WGU C237 TAXATION 1 EXAM SCRIPT 2025/2026
QUESTIONS AND ANSWERS GUARANTEE A+
✔✔Accounting Period - ✔✔A fixed period of time win which a business reports income
and deductions. (Ch 9-13)
✔✔Accrual Method - ✔✔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 - ✔✔A tax assessed on corporations that retain earning
without a business reason to do so. (Ch 15-3)
✔✔Acquiescence - ✔✔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 - ✔✔An IRS pronouncement that explains the background
reasoning behind an IRS acquiescence or nonacquiescence . (Ch 2-17)
✔✔Ad Valorem - ✔✔A type of tax based on the value of property. (Ch 1-15)
✔✔Additional Medicare Tax - ✔✔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 - ✔✔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 - ✔✔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 - ✔✔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 - ✔✔A support payment of cash made to a former spouse. (Ch 5-14)
✔✔All Events Test - ✔✔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 - ✔✔A concept that says: Gross income means all income from
whatever source derived. (Ch 4-2)
,✔✔Allowance Method - ✔✔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 - ✔✔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 - ✔✔Adjustments, either positive or negative,
to regular taxable income to arrive at the alternative minimum tax base. (Ch 8-9)
✔✔Alternative Minimum Tax System - ✔✔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 - ✔✔Alternative minimum taxable income minus the
alternative minimum tax exemption. (Ch 8-8)
✔✔Amortization - ✔✔The method of recovering the cost of intangible assets over a
specific time period. (Ch 10-1)
✔✔Amount Realized - ✔✔The value of everything received by the seller in a transaction
less selling costs. (Ch 11-2)
✔✔Analyze Tax Authorities - ✔✔Step 4 of tax research. (Ch 2-18)
✔✔Annuity - ✔✔A stream of equal payments over time. (Ch 5-11)
✔✔Annotated - ✔✔A type of tax service arranged by code section where many types of
relevant supporting documents may be found. (Ch 2-18)
✔✔Arms Length - ✔✔A type of transaction among unrelated taxpayers in which each
transacting party negotiates for his or her own benefit. (Ch 3-12)
✔✔Arms Length Amount - ✔✔Price in transactions among unrelated taxpayers, where
each transacting party negotiates for his or her own benefit. (Ch 9-4)
✔✔Assignment of Income Doctrine - ✔✔A judicial doctrine in which earned income is
taxed to the taxpayer providing the service, and that income from property is taxed to
the individual who owns the property when the income accrues. (Ch 3-12, 5-8)
✔✔Average Tax Rate - ✔✔The tax rate that applies to the taxpayer's average level of
taxation on each dollar of taxable income. (Ch 1-7)
, ✔✔Barter Clubs - ✔✔Organizations that facilitate the exchange of rights to goods and
services between members. (Ch 5-4)
✔✔Before Tax Rate of Return - ✔✔A taxpayer's rate of return on an investment before
paying taxes on the income from the investment. (Ch 3-16)
✔✔Boot - ✔✔Property given or received in an otherwise nontaxable transaction such as
a like-kind exchange that may trigger gain to a party to the transaction. An expression
describing additional property a party to an exchange might throw in "to boot" to
equalize the exchange. (Ch 11-26)
✔✔Bracket - ✔✔A subset or portion of the tax base subject to a specific tax rate. (Ch 1-
5)
✔✔Bunching Itemized Deductions - ✔✔A common planning strategy in which a
taxpayer pays two years worth of itemized expenses in one year to exceed the standard
deduction in that year. (Ch 6-25)
✔✔Business Activity - ✔✔A profit-motivated activity that requires a relatively high level
of involvement or effort from the taxpayer to generate income. (Ch 6-2)
✔✔Business Purpose - ✔✔A type of judicial doctrine in which the IRS is allowed to
challenge and disallow business expenses for transactions with no underlying business
motivation. (Ch 3-18)
✔✔Business Tax Credits - ✔✔Nonrefundable credits designed to provide incentives for
taxpayers to hire certain types of individuals or to participate in certain business
activities. (Ch 8-31)
✔✔Capital Assets - ✔✔In general, an asset other than an asset used in a trade or
business or an asset such as an account or not receivable acquired in a business from
the sale of services or property (Ch 7-2)
✔✔Capital Gain Property - ✔✔Any asset that would have generated a long-term capital
gain if the taxpayer had sold the property for it fair market value. (Ch 6-17)
✔✔Cash Method - ✔✔The method of accounting that recognizes income in the period
in which cash, property;, or services are received and recognizes deductions in the
period paid. (Ch 5-6)
✔✔Casualty Losses - ✔✔A loss that can result from the damage, destruction, or loss of
your property from any sudden, unexpected, or unusual event such as a flood,
hurricane, tornado, fire, earthquake, or volcanic eruption. (Ch 9-12)
