Taxation & Regulatory Compliance Flashcards
7 cards from real CA 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 & Regulatory Compliance flashcards as text
A taxpayer sells rental property for $500,000 with an adjusted basis of $200,000. The depreciation previously deducted was $80,000. Under Section 1250, the recaptured depreciation on residential real property is taxed at a maximum rate of:
Answer: 25%
Unrecaptured Section 1250 gain (depreciation on real property) is taxed at a maximum federal rate of 25% for individual taxpayers.
Which form is used to report the foreign bank and financial account holdings (FBAR) required by FinCEN?
Answer: FinCEN Form 114
The FBAR is filed on FinCEN Form 114 (not a tax form) and is required when aggregate foreign account balances exceed $10,000 at any point during the year.
Under the Sarbanes-Oxley Act (SOX), how long must audit workpapers be retained by public accounting firms?
Answer: 7 years
SOX Section 802 requires auditors to retain audit records, including workpapers, for a minimum of 7 years from the date of the audit report.
A partnership allocates losses to a partner who has a partnership basis of zero and no at-risk amount. Where does this loss go?
Answer: It is suspended and carried forward until basis increases
Losses that exceed a partner's basis are suspended and carried forward; they can be deducted in future years when the partner's basis (and at-risk amount) increases.
Under the AICPA Code of Professional Conduct, which threat to independence arises when a CPA has a financial interest in a client?
Answer: Self-interest threat
A self-interest threat occurs when a CPA could benefit financially from a relationship with a client, potentially compromising objectivity.
Which method of inventory valuation generally results in the LOWEST taxable income during a period of rising prices?
Answer: LIFO (Last-In, First-Out)
LIFO matches the most recently purchased (higher-cost) inventory against revenues, resulting in higher COGS and lower taxable income during inflationary periods.
Which Internal Revenue Code section governs the deductibility of business meals and entertainment expenses?
Answer: IRC Section 274
IRC Section 274 specifically governs the limitations on deductions for business meals (50% limit) and disallows most entertainment expenses since the 2017 TCJA.