FCCA FCCA Taxation and Compliance 2 — Questions and Answers
Question 1: Which IRS form is used by partnerships in the US to report income, deductions, and credits to the federal government?
- Form 1120-S
- Form 1065 (Correct answer)
- Form 1040-ES
- Form 720
Correct answer: Form 1065
Partnerships file Form 1065 (US Return of Partnership Income) as an information return, with each partner's share reported on Schedule K-1.
Question 2: Under IRC Section 179, businesses can immediately expense the cost of qualifying property rather than depreciating it over time. What type of provision is this?
- Tax credit
- Accelerated depreciation / expensing election (Correct answer)
- Tax-exempt income provision
- Deferred tax provision
Correct answer: Accelerated depreciation / expensing election
IRC Section 179 allows businesses to elect to immediately deduct (expense) the full cost of qualifying business property in the year it is placed in service, rather than depreciating it over time.
Question 3: In which scenario would a US company face an alternative minimum tax (AMT) issue for individuals or corporations?
- When taxable income falls below zero
- When the taxpayer uses many deductions and credits that reduce regular tax below the AMT threshold (Correct answer)
- When a company pays dividends to shareholders
- When a company files its tax return late
Correct answer: When the taxpayer uses many deductions and credits that reduce regular tax below the AMT threshold
AMT is designed to ensure that high-income individuals and corporations that benefit from numerous deductions pay a minimum level of tax.
Question 4: For US tax purposes, how long must an asset generally be held to qualify for long-term capital gains treatment?
- More than 6 months
- More than 1 year (Correct answer)
- More than 2 years
- More than 3 years
Correct answer: More than 1 year
An asset must be held for more than one year to qualify for the preferential long-term capital gains tax rates under US federal tax law.
Question 5: What is FATCA, and what is its primary compliance requirement for foreign financial institutions?
- A US environmental regulation requiring carbon reporting by financial firms
- A US law requiring foreign financial institutions to report US account holders to the IRS (Correct answer)
- A trade agreement requiring financial transparency between US and EU
- A banking regulation limiting cross-border lending
Correct answer: A US law requiring foreign financial institutions to report US account holders to the IRS
FATCA (Foreign Account Tax Compliance Act) requires foreign financial institutions to identify and report information about financial accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial interest.
Question 6: Under US tax law, a 'permanent establishment' (PE) concept is most relevant in which context?
- Determining eligibility for domestic tax credits
- Determining whether a foreign company has sufficient US nexus to be taxed in the US (Correct answer)
- Calculating state and local tax apportionment
- Determining if an employee qualifies for retirement benefits
Correct answer: Determining whether a foreign company has sufficient US nexus to be taxed in the US
The PE concept, found in US tax treaties, determines whether a foreign enterprise has a taxable presence in the US sufficient to create US tax obligations on its business income.
FCCA FCCA Taxation and Compliance 2
Which IRS form is used by partnerships in the US to report income, deductions, and credits to the federal government?