CPA Tcp Quiz: Evaluate Residency And Nexus Issues

What this quiz covers

This quiz focuses on Evaluate Residency And Nexus Issues, 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. Taxed only on U.S.-source income.
2. Not subject to U.S. tax if they have been abroad for more than one year.
3. Subject to U.S. tax on worldwide income regardless of where they live - U.S. citizens are taxed on a citizenship basis, not a residency basis. (correct answer)
4. Subject to U.S. tax only if they maintain a U.S. domicile.

Explanation: The U.S. taxes its citizens on worldwide income regardless of residency - citizenship-based taxation. Answer C is correct. Citizens abroad pay tax on worldwide, not just U.S.-source income (A). No one-year rule exempts citizens (B). Domicile is irrelevant for citizenship-based taxation (D).

Question 2

1. A nonresident alien for the full year.
2. A dual-status alien - filing a dual-status tax return that applies different rules to the resident and nonresident periods. (correct answer)
3. A resident alien for the full year by making an election.
4. A nonresident alien with a first-year election to be treated as a resident.

Explanation: Dual-status aliens file a dual-status return covering the nonresident period (taxed on U.S.-source income only) and the resident period (taxed on worldwide income). Answer B is correct. They are not a full-year nonresident (A). Resident for full year is possible by election but only under specific circumstances (C). The first-year election (D) is a specific provision for those who become residents and want to elect earlier residency.

Question 3

1. The state where the individual spent the most days during the year.
2. The state where the individual owns real property.
3. The state the individual considers their permanent home and intends to return to - domicile is based on intent and is the primary basis for a state to impose income tax on all worldwide income. (correct answer)
4. The state where the individual is registered to vote.

Explanation: Domicile is the legal concept of permanent home combined with intent - the primary test for state income tax jurisdiction over worldwide income. Answer C is correct. Days alone (A) may create statutory residency but not domicile. Property ownership (B) is one factor but not definitive. Voter registration (D) is evidence of intent but not the definition of domicile.

Question 4

1. The individual owns a vacation home in the state.
2. The individual is domiciled in any of the 50 states.
3. The individual earns any income from sources within the state.
4. The individual maintains a permanent place of abode in the state AND spends more than 183 days in the state during the year - both conditions must be met to establish statutory residency. (correct answer)

Explanation: Statutory residency (distinct from domicile) requires both a permanent place of abode AND more than 183 days in the state. Answer D is correct. Vacation homes (A) alone don't create statutory residency. Domicile elsewhere (B) is the basis for nondomiciliary taxation. In-state income (C) creates source-based taxation, not residency.

Question 5

1. Any presence test showing they were present abroad for part of the year.
2. Either the bona fide residence test (established resident of a foreign country for a full tax year) or the physical presence test (present in a foreign country for 330 full days in a 12-month period). (correct answer)
3. The substantial presence test used for resident alien classification.
4. The domicile test by establishing a foreign domicile.

Explanation: Section 911 requires either bona fide foreign residence (full year) or physical presence abroad for 330 days in a 12-month period. Answer B is correct. Partial year presence (A) is insufficient. The substantial presence test (C) is for determining resident alien status. Foreign domicile (D) is not a Section 911 test.

Question 6

1. The percentage of the year spent in California.
2. The source of income - California taxes only California-source income.
3. The period of residency - California taxes worldwide income earned while a California resident (January through the move date), while Nevada taxes nothing earned during Nevada residency. (correct answer)
4. The taxpayer's choice of allocation method.

Explanation: Part-year residents are taxed on worldwide income during the period of state residency. California taxes all income during residency, not just California-source. Answer C is correct. Days-based proration (A) is a simplification but the correct rule is period-based. Source-based rules (B) apply to nonresidents. Taxpayer election (D) is not available.

Question 7

1. Worldwide income, the same as U.S. citizens and resident aliens.
2. Only earned income from U.S. employers.
3. Only capital gains from U.S. sources.
4. Income effectively connected with a U.S. trade or business (taxed at regular graduated rates) and U.S.-source fixed or determinable, annual or periodic income (FDAP income, taxed at 30% withholding unless reduced by treaty). (correct answer)

Explanation: Nonresident aliens are taxed on ECI at regular rates and FDAP income at 30% (or lower treaty rate). Answer D is correct. Worldwide income (A) applies to citizens and residents. Earned income only (B) ignores FDAP income. Capital gains from U.S. sources are generally not taxed unless ECI or from U.S. real property (C).

