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Practice Test 2 - CPA Tcp

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

  1. Elm, Inc., a C corporation, is considering a stock sale to an unrelated buyer for $800,000. Elm's shareholders have stock basis of $500,000 and have held the stock for 9 months. Which tax treatment applies to the sale with respect to the character and level of gain recognition?
  2. In 2025, Jordan and Alex file married filing jointly. Jordan is a K–12 teacher and Alex is not an educator. Jordan paid $650 for classroom supplies and received $200 of reimbursement under a school plan that is not included in wages. Under current IRS rules for the educator expense above-the-line adjustment, what is the maximum allowable deduction for educator expenses on their joint return?
  3. An individual taxpayer, age 69, is retired and has a traditional individual retirement arrangement and a Roth individual retirement arrangement. She anticipates that her taxable income will increase materially at age 73 due to required minimum distributions and Social Security benefits. She needs $30,000 this year for expenses and wants to reduce future required minimum distributions and related tax impact. What is the most tax-efficient withdrawal strategy?
  4. The 'recurring item exception' to the economic performance rule allows an accrual-basis taxpayer to deduct a liability in the current year when:
  5. A business sells equipment used in its trade or business for $80,000. The equipment cost $100,000, has $60,000 of accumulated depreciation, and an adjusted basis of $40,000. The gain of $40,000 is characterized as:
  6. An individual establishes a trust in a state with no income tax to hold their investment portfolio. The trust's income may still be subject to state income tax if:
  7. The excess benefit transaction rules under Section 4958 apply to:
  8. A business currently uses the cash method and switches to accrual. The Section 481(a) adjustment would typically be:
  9. A taxpayer subject to income tax in multiple states may face 'nowhere income' - income that is not taxed by any state - when:
  10. A 'Type G' reorganization under Section 368(a)(1)(G) is:
  11. YZ LLC is a multi-member LLC classified as a partnership. In Year 1, the LLC borrows $200,000 on a recourse basis and uses the proceeds in the business; the members share profits and losses 70% to Y and 30% to Z. Under Internal Revenue Code section 752, which statement best describes the effect of the recourse liability on the members' outside bases (ignoring any special allocation provisions)?
  12. The property factor in state apportionment is generally computed using:
  13. For tax year 2025, Jia, married filing jointly, inherited $100,000 from a parent and received $2,400 of dividends from a publicly traded corporation. Which income source is correctly excluded from taxation under IRS gross income rules?
  14. Mia is unmarried and lived with her adult son (age 27) all year. Mia paid 80% of the son's support. The son had $6,800 of taxable wages and $200 of interest income. Mia earned $66,000. Under IRC §152(d) and the gross income test, who qualifies as a dependent under IRS guidelines?
  15. Under Circular 230, Section 10.33 describes 'best practices' for tax advisors, which include:
  16. What is Precision Co.'s charitable contribution deduction for the current year, and what is the amount of its taxable income?
  17. JJ LLC is classified as a partnership and has two equal members. In Year 1, the LLC distributes $10,000 cash to member J when J's outside basis is $8,000, and there are no liability changes. Under section 731, what is the character of any recognized gain (if any) to J?
  18. A shareholder waives the Section 318 family attribution rules to qualify a complete termination redemption under Section 302(c). To make this waiver effective, the shareholder must:
  19. In 2025, a sole proprietorship operating a delivery service purchased and placed in service a new delivery truck (gross vehicle weight rating over 6,000 pounds) on March 15, 2025, for $120,000, used 100% for business. The truck qualifies for Section 179 under Internal Revenue Code Section 179 and is eligible for bonus depreciation under Internal Revenue Code Section 168(k) (60% for 2025). How is bonus depreciation applied to the asset in the first year if the taxpayer elects a $70,000 Section 179 deduction?
  20. The 'throwout rule' (used by some states) differs from the throwback rule in that:

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