CPA Tcp Quiz: Apply Corporate Tax Compliance Rules

What this quiz covers

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

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. A graduated rate ranging from 15% to 35% depending on taxable income.
2. 28% flat rate established by the Tax Cuts and Jobs Act.
3. A flat 21% rate on all corporate taxable income, regardless of the amount. (correct answer)
4. 35% for large corporations and 21% for small corporations.

Explanation: The Tax Cuts and Jobs Act of 2017 replaced the prior graduated corporate rate structure with a flat 21% rate on all corporate taxable income. Answer C is correct. The old graduated structure (A) was repealed. 28% (B) is incorrect. There is no size distinction in the current rate (D).

Question 2

1. Subtracting allowable deductions, including the dividends received deduction, net operating loss deduction, and other business deductions. (correct answer)
2. Adding back all book-to-tax differences to reconcile to financial statement income.
3. Applying the effective tax rate used for financial reporting purposes.
4. Subtracting only cash expenses actually paid during the tax year.

Explanation: Corporate taxable income = gross income minus allowable deductions, including special corporate deductions like the DRD and NOL deduction. Answer A is correct. Book-to-tax adjustments (B) are part of the return but not how taxable income is 'calculated.' Financial statement rates (C) are for GAAP purposes. Only cash expenses (D) describes cash method, not the general rule.

Question 3

1. The DRD may not exceed the corporation's net income before the DRD deduction.
2. The DRD is limited to 50% of the dividends received regardless of ownership.
3. The DRD is generally limited to the applicable percentage of taxable income, computed without the DRD - unless the full DRD creates or increases a net operating loss. (correct answer)
4. There is no limitation on the DRD when the corporation owns 20% or more of the payor.

Explanation: The DRD is limited to the applicable percentage of taxable income (without the DRD), but this limitation does not apply if claiming the full DRD results in a net operating loss. Answer C is correct. The net income limitation (A) is not precisely stated. A flat 50% (B) ignores ownership tiers. The taxable income limit applies at all ownership levels below 80% (D).

Question 4

1. Carry the NOL back 2 years and forward 20 years.
2. Carry the NOL forward indefinitely but may only offset up to 80% of taxable income in the carryforward year. (correct answer)
3. Carry the NOL back 5 years or forward indefinitely with no limitation.
4. Deduct the entire NOL in the carryforward year regardless of the amount of taxable income.

Explanation: Post-TCJA, NOLs arising after 2017 can only be carried forward (no carryback for most taxpayers), indefinitely, but are limited to 80% of taxable income in the carryforward year. Answer B is correct. The 2-year carryback/20-year carryforward (A) was the pre-TCJA rule. The 5-year carryback (C) applies to farming NOLs. The 100% offset (D) was the pre-TCJA rule.

Question 5

1. The corporation expects to owe more than $500 in taxes for the year.
2. The corporation had taxable income in any prior year.
3. The corporation is a large corporation with assets over $10 million.
4. The corporation expects to owe $500 or more in taxes, and must pay in four equal installments due on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year. (correct answer)

Explanation: Corporations must make estimated tax payments if expected taxes are $500 or more, in four equal installments due at the 4th, 6th, 9th, and 12th month marks. Answer D is correct. The$500 threshold is correct but the installment details are missing in A. Prior year income alone (B) doesn't trigger payments. Asset size (C) is not the threshold.

Question 6

1. The dividend is deductible by the corporation as a business expense.
2. The dividend creates a loss carryforward for the corporation.
3. The dividend is not deductible by the corporation - dividends are paid from after-tax earnings, resulting in double taxation at the corporate and shareholder levels. (correct answer)
4. The dividend is deductible up to the corporation's earnings and profits.

Explanation: Corporate dividends are not deductible - they represent a distribution of after-tax profits, creating the classical double taxation of corporate income. Answer C is correct. Dividends are not business expenses (A). No loss carryforward is created (B). No E&P-based deduction exists for paid dividends (D).

Question 7

1. The standard deduction.
2. The dividends received deduction (DRD). (correct answer)
3. The qualified business income (QBI) deduction.
4. The home office deduction.

