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CPA: Regulation > Final Reg Exam Questions > Flashcards

Final Reg Exam Questions Flashcards

1
Q

Does a tax-exempt organization lose their tax exempt status if they have unrelated business income > $250,000?

A

NO, an exempt organization that earns unrelated business income does NOT lose its tax exempt status.

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2
Q

What are non-conforming goods?

A

Goods other than what is specified in the contract.

In this case, the buyer never bears the risk of loss since the contract was not fulfilled.

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3
Q

Who is NOT allowed to be an S-Corp Shareholder?

A

C-Corps

Partnerships

(estates and trust are okay)

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4
Q

Custodial fees on IRA, CPA tax prep fees, union dues, publication dues - how much can be deducted?

A

NOTHING - no more miscellaneous itemized deductions

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5
Q

What is the amount of the Accumulated Earnings credit?

A

$250,000`

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6
Q

As a result of the TCJA, which cannot be traded in a tax free like kind exchange?

A

Machinery for machinery.

Shares of stock were never allowed.

ONLY real estate can be exchanged tax -free.

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7
Q

Is ownership interest in an LLC freely transferable?

A

NO, unlike a corporation. This is because the other members would vote to admit of not admit new members.

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8
Q

S-Corp: Married filing jointly and both own the stock. How many shareholders are they counted as?

A

1

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9
Q

In order to assign partnership assets to creditors, does it require majority or unanimous consent?

A

It requires unanimous consent.

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10
Q

If a partner in a general partnership disassociates from the partnership, is it considered dissolved?

A

NO, does not automatically take place.

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11
Q

As a result of the TCJA, casualty losses are only deductible for individuals if

A

they are part of a federally declared disaster.

This rule is for individuals only in regards to itemized deductions.

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12
Q

Under the TCJA, a qualifying relative who is not a qualifying child would enable to taxpayer to qualify for the ____ credit. How much?

A

Family Tax Credit, $500

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13
Q

On the CPA exam, if they want a partner to recognize a loss on a liquidating distribution, they will

A

distribute cash less than the partner’s basis and no other assets.

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14
Q

IF an S- corp election is filed after the 15th day of the 3rd month of the calendar or fiscal year, the election is effective on

A

the 1st day of the next calendar or fiscal year

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15
Q

What is a “partner by estoppel”?

A

Refers to a situation where an individual who is NOT a partner makes a representation or allows a representation to be made that they are a partner.

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16
Q

QBI deduction is ___% and is calculated on the lower of _____ or _____.

A

20%

Compare 20% of taxable income to 20% of Schedule C profit

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17
Q

What is a section 1244 loss and what are the limits?

A

Worthless stock

Write off $50,000/single $100,000 MFJ against ordinary income.

Can also take capital loss limit of $3,000 on top of this.

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18
Q

Claims against someone who filed bankruptcy in which the creditor did not file timely go where in the food chain?

A

RECEIVE NOTHING`

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19
Q

When a corporation makes a distribution to a shareholder in a non-liquidating distribution, how are gains and losses handled?

A

Come out at FMV, compare to basis.

Gains are recognized.

Losses are ignored. :(

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20
Q

IRA contribution limits

A

6,000 under 50 & single
12,000 under 50 and MFJ

7,000 50+/single
14,000 50+/MFJ

watch ages!

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21
Q

QBI, multiple businesses. Net business incomes together or assess as stand alones?

A

Net all incomes, apply 20%. Compare to 20% of taxable income.

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22
Q

What entity type has the most favorable fringe benefit rules for owners who also work in the business?

A

C-corp - owners who own at least 2% have unlimited fringe benefits

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23
Q

Active participation, rental real estate, losses deductible up to $____. Phase out is $0.50 on the dollar for every dollar over $_____.

A

Active participation, rental real estate, losses deductible up to $25,000. Phase out is $0.50 on the dollar for every dollar over $100,000.

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24
Q

Are warranty costs includable in the depreciable basis for an asset?

A

NO, only cost associated with getting the asset ready for use.

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25
Q

S-corp stock basis, calculated annually on last day of the year in this order:

A

1) increased for income items
2) decreased for distributions
3) decreased for non-deductible expenses
4) decreased for items of loss and deduction

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26
Q

Tax planning: for items with appreciated value:

A

give to charity

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27
Q

Tax planning: items that have dropped in value

A

Do NOT give directly to charity because they will go in at FMV. Sell it, deduct the long-term capital loss.

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28
Q

Inherited property sold at a gain. What is the holding period?

A

donor’s holding period, typically long-term

29
Q

Do unrelated dependents qualify you for head of household?

A

NO

30
Q

substantial authority

A

40%

31
Q

C-Corp, liquidating distribution. Marketable securities. How to tax gain or loss?

A

Gains recognized.

Losses ignored.

32
Q

S-corp, Accumulated Earnings and Profits (AEP) from days as a C-corp. Explain what happens in an s-corp distribution?

