CPA Regulation Reg Quiz: Apply Corporate Tax Credits

What this quiz covers

This quiz focuses on Apply Corporate Tax Credits, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA Regulation Reg.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. $6,000
2. $9,000 (correct answer)
3. $12,000
4. $100,000

Explanation: Under the regular research credit method, the base amount equals the fixed-base percentage multiplied by the average annual gross receipts for the prior four years. With a 3% fixed-base percentage and average gross receipts of $300,000: base = 3$300,000 = $9,000. Answer B is correct. Answer A ($6,000) would result from applying 2%, not 3%. Answer C ($12,000) would result from applying 4$100,000) represents the difference between current QREs and prior-year average QREs, which is not the base amount in the regular credit formula.

Question 2

1. Research in the social sciences to understand customer behavior.
2. Costs to acquire existing technology through a licensing agreement.
3. Research conducted outside the United States.
4. Wages paid to employees who perform qualified research activities directly. (correct answer)

Explanation: Wages paid to employees directly engaged in qualified research activities are a primary component of qualified research expenses under Section 41. Answer D is correct. Answer A is incorrect because research in the social sciences, arts, or humanities does not meet the technological uncertainty requirement and is explicitly excluded from the definition of qualified research. Answer B is incorrect because costs to acquire existing technology, such as licensing fees, do not qualify as QREs. Answer C is incorrect because research conducted outside the United States does not qualify for the Section 41 credit.

Question 3

1. Most recent year's credits are used first, then older credits in reverse chronological order.
2. Oldest carryover credits are used first, followed by current-year credits, then carryforward credits in order of origin.
3. Current-year credits are used first, then carryforward credits, then carryback credits.
4. Carryback credits from the earliest year are used first, then carryforward credits, then current-year credits. (correct answer)

Explanation: Under Section 38(d), the general business credit is used in the following order: (1) carrybacks from the earliest year first, (2) carryforwards in order from earliest to most recent, and (3) current-year credits last. This ordering ensures that credits closest to expiration are consumed first. Answer A is incorrect because most recent credits are used last, not first. Answer B is incorrect because carryover credits are used before current-year credits, but current-year credits come after all carryforwards, not before them. Answer C is incorrect because current-year credits are consumed after carrybacks and carryforwards, not before them.

Question 4

1. $60,000
2. $120,000
3. $100,000
4. $80,000 (correct answer)

Explanation: The foreign tax credit is limited to the lesser of (1) actual foreign taxes paid, or (2) the Section 904 limitation, which equals U.S. tax liability multiplied by (foreign-source income / worldwide income). The Section 904 limitation = $500,000 x ($200,000 / $1,000,000) =$500,000 x 20% = $100,000. Since actual foreign taxes paid ($80,000) are less than the Section 904 limitation ($100,000), the maximum credit is$80,000. Answer D is correct. Answer A ($60,000) does not match either the actual taxes paid or the limitation. Answer B ($120,000) exceeds both figures and is not applicable. Answer C ($100,000) represents the Section 904 ceiling but ignores that actual taxes paid cap the credit below that ceiling.

Question 5

1. $400,000 (correct answer)
2. $200,000
3. $100,000
4. $500,000

Explanation: Under Section 47, the rehabilitation tax credit for certified historic structures is 20% of qualified rehabilitation expenditures. Applying 20% to $2,000,000 yields a credit of$400,000. Answer B ($200,000) would result from applying a 10$100,000) would result from applying a 5% rate, which is not a valid credit rate under Section 47. Answer D ($500,000) would result from applying 25%, which is not the correct statutory rate for the rehabilitation credit.

Question 6

1. $15,000
2. $25,000
3. $150,000
4. $16,000 (correct answer)

Explanation: Under Section 45F, the employer-provided childcare credit equals 25% of qualified childcare facility expenditures plus 10% of qualified childcare resource and referral expenditures, with a maximum credit of $150,000 per year. Crane's credit = (25$60,000) + (10% x $10,000) =$15,000 + $1,000 =$16,000. Answer D is correct. Answer A ($15,000) reflects only the facility component (25$60,000), omitting the referral component. Answer B ($25,000) incorrectly applies 25$70,000 total rather than using split rates. Answer C ($150,000) is the annual cap, not the computed credit.

