Chapter 1

Question 1

1. active (ordinary) income
2. portfolio income
3. passive income

Answer 1

Three Types of Income

Question 2

1. cash method
2. accrual method
3. hybrid method

Answer 2

Three Types of Accounting

Question 3

1. doctrine of constructive receipt
2. economic benefit doctrine
3. doctrine of the fruit and the tree

Answer 3

Three Key Tax Principles

Question 4

This states that if income is permanently set aside in an account for the benefit of a taxpayer, or if a taxpayer is given the choice to receive income now or defer it to the future, that income will be taxed to the taxpayer currently even if the taxpayer does not receive it until sometime in the future.

Answer 4

Doctrine of Constructive Receipt

Question 5

This simply states that if a taxpayer receives an economic benefit as income, the value of that benefit will be subject to tax.

Answer 5

Economic Benefit Doctrine

Question 6

This key principal of income taxation is that income is taxed to either: * the person who earns it, or * the person who owns the asset that produced the income

Answer 6

Doctrine of the Fruit and Tree or Assignment of Income

Question 7

1. the type of asset that was held
2. the use to which the asset was put 3. the holding period (how long the asset was held)

Answer 7

Three Components for Classifying a Gain

Question 8

1. capital assets
2. ordinary income assets
3. IRC Section 1231 assets

Answer 8

Three Types of Assets

Question 9

1. they can use it for personal purposes (personal use assets)
2. they can use it in the active conduct of a trade or business (business assets)
3. they can use it for the production of income (production of income assets).

Answer 9

Three Uses of Assets

Question 10

1. tax-free rental activities
2. ordinary rental use activities
3. mixed use activities

Answer 10

Three Types of Rental Real Estate

Question 11

1. The advisor and client can legally avoid taxation. In addition, the advisor may be able to help clients: * shift income to related taxpayers in lower income tax brackets, or * realize income in a form that is taxed at lower tax rates (long-term capital gains or qualified dividends).
2. The advisor and client can deduct expenses to reduce taxable income and take tax credits to reduce taxes due.
3. The advisor and client can defer income and thus defer taxa

Answer 11

Three Methods of Tax Planning

Question 12

1. the alternative minimum tax (AMT) 2. the at-risk rule limitations
2. the passive activity rules

Answer 12

Three-anti Abuse Provisions

Question 13

1. Revenue Rulings
2. Private Letter Rulings
3. Determination Letters

Answer 13

Three Types of Administrative Rulings

Question 14

1. Procedural Regulations
2. Interpretative Regulations
3. Legislative Regulations

Answer 14

Three Types of Final Regulations

Question 15

1. the U.S. Tax Court
2. the U.S. District Court
3. the U.S. Court of Federal Claim

Answer 15

Three Courts to Resolve Disputes