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Practice Test 7 - CPA Taxation & Regulation (REG)

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

  1. Under Section 732(c), when the total adjusted basis of property distributed in a liquidating distribution must be allocated among multiple assets, which of the following describes the correct allocation order?
  2. Bank perfects its equipment PMSI 25 days after delivery. Prior perfected blanket lien exists.
  3. In 2025, Drew (married filing jointly) has $160,000 of taxable income before capital gains and losses. Drew sold stock held 3 years for a $8,000 loss and sold corporate bonds held 5 months for a $2,000 gain; Drew also sold rental real estate held 4 years for a $9,000 gain. What is Drew's net capital gain/loss for 2025?
  4. A real estate venture is organized as a limited partnership with one general partner and several limited partners. The limited partners want to avoid personal liability beyond their investments and plan to remain passive. Based on the scenario, which statement best describes the liability and management structure of a limited partnership?
  5. Under UCC Section 2-711, what remedies are available to a buyer when the seller fails to deliver or repudiates the contract?
  6. The Taxpayer Bill of Rights (TBOR) was codified into the Internal Revenue Code under Section 7803(a)(3). Which of the following is among the ten rights included in the TBOR?
  7. Which legal doctrine would the supplier most likely use to successfully hold Lee personally liable for the corporation's debt?
  8. A note is payable 'ninety days after sight.' Is this payable at a definite time?
  9. A single 40-year-old taxpayer enrolled in a qualifying high-deductible health plan (HDHP) contributes $3,800 to her Health Savings Account (HSA) during 2024. The self-only HDHP contribution limit for 2024 is $4,150. What is the HSA deduction?
  10. A note states that it is payable 'at the maker's discretion' with no fixed payment date. Does this satisfy the 'payable on demand or at a definite time' requirement for negotiability?
  11. Creditor cancels $20,000 debt; taxpayer's liabilities exceed assets by $15,000 before cancellation. Gross income?
  12. Sable, a car dealer, was selling a used vehicle. Sable knew the car had significant, concealed rust damage to its frame but told a potential buyer, Park, that the car was 'in excellent mechanical shape' and had 'a solid frame.' Relying on these statements, Park purchased the vehicle without having it inspected. A month later, a mechanic discovered the severe frame damage. What is the status of the purchase contract?
  13. Under the Bankruptcy Code, when a Chapter 11 plan of reorganization is confirmed by the court, what is the effect on the debtor's pre-confirmation debts?
  14. Under Section 1033, a taxpayer's property is involuntarily converted and the taxpayer receives insurance proceeds. The taxpayer elects nonrecognition and reinvests in replacement property. Under Section 1033(b), what is the basis of the replacement property?
  15. Noble LLP has partners C1 and D1. The partnership agreement provides that D1 is allocated a special allocation of the first $15,000 of ordinary income under IRC Section 704(b), and any remaining ordinary income is split 50/50. For the year, Noble has $55,000 of ordinary business income. Assuming the special allocation has substantial economic effect, how should the partnership allocate the income under IRC Section 704(b)?
  16. Under Circular 230 Section 10.30, what restrictions apply to a practitioner's advertising and solicitation of clients?
  17. For AMT purposes, which of the following correctly describes the treatment of research and experimental (R&E) expenditures that are expensed for regular tax?
  18. Pine Trust is a calendar-year complex trust. For 2025, it has $200,000 of taxable income and makes a $40,000 charitable contribution from gross income that qualifies under Internal Revenue Code Section 642(c). It also distributes $140,000 in cash to beneficiaries during 2025. Assume no tax-exempt income. Under Internal Revenue Code Section 661 (taking into account the effect of the Section 642(c) deduction on distributable net income), what is the allowable income distribution deduction for 2025?
  19. Under Section 1231, a C corporation sells depreciable equipment used in its business for more than its adjusted basis. The equipment was purchased for $200,000, has accumulated depreciation of $120,000, and is sold for $170,000. What is the character of the gain?
  20. A taxpayer borrows $20,000 from a bank. Is the $20,000 loan proceeds included in gross income?

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