REG 1

Question 1

The Internal Revenue Code (IRC) does not contain penalties for:

Answer 1

Not disclosing a conflict of interest.

Question 2

Who establishes continuing professional education (CPE) requirements?

Answer 2

The CPA’s state board of accountancy.

Question 3

Which burden of proof must be met when a disclosed position regarding a particular individual deduction is evaluated to determine whether it was taken in good faith?

Answer 3

Greater than or equal to 20% chance of being sustained. A.k.a. “reasonable basis” standard.

Question 4

What is the late tax payment penalty formula?

Answer 4

0.5% x # of months late x $ amount owed. This is capped at 25% of the amount of taxes owed.

Question 5

What is a “substantial understatement” for individuals?

Answer 5

The greater of A. $5,000, or B. 10% of the tax amount. The penalty is 20% is the underpaid amount.

Question 6

What is the late filing or failure to file penalty formula?

Answer 6

5% x # of months late x $ amount owed. This capped at 25% of the amount of taxes owed.

Question 7

What is the fraudulent failure to file penalty?

Answer 7

15% x # of months late x $ amount owed. This is capped at 75% of the amount of taxes owed.

Question 8

What is a “substantial understatement” for non-S corporations?

Answer 8

The lesser of 10% of the tax amount (or, if greater, $10,000), or $10,000,000. The penalty is 20% is the underpaid amount.

Question 9

To avoid an underpayment penalty, a C corp. can pay estimated tax of:

Answer 9

100% of either last year’s tax liability amount or this year’s tax liability.

Question 10

To avoid an underpayment penalty, an individual can pay estimated tax of:

Answer 10

100% of last year’s tax liability amount (110% if AGI is over $150,000) or 90% of this year’s tax liability.

Question 11

Describe the Ultramares rule.

Answer 11

Applied in only a few jurisdictions, it normally allows recovery by a third party only if there was privity of contract between an accountant and a third party.

Question 12

Which is a duty owed by a principal to his agent?

Answer 12

Indemnification

Question 13

Who can terminate an agency relationship coupled with interest?

Answer 13

Only the agent can.

Question 14

What are unilateral and bilateral contracts?

Answer 14

Unilateral contracts can only be accepted by performance of an act. Bilateral contracts are promises in exchange for promises.

Question 15

An involuntary petition may succeed if the aggregate unsecured claims a petitioner is:

Answer 15

Greater than or equal to $15,775.

Question 16

S corporation shareholders must be:

Answer 16

100 or fewer in number, not nonresident aliens, and must all be individuals. There are exceptions for certain tax exempt organizations, estates, and trusts.

Question 17

How is the Medicare surtax on net investment income calculated?

Answer 17

3.8% of the lesser of net investment income or the excess of AGI over the AGI threshold.

Question 18

What are pre-emptive rights?

Answer 18

If a closely held corporation decides to sell more shares, the owners have a preference over other purchasers in order to maintain their proportion of ownership.

Question 19

What must be included in an entity’s articles of incorporation?

Answer 19

1. Name of the corporation, 2. Number of shares it is authorized to issue, 3. Street address of its office and name of its agent at that address, and 4. Name and address of each incorporator.

Question 20

What is the “individual mandate” penalty of the Affordable Care Act?

Answer 20

The greater of either: a. $695 per adult ($347.50 per child), capped at $2,085 per family, or b. 2.5% of household income, capped at total yearly premium of the national average price of a Bronze plan sold through the marketplace ($2,448 in 2016).