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CPA Exam — REG (Regulation) practice questions

209 free questions with answers and explanations.

Practice test
  1. 51.A CPA is preparing a federal income tax return for a client. The client informs the CPA that they received a Form 1099-DIV for dividend income but has lost the form and cannot recall the exact amount. The client estimates the dividend income to be approximately $500. What is the CPA's most appropriate course of action under Circular 230?Ethics, Professional Responsibilities, and Federal Tax Procedures
  2. 52.A tax preparer discovers an error in a client's previously filed tax return that resulted in a material understatement of tax liability. The client is unaware of the error. Under Circular 230, what is the preparer's responsibility?Ethics, Professional Responsibilities, and Federal Tax Procedures
  3. 53.A client, a tax-exempt organization, received a substantial gift from a donor. The donor specified that the gift must be used to fund a new research facility and cannot be used for general operating expenses. Which type of fund is this gift most likely to be classified as for financial reporting purposes?Federal Taxation of Entities
  4. 54.A client, Partnership X, distributes property with a fair market value (FMV) of $50,000 and an adjusted basis to the partnership of $30,000 to Partner C in a nonliquidating distribution. Partner C's adjusted basis in her partnership interest before the distribution was $25,000. What is Partner C's basis in the distributed property immediately after the distribution?Federal Taxation of Entities
  5. 55.A client, a limited partnership, has a general partner (GP) and a limited partner (LP). The partnership agreement states that all profits and losses are shared 50/50. The GP contributed services only, with no capital contribution. The LP contributed $100,000 cash. If the partnership incurs a $120,000 ordinary loss in its first year of operations, how much of this loss can the LP deduct, assuming sufficient basis and at-risk amounts?Federal Taxation of Entities
  6. 56.A client, Partnership P, has two 50% partners, A and B. For the current year, P's ordinary business income is $100,000, and it has a separately stated long-term capital gain of $20,000. Partner A's basis before any distributions or income allocations was $70,000. What is Partner A's adjusted basis at year-end?Federal Taxation of Entities
  7. 57.A client, ABC Corp, a C corporation, reported taxable income of $250,000 for the current tax year. The corporation also received $10,000 in dividends from a 15%-owned domestic corporation. What is ABC Corp's dividends received deduction (DRD)?Federal Taxation of Entities
  8. 58.A client, an S corporation, made a distribution of $20,000 to its sole shareholder, whose basis in the stock was $15,000. The S corporation has no accumulated adjustments account (AAA) balance and no accumulated E&P. What is the shareholder's taxable gain from this distribution?Federal Taxation of Entities
  9. 59.A client, a C corporation, has accumulated earnings and profits (E&P) of $100,000. It distributes $70,000 cash to its sole shareholder, whose basis in the stock is $50,000. What is the amount of taxable dividend recognized by the shareholder?Federal Taxation of Entities
  10. 60.A client, a domestic C corporation, made a liquidating distribution of property to its sole shareholder. The property had a fair market value (FMV) of $100,000 and an adjusted basis to the corporation of $60,000. The corporation had no liabilities. What is the amount of gain recognized by the liquidating corporation?Federal Taxation of Entities
  11. 61.A client, a C corporation, incurred a net capital loss of $15,000 in the current year. It had a net capital gain of $5,000 in the prior year and $2,000 in the year before that. What is the amount of the capital loss carryback available to the C corporation for the prior year?Federal Taxation of Entities
  12. 62.A client, S Corp X, has two equal shareholders, M and N. X's ordinary business income for the year is $80,000. It also has a tax-exempt interest income of $5,000 and charitable contributions of $10,000. Shareholder M's initial basis was $40,000. What is M's basis after these allocations, assuming no distributions?Federal Taxation of Entities
  13. 63.A business, Tech Solutions Inc., acquired a piece of equipment for $200,000 on October 15, 2023. The equipment is 7-year MACRS property. Tech Solutions Inc. made no other asset purchases in 2023. What MACRS depreciation convention must be used for this equipment for 2023?Federal Taxation of Property Transactions
  14. 64.A client, an individual, is a 50% limited partner in Partnership XYZ. Their adjusted basis in the partnership interest is $40,000. Their share of partnership nonrecourse liabilities is $60,000. In the current year, the partnership incurs a $120,000 ordinary loss. Assuming no other limitations apply, what is the maximum amount of loss Partner A can deduct?Federal Taxation of Entities
  15. 65.A client, single, age 40, has an AGI of $70,000. They paid $3,000 in student loan interest during the year. What is the maximum student loan interest deduction they can claim?Federal Taxation of Individuals
  16. 66.A corporation, XYZ Inc., sells a machine for $20,000. The machine was acquired several years ago for $50,000 and has accumulated depreciation of $40,000. What is the amount and character of the gain or loss on this sale?Federal Taxation of Property Transactions
