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Practice Test 5 - CPA Taxation & Regulation (REG)

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

  1. A partner receives a liquidating distribution of cash of $40,000 and a capital asset with partnership basis of $20,000 and FMV of $35,000. The partner's outside basis before distribution is $65,000. What is the partner's basis in the capital asset?
  2. Under Section 1033, which of the following events qualifies as an involuntary conversion that may allow nonrecognition of gain?
  3. Under UCC Section 2-601, the perfect tender rule states that the buyer may reject goods if they fail to conform to the contract in any respect. Which of the following correctly applies the perfect tender rule?
  4. In 2023, Riverbend Services (sole proprietorship) places in service new 5-year MACRS equipment costing $900,000 (100% business use). Riverbend's taxable income from the active conduct of the business (before Section 179) is $200,000. Riverbend elects a $500,000 Section 179 deduction. What is the impact of the income limitation on Section 179 deduction eligibility for 2023?
  5. In 2025, Simone is single and her 22-year-old brother, Chris, lived with her all year. Chris is a full-time student for 5 months of the year, earned $5,500 in wages, and Simone provided more than half of his support. Under IRC §152(c) (qualifying child) and §152(d) (qualifying relative), which individuals qualify as dependents?
  6. A taxpayer completes a Section 1031 like-kind exchange of investment real estate. The taxpayer transfers property with an adjusted basis of $500,000 and a fair market value of $640,000, and receives replacement property worth $620,000 plus $20,000 cash. What is the recognized gain or loss on the sale of the property?
  7. A bank extends a line of credit and advances funds against a note used as security. Under UCC Section 3-303(a)(3), at what point does the bank become a holder for value as the line of credit is drawn down?
  8. A taxpayer requests an automatic filing extension but does not pay any of the estimated balance due with the extension request. The taxpayer files by the extended due date but pays the tax after that date. Which penalty is most applicable to the taxpayer for not paying timely?
  9. A practitioner representing a client in a tax dispute has a personal financial interest in the legal issue's outcome (the same legal theory affects the practitioner's own tax planning). Under Circular 230, what is the most accurate statement?
  10. Apex Construction submitted a sealed bid of $450,000foramunicipalproject.Whenthebidswereopened,Apexwasthelowestbidder.Thenextlowestbidwas\$450,000 for a municipal project. When the bids were opened, Apex was the lowest bidder. The next lowest bid was$650,000, and all other bids were over $675,000.Beforethemunicipalityformallyacceptedthebid,Apex′spresidentreviewedthecalculationsanddiscoveredasignificantclericalerror;a\$675,000. Before the municipality formally accepted the bid, Apex's president reviewed the calculations and discovered a significant clerical error; a$200,000 subcontracting cost had been accidentally omitted. Apex immediately notified the municipality of the error and sought to withdraw its bid. Which of the following is correct?
  11. Which of the following correctly describes the annual filing requirement for most Section 501(c)(3) public charities?
  12. In 2025, Robin (single) has $65,000 of taxable income before capital gains and losses. Robin sold stock held 6 months for a $7,000 loss and sold corporate bonds held 3 years for a $2,500 gain; Robin also sold investment real estate held 2 years for a $1,500 gain. What is Robin's net capital gain/loss for 2025?
  13. Under Section 6330, when the IRS issues a Final Notice of Intent to Levy, the taxpayer has the right to request a Collection Due Process (CDP) hearing. Which of the following correctly describes CDP hearings?
  14. Under the AICPA Code of Professional Conduct, what is the general rule regarding a CPA's contingent fees for tax services?
  15. An S corporation has two equal shareholders and earns $80,000 of ordinary income. The corporation pays $10,000 in federal income taxes (e.g., from built-in gains tax) and distributes $20,000 cash to each shareholder. What is each shareholder's taxable income from the S corporation?
  16. A court finds Chapter 7 abuse under the means test. What may it do?
  17. Under UCC Section 2-305, a contract may be formed even if the price is left open. Which of the following correctly describes the effect of an open price term?
  18. An agent makes a contract with a third party on behalf of a disclosed principal. The third party later learns that the contract is unfavorable. Against whom may the third party bring a breach of contract action?
  19. A calendar-year C corporation files its federal income tax return on Form 1120. What is the original due date for this return?
  20. Under the AICPA Code of Professional Conduct, what is the general rule regarding subordination of judgment?

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