CTC Client Advisory & Consultation 2

Question 1

A client asks whether they should structure a new business as an S corporation or a partnership. Which factor most strongly favors the S corporation?

Accepted Answer

Self-employment tax savings on reasonable compensation

Answer

S corporation shareholder-employees can reduce self-employment tax by paying reasonable salary and taking remaining profits as distributions not subject to SE tax.

Question 2

During a consultation, a client reveals they have unreported foreign bank accounts with balances exceeding $10,000. What is your primary advisory obligation?

Accepted Answer

Advise the client of FBAR filing requirements and potential penalties

Answer

The advisor must inform the client of their FBAR (FinCEN Form 114) obligations and the significant civil and criminal penalties for non-compliance.

Question 3

A client received a CP2000 notice proposing additional tax. What is the most appropriate initial step in advising the client?

Accepted Answer

Review the notice against the client's records to determine accuracy

Answer

The first step is to verify whether the IRS's proposed changes are accurate by comparing the notice to the client's actual records and third-party information returns.

Question 4

A high-net-worth client wants to gift appreciated stock to their adult child. Which advisory point is most critical?

Accepted Answer

The donor may owe gift tax if the gift exceeds the annual exclusion amount

Answer

Gifts exceeding the annual exclusion ($18,000 per donee in 2024) require filing Form 709, and gift tax may be owed if the donor's lifetime exemption is exhausted.

Question 5

A client asks whether they can deduct a home office used partly for personal purposes. What is the correct advisement?

Accepted Answer

The space must be used regularly and exclusively for business to qualify

Answer

IRC §280A requires the home office space to be used both regularly and exclusively for business; any personal use disqualifies the deduction.

(CTC) Chartered Tax Consultant Practice Test

(CTC) Chartered Tax Consultant Practice Test

CTC Client Advisory & Consultation 2