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Practice Test 7 - CPA Tcp

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

  1. A Type A reorganization under Section 368 is:
  2. A taxpayer is choosing between a traditional IRA and a Roth IRA for $7,000 of annual contributions. The taxpayer is currently in the 24% bracket and expects to be in the 24% bracket in retirement, and will invest in stock mutual funds for growth. The taxpayer also holds taxable bonds generating interest income and dividend-paying stocks in a brokerage account. Which retirement account option provides the best tax advantage given the individual's current tax bracket?
  3. A special allocation of depreciation deductions to one partner must meet the substantial economic effect test. If the allocation lacks economic effect, the IRS will:
  4. The accuracy-related penalty under Section 6662 is imposed at a rate of:
  5. To continue representing both the partnership and Partner A under Circular 230, which of the following conditions must be met?
  6. The LIFO recapture rule requires an S corporation converted from a C corporation to:
  7. A CPA is engaged to provide tax advice to a corporation and separately advises the corporation's majority shareholder on personal tax planning. A transaction favorable to the corporation conflicts with the shareholder's personal tax interests. This situation represents:
  8. A taxpayer who owes no tax and is not required to file a return may still want to file because:
  9. Leah is unmarried and paid all costs of maintaining a home for her son (age 18), who lived with her all year and is not a student. The son earned $9,500 from a job and used it to pay for his own car and personal expenses; Leah paid all housing, food, and medical costs. Leah's wages were $60,000. Under IRC §152(c) and IRS qualifying child rules, who qualifies as a dependent under IRS guidelines?
  10. A partnership is preparing its quarterly employment tax filings and discovers that it accidentally reported payments to an independent contractor on Form 941 as wages, and also deposited FICA taxes on those amounts. The partnership wants to correct the previously filed Form 941 for that quarter to remove the contractor payments from wages and adjust the related employment taxes. Which document should be filed to correct the payroll tax discrepancy?
  11. A C corporation with 110 employees performs product development in the United States and also outsources a portion of coding to an unrelated foreign contractor. In 2025, it pays $900,000 to the foreign contractor and $1.1 million to a U.S. contractor for similar work; both sets of work relate to resolving technical uncertainty through iterative testing. Management asks how contract research costs are treated for purposes of the research credit. What are the limitations affecting the business's credit claim?
  12. In an S corporation context, the IRS may challenge compensation paid to a shareholder-employee as unreasonably low if:
  13. Redwood, Inc., a C corporation, is offered a deal where the buyer will purchase assets for $1,000,000 and Redwood will then liquidate. Redwood's aggregate adjusted basis in assets is $1,050,000, and its sole shareholder's stock basis is $200,000 (held more than one year). What is the tax impact of this transaction under Sections 336 and 331?
  14. A taxpayer purchases a residential rental property for $420,000, allocating $320,000 to the building and $100,000 to land. During the year, the property generates $30,000 of gross rents and incurs $12,000 of operating expenses (excluding depreciation); the taxpayer materially does not participate and has no other passive income. The taxpayer also has $90,000 of wage income, $8,000 of qualified dividends from stocks, and $6,000 of interest income from bonds. What are the tax implications of depreciation on a rental property?
  15. The AAA of an S corporation can be reduced below zero if:
  16. A taxpayer who discovers they've been using an improper accounting method should:
  17. A state may tax a non-domiciliary corporation's income only to the extent of the income that is:
  18. Under SSTS No. 3, a CPA discovers that a client has an error in the current year return the CPA just prepared before it is filed. The CPA's most appropriate course of action is to:
  19. A taxpayer who has a filing extension but fails to pay the full tax by the original due date will:
  20. An individual taxpayer wants to make gifts in 2026 to two children and is deciding whether to gift on December 31, 2026 or January 1, 2027. The taxpayer plans to transfer $19,000 to each child and wants to maximize annual exclusions over time. Assume the annual gift exclusion is $19,000 per donee and the lifetime exemption is $13,610,000 with a 40% gift tax rate above it. What is the most tax-efficient way to utilize the annual gift exclusion?

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