  17. 67.A small business owner, Ms. Patel, purchased and placed in service new qualified Section 179 property costing $1,200,000 in 2023. Her taxable income from her trade or business (before any Section 179 deduction) was $100,000. Assuming the maximum Section 179 expense for 2023 is $1,160,000 and the phase-out begins at $2,890,000 of qualifying property, what is Ms. Patel's deductible Section 179 expense for 2023?Federal Taxation of Property Transactions
  18. 68.A self-employed client, age 38, reported net earnings from self-employment of $120,000 for the current tax year. What is the maximum amount of the self-employment tax that they can deduct for adjusted gross income (AGI) purposes?Federal Taxation of Individuals
  19. 69.A client, single, age 55, contributes $4,500 to a Health Savings Account (HSA) in the current year. They are covered by a high-deductible health plan (HDHP). The annual HSA contribution limit for someone under age 55 with HDHP coverage is $3,850. What is the maximum amount of their HSA contribution that is deductible for tax purposes?Federal Taxation of Individuals
  20. 70.A client, single, age 50, has an Adjusted Gross Income (AGI) of $80,000. They contributed $6,500 to a traditional IRA during the year. They are not covered by an employer-sponsored retirement plan. What is the maximum amount of their IRA contribution that is deductible for tax purposes?Federal Taxation of Individuals
  21. 71.A client, a partnership, incurred $50,000 in ordinary business losses for the current year. Partner C, a general partner, has an adjusted basis in their partnership interest of $30,000 and an at-risk amount of $25,000. How much of the ordinary loss can Partner C deduct in the current year, assuming no other limitations apply?Federal Taxation of Entities
  22. 72.A client, a partnership, has two partners, A and B, who each have a 50% interest in profits and losses. The partnership purchased equipment for $100,000, financed by a nonrecourse loan of $80,000. Partner A's adjusted basis in the partnership interest before considering the loan is $15,000. How much of the nonrecourse debt increases Partner A's basis?Federal Taxation of Entities
  23. 73.A client, single, age 55, is covered by a high-deductible health plan (HDHP). They contributed $4,000 to their Health Savings Account (HSA) in the current year. Their employer also contributed $1,000. What is the maximum deductible HSA contribution the client can take for the year?Federal Taxation of Individuals
  24. 74.A taxpayer exchanges undeveloped land with an adjusted basis of $100,000 and a fair market value (FMV) of $150,000 for another parcel of undeveloped land with an FMV of $140,000 and $10,000 cash. This qualifies as a §1031 like-kind exchange. What is the taxpayer's recognized gain on this exchange?Federal Taxation of Property Transactions
  25. 75.A client, single and age 68, received $25,000 in Social Security benefits in the current tax year. Their other income included $30,000 from a private pension and $5,000 in interest income. What amount of Social Security benefits is taxable?Federal Taxation of Individuals
  26. 76.A client, married filing jointly, has an AGI of $220,000. They paid $8,000 in qualified education expenses for their dependent child attending their first year of college. What is the maximum American Opportunity Tax Credit (AOTC) they can claim?Federal Taxation of Individuals
  27. 77.A client, an S corporation, originally issued stock for $50,000. In the current year, the S corporation's ordinary business income is $80,000, and it distributes $30,000 to its sole shareholder. The shareholder's basis in their S corporation stock at the beginning of the year was $100,000. What is the shareholder's basis in their S corporation stock at the end of the year?Federal Taxation of Entities
  28. 78.A single taxpayer, age 45, is subject to the Alternative Minimum Tax (AMT). Their regular taxable income is $150,000. They have the following items: state income tax deduction of $8,000 (included in regular itemized deductions), ISO exercise bargain element of $20,000, and a standard deduction of $13,850. What is their Alternative Minimum Taxable Income (AMTI) before the AMT exemption?Federal Taxation of Individuals
  29. 79.A client, a C corporation, wishes to distribute appreciated property to its shareholders as a nonliquidating distribution. The property has a fair market value (FMV) of $200,000 and an adjusted basis of $120,000. What is the amount of gain recognized by the distributing C corporation?Federal Taxation of Entities
  30. 80.A client, a domestic C corporation, has a current year net capital gain of $10,000 and incurred a net capital loss of $5,000 in the prior year. What is the amount of net capital gain that the C corporation must include in its current year taxable income?Federal Taxation of Entities
  31. 81.A client, single, age 30, has a gross income of $75,000. They have $12,000 in itemized deductions, which exceeds their standard deduction. They also contributed $3,000 to their traditional IRA. What is their taxable income?Federal Taxation of Individuals
  32. 82.A client, a tax-exempt organization, operates a gift shop that sells religious merchandise and books related to its exempt purpose. The gift shop is open to the public and generates a significant profit. What is the tax treatment of the income from this gift shop?Federal Taxation of Entities
  33. 83.A client, Mr. Chen, sells stock for $20,000 that he purchased for $15,000 two years ago. He incurred $500 in brokerage fees when selling the stock. What is the amount realized on the sale?Federal Taxation of Property Transactions