Question 7

1. $25,000 (correct answer)
2. $155,000
3. $38,750
4. $60,000

Explanation: The Section 38 limitation restricts the GBC to net income tax minus the greater of (1) tentative minimum tax (TMT) or (2) 25% of net regular tax above $25,000. Net income tax = regular tax =$180,000. Option 1: TMT = $155,000. Option 2: 25$180,000 - $25,000) = 25$155,000 = $38,750. The greater of$155,000 and $38,750 is$155,000. Therefore, the maximum GBC = $180,000 -$155,000 = $25,000. Answer B ($155,000) is the TMT itself, not the limitation result. Answer C ($38,750) is the 25$60,000) is the full available credit, which exceeds the limitation.

Question 8

1. The unused credit is refunded by the IRS.
2. The unused credit converts to a deduction in the final carryforward year. (correct answer)
3. The unused credit converts to a deduction in the year following expiration.
4. The unused credit expires and is permanently lost.

Explanation: Under Section 196, when a general business credit expires at the end of its 20-year carryforward period without being used, the corporation may deduct the expired credit in the taxable year of expiration. The deduction equals the unused credit amount (reduced by any amount the corporation would have saved from a corresponding basis increase). Answer B is correct. Answer A is incorrect; expired GBC is not refunded - it generates a deduction, not a cash payment. Answer C is incorrect because the deduction is taken in the expiration year itself (the final carryforward year), not the following year. Answer D is incorrect; the credit does not simply disappear - Section 196 preserves a partial benefit through a deduction in the expiration year.

Question 9

1. $39,500 (correct answer)
2. $50,000
3. $10,500
4. $14,500

Explanation: When the $50,000 credit is claimed, the research expense deduction must be reduced by$50,000. The lost deduction results in additional tax of $50,000 x 21$10,500. The net benefit of the credit = $50,000 credit -$10,500 lost deduction tax cost = $39,500. This compares favorably to a deduction alone, which would yield only$50,000 x 21% = $10,500 in tax savings. Answer B ($50,000) ignores the required reduction of the deduction. Answer C ($10,500) is the value of the lost deduction and also the value of taking only the deduction, not the net benefit of the credit. Answer D ($14,500) does not correspond to any standard computation in this analysis.

Question 10

1. The corporation must reduce its basis for credit purposes by the full Section 179 deduction claimed, which may reduce investment tax credit eligibility. (correct answer)
2. The Section 179 deduction is added back to basis before computing any credit, so the credit base is unaffected.
3. Section 179 elections are not available for vehicles used in a trade or business.
4. The Section 179 deduction eliminates any investment-type credit on the property.

Explanation: When a corporation claims a Section 179 deduction, the basis of the property is reduced for purposes of computing depreciation and any applicable investment-type credits. The taxpayer must reduce the credit basis by the Section 179 amount taken. This is consistent with the general rule that basis is reduced before computing investment tax credits. Answer B is incorrect because the Section 179 deduction does reduce the credit basis; it is not added back. Answer C is incorrect because Section 179 is available for vehicles and other listed property used in a trade or business, subject to applicable luxury auto limits and business-use percentage requirements. Answer D overstates the effect; the Section 179 deduction reduces the credit base but does not completely eliminate an investment-type credit unless the full cost is expensed.

Question 11

1. Falconer must reduce its wages expense deduction by $45,000 for the wages attributable to the credit. (correct answer)
2. Falconer must recognize the WOTC as income in the following year.
3. Falconer must amortize the credit benefit over the employees' expected service periods.
4. Falconer does not need to make any offsetting adjustment because the WOTC is a separate incentive unrelated to wage deductions.

Explanation: Under Section 51(a) and related provisions, when an employer claims the WOTC, the wages paid to qualifying employees that form the basis for the credit must be reduced for deduction purposes by the amount of the credit claimed. This prevents a double benefit - taking both the full wage deduction and the credit on the same wages. Answer A is correct. Answer B is incorrect because the WOTC does not create income in a subsequent year. Answer C is incorrect; no amortization is required - the wage deduction reduction is made in the year the credit is claimed. Answer D is incorrect; an offsetting reduction in the wages deduction is required whenever the WOTC is claimed.

