CPA REG (Regulation) Real practice Exam
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1. Which of the following items is excluded from gross income?
a. Alimony received (pre-2019 divorce)
b. Gambling winnings
c. Life insurance proceeds received due to the death of the insured
d. Unemployment compensation
c. Life insurance proceeds received due to the death of the insured
Life insurance proceeds are generally excluded from gross income under IRC §101(a)
when received due to the death of the insured.
2. Which of the following taxpayers may use the cash method of accounting for tax
purposes?
a. A C corporation with average annual gross receipts over $30 million
b. A partnership with a C corporation partner
c. A personal service corporation
d. A tax shelter
c. A personal service corporation
Personal service corporations are allowed to use the cash method regardless of gross
receipts in most cases.
3. Which of the following is a capital asset?
a. Inventory
b. Depreciable equipment used in a business
c. Accounts receivable from sales
d. Stocks held for investment
d. Stocks held for investment
Capital assets generally include property held for investment, such as stocks and
bonds, but exclude inventory, depreciable business property, and accounts receivable.
4. In 2024, the annual gift tax exclusion per donee is:
a. $15,000
, b. $16,000
c. $17,000
d. $18,000
c. $17,000
For 2024, the IRS annual gift tax exclusion per recipient is $17,000.
5. A taxpayer sells personal-use property at a loss. For tax purposes, this loss is:
a. Deductible as an ordinary loss
b. Deductible as a capital loss
c. Nondeductible
d. Deferred until a future gain occurs
c. Nondeductible
Losses on the sale of personal-use property are not deductible under IRC §262.
6. A sole proprietor reports business income on which form?
a. Form 1120
b. Schedule C of Form 1040
c. Form 1065
d. Schedule E of Form 1040
b. Schedule C of Form 1040
Sole proprietors use Schedule C to report income and expenses from their business.
7. Which of the following items is subject to self-employment tax?
a. S corporation shareholder wages
b. C corporation dividends
c. Partnership guaranteed payments
d. Municipal bond interest
c. Partnership guaranteed payments
Guaranteed payments to partners are considered earned income subject to self-
employment tax.
8. Which type of bankruptcy is used for liquidation?
a. Chapter 7
b. Chapter 11
c. Chapter 12
d. Chapter 13
a. Chapter 7
Chapter 7 bankruptcy involves liquidation of assets to satisfy debts.
9. Which of the following is a requirement for a Section 351 transfer to be tax-free?
a. Transferors must receive only cash
b. Transferors must have control immediately after the exchange
c. The corporation must be an S corporation
, d. The property transferred must be inventory only
b. Transferors must have control immediately after the exchange
Section 351 requires that transferors own at least 80% of the corporation
immediately after the exchange for the transfer to be tax-free.
10. Which of the following is deductible for AMT purposes?
a. State income taxes
b. Home mortgage interest on acquisition debt
c. Miscellaneous itemized deductions
d. Real property taxes
b. Home mortgage interest on acquisition debt
AMT disallows certain deductions like state taxes, but allows interest on acquisition
debt.
11. A taxpayer qualifies as a qualifying child for the child tax credit if the child is:
a. Age 24 and a full-time student
b. Age 19 and lives with the taxpayer for 6 months
c. Age 17 and is the taxpayer’s dependent
d. Age 18 and earns $6,000 in wages
c. Age 17 and is the taxpayer’s dependent
Qualifying child must be under age 17 for the child tax credit? Note: child tax credit
age limits apply; a child under age 17 at the end of the tax year generally qualifies.
The child must also be a dependent.
12. For federal income tax, which of the following is a nonrefundable credit?
a. Earned Income Tax Credit
b. Child Tax Credit (portion refundable)
c. Foreign Tax Credit
d. American Opportunity Credit (portion refundable)
c. Foreign Tax Credit
The foreign tax credit is nonrefundable; it can reduce tax liability but not produce a
refund beyond tax liability.
13. Which business entity provides limited liability to owners and generally is a pass-
through for tax purposes?
a. C corporation
b. General partnership
c. S corporation
d. Sole proprietorship
c. S corporation
S corporations provide limited liability and are pass-through entities for tax
purposes (subject to S-election requirements).
