CIMA Tax Law & Regulations 3

Question 1

Which IRC section governs the rules for deducting investment interest expense, and what is the general limitation?

Accepted Answer

IRC 163(d); limited to net investment income

Answer

IRC Section 163(d) limits the deduction for investment interest expense to the taxpayer's net investment income for the year; excess is carried forward.

Question 2

A non-qualified stock option (NQSO) is exercised when the stock's FMV is $50 and the exercise price is $20. The employee recognizes:

Accepted Answer

$30 ordinary income at exercise

Answer

The $30 spread (FMV minus exercise price) at exercise is ordinary income subject to payroll and income taxes for the employee when an NQSO is exercised.

Question 3

The unified credit against estate and gift tax was set at an exemption equivalent of approximately $13.61 million per person in 2024. This amount is scheduled to:

Accepted Answer

Sunset to roughly $7 million (inflation-adjusted) after 2025

Answer

The Tax Cuts and Jobs Act (TCJA) doubled the exemption, but absent new legislation the exemption sunsets after 2025, reverting to the pre-TCJA level adjusted for inflation.

Question 4

Under IRC Section 72(t), early withdrawals from IRAs before age 59½ are subject to a penalty of:

Accepted Answer

10%

Answer

A 10% early withdrawal penalty applies under IRC Section 72(t) in addition to ordinary income taxes, unless a specific exception applies.

Question 5

Which of the following correctly describes the tax treatment of a Roth IRA conversion?

Accepted Answer

The converted amount is included in gross income in the year of conversion

Answer

A Roth conversion is a taxable event; the pre-tax amount converted from a traditional IRA (or pre-tax contributions plus earnings) is included in gross income in the conversion year.

(CIMA) Certified Investment Management Analyst Practice Test

(CIMA) Certified Investment Management Analyst Practice Test

CIMA Tax Law & Regulations 3