CIMA Tax Law & Regulations 2 — Questions and Answers
Question 1: Under IRC Section 1411, the Net Investment Income Tax (NIIT) applies at what rate for high-income taxpayers?
- 2.9%
- 3.8% (Correct answer)
- 0.9%
- 1.45%
Correct answer: 3.8%
The NIIT imposes a 3.8% surtax on the lesser of net investment income or the amount by which MAGI exceeds the threshold ($200,000 single/$250,000 MFJ).
Question 2: A taxpayer sells a partnership interest held for 3 years. The portion attributable to 'hot assets' under IRC Section 751 is taxed as:
- Long-term capital gain
- Ordinary income (Correct answer)
- Qualified dividend income
- Section 1231 gain
Correct answer: Ordinary income
IRC Section 751 requires that gain attributable to unrealized receivables and inventory items (hot assets) be recharacterized as ordinary income regardless of holding period.
Question 3: Which type of trust is included in the grantor's taxable estate at death because the grantor retains an interest?
- Charitable Remainder Trust
- Qualified Personal Residence Trust (Correct answer)
- Irrevocable Life Insurance Trust
- Blind Trust
Correct answer: Qualified Personal Residence Trust
A QPRT is included in the grantor's estate if the grantor dies during the trust term because IRC Section 2036 pulls back assets where the grantor retains a life interest.
Question 4: The wash-sale rule under IRC Section 1091 disallows a loss when substantially identical securities are purchased within how many days before or after the sale?
- 15 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
The wash-sale rule disallows a realized loss if the taxpayer buys substantially identical securities within 30 days before or after the loss sale (a 61-day window total).
Question 5: For purposes of the alternative minimum tax (AMT), which preference item must be added back to regular taxable income?
- Qualified dividend income
- Accelerated depreciation on real property (MACRS vs. ADS)
- Municipal bond interest from private activity bonds (Correct answer)
- Long-term capital gains
Correct answer: Municipal bond interest from private activity bonds
Interest on private activity bonds is a tax preference item that must be included in AMTI, unlike interest on general obligation municipal bonds.
Question 6: A married couple files jointly and has a combined RMD of $40,000 from IRAs. They donate $20,000 directly from the IRA to charity. The taxable RMD is:
- $40,000
- $20,000 (Correct answer)
- $0
- $10,000
Correct answer: $20,000
A Qualified Charitable Distribution (QCD) of up to $105,000 per year (2024) satisfies the RMD and is excluded from income, so only the remaining $20,000 is taxable.
Question 7: Under the step-up in basis rules (IRC Section 1014), inherited assets generally receive a basis equal to:
- Original cost to the decedent
- Fair market value at the date of death (Correct answer)
- Adjusted basis plus depreciation recapture
- Lower of cost or FMV at death
Correct answer: Fair market value at the date of death
IRC Section 1014 provides that inherited assets receive a basis equal to FMV on the date of death, eliminating built-in gain (or loss) for the heir.
CIMA Tax Law & Regulations 2
Under IRC Section 1411, the Net Investment Income Tax (NIIT) applies at what rate for high-income taxpayers?