WGU C237 TAXATION 1 STANDARD EXAM SHEET
2025/2026 QUESTIONS AND ANSWERS GUARANTEE A+
✔✔Depletion - ✔✔The cost recovery method to allocate the cost of natural resources as
they are removed such as in mining. (Ch 10-1)
✔✔Depreciation - ✔✔The cost recovery method to allocate the cost of tangible personal
and real property over a specific time period. (Ch 10-1)
✔✔Depreciation Recapture - ✔✔The conversion of 1231 gain into ordinary income on a
sale (or exchange) based on the amount of accumulated depreciation on the property at
the time of sale or exchange. (Ch 11-9)
✔✔Determination - ✔✔A type of ruling request by the taxpayer, issued by local IRS
directors, and generally not controversial. (Ch 2-16)
✔✔DIF - ✔✔A system used by the IRS that assigns a score to each tax return that
represents the probability that the tax liability on the return has been under-reported. A
higher score = a higher likelihood of under-reporting. (Ch 2-4)
✔✔Direct Conversion - ✔✔When a taxpayer receives noncash property rather than a
cast payment as a replacement for property damaged or destroyed in an involuntary
conversion. (Ch 11-29)
✔✔Direct Write Off Method - ✔✔Required method for deducting bad debts for tax
purposes where businesses deduct bad debt only when the debt becomes wholly or
partially worthless. (Ch 9-25)
✔✔Disability Insurance - ✔✔This pays the insured for wages lost due to injury or
disability. (Ch 5-30)
✔✔Discharge of Indebtedness - ✔✔This occurs when a taxpayer's debt is forgiven
(does not have to pay the debt back). (Ch 5-21)
✔✔Discount Factor - ✔✔Based on the taxpayer's rate of return that is used to
determine the present value of future cash inflows and outflows. (Ch 3-3)
✔✔Dividends Received Deduction (DRD) - ✔✔A corporate deduction for part or all of an
amount received from other domestic corporations. (Ch 15-3)
✔✔Document Perfection - ✔✔A program used by the IRS under which all tax returns
are checked for mathematical and tax calculation errors. (Ch 2-4)
,✔✔Double Taxation - ✔✔The tax burden when an entity's income is subject to 2 levels
of tax as in a C Corporation. (Ch 15-3)
✔✔Dynamic Forecasting - ✔✔The process of forecasting tax revenues that incorporates
into the forecast how taxpayers may alter their activities in response to a tax law
change. (Ch 1-18)
✔✔Earmarked Tax - ✔✔Tax assessed for a specific purpose. (Ch 1-4)
✔✔Earned Income - ✔✔Compensation and other forms of income received for
providing goods or services in the ordinary course of business. (Ch 5-10)
✔✔Earned Income Credit - ✔✔A refundable credit designed to help offset the effect of
employment taxes on compensation paid to low-income taxpayers and to encourage
lower income taxpayers to seek employment. (Ch 8-29)
✔✔Economic Performance Test - ✔✔The third requirement that must be met for an
accrual method taxpayer to deduct an expense currently. (Ch 9-21)
✔✔Economic Substance - ✔✔A type of judicial doctrine which requires transactions to
meaningfully change a taxpayer's economic position and have a substantial purpose
(apart from a federal income tax purpose) in order for a taxpayer to obtain tax benefits.
(Ch 3-19)
✔✔Economy - ✔✔A tax system that should minimize its compliance and administration
costs. (Ch 1-22)
✔✔Effective - ✔✔The taxpayer's average rate of taxation on each dollar of total income
(taxable and nontaxable income). (Ch 1-7)
✔✔Employee - ✔✔A person who is hired to provide services to a company on a regular
basis in exchange for compensation and who does not provide these services as part of
an independent business. (Ch 8-21)
✔✔Employment - ✔✔A type of tax referred to as Social Security Tax and Medicare Tax.
