WGU C237 TAXATION 1 REVIEW MASTER QUIZ
QUESTIONS WITH VERIFIED ANSWERS
The largest source of revenues for the federal government comes from - Answers -
individual income taxes.
Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays
tax of $12,000 on $120,000. The tax is a - Answers - proportional tax.
Which of the following taxes is regressive? - Answers - Federal Insurance Contributions
Act (FICA)
Sarah contributes $25,000 to a church. Sarah's marginal tax rate is 35% while her
average tax rate is 25%. After considering her tax savings, Sarah's contribution costs -
Answers - $16,250.
25 000 x 35% marginal rate= $8750 savings
25 000 - 8750 = 16 250 contribution cost
The marginal tax rate is of greater significance in measuring the tax effect for sarah's
decision.
The marginal tax rate is the percentage that is applied to an incremental amount of
taxable income that is added to or subtracted from
the tax base.
If her marginal tax rate is 35%, she will save 35
cents for every $1 contributed to her church.
The average tax rate is simply the total tax liability divided by taxable income.
a- marginal tax rate is the tax rate applied to an incremental amount of taxable income
that is added to the tax base. The marginal tax rate concept is useful for planning
because it measures the tax effect of a proposed transaction.
b- The average tax rate is computed by dividing the total tax liability by the amount of
taxable income. This represents the average rate of tax for each dollar of taxable
income.
c- The effective tax rate is the total tax liability divided by total economic income.
All of the following statements are true except - Answers - LLCs are generally taxed as
partnerships.
the net income of C corporation is subject to double taxation because it is taxed at the
entity level and dividends paid from the C corporation to individual shareholders is also
taxed.
,the net income earned by a sole proprietorship is reported on the owner's individual
income tax return.
Not ture:
the net income of an S corporation is subject to double taxation because it is taxed at
the entity level and dividends paid from the S corporation to individual shareholders are
also taxed.
The term "tax law" includes - Answers - judicial decisions.
Treasury Regulations.
Internal Revenue Code.
Which of the following serves as the highest authority for tax research, planning, and
compliance activities? - Answers - Internal Revenue Code
All of the following are executive (administrative) sources of tax law except - Answers -
Revenue Rulings.
Income Tax Regulations.
Revenue Procedures.
Not:
Internal Revenue Code.---> legislative
When returns are processed, they are scored to determine their potential for yielding
additional tax revenues. This program is called - Answers - Discriminant Function
System
Selection of Returns for Audit
The U.S. tax system is based on self-assessment and voluntary compliance. However,
enforcement by the IRS is essential to maintain the integrity of the tax system. The IRS
uses both computers and experienced personnel to select returns for examination. With
respect to the use of the computer, a Discriminant Function System (DIF) is used to
classify returns to be selected for audit. The DIF system generates a "score" for a return
based on the potential for the return to generate additional tax revenue. After returns
are scored under the DIF system, the returns are manually screened by experienced
IRS personnel who decide which returns warrant further examination. In the aggregate,
less than 1% of all individual returns are selected for examination each y
Which of the following individuals is most likely to be audited? - Answers - Correct:
Marvella has a $145,000 net loss from her unincorporated business (a horse farm). She
also received $950,000 salary as a CEO of a corporation.
, NOT:
Jerry is a school teacher with two children earning $55,000 a year. He also receives
$200 in interest income on a bank account.
Lola has AGI of $35,000 from wages and uses the standard deduction.
Melvin is retired and receives Social Security benefits.
NOTE:Some examples of situations where individuals are more likely to be audited
include the following:
-Individuals who are sole proprietors and claim expenses in connection with their trade
or businesses, especially if significant tax losses are incurred.
-Itemized deductions exceeding an average amount for the person's income level
-Filing of a refund claim by a taxpayer who has been previously audited, where
substantial tax deficiencies have been assessed
-Individuals who are self-employed with substantial business income or income from a
profession (e.g., a medical doctor)
Alan files his 2015 tax return on April 1, 2016. His return contains no misstatements or
omissions of income. The statute of limitations for changes to the return expires -
Answers - April 15, 2019.
NOTE: statute of limitations: limited time period in which to make such corrections. This
time period is called the and prevents either the taxpayer or the IRS from changing a
filed tax return after the time period has expired.
- The general rule for the statute of limitations is three years from the later of the date
the tax return was actually filed or its due date.
- a six-year statute of limitations applies if the taxpayer omits items of gross income that
in total exceed 25% of the gross income reported on the return.
The statute of limitations remains open indefinitely if a fraudulent return is filed or if no
return is filed.
chapter 2 - Answers -
Taxable income for an individual is defined as - Answers - AGI reduced by deductions
from AGI and personal and dependency exemptions.
All of the following items are generally excluded from income except - Answers - Not
Excluded: interest on corporate bonds.
