WGU C237 Tax: Exam Practice Questions With Correct Answers | Latest Update 2023/2024 | 100% Verified

what is the only court that allows tax cases to be heard before the taxpayer pays the disputed liability? - correct answers U.S. Tax Court Timing strategies: Accelerating Deductions - correct answers accelerating a current cash inflow Timing strategies: Deferring Income - correct answers deferring a current cash outflow WGU C237 Tax 1 Exam Questions and Answers (Latest Update 2023) Verified Answers Constructive receipt doctrine - correct answers taxpayer must recognize income when it is actually or constructively received Assignment of Income Doctrine - correct answers Requires income to be taxed to the taxpayer who actually earns the income; Merely attributing a paycheck or dividend to another taxpayer does not transfer tax liability. Related-party transactions Doctrine - correct answers IRS scrutinizes these transactions because they are often not arms-length transactions Business purpose doctrine - correct answers IRS has the power to disallow business expenses for transactions that don't have a business purpose. Step-transaction doctrine - correct answers IRS has the power to collapse a series of transactions into one to determine tax liability. WGU C237 Tax 1 Exam Questions and Answers (Latest Update 2023) Verified Answers Substance-over-form doctrine - correct answers IRS can reclassify a transaction according to its substance (instead of its form). Economic substance doctrine: - correct answers Transactions must meet two criteria: 1. Transaction must meaningfully change a taxpayer's economic position (excluding any federal income tax effects). 2. Taxpayer must have a substantial purpose (other than tax avoidance) for the transaction. Tax Avoidance vs. Tax Evasion - correct answers Tax avoidance is legal. Tax evasion is hiding, misrepresenting, or otherwise not recognizing income so as to illegally avoid taxation. Taxpayer under no moral obligation to pay more taxes than required by law. TRUE OR FALSE. If tax rates will be lower next year, taxpayers should accelerate their deductions regardless of their after-tax rate of return? - correct answers True WGU C237 Tax 1 Exam Questions and Answers (Latest Update 2023) Verified Answers return rate of municipal bond/(1-marginal tax rate) - correct answers rate needed to yield the same return on corporate bonds Which date determines filing status (single, married, etc.)? - correct answers December 31st Dependents - correct answers A taxpayer may be allowed to claim another as a dependent even if the taxpayer has no family relationship with the other person. An individual who qualifies as a dependent of another taxpayer may not claim any dependents. An individual cannot qualify as a dependent of another as a qualifying relative taxpayer if the individual's gross income exceeds a certain amount. To qualify as a dependent of another, an individual must be a resident of the United States, Canada, or Mexico. There is no gross income test for a qualifying child but there is for a qualifying relative. Married Filing Jointly - who is liable for underpayment of taxes? - correct answers Both Partners WGU C237 Tax 1 Exam Questions and Answers (Latest Update 2023) Verified Answers Is money received from debt (ex. a loan) included in gross income? - correct answers No, debt does not generate economic benefit. Is the amount of debt forgiven by a lender included in gross income? - correct answers Yes Can qualified fringe benefits received by an employee be excluded from gross income? - correct answers Yes Tax Benefit Rule - correct answers Refunds of expenditures deducted in a prior year are included in gross income to the extent that the refund reduced taxes in year of the deduction Gross income - correct answers all income from whatever source derived unless excluded by law WGU C237 Tax 1 Exam Questions and Answers (Latest Update 2023) Verified Answers What is included in gross income? - correct answers Economic Benefit - receive an item of value (ex. Paycheck, proceeds from property sale, income from investments) Realization Principle: 1) Taxpayer engages in a transaction with another party. 2) Transaction results in a measurable change in property rights. What is recognized income? - correct answers Realized income - any deferral or exclusion = Recognized income For tax purposes it matters not whether income is obtained through legal or illegal activities. Is the exchange of property for payment (such as bartering) considered in gross income? - correct answers Property is included in gross income if it is capable of valuation. WGU C237 Tax 1 Exam Questions and Answers (Latest Update 2023) Verified Answers Are dividends paid in stock considered in gross income? - correct answers No, unless the taxpayer has the option to receive the dividend in cash (instead of stock). What kind of asset is a personal automobile? - correct answers Capital asset What kind of asset is inventory? - correct answers Ordinary asset What kind of asset is Accounts Receivable? - correct answers Ordinary asset How much can individual taxpayers (including married filing jointly) deduct of net capital losses against ordinary income in a given year? - correct answers up to $3,000 Are losses associated with personal-use assets, sales to related parties, and wash sales currently deductible? - correct answers No WGU C237 Tax 1 Exam Questions and Answers (Latest Update 2023) Verified Answers When selling stocks, which method of calculating basis provides the greatest opportunity for minimizing gains or increasing losses? - correct answers Specific identification What is the time requirement for a loss or gain to be considered long term? - correct answers Held for at least 1 year §1231 Assets - correct answers Assets used in trade or business and held for at least 1 year What kind of asset is used in trade or business and held for less than 1 year? - correct answers Ordinary asset What kind of asset is land held for an investment for over one year? - correct answers Capital asset What is adjusted basis? - correct answers the cost basis less cost recovery deductions. WGU C237 Tax 1 Exam Questions and Answers (Latest Update 2023) Verified Answers Which is generally higher: an asset's tax adjusted basis or its book adjusted basis? - correct answers Because businesses generally use more highly accelerated depreciation methods for tax purposes than they do for book purposes, the tax-adjusted basis of a particular asset is likely to be lower than the book-adjusted basis