Tax Planning & Compliance Flashcards

A robo-advisor platform performs tax-loss harvesting by selling a security at a loss and immediately buying a substantially identical ETF. The wash-sale rule under IRC Section 1091 disallows the loss if the replacement purchase occurs within:

Answer: 30 calendar days before or after the sale

The wash-sale rule disallows a loss if a substantially identical security is purchased within 30 days before or after the sale that generated the loss.

Under FBAR (FinCEN Form 114) rules, a US person must report foreign financial accounts if the aggregate value exceeded what threshold at any point during the calendar year?

Answer: $10,000

US persons must file an FBAR if the aggregate maximum value of all foreign financial accounts exceeded $10,000 at any time during the calendar year.

A buy-now-pay-later (BNPL) fintech charges merchants an interchange-equivalent fee and consumers no stated interest. For tax purposes, implicit interest income embedded in merchant discount fees is generally recognized under:

Answer: Accrual accounting as the service is provided, with no imputed interest adjustment

Merchant discount fees are service income recognized as the BNPL service is provided; OID rules apply to debt instruments, not service fee arrangements.

A US fintech company pays a software licensing fee to its Irish subsidiary. To avoid transfer pricing adjustments under IRC Section 482, the intercompany royalty rate must be set at:

Answer: An arm's-length price reflecting what unrelated parties would charge

Section 482 requires intercompany transactions to be priced at arm's length—what unrelated parties in similar circumstances would agree to.

A fintech company issues convertible notes to investors. For tax purposes, a convertible note is generally characterized as:

Answer: Debt until converted, with interest expense deductible by the issuer

Convertible notes are treated as debt until conversion, allowing the issuer to deduct stated interest; the conversion itself is typically a non-taxable recapitalization.

An online lending platform bundles loans into an asset-backed security (ABS). For the ABS issuer, interest income allocated to investors who are tax-exempt entities (e.g., pension funds) is:

Answer: Not subject to UBIT because interest income from debt instruments is a passive source excluded from UBIT

Interest income is specifically excluded from UBIT as investment income under IRC Section 512, so tax-exempt investors in an ABS generally do not incur UBIT on interest allocations.

A fintech company that qualifies as a Qualified Small Business (QSB) issues stock to an early investor. If the investor holds the stock for more than 5 years, gains up to $10 million may be excluded from federal tax under:

Answer: IRC Section 1202 (QSBS exclusion)

Section 1202 allows non-corporate investors to exclude up to $10 million (or 10x basis) of gain from the sale of qualified small business stock held more than 5 years.