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Practice Test 10 - CPA Taxation & Regulation (REG)

20 questions. Answer them in any order, then submit to see your score and every explanation.

  1. Under the general business credit framework, which of the following best describes how a corporation applies the general business credit against its tax liability?
  2. Which of the following items is specifically disallowed as a deduction for a C corporation under the Internal Revenue Code?
  3. A taxpayer submits a return that omits a large amount of income with the intent to evade tax. The IRS determines the understatement was due to fraud. Which penalty applies to the taxpayer in this scenario?
  4. A taxpayer acquires property by winning it as a prize in a contest. The property has a fair market value of $15,000 on the date it is received. What is the taxpayer's initial basis in the prize?
  5. What is Wendy's basis at the end of the year?
  6. In 2024, Oak & Steel LLC (sole proprietorship) places in service new 7-year MACRS machinery costing $1,800,000 (100% business use). Taxable income from the active conduct of the business (before Section 179) is $1,000,000. Oak & Steel elects the maximum Section 179 deduction. Given the business income, what portion of the asset cost can be expensed under Section 179 for 2024?
  7. After breach, buyer promptly covers in good faith at $18/unit; market $16; contract $15. Damages?
  8. An exempt organization that expects its annual UBIT liability to be $500 or more is required to make estimated tax payments. Which of the following correctly describes the estimated tax payment rules for exempt organizations?
  9. What is the maximum amount of the partnership loss that Marta can deduct on her personal tax return for the year, and what is her ending basis?
  10. A taxpayer filed no return for 2019. In 2023, the IRS filed a Substitute for Return (SFR) under IRC Section 6020(b) and assessed $15,000 in tax. The taxpayer believes she is actually owed a refund. Which analysis of her refund rights is most accurate?
  11. Under the doctrine of respondeat superior, which of the following is required for an employer to be liable for an employee's tort?
  12. Holloway Corp owned a building used in its business (adjusted basis $240,000) that was condemned. The condemnation award was $400,000. Holloway reinvested $390,000 in qualifying replacement real property within the 3-year period and elects Section 1033(g). What is Holloway's basis in the replacement property?
  13. On September 1, 20X1, Manufacturer (debtor) granted Bank A a security interest in all equipment and perfected by filing on September 2. On September 15, 20X1, Manufacturer bought a machine from Vendor on credit; Manufacturer signed a security agreement granting Vendor a purchase money security interest, and Manufacturer received possession on September 15. Vendor did not file until October 20. Manufacturer defaulted on November 1, 20X1. Under Uniform Commercial Code Article 9, based on these facts, which security interest prevails in the machine?
  14. Under AICPA Code of Professional Conduct, Rule 301 (Confidential Client Information), which of the following requires a CPA to disclose confidential client information without the client's consent?
  15. A dependent child under age 19 (or under age 24 if a full-time student) must file a return if unearned income exceeds what threshold under the kiddie tax rules?
  16. In 2025, Avery (single) has $95,000 of taxable income before capital gains and losses. During the year, Avery sold publicly traded stock held 10 months for a $6,000 gain, sold corporate bonds held 18 months for a $4,000 loss, and sold a parcel of investment real estate held 3 years for a $12,000 gain. Assuming no other capital transactions, what is Avery's net capital gain/loss for 2025?
  17. Which of the following organizations is categorically exempt from the requirement to apply for Section 501(c)(3) recognition from the IRS?
  18. Summit LP has partners N1 (general) and O1 (limited). The partnership agreement provides that profits and losses are shared in proportion to capital contributions. At the beginning of the year, N1 has a $40,000 capital account and O1 has a $160,000 capital account. Summit has $50,000 of ordinary business income. Under IRC Section 704(a), based on the partnership agreement, how should income be allocated?
  19. What is Tom's initial basis in his partnership interest?
  20. Under Section 512(b)(13), payments from a controlled organization to its exempt parent may be subject to UBIT. Which of the following describes the rule?

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