ALL COMBINED

1. Bob's total tax is $5,100. He paid $3,200 through withholding and $1,000 with his extension by the original due date. What amount is subject to the Failure-to-Pay Penalty?

$900

2. What condition prevents a corporation from qualifying as an S Corporation?

The corporation has both common and preferred stock.

3. Parent Corp. owns 40% of Sub Corp. and receives an $8,000 dividend. What is the maximum dividends-received deduction (DRD)?

$5,200.

4. What similarity exists between a limited partnership and a corporation?

Both are created under statute and must file a certificate with the proper state authorities.

5. For Series EE Savings Bond interest used for qualified education expenses, what ownership condition must be met?

The purchaser must be the sole owner, or joint owner with their spouse.

6. Who has authority to revoke a CPA's license?

State board of accountancy.

7. Martin Corp. places $4,590,000 of equipment in service. The 2026 Section 179 maximum is $2,560,000 and phaseout begins at $4,090,000. What is the Section 179 deduction?

$2,060,000.

8. Parties agree to new terms that will discharge an old obligation, and the new terms are fulfilled. What is this called?

Accord and satisfaction.

9. Each partner begins with a $50,000 basis. Partnership loss is $25,000, investment income is $5,000, and total liabilities decrease from $30,000 to $20,000. Each owns 50%. What is each partner's ending basis?

$35,000.

10. Emerald Corporation made an S election on December 8, Year 3. When does the S election become effective?

January 1, Year 4.

11. Does both tax-exempt interest and taxable interest increase a shareholder's basis in S corporation stock?

Yes. Both tax-exempt and taxable interest increase basis.

12. Under Circular 230, what must a practitioner do when a client requests their records?

Return all client records at the client's request.

13. If a corporation's charitable contributions exceed the deduction limitation, what happens to the excess?

It may be carried forward for up to 5 succeeding years.

14. A taxpayer's personal-use home in a presidentially declared disaster area suffers a casualty loss, but insurance reimburses the entire loss. What is the casualty loss deduction?

$0.

15. A taxpayer's spouse died in Year 1. In Year 4, the taxpayer lives with a 19-year-old dependent daughter who is a college student. What is the taxpayer's filing status?

Head of household.

16. Under a pre-2019 divorce agreement, mortgage payments must continue even if the recipient spouse dies. How much of the payments are taxable as alimony to the recipient?

$0.

17. What is a typical characteristic of a 501(c)(3) private foundation rather than a public charity?

Its primary activity is making grants to other charitable organizations.

18. A corporation may reduce its regular income tax by taking a tax credit for what type of taxes?

Foreign income taxes.

19. Under the UCC, what rule applies when modifying a sales contract?

The modification must satisfy the Statute of Frauds if the contract as modified falls within its provisions.

20. Under the Bankruptcy Code's reorganization provisions, can a proceeding begin voluntarily or involuntarily?

Yes. The proceeding may be voluntary or involuntary.

21. Which promise is supported by legally sufficient consideration and enforceable?

A promise to pay a minor $500 to paint a garage.

22. What is the U.S. Tax Court?

A specialized trial court for federal tax cases where trials are by judge, not jury.

23. How are a C corporation's net capital losses used?

Carried back 3 years and forward 5 years.

24. What item should be included on Schedule M-1 to reconcile book income to taxable income?

Premiums paid on a key-person life insurance policy.

25. When does the penalty for failure to file tax preparer information returns not apply?

When the failure is due to reasonable cause and not willful neglect.

26. Equipment costs $55,000, delivery is $725, installation is $300, and sales tax is $3,400. What is the depreciable basis?

$59,425.

27. What is NOT required for a security interest to attach?

A proper filing.

28. A C corporation has $145,000 of adjusted taxable income and makes a $15,000 charitable contribution. With a 1% floor and 10% ceiling, what is the deduction?

$13,550.

29. What increases an S corporation's accumulated adjustments account (AAA)?

Interest and dividends.

30. What does Circular 230 prohibit a practitioner from doing with a client's IRS refund check?

Endorsing or negotiating the client's refund check.

31. Nia reports $1,000 of CD interest and a $200 early withdrawal penalty. How are these reported?

$1,000 as interest income and a $200 adjustment to AGI.

32. When does federal law prohibit a state from imposing income tax on net income from sales?

When orders are taken in the state, accepted at headquarters outside the state, and shipped from outside the state.

33. Which bankruptcy debt is generally dischargeable: a pre-petition debt from negligence or income tax from a fraudulent return?

The pre-petition debt from negligence only.

34. For income to be taxable, what must occur?

The income must be both realized and recognized.

35. If the prior year's tax liability was $0, can a taxpayer use 100% of prior-year tax to avoid an estimated-tax underpayment penalty?

Yes. 100% of prior-year tax is $0, so this safe harbor is not lost.

