CTC Federal Taxation Principles & Compliance 3 — Questions and Answers
Question 1: Which method of accounting must a C corporation with average annual gross receipts exceeding $29 million (2024 threshold) generally use?
- Cash method
- Accrual method (Correct answer)
- Either cash or accrual at the taxpayer's election
- Installment method
Correct answer: Accrual method
C corporations (other than S corporations, partnerships without C corp partners, and certain farming businesses) with average gross receipts exceeding the threshold must use the accrual method.
Question 2: A sole proprietor contributes property with a FMV of $50,000 and adjusted basis of $30,000 to a newly formed partnership in exchange for a 40% interest. What is the partnership's basis in the contributed property?
- $50,000 (fair market value at contribution)
- $30,000 (carryover basis from contributing partner) (Correct answer)
- $20,000 (40% of the FMV)
- Zero, because the basis is deferred until sale
Correct answer: $30,000 (carryover basis from contributing partner)
Under IRC Section 723, a partnership takes a carryover basis in property contributed by a partner equal to the contributing partner's adjusted basis.
Question 3: What is the maximum annual HSA contribution limit for self-only HDHP coverage in 2024?
- $3,850
- $4,150 (Correct answer)
- $3,650
- $7,750
Correct answer: $4,150
For 2024, the HSA contribution limit for self-only HDHP coverage is $4,150, with an additional $1,000 catch-up contribution allowed for those age 55 and older.
Question 4: Under the constructive receipt doctrine, a cash-basis taxpayer must include income in gross income when:
- The funds are physically deposited in the taxpayer's bank account
- The income is credited to the taxpayer's account or made available without substantial restrictions (Correct answer)
- The taxpayer actually receives a check and deposits it
- The income is earned regardless of when payment is received
Correct answer: The income is credited to the taxpayer's account or made available without substantial restrictions
Constructive receipt occurs when income is credited, set apart, or otherwise made available to a cash-basis taxpayer without substantial restrictions or limitations.
Question 5: A taxpayer receives an early distribution from a traditional IRA at age 50. In addition to regular income tax, what penalty applies?
- 5% early withdrawal penalty
- 10% additional tax on the taxable amount (Correct answer)
- 15% penalty on the full distribution
- No penalty if the taxpayer has an immediate financial need
Correct answer: 10% additional tax on the taxable amount
Early distributions from traditional IRAs before age 59½ are subject to a 10% additional tax unless a statutory exception applies.
Question 6: A calendar-year corporation has a $50,000 net operating loss in 2023. Under current law (post-TCJA), how may this NOL be utilized?
- Carry back 2 years and forward 20 years
- Carry forward indefinitely, but limited to 80% of taxable income in the carryforward year (Correct answer)
- Carry back 5 years for immediate refund
- Deduct fully in the first subsequent profitable year with no limitations
Correct answer: Carry forward indefinitely, but limited to 80% of taxable income in the carryforward year
Under TCJA, NOLs generated after 2017 cannot be carried back (with limited exceptions) but may be carried forward indefinitely, capped at 80% of taxable income in any carryforward year.
Question 7: Which of the following fringe benefits is excludable from an employee's gross income under IRC Section 132?
- Cash holiday bonuses up to $400
- A company car used 80% for personal commuting
- No-additional-cost services provided to the employee in the employer's line of business (Correct answer)
- A gift card valued at $50
Correct answer: No-additional-cost services provided to the employee in the employer's line of business
No-additional-cost services—excess capacity services an employer provides to employees without substantial additional cost—are excludable from gross income under Section 132(a)(1).
CTC Federal Taxation Principles & Compliance 3
Which method of accounting must a C corporation with average annual gross receipts exceeding $29 million (2024 threshold) generally use?