WGU - C237 - TAXATION 1 EXAM
QUESTIONS WITH OUTLINED
ANSWERS
\.30 - Answer- 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 - Answer- 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 - Answer- 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 - Answer- Depreciable or real property used in a taxpayers trade or business
owned for more than one year. (Ch 11-8)
\.1231 Look Back Rule - Answer- A tax rule requiring taxpayers to treat current year net (Ch
11-18)
\.1245 Property - Answer- Tangible personal property and intangible property subject to cost
recovery deductions. (Ch 11-10)
,\.1250 Property - Answer- Real property subject to cost recovery deductions. (Ch 11-14)
\.291 Depreciation Recapture - Answer- 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 - Answer- A change to taxable income associated with a change in
accounting methods. (Ch 9-30)
\.Abandoned Spouse - Answer- 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 - Answer- 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 - Answer- 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 - Answer- 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 - Answer- A fixed period of time win which a business reports income
and deductions. (Ch 9-13)
\.Accrual Method - Answer- 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 - Answer- A tax assessed on corporations that retain earning
without a business reason to do so. (Ch 15-3)
\.Acquiescence - Answer- 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 - Answer- An IRS pronouncement that explains the background
reasoning behind an IRS acquiescence or nonacquiescence . (Ch 2-17)
\.Ad Valorem - Answer- A type of tax based on the value of property. (Ch 1-15)
\.Additional Medicare Tax - Answer- 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 - Answer- 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 - Answer- 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 - Answer- 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 - Answer- A support payment of cash made to a former spouse. (Ch 5-14)
, \.All Events Test - Answer- 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 - Answer- A concept that says: Gross income means all income from
whatever source derived. (Ch 4-2)
\.Allowance Method - Answer- 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 - Answer- 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 - Answer- Adjustments, either positive or negative,
to regular taxable income to arrive at the alternative minimum tax base. (Ch 8-9)
\.Alternative Minimum Tax System - Answer- A system that was designed to ensure that
taxpayers generating economic income pay some minimum amount of income tax each year.
(Ch 8-8)
\.Alternative Minimum Tax Base - Answer- Alternative minimum taxable income minus the
alternative minimum tax exemption. (Ch 8-8)
\.Amortization - Answer- The method of recovering the cost of intangible assets over a
specific time period. (Ch 10-1)
QUESTIONS WITH OUTLINED
ANSWERS
\.30 - Answer- 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 - Answer- 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 - Answer- 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 - Answer- Depreciable or real property used in a taxpayers trade or business
owned for more than one year. (Ch 11-8)
\.1231 Look Back Rule - Answer- A tax rule requiring taxpayers to treat current year net (Ch
11-18)
\.1245 Property - Answer- Tangible personal property and intangible property subject to cost
recovery deductions. (Ch 11-10)
,\.1250 Property - Answer- Real property subject to cost recovery deductions. (Ch 11-14)
\.291 Depreciation Recapture - Answer- 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 - Answer- A change to taxable income associated with a change in
accounting methods. (Ch 9-30)
\.Abandoned Spouse - Answer- 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 - Answer- 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 - Answer- 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 - Answer- 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 - Answer- A fixed period of time win which a business reports income
and deductions. (Ch 9-13)
\.Accrual Method - Answer- 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 - Answer- A tax assessed on corporations that retain earning
without a business reason to do so. (Ch 15-3)
\.Acquiescence - Answer- 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 - Answer- An IRS pronouncement that explains the background
reasoning behind an IRS acquiescence or nonacquiescence . (Ch 2-17)
\.Ad Valorem - Answer- A type of tax based on the value of property. (Ch 1-15)
\.Additional Medicare Tax - Answer- 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 - Answer- 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 - Answer- 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 - Answer- 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 - Answer- A support payment of cash made to a former spouse. (Ch 5-14)
, \.All Events Test - Answer- 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 - Answer- A concept that says: Gross income means all income from
whatever source derived. (Ch 4-2)
\.Allowance Method - Answer- 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 - Answer- 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 - Answer- Adjustments, either positive or negative,
to regular taxable income to arrive at the alternative minimum tax base. (Ch 8-9)
\.Alternative Minimum Tax System - Answer- A system that was designed to ensure that
taxpayers generating economic income pay some minimum amount of income tax each year.
(Ch 8-8)
\.Alternative Minimum Tax Base - Answer- Alternative minimum taxable income minus the
alternative minimum tax exemption. (Ch 8-8)
\.Amortization - Answer- The method of recovering the cost of intangible assets over a
specific time period. (Ch 10-1)