Excluded
life insurance proceeds paid by reason of death.
QUESTIONS WITH VERIFIED ANSWERS
The largest source of revenues for the federal government comes from - Answers -
individual income taxes.
Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays
tax of $12,000 on $120,000. The tax is a - Answers - proportional tax.
Which of the following taxes is regressive? - Answers - Federal Insurance Contributions
Act (FICA)
Sarah contributes $25,000 to a church. Sarah's marginal tax rate is 35% while her
average tax rate is 25%. After considering her tax savings, Sarah's contribution costs -
Answers - $16,250.
25 000 x 35% marginal rate= $8750 savings
25 000 - 8750 = 16 250 contribution cost
The marginal tax rate is of greater significance in measuring the tax effect for sarah's
decision.
The marginal tax rate is the percentage that is applied to an incremental amount of
taxable income that is added to or subtracted from
the tax base.
If her marginal tax rate is 35%, she will save 35
cents for every $1 contributed to her church.
The average tax rate is simply the total tax liability divided by taxable income.
a- marginal tax rate is the tax rate applied to an incremental amount of taxable income
that is added to the tax base. The marginal tax rate concept is useful for planning
because it measures the tax effect of a proposed transaction.
b- The average tax rate is computed by dividing the total tax liability by the amount of
taxable income. This represents the average rate of tax for each dollar of taxable
income.
c- The effective tax rate is the total tax liability divided by total economic income.
All of the following statements are true except - Answers - LLCs are generally taxed as
partnerships.
the net income of C corporation is subject to double taxation because it is taxed at the
entity level and dividends paid from the C corporation to individual shareholders is also
taxed.
,the net income earned by a sole proprietorship is reported on the owner's individual
income tax return.
Not ture:
the net income of an S corporation is subject to double taxation because it is taxed at
the entity level and dividends paid from the S corporation to individual shareholders are
also taxed.
The term "tax law" includes - Answers - judicial decisions.
Treasury Regulations.
Internal Revenue Code.
Which of the following serves as the highest authority for tax research, planning, and
compliance activities? - Answers - Internal Revenue Code
All of the following are executive (administrative) sources of tax law except - Answers -
Revenue Rulings.
Income Tax Regulations.
Revenue Procedures.
Not:
Internal Revenue Code.---> legislative
When returns are processed, they are scored to determine their potential for yielding
additional tax revenues. This program is called - Answers - Discriminant Function
System
Selection of Returns for Audit
The U.S. tax system is based on self-assessment and voluntary compliance. However,
enforcement by the IRS is essential to maintain the integrity of the tax system. The IRS
uses both computers and experienced personnel to select returns for examination. With
respect to the use of the computer, a Discriminant Function System (DIF) is used to
classify returns to be selected for audit. The DIF system generates a "score" for a return
based on the potential for the return to generate additional tax revenue. After returns
are scored under the DIF system, the returns are manually screened by experienced
IRS personnel who decide which returns warrant further examination. In the aggregate,
less than 1% of all individual returns are selected for examination each y
Which of the following individuals is most likely to be audited? - Answers - Correct:
Marvella has a $145,000 net loss from her unincorporated business (a horse farm). She
also received $950,000 salary as a CEO of a corporation.
, NOT:
Jerry is a school teacher with two children earning $55,000 a year. He also receives
$200 in interest income on a bank account.
Lola has AGI of $35,000 from wages and uses the standard deduction.
Melvin is retired and receives Social Security benefits.
NOTE:Some examples of situations where individuals are more likely to be audited
include the following:
-Individuals who are sole proprietors and claim expenses in connection with their trade
or businesses, especially if significant tax losses are incurred.
-Itemized deductions exceeding an average amount for the person's income level
-Filing of a refund claim by a taxpayer who has been previously audited, where
substantial tax deficiencies have been assessed
-Individuals who are self-employed with substantial business income or income from a
profession (e.g., a medical doctor)
Alan files his 2015 tax return on April 1, 2016. His return contains no misstatements or
omissions of income. The statute of limitations for changes to the return expires -
Answers - April 15, 2019.
NOTE: statute of limitations: limited time period in which to make such corrections. This
time period is called the and prevents either the taxpayer or the IRS from changing a
filed tax return after the time period has expired.
- The general rule for the statute of limitations is three years from the later of the date
the tax return was actually filed or its due date.
- a six-year statute of limitations applies if the taxpayer omits items of gross income that
in total exceed 25% of the gross income reported on the return.
The statute of limitations remains open indefinitely if a fraudulent return is filed or if no
return is filed.
chapter 2 - Answers -
Taxable income for an individual is defined as - Answers - AGI reduced by deductions
from AGI and personal and dependency exemptions.
All of the following items are generally excluded from income except - Answers - Not
Excluded: interest on corporate bonds.
Excluded
life insurance proceeds paid by reason of death.
