(CPA) Regulation Flashcards
7 cards from real Certified Public Accountant practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 (CPA) Regulation flashcards as text
Which of the following describes the 'economic substance doctrine' in tax law?
Answer: Transactions must generate actual economic profit beyond tax benefits to be respected
The economic substance doctrine requires transactions to have meaningful economic substance and business purpose beyond mere tax avoidance.
An individual taxpayer has a $15,000 passive activity loss. How can this loss be used in the current year?
Answer: It can only offset passive activity income
Passive activity losses can only offset passive activity income in the current year; excess losses are suspended.
Which of the following is a characteristic of a limited liability company (LLC) taxed as a partnership?
Answer: Members report their share of income on their personal returns
An LLC taxed as a partnership is a pass-through entity; members report their distributive share of income on their personal tax returns.
Under the Sarbanes-Oxley Act, the audit committee of a public company must include at least one member who qualifies as a:
Answer: Financial expert
SOX Section 407 requires public companies to disclose whether at least one audit committee member is a financial expert.
A taxpayer contributes property with a basis of $20,000 and FMV of $50,000 to a partnership in exchange for a 40% interest. What is the taxpayer's initial basis in the partnership interest?
Answer: $20,000
Under IRC Section 722, a partner's initial basis in a partnership interest equals the adjusted basis of the property contributed.
Which of the following best describes 'constructive receipt' for cash-basis taxpayers?
Answer: Income is taxed when credited to the taxpayer's account or otherwise made available
Constructive receipt occurs when income is credited to a taxpayer's account or made available without substantial restriction, even if not physically received.
Under agency law, which of the following would create an apparent authority for an agent?
Answer: The principal's conduct leads third parties to reasonably believe the agent has authority
Apparent authority arises when the principal's conduct or representations cause a third party to reasonably believe the agent has authority to act.