CCA Taxation & Regulatory Compliance 3 — Questions and Answers
Question 1: Under IRC Section 382, what event triggers a limitation on the use of a corporation's pre-change NOLs?
- Filing a consolidated return
- An ownership change exceeding 50 percentage points over 3 years (Correct answer)
- Changing the corporation's fiscal year
- Declaring a stock dividend
Correct answer: An ownership change exceeding 50 percentage points over 3 years
Section 382 limits NOL usage after an ownership change, defined as more than a 50-percentage-point shift in stock ownership among 5%-or-greater shareholders over a 3-year testing period.
Question 2: The Global Intangible Low-Taxed Income (GILTI) regime under Section 951A primarily targets which type of income?
- Passive interest income earned domestically
- Foreign subsidiary income exceeding a routine return on tangible assets (Correct answer)
- Dividends repatriated under Section 965
- Income from domestic partnership investments
Correct answer: Foreign subsidiary income exceeding a routine return on tangible assets
GILTI captures excess returns earned by controlled foreign corporations above 10% of their qualified business asset investment, targeting income attributable to intangibles in low-tax jurisdictions.
Question 3: Which regulatory body administers the Foreign Corrupt Practices Act (FCPA) for enforcement against public companies?
- U.S. Department of Justice (DOJ) only
- Securities and Exchange Commission (SEC) only
- Both the DOJ and the SEC (Correct answer)
- Financial Industry Regulatory Authority (FINRA)
Correct answer: Both the DOJ and the SEC
The FCPA is enforced jointly by the DOJ (criminal provisions) and the SEC (civil provisions for issuers registered with the SEC).
Question 4: Under the Sarbanes-Oxley Act (SOX) Section 404, management must assess the effectiveness of internal controls over financial reporting using which recognized framework?
- ISO 27001
- COSO Internal Control — Integrated Framework (Correct answer)
- COBIT 5
- Basel III
Correct answer: COSO Internal Control — Integrated Framework
SOX Section 404 requires management's internal control assessment to use a suitable, recognized framework, most commonly the COSO Internal Control — Integrated Framework.
Question 5: A corporation makes a charitable contribution of $500,000 in a year when its taxable income (before the deduction) is $4,000,000. What is the maximum allowable deduction?
- $500,000
- $400,000 (Correct answer)
- $200,000
- $100,000
Correct answer: $400,000
Corporate charitable contribution deductions are limited to 10% of taxable income computed before the charitable deduction, so 10% × $4,000,000 = $400,000.
Question 6: What is the purpose of the Base Erosion and Anti-Abuse Tax (BEAT) under IRC Section 59A?
- To impose a minimum tax on corporations with large NOL carryforwards
- To prevent profit-shifting through deductible payments to foreign related parties (Correct answer)
- To tax undistributed foreign earnings of CFCs
- To limit deductions for executive compensation
Correct answer: To prevent profit-shifting through deductible payments to foreign related parties
BEAT imposes a minimum tax on large corporations that make deductible payments to foreign affiliates, preventing erosion of the U.S. tax base through intercompany pricing.
Question 7: Which of the following correctly describes the 'check-the-box' regulations (Treasury Regulations §301.7701)?
- They allow C corporations to elect S corporation status
- They permit eligible entities to elect their federal tax classification (Correct answer)
- They govern elections for consolidated group filing
- They determine whether a transaction qualifies as a tax-free reorganization
Correct answer: They permit eligible entities to elect their federal tax classification
Check-the-box regulations allow eligible entities (LLCs, partnerships, certain foreign entities) to elect how they will be classified for federal tax purposes — as a corporation, partnership, or disregarded entity.
CCA Taxation & Regulatory Compliance 3
Under IRC Section 382, what event triggers a limitation on the use of a corporation's pre-change NOLs?