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Practice Test 6 - CPA Taxation & Regulation (REG)

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

  1. A company purchases a used machine (7-year property) for $180,000 and places it in service on February 10. The company elects to expense $120,000 of the cost under IRC Section 179. No bonus depreciation is taken. What is the regular MACRS depreciation deduction for the machine in its first year?
  2. You are the CPA for Meadowbrook, Inc., a domestic corporation, and management wants to elect S status under IRC §1362. Meadowbrook has 3 shareholders: a U.S. citizen, a U.S. resident alien, and a nonresident alien. Which shareholder type is ineligible for S Corporation status under IRC §1361?
  3. A corporation purchased equipment for $88,000 and capitalized $2,000 of delivery costs. The corporation has claimed $30,000 of depreciation to date. In the current year, it adds a capital improvement costing $14,000. Calculate the new basis after depreciation expenses are considered.
  4. When a taxpayer files a return on extension, the 3-year statute of limitations for filing a refund claim runs from which date?
  5. A newly formed corporation plans to raise funds by selling ownership interests. The founders ask what ownership feature distinguishes a corporation from a partnership in terms of transferring ownership interests. Which statement is most accurate at a high level?
  6. An agent is personally liable to a third party for a contract when which of the following is true?
  7. Treasury Department Circular 230 governs which of the following?
  8. The general statute of limitations for the IRS to assess a tax deficiency is three years. Under which of the following circumstances is the statute of limitations extended to six years?
  9. For federal income tax, a partnership return (Form 1065) for 2022 was filed on September 14, 2023, pursuant to a valid extension (original due date March 15, 2023). Assume no fraud and no substantial omission. Under these circumstances, when does the IRS statute of limitations for assessment generally expire?
  10. A taxpayer has a tentative minimum tax of $45,000 and a regular tax liability (before credits) of $38,000. How much AMT, if any, is the taxpayer required to pay?
  11. Under Section 663(a)(1), which distributions are excluded from the distribution deduction and are not included in the beneficiary's income?
  12. A C corporation that expects to owe $500 or more in federal income tax for the year must make estimated tax payments. What is the due date for a calendar-year corporation's first estimated tax installment?
  13. An agent is authorized to sell property for the principal for no less than $200,000. The agent instead sells the property for $180,000 without the principal's knowledge. Which of the following correctly describes the legal consequences?
  14. Under the Statute of Frauds, an oral contract for the sale of land worth $50,000 is made. The buyer fully performs by paying the purchase price, and the seller allows the buyer to take possession and make substantial improvements. The seller now seeks to void the contract under the Statute of Frauds. Which doctrine prevents the seller from using the Statute of Frauds as a defense?
  15. A Section 501(c)(3) organization operates a thrift store that sells donated clothing and household items. The store is staffed entirely by volunteers. Which of the following best describes the tax treatment of the thrift store income?
  16. For federal income tax, a taxpayer timely filed a 2017 Form 1040 on April 17, 2018. The IRS later proves the return was not fraudulent and had no substantial omission. Under these circumstances, when did the IRS's general statute of limitations for assessment expire?
  17. A company acquires two assets during the year, both of which are 7-year property. Asset A, costing $40,000, is placed in service on April 1. Asset B, costing $70,000, is placed in service on December 1. These are the only assets acquired during the year. Which depreciation convention must be used?
  18. A single active-participant taxpayer has MAGI of $83,000 and contributes $7,000 to a traditional IRA. The 2024 phase-out range for single active participants is $77,000 to $87,000. What is the allowable IRA deduction?
  19. Which of the following is generally NOT an available remedy for breach of contract under common law?
  20. A city government (government entity) contracts with a construction company (business entity) for road repairs (service contract). The contract requires the company to pay a city inspector $5,000 "to expedite approvals" in addition to the stated contract price. The company later refuses to pay the $5,000 and the city sues to enforce that clause. Under these circumstances, is the $5,000 payment clause enforceable?

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