Tax Preparation & Compliance Flashcards

An employer provides an employee a $6,000 annual parking benefit in 2024. How much is excludable from the employee's gross income?

Answer: $315 per month; the excess $420 annually is taxable

For 2024, the qualified parking exclusion is $315/month ($3,780/year); the $6,000 benefit exceeds this, so $2,220 is taxable income to the employee.

What is the general statute of limitations for the IRS to assess additional tax on a filed return?

Answer: 3 years from the later of the return due date or filing date

Under IRC §6501, the IRS generally has 3 years from the later of the return due date or actual filing date to assess additional tax.

A taxpayer exchanges business real estate for other business real estate of equal value in a like-kind exchange under IRC §1031. What is the immediate tax result?

Answer: No gain or loss recognized; the basis carries over to the new property

A qualifying §1031 like-kind exchange allows full deferral of gain or loss; the taxpayer's adjusted basis in the old property transfers to the replacement property.

Which form does an S corporation use to report income, losses, and other tax items to the IRS?

Answer: Form 1120-S

S corporations file Form 1120-S (U.S. Income Tax Return for an S Corporation) and pass income and losses through to shareholders via Schedule K-1.

Under the 'at-risk' rules of IRC §465, a taxpayer's loss deduction from a business activity is limited to:

Answer: The amount the taxpayer has at risk in the activity (cash + adjusted basis of property contributed + amounts borrowed for which the taxpayer is personally liable)

At-risk rules limit deductible losses to the taxpayer's economic investment — cash, property basis, and recourse debt — preventing deductions beyond actual financial exposure.

A taxpayer makes a $5,000 contribution to a Health Savings Account (HSA) for self-only HDHP coverage in 2024. The 2024 HSA contribution limit for self-only coverage is $4,150. What are the tax consequences of the excess?

Answer: The $850 excess is subject to a 6% excise tax and is not deductible

Excess HSA contributions are subject to a 6% excise tax under IRC §4973 and must be withdrawn (with earnings) by the tax return due date to avoid the penalty.

Which of the following types of income is generally exempt from federal income tax?

Answer: Workers' compensation benefits received due to a job-related injury

Workers' compensation benefits received for occupational sickness or injury are excluded from gross income under IRC §104(a)(1).