Regulation Flashcards

When a taxpayer uses the accrual method of accounting, income is generally recognized when:

Answer: All events have occurred fixing the right to receive income and the amount can be determined with reasonable accuracy

Under the all-events test for accrual-basis taxpayers, income is recognized when all events fixing the right to receive it have occurred and the amount is reasonably determinable.

Which of the following correctly describes the statute of limitations for the IRS to assess additional tax when a taxpayer omits more than 25% of gross income from a return?

Answer: 6 years from the date the return was filed

Under IRC §6501(e), when a taxpayer omits more than 25% of gross income, the assessment period is extended to 6 years from the filing date.

Which type of agency relationship is created when a principal's words or conduct lead a third party to reasonably believe an agent has authority, even if the principal did not actually grant it?

Answer: Apparent authority

Apparent authority arises when the principal's conduct causes a third party to reasonably believe the agent has authority, binding the principal even without actual authorization.

For federal estate tax purposes, which deduction allows a decedent's estate to deduct the full value of property passing to a surviving U.S. citizen spouse?

Answer: Marital deduction

The unlimited marital deduction under IRC §2056 allows an estate to deduct the entire value of qualifying property transferred to a surviving U.S. citizen spouse, eliminating estate tax on that amount.

Under AICPA ethics rules, a CPA firm's independence is considered impaired if a covered member has which of the following interests in an attest client?

Answer: A direct financial interest, regardless of materiality

AICPA rules impair independence when a covered member has any direct financial interest in an attest client, regardless of materiality or dollar amount.

Under IRC §469, passive activity losses may generally only offset:

Answer: Passive activity income

Passive activity losses can only offset passive activity income under §469; unused losses are suspended and carried forward until the taxpayer has passive income or disposes of the activity.

A negotiable instrument must contain an unconditional order or promise to pay. Which of the following would render a promissory note non-negotiable?

Answer: A statement referencing the underlying contract but making payment conditional on its performance

If payment is conditioned on performance of an underlying contract, the promise becomes conditional, destroying negotiability under UCC Article 3.