Explanation: The DRD is a deduction unique to corporations, allowing partial exclusion of dividends received from other domestic corporations to reduce double taxation. Answer B is correct. Corporations do not have a standard deduction (A). The QBI deduction is for pass-through entities and individual taxpayers (C). Home office deductions apply to individuals and self-employed persons (D).

Question 8

1. Fail to pay sufficient estimated taxes during the year.
2. Have accumulated earnings and profits exceeding $250,000.
3. Accumulate earnings beyond the reasonable needs of the business for the purpose of avoiding the shareholder-level income tax. (correct answer)
4. Retain earnings in excess of $1 million without a documented business purpose.

Explanation: The AET is a penalty tax on improper accumulation - earnings retained beyond reasonable business needs with the intent to avoid shareholder taxes. Answer C is correct. Estimated tax failures (A) result in different penalties. Having E&P over $250,000 (B) is the AET credit amount, not the trigger. A$1 million threshold (D) is not the law.

Question 9

1. Taxed at the preferential 15% or 20% long-term capital gains rate applicable to individual taxpayers.
2. Taxed at the flat 21% corporate rate - corporations do not receive preferential capital gains rates. (correct answer)
3. Excluded from income as a long-term capital gain.
4. Subject to a maximum tax rate of 35% for capital gains.

Explanation: Unlike individual taxpayers, C corporations do not receive preferential long-term capital gains rates - all income including long-term capital gains is taxed at the flat 21% rate. Answer B is correct. The 15%/20% preference (A) applies to individuals. Capital gains are not excluded (C). The 35% maximum (D) was the old pre-TCJA rule.

Question 10

1. Book income (per financial statements) to taxable income, identifying temporary and permanent differences between the two. (correct answer)
2. Prior year taxable income to the current year taxable income.
3. The corporation's taxable income to its earnings and profits.
4. Federal taxable income to state taxable income for each state where the corporation operates.

Explanation: Schedule M-1/M-3 reconciles book income to taxable income, identifying all book-tax differences (depreciation, meals, penalties, etc.). Answer A is correct. Year-over-year reconciliation (B) is not M-1/M-3's purpose. E&P reconciliation (C) is on Schedule M-2. State apportionment (D) is on separate state returns.

Question 11

1. E&P uses accelerated depreciation while taxable income uses straight-line.
2. E&P equals taxable income plus the dividends received deduction.
3. E&P uses straight-line depreciation over the ADS life and adds back items excluded from taxable income (tax-exempt interest), resulting in a more accurate measure of economic income available for distribution. (correct answer)
4. E&P is calculated using GAAP accounting principles.

Explanation: E&P is a measure of economic capacity to pay dividends - it uses ADS straight-line depreciation (not MACRS), includes tax-exempt income, and makes other adjustments. Answer C is correct. E&P uses ADS depreciation (not accelerated) (A). E&P is not simply taxable income plus DRD (B). E&P is not GAAP-based (D).

Question 12

1. Any closely held corporation with retained earnings over $250,000.
2. Any corporation earning primarily from passive income.
3. A public corporation earning more than 60% of income from personal services.
4. A closely held corporation (5 or fewer individuals own more than 50% of stock) where at least 60% of adjusted ordinary gross income consists of PHC income (dividends, interest, rents, royalties, personal service income). (correct answer)

Explanation: The PHC tax applies to closely held corporations with concentrated ownership (5 or fewer = 50%+) and primarily passive/PHC income (60%+ threshold). Answer D is correct. Retained earnings (A) triggers the AET, not PHC tax. Any corporation earning passive income (B) is too broad. Public corporations (C) don't meet the closely held requirement.

Question 13

1. Form 1040-X within 2 years of the overpayment.
2. An amended Form 1120-X within 3 years from the original return due date or 2 years from the date the tax was paid, whichever is later. (correct answer)
3. A written request to the IRS National Office within 1 year of filing.
4. Form 843 within 6 months of the overpayment.

Explanation: Corporate refund claims are made on Form 1120-X within the general refund statute of limitations: 3 years from the original due date or 2 years from payment, whichever is later. Answer B is correct. Form 1040-X (A) is for individual returns. Written requests (C) and Form 843 (D) with 1-year/6-month timelines are incorrect.

Question 14

1. $75,000 - the full amount contributed.
2. $60,000 - limited to 12% of taxable income before the contribution.
3. $50,000 - limited to 10$500,000 × 10%). (correct answer)
4. $37,500 - limited to 7.5% of taxable income.