36. How is the employer portion (one-half) of self-employment tax treated?

It is a deduction to arrive at adjusted gross income (AGI).

37. A tax practitioner discovers an error in a client's prior-year tax return. What must the practitioner do?

Advise the client of the error.

38. An accrual-basis corporation makes $10,000 of matching charitable contributions and authorizes another $30,000 before year-end that is paid by the required deadline. What are qualified contributions for the year?

$40,000.

39. A taxpayer's home has a $150,000 basis and is destroyed in a federally declared disaster. Insurance pays $300,000. What is the casualty loss deduction?

$0.

40. What does filing an involuntary bankruptcy petition do regarding judgment liens?

Stops enforcement of judgment liens against property in the bankruptcy estate.

41. A company purchases $20,000 of equipment in February and $30,000 of furniture in November. What depreciation convention applies?

Mid-quarter convention.

42. Married taxpayers have $275,000 AGI. One participates in an employer retirement plan and the other does not. What is their maximum 2026 traditional IRA deduction?

$0.

43. A student earns $5,000 from a job and receives a $25,000 scholarship used for tuition, fees, and books. How much is included in gross income?

$5,000.

44. A C corporation has $860,000 ATI and $90,000 of total current/carryover charitable contributions. With a 1% floor and 10% ceiling, what is deductible?

$81,400.

45. For an SSTB taxpayer with taxable income above the QBI income limitation, how much QBI deduction is allowed?

No QBI deduction is allowed.

46. Which oral agreement is enforceable without a writing under the Statute of Frauds?

An agreement to employ a person for life.

47. New York percentages are 36.36% payroll, 49.37% property, and 45.45% sales. What is the three-factor apportionment percentage?

43.73%.

48. A corporation timely paid 95% of its tax and pays the remaining $400 by the extended filing date. Is interest or a delinquency penalty due?

Interest is due on the $400, but no delinquency penalty.

49. What is required to form a general partnership?

Two or more partners.

50. Can knowing/reckless disclosure of client tax information and willfully understating a client's tax liability both result in preparer penalties?

Yes, both can result in penalties.

51. After S corporation status is revoked or terminated, how long must the corporation generally wait before making a new S election?

5 years.

52. What two elements are required for constructive fraud against a CPA in this question?

Justifiable reliance by the plaintiff and gross negligence by the CPA.

53. What is the latest date an IRA contribution can generally be made to qualify for a deduction on the prior year's individual return?

April 15; a filing extension does not extend the IRA contribution deadline.

54. Which is typically a capital asset for an individual business owner: marketable securities, accounts receivable, business equipment, or inventory?

Marketable securities.

55. What does a taxpayer sign when agreement is reached following an IRS audit?

Form 870.

56. What can disqualify a taxpayer from the earned income credit in this question?

$15,000 of investment income.

57. Under workers' compensation laws, are employers generally liable regardless of fault?

Yes. Employers are generally strictly liable.

58. A corporation has $100,000 book income including deductible state tax, taxable Treasury interest, and deductible interest expense related to Treasury bonds. What is taxable income?

$100,000.

59. State B has 50% payroll, 25% sales, and 75% property. What is its equally weighted three-factor apportionment ratio?

50%.

60. Rick's surety limit is $30,000 and Peter's is $20,000. Rick pays a $20,000 debt in full. How much can Rick recover from Peter?

$8,000.

61. What payment to a partner is deductible when computing a partnership's ordinary income?

Guaranteed payments to partners.

62. A taxpayer's spouse dies and there are no dependent children. What is the surviving spouse's filing status for the first subsequent tax year?

Single.

63. A company purchases $22,000 of computer desks and $4,000 of office furniture. What is the cost basis of its MACRS seven-year property?

$26,000.

64. How is nonresidential real property depreciated under MACRS?

Straight-line over 39 years.

65. An owner entrusts a clock to a merchant who sells clocks, and the merchant mistakenly sells it to a customer. Can the owner recover the clock from the customer?

No. The merchant can transfer good title to a buyer in the ordinary course.

66. When is a tax-shelter position considered unreasonable in this question?

When there is substantial authority but it does not meet the more-likely-than-not standard.

67. After a debtor defaults, can a creditor immediately demand payment from a surety without first pursuing the debtor or collateral?

Yes.

68. Contributions to which organization are deductible: PAC, chamber of commerce, civic organization, or religious organization?

Religious organization.

69. A corporation pays $150,000 federal income tax, $50,000 state income tax, $20,000 foreign income tax, $15,000 property tax, and $5,000 sales tax. It does not claim a foreign tax credit. What taxes are deductible federally?

$90,000.

70. A corporation owns 15% of another corporation and receives an $8,000 dividend. What is the maximum DRD?

$4,000.

71. When does the statute of limitations for an alleged breach of contract generally begin?

On the date of the breach.

72. What power does a State Board of Accountancy have over a CPA's license?

It can suspend or revoke the CPA's license.