles, textbooks and tax services explain the law but are not
law themselves, so they are secondary sources.
7. A Private Letter Ruling issued by the IRS:
A. Carries the same precedential value as a Revenue Ruling
B. Applies only to the taxpayer who requested it and may not be relied
upon as precedent by others
C. Is binding on all taxpayers with similar facts
D. Is enacted by Congress and has the force of statute
CORRECT ANSWER : B. Applies only to the taxpayer who requested
it and may not be relied upon as precedent by others
A PLR CORRECT ANSWER s one taxpayer's specific question. Other
taxpayers cannot cite it as precedent, unlike a Revenue Ruling.
8. Adam Smith's canons of a good tax include equity, certainty,
convenience and economy. Which of the following is NOT one of his
four canons?
A. Certainty
B. Economy
C. Progressivity
D. Equity
CORRECT ANSWER : C. Progressivity
Smith's four canons are equity, certainty, convenience and economy.
Progressivity is a later policy concept and is not one of the four.
Page 3 of 68
, BUS-A 328 Introduction to Taxation (3 cr.) P
9. The concept of horizontal equity holds that:
A. Everyone should pay the same dollar amount of tax
B. Taxpayers in similar economic situations should pay similar amounts of
tax
C. Tax rates should be the same across all states
D. Taxpayers with greater ability to pay should pay more tax
CORRECT ANSWER : B. Taxpayers in similar economic situations
should pay similar amounts of tax
Horizontal equity means equal treatment of equals. Vertical equity
addresses how taxpayers with different ability to pay are treated.
10. In which trial court may a taxpayer litigate a federal tax dispute
without first paying the disputed deficiency?
A. United States Court of Federal Claims
B. United States District Court
C. United States Supreme Court
D. United States Tax Court
CORRECT ANSWER : D. United States Tax Court
The Tax Court hears cases before payment. The District Court and Court
of Federal Claims require the taxpayer to pay first and sue for a refund.
SECTION B: THE TAX FORMULA, FILING STATUS AND DEPENDENTS
11. In the individual income tax formula, adjusted gross income less the
greater of the standard deduction or itemized deductions (and less the
qualified business income deduction) equals:
A. Gross income
B. Taxable income
C. Net tax due or refund
D. Gross tax liability
CORRECT ANSWER : B. Taxable income
After reaching AGI, the taxpayer subtracts the standard or itemized
deduction and any QBI deduction to arrive at taxable income, to which
the rates are applied.
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