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Practice Test 4 - CPA Taxation & Regulation (REG)

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

  1. Under Section 751(b), when a partnership makes a disproportionate distribution that shifts a partner's interest in Section 751 hot assets, what is the tax result?
  2. The UBIT rules contain an exception for income from the sale of donated merchandise. Under Section 513(a)(3), which of the following is correct?
  3. A shareholder brings a derivative lawsuit on behalf of a corporation. What are the typical requirements for a shareholder to bring a derivative suit?
  4. Oak Trust is a calendar-year complex trust. In 2025, it has $120,000 of taxable interest income and $30,000 of deductible administrative expenses under Internal Revenue Code Section 212. The trustee has discretion to distribute income and distributes $110,000 in cash to beneficiaries during 2025; there is no tax-exempt income and no charitable distribution. Under Internal Revenue Code Section 661, what is the allowable income distribution deduction for the trust for 2025?
  5. An S corporation that was previously a C corporation has accumulated earnings and profits (AEP) from its C corporation years. The S corporation also has an accumulated adjustments account (AAA). How are distributions treated when both AAA and AEP exist?
  6. Maple Trust is a calendar-year simple trust. For 2025, the trust has $90,000 of taxable interest income and $20,000 of trustee fees deductible under Internal Revenue Code Section 212, and it is required to distribute all fiduciary accounting income currently under Internal Revenue Code Sections 651 and 661. The trust makes cash distributions of $60,000 to the beneficiary during 2025, and there are no charitable distributions and no tax-exempt income. Based on these facts, what is the allowable income distribution deduction for the trust under Internal Revenue Code Sections 651–662?
  7. Under agency law, a 'gratuitous agent' is one who acts without compensation. Which of the following correctly describes the legal status of a gratuitous agent?
  8. Wendy and Paul are married filing jointly with 2025 AGI of $115,000. They paid $9,200 of unreimbursed qualified medical expenses in 2025 (Internal Revenue Code Section 213). What is their allowable medical expense itemized deduction after applying the 7.5% of AGI limitation?
  9. A taxpayer filed her 2021 return on time on April 18, 2022. A Tax Court decision favorable to taxpayers in comparable situations is issued in 2024. The taxpayer files an amended return on March 15, 2025, claiming a refund based on the new precedent. Which analysis is most appropriate?
  10. Under UCC Section 2-602, what are the requirements for an effective rejection of non-conforming goods by a buyer?
  11. Noah is head of household with 2025 AGI of $68,000. In 2025, he paid $5,800 of unreimbursed qualified medical expenses (Internal Revenue Code Section 213). What is Noah's allowable medical expense itemized deduction after applying the 7.5% of AGI floor?
  12. Under the Bankruptcy Code, what types of tax claims are non-dischargeable in Chapter 7?
  13. Under UCC Section 2-302, an unconscionable contract or clause may be stricken by the court. Which of the following must a court find to invoke Section 2-302?
  14. What is Cobb's adjusted basis in his partnership interest at year-end?
  15. In a general partnership, a partner's act binds the partnership in a contract with a third party. Under RUPA, which of the following describes when a partner has the authority to bind the partnership?
  16. What is Rick's basis in his partnership interest after the distributions?
  17. A client asks whether forming a limited liability company will change how the business is taxed compared to a corporation. The client wants the default approach to avoid entity-level income tax while still maintaining limited liability. What are the tax implications of forming a limited liability company in general terms?
  18. Under UCC Section 2-504, what are the seller's obligations when the contract requires the seller to ship goods by carrier (a shipment contract)?
  19. Under the S corporation rules, how is debt basis in a loan from a shareholder directly to the S corporation created?
  20. A trust has a net operating loss (NOL). What happens to this NOL for tax purposes?

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