(Ch 1-12)
✔✔Equity - ✔✔A tax system that is deemed fair is one that is based on the taxpayer's
ability to pay; taxpayers with a greater ability to pay tax, pay more tax. (Ch 1-20)
✔✔Estate - ✔✔A type of tax levied on the heirs of an individual upon death when
property is transferred that exceeds $11.2M. It is often referred to as the Death Tax. (Ch
1-13)
, ✔✔Estimated Tax Payments - ✔✔Quarterly tax payments that a taxpayer makes to the
government if the tax withholding is insufficient to meet the taxpayer's tax liability. (Ch 4-
11)
✔✔Excess Business Loss - ✔✔Excess of aggregate business deductions for the year
over aggregate business gross income or gain of an individual taxpayer plus a threshold
amount depending on filing status. (Ch 6-6)
✔✔Exchanged Basis - ✔✔The basis of the asset given up in a nontaxable exchange.
(Ch 11-26)
✔✔Excise - ✔✔A type of tax levied on the retail of particular products. (Alcohol, Diesel
Fuel, Gasoline, Cigarettes, etc.) (Ch 1-13)
✔✔Exclusions - ✔✔Realized income that is exempted from income taxation. (Ch 4-5)
✔✔Explicit - ✔✔A type of tax directly imposed by a government. (Ch 1-16)
✔✔Federal Short Term Interest Rate - ✔✔The quarterly interest rate used to determine
the interest charged for tax underpayments. (Ch 8-36)
✔✔FICA Taxes - ✔✔A type of tax that is based upon earned income to cover both
Social Security and Medicare taxes. (Ch 8-14)
✔✔Field - ✔✔A type of IRS audit examination that is conducted at the taxpayer's place
of business or the location where the taxpayer's books, records, and source documents
are maintained. (Ch 2-6)
✔✔FIFO - ✔✔An accounting method that values the cost of assets sold under the
assumption that the assets are sold in the same order in which they are purchased. (Ch
7-2)
✔✔Filing Status - ✔✔Places taxpayers into one of five categories by marital status and
family situation as of year end. (Ch 4-19)
✔✔Final - ✔✔A type of regulation that has been issued in a specific form and, until
revoked, represent the Treasury's interpretation of the Code. (Ch 2-15)
✔✔Fiscal Year - ✔✔A year that ends on the last day of a month other than December.
(Ch 9-13)
✔✔Flat Tax - ✔✔A tax in which a single tax rate is applied throughout the tax base. (Ch
1-5)
2025/2026 QUESTIONS AND ANSWERS GUARANTEE A+
✔✔Depletion - ✔✔The cost recovery method to allocate the cost of natural resources as
they are removed such as in mining. (Ch 10-1)
✔✔Depreciation - ✔✔The cost recovery method to allocate the cost of tangible personal
and real property over a specific time period. (Ch 10-1)
✔✔Depreciation Recapture - ✔✔The conversion of 1231 gain into ordinary income on a
sale (or exchange) based on the amount of accumulated depreciation on the property at
the time of sale or exchange. (Ch 11-9)
✔✔Determination - ✔✔A type of ruling request by the taxpayer, issued by local IRS
directors, and generally not controversial. (Ch 2-16)
✔✔DIF - ✔✔A system used by the IRS that assigns a score to each tax return that
represents the probability that the tax liability on the return has been under-reported. A
higher score = a higher likelihood of under-reporting. (Ch 2-4)
✔✔Direct Conversion - ✔✔When a taxpayer receives noncash property rather than a
cast payment as a replacement for property damaged or destroyed in an involuntary
conversion. (Ch 11-29)
✔✔Direct Write Off Method - ✔✔Required method for deducting bad debts for tax
purposes where businesses deduct bad debt only when the debt becomes wholly or
partially worthless. (Ch 9-25)
✔✔Disability Insurance - ✔✔This pays the insured for wages lost due to injury or
disability. (Ch 5-30)
✔✔Discharge of Indebtedness - ✔✔This occurs when a taxpayer's debt is forgiven
(does not have to pay the debt back). (Ch 5-21)
✔✔Discount Factor - ✔✔Based on the taxpayer's rate of return that is used to
determine the present value of future cash inflows and outflows. (Ch 3-3)
✔✔Dividends Received Deduction (DRD) - ✔✔A corporate deduction for part or all of an
amount received from other domestic corporations. (Ch 15-3)
✔✔Document Perfection - ✔✔A program used by the IRS under which all tax returns
are checked for mathematical and tax calculation errors. (Ch 2-4)
,✔✔Double Taxation - ✔✔The tax burden when an entity's income is subject to 2 levels
of tax as in a C Corporation. (Ch 15-3)
✔✔Dynamic Forecasting - ✔✔The process of forecasting tax revenues that incorporates
into the forecast how taxpayers may alter their activities in response to a tax law
change. (Ch 1-18)
✔✔Earmarked Tax - ✔✔Tax assessed for a specific purpose. (Ch 1-4)
✔✔Earned Income - ✔✔Compensation and other forms of income received for
providing goods or services in the ordinary course of business. (Ch 5-10)
✔✔Earned Income Credit - ✔✔A refundable credit designed to help offset the effect of
employment taxes on compensation paid to low-income taxpayers and to encourage
lower income taxpayers to seek employment. (Ch 8-29)
✔✔Economic Performance Test - ✔✔The third requirement that must be met for an
accrual method taxpayer to deduct an expense currently. (Ch 9-21)
✔✔Economic Substance - ✔✔A type of judicial doctrine which requires transactions to
meaningfully change a taxpayer's economic position and have a substantial purpose
(apart from a federal income tax purpose) in order for a taxpayer to obtain tax benefits.