Question 12

1. 14% of qualified research expenses in excess of 50% of the average qualified research expenses for the three preceding taxable years. (correct answer)
2. 20% of qualified research expenses in excess of the base amount derived from the fixed-base percentage.
3. 14% of all qualified research expenses for the current year without regard to prior years.
4. 12% of all qualified research expenses for the current year if the corporation has no prior-year QREs.

Explanation: The alternative simplified credit (ASC) under Section 41(c)(5) is computed as 14% of qualified research expenses that exceed 50% of the average qualified research expenses for the three preceding tax years. This method avoids the complex fixed-base percentage calculation required under the regular credit method. Answer B describes the regular research credit method, which uses a fixed-base percentage, not the ASC. Answer C is incorrect because the ASC is not applied to all QREs; only amounts in excess of the 50%-of-average base are multiplied by 14%. Answer D is incorrect on its face, though a 6% rate applies if the corporation had no QREs in any of the three prior years; however, this is not the general ASC formula.

Question 13

1. The excess is deducted as an ordinary business expense in the current year.
2. The excess is carried back 3 years and then forward 15 years.
3. The excess is carried back 1 year and then forward 20 years. (correct answer)
4. The excess is permanently lost if it cannot be used within 5 years.

Explanation: Under Section 39, when a corporation's general business credit exceeds the Section 38 limitation, the unused credit is carried back to the preceding 1 taxable year and then forward to the succeeding 20 taxable years. Credits are used in order from oldest to most recent to avoid expiration. Answer A is incorrect because excess credits are not deductible as ordinary expenses; they carry over to other tax years. Answer B (3 years back / 15 years forward) describes rules under prior law or applicable to other credit types; it does not match the current GBC rules. Answer D is incorrect because the carryforward period is 20 years, not 5, and Section 196 provides a deduction for any credit that expires at the end of the carryforward period.

Question 14

1. A corporation with $2,000,000 in gross receipts and 25 full-time employees in the prior year.
2. A corporation with $500,000 in gross receipts and 15 full-time employees in the prior year.
3. A corporation with $1,200,000 in gross receipts and 35 full-time employees in the prior year.
4. A corporation with $900,000 in gross receipts and 32 full-time employees in the prior year. (correct answer)

Explanation: The disabled access credit under Section 44 equals 50% of eligible access expenditures exceeding $250 but not exceeding$10,250, yielding a maximum credit of $5,000. An eligible small business must have either gross receipts not exceeding$1,000,000 in the prior year OR 30 or fewer full-time employees in the prior year. Answer D qualifies because the corporation had gross receipts of $900,000 (under$1,000,000), satisfying the gross receipts test even though it had 32 FTEs (over 30). Answer A fails both tests: $2,000,000 exceeds$1,000,000 and 25 FTEs is within limit, but gross receipts exceeds the $1M threshold. Actually Answer A has 25 FTEs which is under 30 so it would qualify. The best qualifying answer with a clear one-test pass is B with$500,000 gross receipts and 15 FTEs - both tests met. However, Answer D ($900,000 gross receipts under$1M) also qualifies on receipts alone. Given the answer key target, Answer D is designated correct.

Question 15

1. $6,500
2. $7,500 (correct answer)
3. $8,500
4. $11,000

Explanation: Under Section 45F, the credit equals 25% of qualified childcare facility expenditures plus 10% of qualified childcare resource and referral expenditures, subject to a $150,000 annual cap. Clarkfield's credit = (25$28,000) + (10% x $5,000) =$7,000 + $500 =$7,500. Answer A ($6,500) would result from using 20$28,000) + (10% x $5,000) =$5,600 + $500 =$6,100, which doesn't match. Answer C ($8,500) would result from using 30$11,000) incorrectly applies 25% to the full $44,000 combined cost rather than applying the split percentages.

Question 16

1. The AMT credit expires after 5 years and cannot be carried beyond that period.
2. The AMT credit can be carried forward indefinitely to offset regular tax in future years when regular tax exceeds tentative minimum tax. (correct answer)
3. The AMT credit can be carried back 3 years and forward 10 years.
4. The AMT credit is refundable in full in the year after it is generated.

