IFA Taxation & Compliance 2 — Questions and Answers
Question 1: A sole proprietor uses their home office exclusively for business. Which IRS form is used to calculate the home office deduction?
- Form 8829 (Correct answer)
- Form 4562
- Schedule SE
- Form 2106
Correct answer: Form 8829
Form 8829 (Expenses for Business Use of Your Home) is used by sole proprietors to calculate the allowable home office deduction on Schedule C.
Question 2: Under FBAR rules, a US person must file FinCEN Form 114 if the aggregate value of foreign financial accounts exceeds what threshold at any point during the year?
- $10,000 (Correct answer)
- $25,000
- $50,000
- $100,000
Correct answer: $10,000
US persons must file FBAR (FinCEN 114) when the aggregate value of all foreign financial accounts exceeds $10,000 at any point during the calendar year.
Question 3: Which depreciation method results in the highest depreciation expense in the first year for a 5-year property?
- 200% declining balance (Correct answer)
- 150% declining balance
- Straight-line
- Units of production
Correct answer: 200% declining balance
The 200% declining balance method (double declining balance) applies twice the straight-line rate to the book value, yielding the highest first-year depreciation.
Question 4: A calendar-year C corporation that expects to owe more than $500 in tax must make estimated tax payments. What are the four due dates?
- April 15, June 15, September 15, December 15 (Correct answer)
- March 15, June 15, September 15, December 15
- April 15, July 15, October 15, January 15
- January 15, April 15, July 15, October 15
Correct answer: April 15, June 15, September 15, December 15
C corporations must make estimated tax payments by April 15, June 15, September 15, and December 15 for calendar-year taxpayers.
Question 5: Which IRC section governs the treatment of like-kind exchanges, allowing deferral of gain on qualifying real property swaps?
- Section 1031 (Correct answer)
- Section 1033
- Section 1245
- Section 1250
Correct answer: Section 1031
IRC Section 1031 allows taxpayers to defer recognition of gain when they exchange qualifying real property for other like-kind real property.
Question 6: An employee receives a $600 gift card from their employer for excellent performance. How is this treated for tax purposes?
- Fully includable in gross income as wages (Correct answer)
- Excluded as a de minimis fringe benefit
- Excluded up to $500 as a qualified employee achievement award
- Excluded as a working condition fringe benefit
Correct answer: Fully includable in gross income as wages
Cash equivalents such as gift cards are always fully taxable as wages regardless of value, and do not qualify for the de minimis fringe benefit exclusion.
Question 7: Which penalty applies when a taxpayer substantially understates income tax, defined as an understatement exceeding the greater of 10% of the correct tax or $5,000?
- 20% accuracy-related penalty (Correct answer)
- 25% failure-to-pay penalty
- 75% civil fraud penalty
- 5% per month failure-to-file penalty
Correct answer: 20% accuracy-related penalty
The accuracy-related penalty under IRC Section 6662 is 20% of the underpayment attributable to a substantial understatement of income tax.
IFA Taxation & Compliance 2
A sole proprietor uses their home office exclusively for business.
Which IRS form is used to calculate the home office deduction?