QUESTIONS AND ANSWERS GUARANTEE A+
✔✔Accounting Period - ✔✔A fixed period of time win which a business reports income
and deductions. (Ch 9-13)
✔✔Accrual Method - ✔✔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 - ✔✔A tax assessed on corporations that retain earning
without a business reason to do so. (Ch 15-3)
✔✔Acquiescence - ✔✔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 - ✔✔An IRS pronouncement that explains the background
reasoning behind an IRS acquiescence or nonacquiescence . (Ch 2-17)
✔✔Ad Valorem - ✔✔A type of tax based on the value of property. (Ch 1-15)
✔✔Additional Medicare Tax - ✔✔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 - ✔✔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 - ✔✔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 - ✔✔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 - ✔✔A support payment of cash made to a former spouse. (Ch 5-14)
✔✔All Events Test - ✔✔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 - ✔✔A concept that says: Gross income means all income from
whatever source derived. (Ch 4-2)
,✔✔Allowance Method - ✔✔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 - ✔✔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 - ✔✔Adjustments, either positive or negative,
to regular taxable income to arrive at the alternative minimum tax base. (Ch 8-9)
✔✔Alternative Minimum Tax System - ✔✔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 - ✔✔Alternative minimum taxable income minus the
alternative minimum tax exemption. (Ch 8-8)
✔✔Amortization - ✔✔The method of recovering the cost of intangible assets over a
specific time period. (Ch 10-1)
✔✔Amount Realized - ✔✔The value of everything received by the seller in a transaction
less selling costs. (Ch 11-2)
✔✔Analyze Tax Authorities - ✔✔Step 4 of tax research. (Ch 2-18)
✔✔Annuity - ✔✔A stream of equal payments over time. (Ch 5-11)
✔✔Annotated - ✔✔A type of tax service arranged by code section where many types of
relevant supporting documents may be found. (Ch 2-18)
✔✔Arms Length - ✔✔A type of transaction among unrelated taxpayers in which each
transacting party negotiates for his or her own benefit. (Ch 3-12)
✔✔Arms Length Amount - ✔✔Price in transactions among unrelated taxpayers, where
each transacting party negotiates for his or her own benefit. (Ch 9-4)
✔✔Assignment of Income Doctrine - ✔✔A judicial doctrine in which earned income is
taxed to the taxpayer providing the service, and that income from property is taxed to
the individual who owns the property when the income accrues. (Ch 3-12, 5-8)
✔✔Average Tax Rate - ✔✔The tax rate that applies to the taxpayer's average level of
taxation on each dollar of taxable income. (Ch 1-7)
, ✔✔Barter Clubs - ✔✔Organizations that facilitate the exchange of rights to goods and
services between members. (Ch 5-4)
✔✔Before Tax Rate of Return - ✔✔A taxpayer's rate of return on an investment before
paying taxes on the income from the investment. (Ch 3-16)
✔✔Boot - ✔✔Property given or received in an otherwise nontaxable transaction such as
a like-kind exchange that may trigger gain to a party to the transaction. An expression
describing additional property a party to an exchange might throw in "to boot" to
equalize the exchange. (Ch 11-26)
✔✔Bracket - ✔✔A subset or portion of the tax base subject to a specific tax rate. (Ch 1-
5)
✔✔Bunching Itemized Deductions - ✔✔A common planning strategy in which a
taxpayer pays two years worth of itemized expenses in one year to exceed the standard
deduction in that year. (Ch 6-25)
✔✔Business Activity - ✔✔A profit-motivated activity that requires a relatively high level
of involvement or effort from the taxpayer to generate income. (Ch 6-2)
✔✔Business Purpose - ✔✔A type of judicial doctrine in which the IRS is allowed to
challenge and disallow business expenses for transactions with no underlying business
motivation. (Ch 3-18)
✔✔Business Tax Credits - ✔✔Nonrefundable credits designed to provide incentives for
taxpayers to hire certain types of individuals or to participate in certain business
activities. (Ch 8-31)
✔✔Capital Assets - ✔✔In general, an asset other than an asset used in a trade or
business or an asset such as an account or not receivable acquired in a business from
the sale of services or property (Ch 7-2)
✔✔Capital Gain Property - ✔✔Any asset that would have generated a long-term capital
gain if the taxpayer had sold the property for it fair market value. (Ch 6-17)
✔✔Cash Method - ✔✔The method of accounting that recognizes income in the period
in which cash, property;, or services are received and recognizes deductions in the
period paid. (Ch 5-6)
✔✔Casualty Losses - ✔✔A loss that can result from the damage, destruction, or loss of
your property from any sudden, unexpected, or unusual event such as a flood,
hurricane, tornado, fire, earthquake, or volcanic eruption. (Ch 9-12)
