Practice Test Geeks(CA) Chartered Certified Accountant Practice Test
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Taxation & 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.

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  1. Which of the following correctly describes a 'constructive dividend' for U.S. tax purposes?

    Answer: A benefit conferred on a shareholder that is not formally declared as a dividend but is treated as one for tax purposes

    Constructive dividends arise when a corporation confers an economic benefit on a shareholder (e.g., excessive compensation, personal expenses paid) without formal declaration.

  2. Under IRC §1202, what percentage of gain from Qualified Small Business Stock (QSBS) may be excluded from federal income tax if held for more than 5 years (post-2010)?

    Answer: 100%

    For QSBS acquired after September 27, 2010 and held more than five years, 100% of eligible gain is excluded from federal income tax under IRC §1202.

  3. A taxpayer fails to file a federal income tax return and fails to pay the tax due. What is the maximum combined failure-to-file and failure-to-pay penalty percentage per month?

    Answer: 5% per month (FTF reduces FTP overlap)

    The failure-to-file penalty is 5% per month reduced by the 0.5% failure-to-pay penalty, so the combined rate is effectively 5% per month maximum.

  4. Which IRC section governs the deductibility of business interest expense and imposes limitations based on adjusted taxable income?

    Answer: IRC §163(j)

    IRC §163(j) limits the deduction for business interest expense to 30% of adjusted taxable income (ATI) plus business interest income for most taxpayers.

  5. Under the passive activity rules of IRC §469, rental activities are generally treated as passive unless the taxpayer qualifies as a 'real estate professional.' What is the material participation test for real estate professional status?

    Answer: More than 750 hours in real property trades or businesses AND more than 50% of personal service time in real property activities

    A taxpayer qualifies as a real estate professional by spending more than 750 hours in real property trades/businesses and more than half of all personal services in such activities.

  6. For U.S. estate tax purposes, the marital deduction allows an unlimited deduction for property transferred to a surviving spouse. Which trust structure preserves the marital deduction while deferring estate tax?

    Answer: Qualified Terminable Interest Property (QTIP) Trust

    A QTIP trust qualifies for the unlimited marital deduction while allowing the transferor's estate to control the ultimate disposition of assets at the surviving spouse's death.

  7. Under FATCA (IRC §1471-1474), what withholding rate applies to withholdable payments made to non-participating foreign financial institutions?

    Answer: 30%

    FATCA imposes a 30% withholding tax on withholdable payments (U.S.-source income) made to non-participating foreign financial institutions that fail to comply with reporting requirements.