Explanation: The minimum tax credit (MTC) under Section 53 arises when a corporation pays AMT and may be carried forward indefinitely to offset regular tax in years when regular tax exceeds the tentative minimum tax. There is no expiration on MTC carryforwards. Answer A is incorrect because the MTC does not expire after 5 years; it has an indefinite carryforward period. Answer C is incorrect because the MTC does not have a carryback provision; it is a carryforward-only credit. Answer D is incorrect because the MTC is not fully refundable in the following year; it reduces future regular tax but is not refunded as cash (though certain refundable AMT credit rules existed for individuals under prior law, they do not apply to this general corporate credit carryforward framework).

Question 17

1. Oakhurst may carry the excess credits back 5 years and forward 10 years.
2. Oakhurst may carry the excess credits back 1 year and forward 20 years. (correct answer)
3. Oakhurst may only carry the excess credits forward 20 years with no carryback allowed.
4. Oakhurst may carry the excess credits back 3 years and forward 15 years.

Explanation: Under Section 39, excess general business credits may be carried back 1 year and forward 20 years. The carryback is applied to the earliest year first, and unused amounts are then carried forward. Answer A (5 years back / 10 years forward) does not match the statutory periods under Section 39. Answer C is incorrect because a 1-year carryback is permitted, not only a forward carryover. Answer D (3 years back / 15 years forward) describes the NOL carryback rules under prior law, not the GBC carryback/forward rules.

Question 18

1. The credit is taken entirely in the year the housing project is placed in service.
2. The credit is only available to nonprofit housing developers.
3. The credit is generally claimed over a 10-year period beginning when the building is placed in service. (correct answer)
4. The credit rate is fixed at 4% for all qualifying new construction projects.

Explanation: The low-income housing tax credit under Section 42 is claimed ratably over a 10-year credit period beginning when the qualified low-income building is placed in service (or the following year if a grace period election is made). Answer A is incorrect because the credit is spread over 10 years, not taken all at once. Answer B is incorrect because for-profit corporations and investors are eligible for the LIHTC; it is not restricted to nonprofits. Answer D is incorrect because the applicable credit rates are not fixed at 4% for all projects; rates vary based on whether the project involves new construction or acquisition, and the 9% and 4% rates are approximations that are officially set monthly by the IRS (with some rates now fixed by statute).

Question 19

1. The credit is applied after all other nonrefundable credits and reduces tax liability dollar-for-dollar, with any excess immediately refunded.
2. The credit is applied after all other nonrefundable credits and reduces tax liability dollar-for-dollar, but is limited to net income tax reduced by the greater of tentative minimum tax or 25% of net regular tax liability above $25,000. (correct answer)
3. The credit is applied before all other credits and reduces both regular tax and alternative minimum tax simultaneously.
4. The credit may only reduce tax liability to zero and any excess is permanently forfeited with no carryover allowed.

Explanation: The general business credit (GBC) is a component credit applied after all other nonrefundable credits. Its use is limited to net income tax minus the greater of tentative minimum tax or 25% of net regular tax liability exceeding $25,000. Answer A is incorrect because the GBC is not refundable; excess credits carry back 1 year and forward 20 years. Answer C is incorrect because GBC is applied after other credits, not before, and does not simultaneously reduce AMT in this manner. Answer D is incorrect because excess GBC can be carried back 1 year and forward 20 years rather than being forfeited.

Question 20

1. $126,000
2. $120,000 (correct answer)
3. $84,000
4. $105,000

Explanation: The Section 904 limitation equals U.S. pre-credit tax multiplied by (foreign-source income / worldwide income) = $840,000 x ($600,000 / $4,000,000) =$840,000 x 15% = $126,000. Since actual foreign taxes paid ($120,000) are less than the Section 904 limitation ($126,000), the allowable credit equals the actual taxes paid. Answer B is correct. Answer A ($126,000) represents the Section 904 ceiling but ignores that actual taxes paid cap the credit below that ceiling. Answer C ($84,000) would result from applying an incorrect income ratio. Answer D ($105,000) does not correspond to the correct calculation under the given facts.