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CPA Exam — REG (Regulation) practice questions

209 free questions with answers and explanations.

Practice test
  1. 201.A client, a tax-exempt organization under IRC Section 501(c)(3), operates a gift shop on its premises. The gift shop exclusively sells handcrafted items made by individuals with disabilities, which directly furthers the organization's mission of providing vocational training and support. For the current year, the gift shop generated a net profit of $75,000. How should this income be treated for Unrelated Business Income Tax (UBIT) purposes?Federal Taxation of Entities
  2. 202.A client, a C corporation, distributed property with a fair market value (FMV) of $150,000 and an adjusted basis of $100,000 to its sole shareholder. The corporation also has current Earnings and Profits (E&P) of $70,000 and accumulated E&P of $30,000. What is the amount of gain recognized by the C corporation on this distribution?Federal Taxation of Entities
  3. 203.A client, a tax-exempt organization recognized under IRC Section 501(c)(3), operates a small cafe on its premises. The cafe is open to the public and serves coffee, pastries, and light lunch fare. The cafe's primary purpose is to provide vocational training for individuals with disabilities, who comprise 90% of the cafe's workforce. All profits from the cafe are used to fund the organization's charitable programs. Is the income generated by the cafe subject to Unrelated Business Income Tax (UBIT)?Federal Taxation of Entities
  4. 204.A client, a domestic C corporation, incurred a net capital loss of $50,000 in 2023. In 2021, the corporation had a net capital gain of $10,000, and in 2022, it had a net capital gain of $5,000. For the current year (2023), the corporation has a net capital gain of $2,000. How much of the 2023 net capital loss can be carried back, and how much is available for carryforward after applying the carryback rules?Federal Taxation of Entities
  5. 205.A client, a C corporation, has $70,000 of current earnings and profits (E&P) and an accumulated deficit in E&P of ($30,000). The corporation distributes $100,000 cash to its sole shareholder. How much of the distribution is treated as a dividend?Federal Taxation of Entities
  6. 206.A client, a C corporation, has current year taxable income of $1,200,000 before considering a charitable contribution of $150,000. The corporation also has a dividends received deduction (DRD) of $50,000. What is the maximum charitable contribution deduction the corporation can take in the current year?Federal Taxation of Entities
  7. 207.A client, a tax-exempt organization (501(c)(3)), operates a dining hall that serves meals primarily to its students and faculty. Occasionally, during the summer months when the campus is less active, the dining hall is rented out to host weddings and private events for the general public, generating a net income of $40,000. These events require the organization to hire additional staff and purchase extra supplies. Is the income from these private events subject to Unrelated Business Income Tax (UBIT)?Federal Taxation of Entities
  8. 208.A client, a C corporation, has a net capital loss of $40,000 in the current year (2023). It had a net capital gain of $15,000 in 2020 and a net capital gain of $20,000 in 2021. The corporation had no other capital gains or losses in other years. How much of the 2023 net capital loss can be carried back to 2020?Federal Taxation of Entities
  9. 209.A client, a tax-exempt organization (501(c)(3)), operates a bookstore on its university campus. The bookstore primarily sells textbooks and academic supplies to students, which is considered substantially related to its educational mission. However, for a small portion of its inventory, the bookstore also sells general merchandise (e.g., t-shirts, mugs with logos, snacks) to the general public, generating a net profit of $12,000 from these non-academic sales. How should this $12,000 net profit be treated for Unrelated Business Income Tax (UBIT) purposes?Federal Taxation of Entities