Question 8

1. Is exempt from U.S. tax since the seller is a nonresident alien.
2. Is subject to U.S. income tax - FIRPTA treats gains from U.S. real property interests as ECI, and requires the buyer to withhold 15% of the amount realized as a prepayment of the seller's tax. (correct answer)
3. Is taxed at the 30% FDAP withholding rate.
4. Is tax-free for foreign sellers as long as they hold the property more than one year.

Explanation: FIRPTA subjects U.S. real property gains to U.S. tax as if they were ECI, with 15% withholding by the buyer. Answer B is correct. U.S. real property sales are subject to U.S. tax (A). FIRPTA uses the graduated rates (not 30% FDAP) (C). No tax-free holding period applies (D).

Question 9

1. Nonresident aliens are generally taxed only on U.S.-source income (FDAP at 30%) and income effectively connected to a U.S. business - foreign-source income not connected to U.S. business is generally not taxed. (correct answer)
2. All income earned by a nonresident alien working in the U.S. is U.S.-source income.
3. Source rules determine whether income is taxed at the capital gains rate or ordinary income rate.
4. Source rules apply only when the nonresident alien has dual citizenship.

Explanation: Income source determines U.S. tax exposure for nonresident aliens - U.S.-source FDAP and ECI are taxed; foreign-source income not connected to U.S. business generally is not. Answer A is correct. Source depends on the nature and location of income, not just where the person works (B). Source rules don't determine rate type (C). Source rules apply broadly, not just to dual citizens (D).

Question 10

1. The individual filed a tax return in that state.
2. The individual earned income within the state's borders.
3. The individual's domicile is in that state - established by physical presence combined with intent to make it their permanent home with no present intention of leaving. (correct answer)
4. The individual has a bank account or investments in the state.

Explanation: Domicile requires both physical presence and intent - it is the state the individual considers their fixed and permanent home. Answer C is correct. Filing a return (A) doesn't establish domicile. Earning in-state income (B) supports source-based nonresident taxation. Financial accounts (D) are evidence but not determinative.

Question 11

1. No income since the work was performed outside the state.
2. All income allocated to work-from-home days if the remote work is for the employee's convenience rather than a necessity of the employer - New York taxes nonresidents on all income earned for a New York employer unless working remotely is required by the employer. (correct answer)
3. Income only from the days the employee is physically present in the employer's state.
4. 50% of income since the employee splits time between states.

Explanation: The convenience of the employer rule taxes nonresidents on days worked outside the employer state if the remote work is for employee convenience - creating double taxation when both the employee's home state and employer state claim the same income. Answer B is correct. Work-from-home days may still be taxed by the employer state (A). Physical presence alone (C) understates the reach. 50% rule (D) is not the standard.

Question 12

1. Allow residents of one state who work in another state to pay income tax only to their state of residence - preventing double taxation of wages by both the work state and the residence state. (correct answer)
2. Require states to honor each other's tax liens and assessments.
3. Apply to corporate income taxes only, not individual income taxes.
4. Require identical tax rates between states that have agreements.

Explanation: Reciprocity agreements allow workers to pay taxes only to their home state, even if they work in the reciprocal state - simplifying compliance for border-crossing workers. Answer A is correct. They don't cover tax enforcement (B). They apply to individual wages (C). Identical rates are not required (D).

Question 13

1. They owe any U.S. taxes at the time of expatriation.
2. They move to a country that does not have a tax treaty with the United States.
3. They meet a net worth threshold ($2 million+), tax liability threshold (average annual net income tax over$190,000 for the 5 prior years), or fail to certify 5-year tax compliance - the exit tax treats the individual as having sold all worldwide assets at FMV on the day before expatriation. (correct answer)
4. They expatriate to avoid paying a specific tax liability.

Explanation: Section 877A's 'covered expatriate' rules impose exit tax on those meeting net worth, tax liability, or compliance certification thresholds - treating a deemed sale of all assets on the day before expatriation. Answer C is correct. Owing taxes (A) alone doesn't trigger exit tax. No-treaty countries (B) are not the trigger. Specific avoidance intent (D) is not required; the objective thresholds determine coverage.

Question 14

1. Only income earned while a resident of the state.
2. All income for the full year, apportioned by the fraction of the year spent in the state.
3. Only income from sources within the state.
4. Worldwide income during the period of residency, plus income from state sources during the nonresident period - combining resident and nonresident taxation rules. (correct answer)

Explanation: Part-year residents are taxed on worldwide income during the resident period (like full-year residents) and on state-source income during the nonresident period (like nonresidents). Answer D is correct. Source-only during residency (A) is incorrect. Full-year apportionment (B) is not the standard. Source-only for the entire year (C) ignores the resident period.

