1. Which of the following statements regarding exclusions and/or deferrals is INCORRECT?

A) Exclusions are favorable because taxpayers never pay tax on income that is excluded. B) Interest income from municipal bonds is excluded from gross income. C) Exclusions are usually construed or interpreted in favor of the Internal Revenue Service. D) Deferrals will eventually be taxed.

2. Which of the following statements is CORRECT regarding tax deductions?

A) Deductions are construed in favor of the taxpayer. The IRS bears the burden of disproving. B) Deductions and credits have the same effect on a tax return. C) Deductions for unreimbursed employee expenses were recently trimmed from the code.

3. AGI is applicable to the rest of the tax return because

A) It represents adjustments to gross income. B) It is the first line on 1040. C) It is the most vertically equitable measure of net income.

D) It is used as a fixed point for determining other tax thresholds.

D) The standard deduction has become less applicable in recent years.