CPA Taxation & Business Law 2 — Questions and Answers
Question 1: A corporation has a net operating loss (NOL) for 2023. Under current federal tax law, what is the maximum percentage of taxable income the NOL carryforward can offset?
- 100%
- 80% (Correct answer)
- 50%
- 60%
Correct answer: 80%
Under the Tax Cuts and Jobs Act, NOL carryforwards are limited to 80% of taxable income in the carryforward year.
Question 2: Which of the following is NOT a characteristic of an S corporation under federal tax law?
- It may have no more than 100 shareholders
- It can have both common and preferred stock classes (Correct answer)
- It cannot have a nonresident alien as a shareholder
- Income and losses pass through to shareholders
Correct answer: It can have both common and preferred stock classes
S corporations are permitted only one class of stock; having both common and preferred stock classes would disqualify S corporation status.
Question 3: Under the Uniform Commercial Code (UCC), a firm offer made by a merchant is irrevocable for up to how long without consideration?
- 30 days
- 60 days
- 3 months (Correct answer)
- 6 months
Correct answer: 3 months
Under UCC Article 2, a merchant's firm offer in a signed writing is irrevocable for the stated period or, if no period is stated, for a reasonable time not exceeding three months.
Question 4: A taxpayer sells a capital asset held for 14 months at a gain. How is this gain classified?
- Ordinary income
- Short-term capital gain
- Long-term capital gain (Correct answer)
- Section 1231 gain
Correct answer: Long-term capital gain
Assets held more than 12 months qualify as long-term capital assets, so a 14-month holding period produces a long-term capital gain.
Question 5: Which legal doctrine allows a court to disregard the corporate entity and hold shareholders personally liable?
- Respondeat superior
- Piercing the corporate veil (Correct answer)
- Subrogation
- Ultra vires
Correct answer: Piercing the corporate veil
Piercing the corporate veil is the doctrine courts use to impose personal liability on shareholders when the corporate form is abused or used fraudulently.
Question 6: For federal income tax purposes, which of the following fringe benefits is generally excludable from an employee's gross income?
- Cash bonuses
- Personal use of a company car
- Employer-paid health insurance premiums (Correct answer)
- Reimbursed non-deductible club dues
Correct answer: Employer-paid health insurance premiums
Employer-paid health insurance premiums are specifically excluded from an employee's gross income under IRC Section 106.
Question 7: A contract that lacks a legal purpose is considered:
- Voidable at one party's option
- Unenforceable
- Void (Correct answer)
- Valid but subject to reformation
Correct answer: Void
A contract with an illegal object or purpose is void ab initio—it has no legal effect from the beginning.
CPA Taxation & Business Law 2
A corporation has a net operating loss (NOL) for 2023.
Under current federal tax law, what is the maximum percentage of taxable income the NOL carryforward can offset?