  34. 84.A client, a tax-exempt organization, operates a small convenience store on its premises, selling snacks and beverages to visitors. The store is open to the public during the organization's regular operating hours. The net income from the store is $50,000 for the current year. The organization's primary exempt purpose is providing educational services. Is the income from the convenience store subject to Unrelated Business Income Tax (UBIT)?Federal Taxation of Entities
  35. 85.A client, single, age 32, received a $10,000 scholarship for tuition and fees and an additional $2,000 for room and board. They also worked part-time and earned $5,000 in wages. What amount of the scholarship is includible in their gross income?Federal Taxation of Individuals
  36. 86.A farmer, Mr. Jensen, exchanged his old tractor (adjusted basis $30,000, FMV $40,000) for a new tractor (FMV $55,000) and paid $15,000 cash in the exchange. This qualifies as a like-kind exchange under §1031. What is Mr. Jensen's basis in the new tractor?Federal Taxation of Property Transactions
  37. 87.A taxpayer is required to make estimated tax payments. For the current tax year, their prior year's AGI was $180,000, and their prior year's tax liability was $30,000. They anticipate their current year's tax liability will be $40,000. What is the minimum amount of estimated tax they must pay to avoid an underpayment penalty, assuming they pay in four equal installments?Federal Taxation of Individuals
  38. 88.A sole proprietor, Mr. Davies, purchased a commercial truck for $60,000 on March 1, 2023. The truck is 5-year MACRS property. He elected not to take Section 179 expense or bonus depreciation. Using the half-year convention, what is the MACRS depreciation deduction for 2023? (MACRS 5-year property rates: Year 1: 20.00%, Year 2: 32.00%, Year 3: 19.20%, Year 4: 11.52%, Year 5: 11.52%, Year 6: 5.76%)Federal Taxation of Property Transactions
  39. 89.A client, single, age 60, has an Adjusted Gross Income (AGI) of $90,000. They incurred $10,000 in qualified medical expenses during the year. What is the maximum amount of these medical expenses that can be deducted for tax purposes, assuming they itemize deductions?Federal Taxation of Individuals
  40. 90.A client, a C corporation, has current year taxable income of $800,000 before considering a charitable contribution of $100,000. It also has a net operating loss (NOL) carryforward from a previous year of $50,000. What is the maximum charitable contribution deduction the corporation can take for the current year?Federal Taxation of Entities
  41. 91.A client, single, age 35, reports the following income for the tax year: W-2 wages of $70,000, interest income from a corporate bond of $500, and municipal bond interest of $300. The client also received a $1,000 gift from their grandmother. What is the client's gross income for federal income tax purposes?Federal Taxation of Individuals
  42. 92.A client, single, age 45, is preparing their tax return. They received $5,000 in unemployment benefits and $2,000 from a state lottery prize. They also sold stock for a $1,500 capital gain. What is the total amount of these items that must be included in their gross income?Federal Taxation of Individuals
  43. 93.A client, single, age 60, has gross income of $80,000. They have $10,000 in itemized deductions. The standard deduction for a single person in their age group is $15,700. What is their taxable income?Federal Taxation of Individuals
  44. 94.A single taxpayer, age 30, earns $60,000 in W-2 wages. They have no other income or deductions. Using the 2023 standard deduction and tax brackets for a single filer, what is their taxable income?Federal Taxation of Individuals
  45. 95.A client, a publicly supported tax-exempt organization, received a substantial gift from a donor. The gift was unrestricted and will be used for the organization's general operating expenses. In which net asset classification should this gift be reported on the organization's financial statements?Federal Taxation of Entities
  46. 96.A client, single, age 70, received $30,000 in Social Security benefits and had $25,000 in other gross income. What is the amount of their Social Security benefits that must be included in their gross income?Federal Taxation of Individuals
  47. 97.A client, Mr. Johnson, purchased a tract of land for $200,000. He incurred surveying fees of $5,000, legal fees for title examination of $3,000, and real estate taxes of $2,000 that were due prior to the purchase but paid by Mr. Johnson at closing. What is Mr. Johnson's adjusted basis in the land?Federal Taxation of Property Transactions
  48. 98.A client operates a sole proprietorship. For the current tax year, their net earnings from self-employment are $80,000. What is the amount of their deductible self-employment tax?Federal Taxation of Individuals
  49. 99.A client, a tax-exempt organization, operates a publishing house that produces and sells books related to its exempt educational mission. The prices charged for the books are set to cover costs and generate a modest surplus which is used to further the organization's educational programs. Is the income from the sale of these books subject to Unrelated Business Income Tax (UBIT)?Federal Taxation of Entities
  50. 100.A taxpayer is self-employed and expects to have a substantial increase in income for the current tax year compared to the prior year. Their prior year's AGI was $100,000. To avoid an underpayment penalty, what is the minimum estimated tax payment percentage of the current year's tax liability they generally need to pay if their AGI for the prior year was NOT over $150,000?Federal Taxation of Individuals