Explanation: Corporate charitable contribution deductions are limited to 10% of taxable income computed before the deduction. $500,000 × 10$50,000. The remaining $25,000 carries forward 5 years. Answer C is correct. The full amount (A) exceeds the limit. 12% (B) and 7.5% (D) are incorrect percentages.

Question 15

1. All C corporations with taxable income over $1 million.
2. S corporations and partnerships with adjusted financial statement income over $1 billion.
3. All business entities with book income exceeding taxable income.
4. Applicable corporations (generally those with average annual adjusted financial statement income of $1 billion or more) at a rate of 15% on adjusted financial statement income. (correct answer)

Explanation: The Inflation Reduction Act's CAMT applies to large corporations (average annual adjusted FSI of $1 billion+) at 15$1 billion FSI, not $1 million taxable income (A). Pass-through entities are not subject to CAMT (B). Not all book/tax differences trigger CAMT (C).

Question 16

1. Is included in taxable income at a reduced rate of 10.5%.
2. Is excluded from corporate taxable income but is included in earnings and profits (E&P). (correct answer)
3. Is excluded from both corporate taxable income and earnings and profits.
4. Is included in both taxable income and earnings and profits.

Explanation: Tax-exempt interest is excluded from taxable income but must be included in E&P because E&P measures economic capacity to pay dividends. Answer B is correct. Tax-exempt interest is not included in taxable income at any rate (A). E&P includes tax-exempt interest (C is wrong). It is not in taxable income (D is wrong).

Question 17

1. Receives a stepped-up basis in the target's stock equal to its cost, but the target's assets retain their historical tax basis unless a Section 338 election is made. (correct answer)
2. Automatically receives a stepped-up basis in both the stock and the target's underlying assets.
3. Must use the target's historical tax basis for the stock regardless of purchase price.
4. May deduct the purchase price as a business expense over 15 years.

Explanation: In a stock acquisition, the acquirer's basis in the target's stock is the purchase price, but the target's assets retain carryover basis - a Section 338 election is needed to step up asset basis (with tax cost). Answer A is correct. Automatic asset step-up (B) requires a Section 338 election. The acquirer gets a cost basis in the stock (C). The purchase price is not deductible (D).

Question 18

1. Only the next year's estimated taxes, with any remaining balance forfeited.
2. Only a refund claim - it cannot be applied to future estimated taxes.
3. Either a refund or the next year's estimated taxes, at the corporation's election on the return. (correct answer)
4. Future tax liabilities for up to 5 years.

Explanation: A corporation with an overpayment may elect to receive a refund or apply the overpayment as a credit toward next year's estimated taxes. Answer C is correct. The overpayment is not limited to future estimates only (A) or refunds only (B). Future application is limited to one year, not five (D).

Question 19

1. Corporate capital losses may offset ordinary income up to $3,000 per year.
2. Corporate capital losses may only offset capital gains - they cannot offset ordinary income - and may be carried back 3 years and forward 5 years. (correct answer)
3. Corporate capital losses are deductible in full in the year incurred.
4. Corporate capital losses carry forward indefinitely without expiration.

Explanation: Unlike individuals (who can deduct up to $3,000 of net capital loss against ordinary income), corporations can only use capital losses to offset capital gains. Excess capital losses carry back 3 years and forward 5 years. Answer B is correct. The$3,000 rule (A) applies to individuals. Full deductibility (C) is incorrect. The carryforward period is limited to 5 years (D).

Question 20

1. Immediately expense qualifying business property in the year of acquisition rather than depreciating it over its useful life, subject to an annual dollar limit and a taxable income limitation. (correct answer)
2. Deduct 100% of all business assets in the year of purchase without limitation.
3. Defer gain on the sale of qualifying property by rolling the proceeds into replacement property.
4. Amortize intangible assets over a 15-year period.

Explanation: Section 179 allows immediate expensing of qualifying business property up to the annual limit ($1.25 million for 2025), subject to a taxable income limitation. Answer A is correct. Section 179 has limits (B). Deferring gain on replacement property (C) describes like-kind exchange rules. 15-year amortization (D) describes Section 197 intangibles.