Question 15

1. The foreign tax deduction only - foreign taxes must be deducted, not credited.
2. The foreign tax credit (Section 901) - providing a dollar-for-dollar credit for foreign taxes paid on foreign-source income, subject to the foreign tax credit limitation, or alternatively a deduction for foreign taxes paid. (correct answer)
3. The Section 911 exclusion, which excludes all foreign income from U.S. tax.
4. A treaty exemption from all U.S. tax on foreign-source income.

Explanation: The foreign tax credit (Section 901) provides relief from double taxation by crediting foreign taxes against U.S. tax liability, subject to limitations. The taxpayer may also elect to deduct foreign taxes. Answer B is correct. Foreign taxes may be credited or deducted (A). Section 911 excludes earned income up to the limit (C). Treaties reduce but rarely eliminate all foreign source taxation (D).

Question 16

1. The number of days spent in each state (using the '183-day rule'), the location of the taxpayer's primary residence, where the taxpayer's family lives, the location of business activities, and the location of significant personal ties and financial accounts. (correct answer)
2. Only the taxpayer's most recent state tax filing.
3. Whether the taxpayer earned more income in the claimed state of residency.
4. Whether the taxpayer maintains a bank account in the claimed state of residency.

Explanation: Residency audits examine the totality of facts - days in each state, primary home, family location, business activities, and personal/financial ties - to determine the true state of domicile or statutory residence. Answer A is correct. Prior filings (B) are just one piece of evidence. Income earned (C) is a factor but not determinative. Bank accounts (D) are one factor among many.

Question 17

1. Ensuring their investment income remains below $1 million to avoid New York exit tax.
2. New York's aggressive residency audit program - New York scrutinizes high-income taxpayer domicile changes, requires clear abandonment of New York domicile, and audits day counts and ties to New York carefully. (correct answer)
3. Florida's reciprocity agreement with New York that taxes former New York residents.
4. The federal exit tax that applies when changing state domicile.

Explanation: New York aggressively audits high-income taxpayers who claim to have changed domicile to Florida, carefully examining day counts, primary domicile factors, and ties to New York. Answer B is correct. New York has no exit tax (A). No NY-FL reciprocity agreement exists (C). The federal exit tax applies to expatriation from the U.S., not state changes (D).

Question 18

1. Subject to U.S. income tax withholding by the employer.
2. Subject to U.S. tax under FDAP rules at 30%.
3. Subject to U.S. tax since the payor is a U.S. employer.
4. Not subject to U.S. income tax - wages for services performed entirely outside the U.S. by a nonresident alien are foreign-source income not subject to U.S. tax. (correct answer)

Explanation: Income source for wages is where the services are performed - wages for services performed entirely outside the U.S. are foreign-source income, not subject to U.S. tax for a nonresident alien. Answer D is correct. No withholding is required (A). FDAP applies to U.S.-source income (B). Payor location doesn't determine source for services income (C).

Question 19

1. Only State A's tax since domicile supersedes statutory residency.
2. Only State B's tax since they spent more days there.
3. A combined tax equal to the higher of the two states' rates.
4. Double taxation unless one or both states provide a resident credit for taxes paid to the other state - the individual must carefully track days and challenge the residency determination in one state if possible. (correct answer)

Explanation: Dual residency creates double taxation risk - most states provide resident credits for taxes paid to other states, but the credit may not fully eliminate the double burden. Answer D is correct. Domicile doesn't automatically trump statutory residency (A). Days alone don't determine the tax outcome (B). Combined rates are not how state taxes work (C).

Question 20

1. The trust was created by a resident of a high-tax state.
2. The trust holds investments in high-tax states.
3. The state of the grantor or beneficiary claims jurisdiction to tax the trust's income based on residency of the grantor, beneficiary, or trustee - many states assert trust nexus based on resident connections. (correct answer)
4. The trust earns more than $100,000 annually.

Explanation: States assert jurisdiction over trusts based on connections to the state - resident grantor, resident beneficiary, or resident trustee can create state tax nexus for the trust. Answer C is correct. Grantor residency alone (A) may be a factor but nexus is broader. Investment location (B) creates source-based taxation. Dollar thresholds (D) are not the nexus test.