AICPA Regulation 3 — Questions and Answers
Question 1: Under the Uniform Commercial Code Article 2, a merchant's firm offer is irrevocable for up to how many months even without consideration?
- 1 month
- 2 months
- 3 months (Correct answer)
- 6 months
Correct answer: 3 months
UCC §2-205 makes a merchant's written, signed firm offer irrevocable for the stated period, not to exceed 3 months, without requiring consideration.
Question 2: For AMT purposes, which of the following is an adjustment that may increase alternative minimum taxable income for individual taxpayers?
- Charitable contribution deductions
- Mortgage interest on acquisition debt
- Standard deduction claimed instead of itemizing (Correct answer)
- Qualified business income deduction
Correct answer: Standard deduction claimed instead of itemizing
The standard deduction is not allowed for AMT purposes, so taxpayers who claim it for regular tax must add it back when computing AMTI.
Question 3: A CPA discovers during an audit that a client's financial statements materially misstate revenues. The client refuses to correct the statements. What is the CPA's most appropriate course of action?
- Issue an unmodified opinion with an emphasis paragraph
- Withdraw from the engagement
- Issue an adverse or qualified opinion (Correct answer)
- Report the misstatement directly to the IRS
Correct answer: Issue an adverse or qualified opinion
When a client refuses to correct a material misstatement, the CPA should issue a qualified opinion (material but not pervasive) or adverse opinion (pervasive), not withdraw without warning.
Question 4: Under IRC §1031, a like-kind exchange defers recognition of gain. Which of the following types of property does NOT qualify for like-kind exchange treatment after TCJA 2017?
- Real property held for investment
- Commercial real estate exchanged for residential rental property
- Farmland exchanged for an office building
- Intellectual property or personal property such as equipment (Correct answer)
Correct answer: Intellectual property or personal property such as equipment
After TCJA, §1031 like-kind exchange treatment is limited to real property; personal property (equipment, vehicles, IP) no longer qualifies.
Question 5: A surety who pays the creditor on behalf of the principal debtor is entitled to which of the following rights against the principal?
- Subrogation and reimbursement (Correct answer)
- Indemnification and novation
- Accord and satisfaction
- Attachment and garnishment
Correct answer: Subrogation and reimbursement
After payment, a surety has the right of subrogation (stepping into the creditor's position) and reimbursement (recovering from the principal what the surety paid).
Question 6: Which of the following retirement account types allows after-tax contributions and tax-free qualified distributions in retirement?
- Traditional IRA
- SEP-IRA
- Roth IRA (Correct answer)
- SIMPLE IRA
Correct answer: Roth IRA
Roth IRAs are funded with after-tax dollars; qualified distributions (after age 59½ and 5-year holding period) are entirely tax-free.
Question 7: Under the Securities Exchange Act of 1934, insider trading violations may result in civil penalties up to how many times the profit gained or loss avoided?
- Two times
- Three times (Correct answer)
- Five times
- Ten times
Correct answer: Three times
The Insider Trading Sanctions Act provides for civil penalties of up to three times the profit gained or loss avoided from illegal insider trading.
AICPA Regulation 3
Under the Uniform Commercial Code Article 2, a merchant's firm offer is irrevocable for up to how many months even without consideration?