CPA REG Exam and answers

CPA REG Exam
c corp shareholders: basis of common stock - ✔✔property=NBV; services=FMV



c corp shareholders: liabilities in excess of basis - ✔✔NBV assets

(liabilities)

=excess liability/gain



corporate taxable income: gross income differences from GAAP - ✔✔-cash received in advance of
accrual GAAP income is taxed

-interest income from municipal/state bonds is not taxed

-life insurance proceeds on key officer not taxed



corporate taxable income: accrual v cash basis - ✔✔-cash basis: <= 26m

-accrual basis: > 26 m



corporate taxable income: executive compensation - ✔✔max $1M deduction for compensation expense
paid to officers



corporate taxable income: bonus accruals - ✔✔deductible if paid by March 15th



corporate taxable income: bad debts - ✔✔-accrual: direct write-off method

-cash: not deductible because never included in taxable income



corporate taxable income: business interest expense - ✔✔deduction limited to 30% of business income
(no limitation if gross receipts < 26m)



corporate taxable income: charitable contributions - ✔✔deductible if accrued and paid by April 15th



corporate taxable income: business/casualty losses - ✔✔-fully destroyed: 100% deductible (NBV)

,-partially destroyed: lesser of FMV decrease or NBV

-less insurance proceeds



corporate taxable income: life insurance premiums - ✔✔-key person, not deductible

-employee owns policy (fringe), deductible



corporate taxable income: business gifts - ✔✔$25/person/yr deductible



corporate taxable income: business meals - ✔✔50% deductible



corporate taxable income: business entertainment expense - ✔✔not deductible



corporate taxable income: deductible taxes - ✔✔federal income tax is not deductible (federal payroll tax
is)



corporate taxable income: capital losses - ✔✔-can only use to offset against capital gains

-carry back 3 years and forward 5



corporate taxable income: dividends received deduction (limitation, exception, and %s) - ✔✔-lesser of
50%/65% of dividends received or taxable income

-exception: no limitation if taking the full DRD results in NOL (may take the higher number and NOL)

-0-20% --> 50% DRD

-20-80% --> 65% DRD

-80+% --> 100% DRD (consolidating)



schedule m-1 and m-3 - ✔✔both reconcile book and tax differences

-m-1: total assets < 10m

-m-3: total assets >= 10m (distinguishes between temporary and permanent differences)

,c corp taxation: filing requirements - ✔✔April 15th (year-end 12/31); Oct 15th extension, but must pay
by April 15th



c corp taxation: estimated tax payments - ✔✔-small corps: lesser of 100% of current year or prior year
tax (cannot be used if PY tax was 0 or PY < 12 months)

-large corps (>= $1m in income): must pay 100% of current year tax



c corp taxation: general business credit - ✔✔-limited to net income tax less 25% of net regular tax
liability over $25k

-carry excess back 1 year and forward 20 years



c corp taxation: R&D tax credit - ✔✔20% of excess over defined base amount



c corp taxation: accumulated earnings tax formula - ✔✔taxable income before DRD, NOL, charity, capital
loss

(all charity)

(all capital losses)

(taxes)

(dividends paid)

=accumulated taxable income

(remaining credit)

=current accumulated taxable income

x 20%

=accumulated earnings tax



c corp taxation: personal holding company tax - ✔✔personal holding company:

->50% owned by <= 5 people AND

-60% of adjusted ordinary gross income includes: net rent, interest that is taxable, royalties, or dividends
from an unrelated US corp

-additional 20% on NI not distributed

, -self-assessed



consolidated tax return requirements - ✔✔-each member must file a consent

-affiliated group (80% or more of both voting power and value)

-doesn't apply to brother-sister corps



consolidated taxable income calculation - ✔✔1. calculate standalone taxable income of each member

2. remove effects of transactions between members (IC sales, dividends received)

3. gains, losses, and deductions determined @ consolidated level

4. combine taxable incomes

5. adjust



consolidated tax returns: filed using what form? - ✔✔1120



consolidated tax returns: accounting methods/tax year used - ✔✔continue to use same accounting
methods; must use parent's tax year



consolidated tax returns: liability - ✔✔jointly and severally liable



disallowed items when calculating corporate NOL - ✔✔-DRD

-charitable contribution deduction

-capital loss carryback

-NOL carryover



corporation distributions: + current E&P; - accumulated E&P - ✔✔dividend to extent of current E&P



corporation distributions: - current E&P; + accumulated E&P - ✔✔net