Taxation & Compliance Flashcards

A US citizen living abroad earns $130,000 in foreign wages in 2024. Under the foreign earned income exclusion (FEIE), approximately how much may be excluded from gross income?

Answer: $126,500

The FEIE amount for 2024 is $126,500, so the taxpayer may exclude up to that amount, with the remaining $3,500 subject to US tax.

Under the alternative minimum tax (AMT) system, which of the following is an AMT preference item that must be added back to compute AMTI?

Answer: Accelerated depreciation on personal property in excess of ADS depreciation

Excess depreciation claimed under MACRS over what would be allowed under the Alternative Depreciation System (ADS) is a tax preference item added back for AMT purposes.

A partnership has hot assets. When a partner sells their partnership interest, the hot asset rules of IRC § 751 require that gain attributable to which of the following be treated as ordinary income?

Answer: Unrealized receivables and inventory items

IRC § 751 recharacterizes gain attributable to unrealized receivables and substantially appreciated inventory as ordinary income, preventing conversion of ordinary income into capital gain.

For federal income tax purposes, when is a deduction for a prepaid expense generally allowed under the 12-month rule for cash-basis taxpayers?

Answer: When the benefit does not extend beyond 12 months or the end of the tax year following payment

Under the 12-month rule, a cash-basis taxpayer may deduct a prepaid expense in the year of payment if the benefit does not extend beyond 12 months or past the end of the following tax year.

Which form must US persons use to report their interests in foreign trusts and receipt of certain foreign gifts under IRC §§ 6048 and 6039F?

Answer: Form 3520

Form 3520 is used to report transactions with foreign trusts and receipt of large foreign gifts or bequests.

A corporation incurs $60,000 in organizational expenditures. Under IRC § 248, how much may it deduct in the first year of operation?

Answer: $5,000 reduced dollar-for-dollar above $50,000, then amortize the rest over 180 months

Under IRC § 248, corporations may deduct up to $5,000 of organizational costs, reduced dollar-for-dollar when total costs exceed $50,000; the remainder is amortized over 180 months.

Under the US consolidated return regulations, which of the following is a benefit of filing a consolidated federal income tax return?

Answer: Losses of one member can offset income of another member

A key advantage of filing a consolidated return is that operating losses of one group member can offset the taxable income of other members, reducing overall group tax liability.