A

1) AAA (tax free), reduces basis
2) AEP (dividend), does NOT reduce basis
3) analyze remainder of distribution vs. basis
4) excess over basis is a capital gain

33
Q

In regards to inventory - are on-site inventory storage costs capitalized?

A

NO, only if they can be traced to off-site storage.

Quality control is capitalized to inventory.

34
Q

Maximum carryover period for charitable contributions:

A

5 years

Both individuals and corporations

35
Q

EXAM TIP

A

If you see provision for income taxes, treat it as an expense

36
Q

An individual’s charitable contributions cannot exceed:

A

60% of AGI

37
Q

A SIMPLE TRUST must

A

distribute all of its earnings

38
Q

Self-employed, travel to clients is ___% deductible

A

100%

39
Q

Self-employed, entertaining clients is ___% deductible

A

0

40
Q

Are partnership profits subject to the self-employment tax?

A

YES

41
Q

Do S-corp profits qualify for the QBI deduction?

A

YES

42
Q

COrporate distributions: when determining if the distribution is a dividend or capital gain and the prior year had a loss and the current year has a profit?

A

Apply profit in current year first. DO NOT NET. Current year profit is a dividend. Any excess distribution is a return of capital. Excess past basis is a capital gain.

43
Q

What year do retirees have to begin taking distributions from their IRA?

A

72

Earliest distribution = 59.5 years

44
Q

At what age must a person stop making IRA contributions?

A

CARES Act - can make contribution at any age, as long as you are working

45
Q

Where are real estate taxes on rental / investment property claimed?

A

Claim on Schedule E, deductible against profit.

Not part of SALT itemized deduction limit of $10,000

46
Q

if the word HOBBY is in the question, are expenses deductible? Is income claimed?

A

Income claimed, expenses not deductible.

Must prove that there is a profit motive in order to be deductible

47
Q

ON your PRIMARY RESIDENCE what amount of debt forgiveness by mortgage company is EXCLUDED from income?

A

$75,000

48
Q

What must you have in order to deduct IRA contribution

A

Earned income. Just unemployment or something of the sort is not sufficient.

49
Q

Qualified business income is:

A

the net amount of

  • qualified business income
  • gain
  • deduction
  • loss
  • Dividends paid out do not count.
  • Wages paid out do not count.

It is just on the income allocated to the shareholder or partner.

50
Q

Tax free life insurance paid by company amount $_____

Amount over above amount is taxed based on the tax tables (will be provided)

A

$50,000

51
Q

Jury duty pay remitted to an employer in exchange for a regular paycheck is what kind of deduction?

A

DEDUCTED TO ARRIVE AT AGI but not an itemized deduction.

52
Q

What do you need in order to qualify as qualifying widow?

A

Young children.

If not, the person files as single in the first subsequent year.

53
Q

What awards are tax exempt to an employee?

A

pen, plaque, ring, watch

54
Q

The Federal Age Discrimination in Employment Act prohibits

A

unintentional age discrimination and protects workers age 40 or older from discrimination on the basis of age.

**do NOT prohibit mandatory retirement

55
Q

Can a general partner also be a limited partner?

A

yes

56
Q

What is a SPENDTHRIFT TRUST?

A

Created to protect a beneficiary from creditors or from her/his squandering of the trusts’ assets. Prevents assignment. Prevents creditors from obtaining principal/income.

57
Q

Statute of Limitations begins when?

A

Either on filing POSTMARKED date OR

if filed early, the IRS begins on April 16th of that year

58
Q

What duties does a principal have to an agent?

A

Duty of indemnification

Duty to compensate

Duty to reimburse

59
Q

Covenants NOT TO COMPETE are an intangible asset. What is the amortization period? How is it determined?

A

Intangible - 15 years. The duration of the contract has no bearing on the amort period.

60
Q

Holding term on property received as an inheritance is always:

A

long-term

61
Q

Best defense for a CPA in a negligence suit?

A

Exercised due care

Lack of privity

62
Q

Married taxpayers must do what in order to be eligible for the EARNED INCOME CREDIT?

A

FILE JOINTLY

63
Q

Calculating basis for an LLC that elected not to be taxed as a Corp: how to handle debt of the corp?

A

Add to basis at appropriate ratio

64
Q

Do cases tried in the Small Cases Division of the U.S. Tax Court set precedent for other decisions?

A

NO, do not set precedent. Only for tax disputes less than $50k. Speedy judgements. Simplified procedures. NOT PRECEDENTS.

65
Q

Generally, a partner’s holding period for property received in a distribution from a partnership has a holding period equal to

A

the holding period of the partnership

66
Q

Is FUTA based on a percentage of all compensation paid to an employee?

A

NO. It is based on the first $7,000 paid to each employee per year.

67
Q

In order to be deductible real estate taxes must be paid by

A

the person on whom the tax is imposed.

68
Q

IF a C-Corp has average revenues that exceed $____ million, they must use the accrual method of account.

A

$26 million over a 3-year period

CPA: Regulation (24 decks)

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