CGA Taxation & Compliance 2 — Questions and Answers
Question 1: A corporation has a net operating loss (NOL) generated in 2023. Under current US tax law, what is the maximum percentage of taxable income that can be offset by NOL carryforwards?
- 50%
- 80% (Correct answer)
- 100%
- 90%
Correct answer: 80%
Under the Tax Cuts and Jobs Act, NOL carryforwards are limited to 80% of taxable income for losses arising after December 31, 2017.
Question 2: Which IRC section governs the treatment of like-kind exchanges for real property, allowing deferral of capital gains?
- IRC § 1031 (Correct answer)
- IRC § 1033
- IRC § 1245
- IRC § 1250
Correct answer: IRC § 1031
IRC § 1031 allows taxpayers to defer capital gains taxes when exchanging qualifying real property for other like-kind real property.
Question 3: A self-employed individual earns $150,000 in net self-employment income. What percentage of self-employment tax is deductible as an above-the-line deduction on Form 1040?
- 25%
- 50% (Correct answer)
- 100%
- 7.65%
Correct answer: 50%
Self-employed individuals may deduct 50% of self-employment taxes paid as an above-the-line adjustment to income.
Question 4: Under the constructive receipt doctrine, when is income generally recognized by a cash-basis taxpayer?
- When the income is earned
- When a check is deposited into a bank account
- When income is made available without substantial limitation (Correct answer)
- When an invoice is issued
Correct answer: When income is made available without substantial limitation
The constructive receipt doctrine requires cash-basis taxpayers to recognize income when it is made available to them without substantial limitations, even if not actually received.
Question 5: Which of the following fringe benefits is generally excluded from an employee's gross income under IRC § 132?
- Cash bonuses up to $500
- Working condition fringe benefits (Correct answer)
- Employer-paid commuting expenses above statutory limits
- Gym memberships at non-employer facilities
Correct answer: Working condition fringe benefits
Working condition fringe benefits—property or services an employee could deduct as a business expense if paid personally—are excluded from gross income under IRC § 132(d).
Question 6: A calendar-year C corporation files its federal income tax return on Form 1120. What is the standard due date for this return?
- March 15
- April 15
- April 15 (or the 15th day of the 4th month after year-end) (Correct answer)
- June 15
Correct answer: April 15 (or the 15th day of the 4th month after year-end)
C corporations with a calendar year must file Form 1120 by April 15 (the 15th day of the 4th month following the close of the tax year).
Question 7: Under the passive activity loss rules of IRC § 469, which of the following taxpayers is treated as a material participant?
- A limited partner who works 50 hours per year in the activity
- A taxpayer who works 500 hours or more in the activity during the year (Correct answer)
- Any real estate professional regardless of hours worked
- A taxpayer who owns more than 50% of the activity
Correct answer: A taxpayer who works 500 hours or more in the activity during the year
One of the seven material participation tests requires the taxpayer to participate in the activity for more than 500 hours during the tax year.
CGA Taxation & Compliance 2
A corporation has a net operating loss (NOL) generated in 2023.
Under current US tax law, what is the maximum percentage of taxable income that can be offset by NOL carryforwards?