(Ch 3-19)
✔✔Economy - ✔✔A tax system that should minimize its compliance and administration
costs. (Ch 1-22)
✔✔Effective - ✔✔The taxpayer's average rate of taxation on each dollar of total income
(taxable and nontaxable income). (Ch 1-7)
✔✔Employee - ✔✔A person who is hired to provide services to a company on a regular
basis in exchange for compensation and who does not provide these services as part of
an independent business. (Ch 8-21)
✔✔Employment - ✔✔A type of tax referred to as Social Security Tax and Medicare Tax.
(Ch 1-12)
✔✔Equity - ✔✔A tax system that is deemed fair is one that is based on the taxpayer's
ability to pay; taxpayers with a greater ability to pay tax, pay more tax. (Ch 1-20)
✔✔Estate - ✔✔A type of tax levied on the heirs of an individual upon death when
property is transferred that exceeds $11.2M. It is often referred to as the Death Tax. (Ch
1-13)
, ✔✔Estimated Tax Payments - ✔✔Quarterly tax payments that a taxpayer makes to the
government if the tax withholding is insufficient to meet the taxpayer's tax liability. (Ch 4-
11)
✔✔Excess Business Loss - ✔✔Excess of aggregate business deductions for the year
over aggregate business gross income or gain of an individual taxpayer plus a threshold
amount depending on filing status. (Ch 6-6)
✔✔Exchanged Basis - ✔✔The basis of the asset given up in a nontaxable exchange.
(Ch 11-26)
✔✔Excise - ✔✔A type of tax levied on the retail of particular products. (Alcohol, Diesel
Fuel, Gasoline, Cigarettes, etc.) (Ch 1-13)
✔✔Exclusions - ✔✔Realized income that is exempted from income taxation. (Ch 4-5)
✔✔Explicit - ✔✔A type of tax directly imposed by a government. (Ch 1-16)
✔✔Federal Short Term Interest Rate - ✔✔The quarterly interest rate used to determine
the interest charged for tax underpayments. (Ch 8-36)
✔✔FICA Taxes - ✔✔A type of tax that is based upon earned income to cover both
Social Security and Medicare taxes. (Ch 8-14)
✔✔Field - ✔✔A type of IRS audit examination that is conducted at the taxpayer's place
of business or the location where the taxpayer's books, records, and source documents
are maintained. (Ch 2-6)
✔✔FIFO - ✔✔An accounting method that values the cost of assets sold under the
assumption that the assets are sold in the same order in which they are purchased. (Ch
7-2)
✔✔Filing Status - ✔✔Places taxpayers into one of five categories by marital status and
family situation as of year end. (Ch 4-19)
✔✔Final - ✔✔A type of regulation that has been issued in a specific form and, until
revoked, represent the Treasury's interpretation of the Code. (Ch 2-15)
✔✔Fiscal Year - ✔✔A year that ends on the last day of a month other than December.
(Ch 9-13)
✔✔Flat Tax - ✔✔A tax in which a single tax rate is applied throughout the tax base. (Ch
1-5)