With Actual Questions,Rationales And
Verified Answers/Expert Verified For
Guaranteed Pass/Latest Update/Download
1. Which of the following items is excluded from gross income?
a. Alimony received (pre-2019 divorce)
b. Gambling winnings
c. Life insurance proceeds received due to the death of the insured
d. Unemployment compensation
c. Life insurance proceeds received due to the death of the insured
Life insurance proceeds are generally excluded from gross income under IRC §101(a)
when received due to the death of the insured.
2. Which of the following taxpayers may use the cash method of accounting for tax
purposes?
a. A C corporation with average annual gross receipts over $30 million
b. A partnership with a C corporation partner
c. A personal service corporation
d. A tax shelter
c. A personal service corporation
Personal service corporations are allowed to use the cash method regardless of gross
receipts in most cases.
3. Which of the following is a capital asset?
a. Inventory
b. Depreciable equipment used in a business
c. Accounts receivable from sales
d. Stocks held for investment
d. Stocks held for investment
Capital assets generally include property held for investment, such as stocks and
bonds, but exclude inventory, depreciable business property, and accounts receivable.
4. In 2024, the annual gift tax exclusion per donee is:
a. $15,000
, b. $16,000
c. $17,000
d. $18,000
c. $17,000
For 2024, the IRS annual gift tax exclusion per recipient is $17,000.
5. A taxpayer sells personal-use property at a loss. For tax purposes, this loss is:
a. Deductible as an ordinary loss
b. Deductible as a capital loss
c. Nondeductible
d. Deferred until a future gain occurs
c. Nondeductible
Losses on the sale of personal-use property are not deductible under IRC §262.
6. A sole proprietor reports business income on which form?
a. Form 1120
b. Schedule C of Form 1040
c. Form 1065
d. Schedule E of Form 1040
b. Schedule C of Form 1040
Sole proprietors use Schedule C to report income and expenses from their business.
7. Which of the following items is subject to self-employment tax?
a. S corporation shareholder wages
b. C corporation dividends
c. Partnership guaranteed payments
d. Municipal bond interest
c. Partnership guaranteed payments
Guaranteed payments to partners are considered earned income subject to self-
employment tax.
8. Which type of bankruptcy is used for liquidation?
a. Chapter 7
b. Chapter 11
c. Chapter 12
d. Chapter 13
a. Chapter 7
Chapter 7 bankruptcy involves liquidation of assets to satisfy debts.
9. Which of the following is a requirement for a Section 351 transfer to be tax-free?
a. Transferors must receive only cash
b. Transferors must have control immediately after the exchange
c. The corporation must be an S corporation
, d. The property transferred must be inventory only
b. Transferors must have control immediately after the exchange
Section 351 requires that transferors own at least 80% of the corporation
immediately after the exchange for the transfer to be tax-free.
10. Which of the following is deductible for AMT purposes?
a. State income taxes
b. Home mortgage interest on acquisition debt
c. Miscellaneous itemized deductions
d. Real property taxes
b. Home mortgage interest on acquisition debt
AMT disallows certain deductions like state taxes, but allows interest on acquisition
debt.
11. A taxpayer qualifies as a qualifying child for the child tax credit if the child is:
a. Age 24 and a full-time student
b. Age 19 and lives with the taxpayer for 6 months
c. Age 17 and is the taxpayer’s dependent
d. Age 18 and earns $6,000 in wages
c. Age 17 and is the taxpayer’s dependent
Qualifying child must be under age 17 for the child tax credit? Note: child tax credit
age limits apply; a child under age 17 at the end of the tax year generally qualifies.
The child must also be a dependent.
12. For federal income tax, which of the following is a nonrefundable credit?
a. Earned Income Tax Credit
b. Child Tax Credit (portion refundable)
c. Foreign Tax Credit
d. American Opportunity Credit (portion refundable)
c. Foreign Tax Credit
The foreign tax credit is nonrefundable; it can reduce tax liability but not produce a
refund beyond tax liability.
13. Which business entity provides limited liability to owners and generally is a pass-
through for tax purposes?
a. C corporation
b. General partnership
c. S corporation
d. Sole proprietorship
c. S corporation
S corporations provide limited liability and are pass-through entities for tax
purposes (subject to S-election requirements).
