CA Taxation & Regulatory Compliance 2 — Questions and Answers
Question 1: A corporation with a fiscal year ending March 31 must file its federal income tax return by which date (without extension)?
- June 15
- July 15 (Correct answer)
- September 15
- April 15
Correct answer: July 15
C-corporations must file Form 1120 by the 15th day of the fourth month after the fiscal year ends, so March 31 year-end → July 15.
Question 2: Under IRC Section 1231, which of the following assets would be classified as a Section 1231 asset when held for more than one year?
- Inventory held for sale
- Accounts receivable from customers
- Depreciable business equipment (Correct answer)
- Short-term investments in stocks
Correct answer: Depreciable business equipment
Section 1231 assets include depreciable property and real property used in a trade or business and held for more than one year; inventory and receivables are excluded.
Question 3: Which penalty applies when a taxpayer substantially understates income tax (understating by more than $5,000 or 10% of correct tax)?
- Failure-to-file penalty at 5% per month
- Accuracy-related penalty of 20% of underpayment (Correct answer)
- Civil fraud penalty of 75% of underpayment
- Failure-to-pay penalty of 0.5% per month
Correct answer: Accuracy-related penalty of 20% of underpayment
IRC Section 6662 imposes a 20% accuracy-related penalty on the underpayment attributable to a substantial understatement of income tax.
Question 4: A calendar-year individual taxpayer must make estimated tax payments if expected tax liability after withholding will exceed:
- $500
- $750
- $1,000 (Correct answer)
- $1,500
Correct answer: $1,000
Under IRC Section 6654, estimated tax payments are required if the taxpayer expects to owe at least $1,000 in tax after withholding and credits.
Question 5: For federal income tax purposes, a passive activity loss can generally be deducted against:
- Active income only
- Portfolio income only
- Passive income only (Correct answer)
- Any type of income without restriction
Correct answer: Passive income only
Under IRC Section 469, passive activity losses can only offset passive activity income; excess losses are suspended until the activity is disposed of.
Question 6: Which filing status provides the most favorable tax rates for a qualifying taxpayer?
- Single
- Married Filing Separately
- Head of Household
- Married Filing Jointly (Correct answer)
Correct answer: Married Filing Jointly
Married Filing Jointly generally provides the widest tax brackets and lowest effective rates among all filing statuses.
Question 7: Under the constructive receipt doctrine, a cash-basis taxpayer must recognize income when it is:
- Actually received in cash
- Made available without restriction (Correct answer)
- Reported on a Form 1099
- Deposited into a bank account
Correct answer: Made available without restriction
Constructive receipt requires income recognition when funds are credited to the taxpayer's account or made available without substantial limitation, even if not physically received.
CA Taxation & Regulatory Compliance 2
A corporation with a fiscal year ending March 31 must file its federal income tax return by which date (without extension)?