Practice Test Geeks(ABA) Accredited Business Accountant Practice Test
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Taxation and Compliance Flashcards

7 cards from real ABA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Taxation and Compliance flashcards as text

  1. A taxpayer receives a $10,000 distribution from a traditional IRA at age 45. In addition to income tax, what additional penalty generally applies?

    Answer: 10% early withdrawal penalty

    Distributions from a traditional IRA before age 59½ are subject to a 10% early withdrawal penalty, with limited exceptions.

  2. Under the passive activity loss rules, which type of income can offset passive losses?

    Answer: Passive income only

    Under IRC §469, passive activity losses may only offset passive activity income; they cannot offset active or portfolio income.

  3. Which form does an S corporation use to report each shareholder's share of income, deductions, and credits?

    Answer: Schedule K-1 (Form 1120-S)

    S corporations provide each shareholder with a Schedule K-1 (Form 1120-S) showing their pro-rata share of corporate items.

  4. The accumulated earnings tax (AET) is imposed on C corporations that:

    Answer: Retain earnings beyond reasonable business needs to avoid shareholder-level tax

    The AET (IRC §531) targets C corporations that unreasonably accumulate earnings to shield shareholders from dividend taxation.

  5. A business accountant discovers a client overstated deductions on a prior-year return. The best immediate action is to:

    Answer: File an amended return (Form 1040-X) and pay any additional tax owed

    Voluntary correction via an amended return minimizes penalties and demonstrates good-faith compliance with tax law.

  6. What is the standard mileage rate primary advantage over the actual expense method for deducting vehicle use?

    Answer: Simplified recordkeeping requiring only mileage logs

    The standard mileage rate simplifies compliance by eliminating the need to track individual vehicle expenses, requiring only a mileage log.

  7. Which of the following best describes the 'nexus' concept in state sales tax compliance?

    Answer: A sufficient connection between a business and a state that obligates the business to collect and remit sales tax

    Nexus determines whether a state has jurisdiction to impose tax obligations on a business, expanded by the Wayfair decision to include economic nexus.