AICPA Regulation 2 — Questions and Answers
Question 1: Under the Internal Revenue Code, which entity type is subject to the 21% flat corporate income tax rate established by the Tax Cuts and Jobs Act of 2017?
- S corporation
- C corporation (Correct answer)
- Limited liability company taxed as a partnership
- Sole proprietorship
Correct answer: C corporation
C corporations are subject to the flat 21% corporate income tax rate enacted by the TCJA; pass-through entities are not subject to this tax at the entity level.
Question 2: A taxpayer who is both self-employed and an employee may deduct the employer-equivalent portion of self-employment tax as a(n):
- Itemized deduction on Schedule A
- Above-the-line deduction on Schedule 1 (Correct answer)
- Credit against income tax
- Exclusion from gross income
Correct answer: Above-the-line deduction on Schedule 1
The deductible portion (50%) of self-employment tax is an above-the-line adjustment to gross income, reducing AGI without requiring itemization.
Question 3: Under the Sarbanes-Oxley Act, which of the following is prohibited for a registered public accounting firm providing audit services to a public company?
- Performing tax return preparation for non-executive employees
- Providing bookkeeping services for the audit client (Correct answer)
- Reviewing internal audit findings
- Issuing an attestation report on management's assessment
Correct answer: Providing bookkeeping services for the audit client
SOX prohibits auditors of public companies from providing bookkeeping or other accounting services that would later be subject to audit, creating a self-review threat.
Question 4: For federal gift tax purposes, the annual exclusion per donee for 2024 is:
- $13,000
- $15,000
- $17,000
- $18,000 (Correct answer)
Correct answer: $18,000
The annual gift tax exclusion for 2024 is $18,000 per donee, allowing donors to give this amount to any number of recipients free of gift tax reporting.
Question 5: Which type of bankruptcy reorganization allows individuals with regular income to repay debts over a 3- to 5-year plan?
- Chapter 7
- Chapter 11
- Chapter 12
- Chapter 13 (Correct answer)
Correct answer: Chapter 13
Chapter 13 bankruptcy allows wage earners to keep assets and repay all or part of their debts under a court-approved payment plan lasting 3 to 5 years.
Question 6: A partnership's basis in property contributed by a partner is generally:
- Fair market value at the date of contribution
- The contributing partner's adjusted basis in the property (Correct answer)
- Zero, until the partnership sells the property
- The lower of fair market value or adjusted basis
Correct answer: The contributing partner's adjusted basis in the property
Under IRC §723, a partnership takes a carryover basis in contributed property equal to the contributing partner's adjusted basis at the time of contribution.
Question 7: Which of the following best describes the 'check-the-box' regulations under Treasury Regulation §301.7701?
- Rules requiring all LLCs to be taxed as corporations
- Regulations allowing eligible entities to elect their federal tax classification (Correct answer)
- IRS guidance on selecting a fiscal year end
- Rules mandating S corporation status for small businesses
Correct answer: Regulations allowing eligible entities to elect their federal tax classification
Check-the-box regulations permit eligible entities (not automatically classified) to elect whether to be taxed as a corporation, partnership, or disregarded entity.
AICPA Regulation 2
Under the Internal Revenue Code, which entity type is subject to the 21% flat corporate income tax rate established by the Tax Cuts and Jobs Act of 2017?