Chapter 1 - An Overview of Federal Taxation
ACTUAL Exam Questions and CORRECT
Answers
Adjusted Gross Income (AGI) - CORRECT ANSWER - the amount of income remaining
after subtracting all allowable adjustments to income from gross income
ad valorem taxes - CORRECT ANSWER - property tax
annual loss - CORRECT ANSWER - results from an excess of allowable deductions for a tax
year over the reported income for the year
average tax rate - CORRECT ANSWER - the average rate of tax on each dollar of of income
that is taxable
the total federal income tax divided by taxable income (tax base)
certainty - CORRECT ANSWER - one of Adam Smith's maxims which indicates that a
taxpayer should know when and how a tax is to be paid
convenience - CORRECT ANSWER - one of Adam Smith's maxims which indicates that a
tax should be levied at the time that it is most convenient for the taxpayer to pay the tax
correspondence examinations - CORRECT ANSWER - a type of IRS exam consisting of
letters sent between the IRS and a taxpayer
deductions - CORRECT ANSWER - amounts that the tax law specifically allows as
subtractions from gross income
deductions for adjusted gross income - CORRECT ANSWER - trade or business expenses
, rental and royalty expenses
capital losses
certain other expenditures that the tax law specifically allows
deductions from adjusted gross income - CORRECT ANSWER - certain personal
expenditures and other specified non personal expenditures are allowed to be deducted by
individuals as deductions from AGI
commonly referred to as itemized deductions
deferral - CORRECT ANSWER - an item that does not affect the current period's taxable
income but will affect taxable income in some future tax year
dependency exemptions - CORRECT ANSWER - granted for individuals who are dependent
on the taxpayer for support
discriminant function system - CORRECT ANSWER - a computer program used by the IRS
to select individual tax returns for audit
document perfection program - CORRECT ANSWER - a process whereby the IRS checks
virtually all tax returns for mathematical, tax calculation, and clerical errors
economy - CORRECT ANSWER - one of Adam Smith's maxims which indicates that a tax
should have minimum compliance and administrative costs
effective tax rate - CORRECT ANSWER - the total federal income tax divided by the
taxpayer's economic income (the tax base plus nontaxable income)
equality - CORRECT ANSWER - one of Adam Smith's maxims which indicates that a tax
should be based on the taxpayer's ability to pay the tax
ACTUAL Exam Questions and CORRECT
Answers
Adjusted Gross Income (AGI) - CORRECT ANSWER - the amount of income remaining
after subtracting all allowable adjustments to income from gross income
ad valorem taxes - CORRECT ANSWER - property tax
annual loss - CORRECT ANSWER - results from an excess of allowable deductions for a tax
year over the reported income for the year
average tax rate - CORRECT ANSWER - the average rate of tax on each dollar of of income
that is taxable
the total federal income tax divided by taxable income (tax base)
certainty - CORRECT ANSWER - one of Adam Smith's maxims which indicates that a
taxpayer should know when and how a tax is to be paid
convenience - CORRECT ANSWER - one of Adam Smith's maxims which indicates that a
tax should be levied at the time that it is most convenient for the taxpayer to pay the tax
correspondence examinations - CORRECT ANSWER - a type of IRS exam consisting of
letters sent between the IRS and a taxpayer
deductions - CORRECT ANSWER - amounts that the tax law specifically allows as
subtractions from gross income
deductions for adjusted gross income - CORRECT ANSWER - trade or business expenses
, rental and royalty expenses
capital losses
certain other expenditures that the tax law specifically allows
deductions from adjusted gross income - CORRECT ANSWER - certain personal
expenditures and other specified non personal expenditures are allowed to be deducted by
individuals as deductions from AGI
commonly referred to as itemized deductions
deferral - CORRECT ANSWER - an item that does not affect the current period's taxable
income but will affect taxable income in some future tax year
dependency exemptions - CORRECT ANSWER - granted for individuals who are dependent
on the taxpayer for support
discriminant function system - CORRECT ANSWER - a computer program used by the IRS
to select individual tax returns for audit
document perfection program - CORRECT ANSWER - a process whereby the IRS checks
virtually all tax returns for mathematical, tax calculation, and clerical errors
economy - CORRECT ANSWER - one of Adam Smith's maxims which indicates that a tax
should have minimum compliance and administrative costs
effective tax rate - CORRECT ANSWER - the total federal income tax divided by the
taxpayer's economic income (the tax base plus nontaxable income)
equality - CORRECT ANSWER - one of Adam Smith's maxims which indicates that a tax
should be based on the taxpayer's ability to pay the tax
