Taxation & Compliance Flashcards

Under the passive activity rules of IRC Section 469, which type of income can passive activity losses offset without limitation?

Answer: Passive income only

Passive activity losses can only offset passive activity income; they cannot be used to offset active or portfolio income.

A corporation pays a dividend to its domestic corporate shareholder. What is the dividends-received deduction (DRD) percentage if the shareholder owns 25% of the distributing corporation?

Answer: 65%

When a corporate shareholder owns at least 20% but less than 80% of the distributing corporation, the DRD is 65% of the dividends received.

Which method of accounting must be used by C corporations (other than qualified personal service corporations) with average annual gross receipts exceeding $27 million (indexed)?

Answer: Accrual method

C corporations with average annual gross receipts exceeding the threshold must use the accrual method of accounting under IRC Section 448.

What is the maximum Section 179 expensing deduction for 2024 before phase-out begins?

Answer: $1,220,000

For 2024, the Section 179 deduction limit is $1,220,000, which begins to phase out when total property placed in service exceeds $3,050,000.

A taxpayer sells a capital asset held for 14 months at a gain. Which tax rate applies to the net long-term capital gain for a taxpayer in the 32% ordinary income bracket?

Answer: 15%

Taxpayers in ordinary income tax brackets above 15% but below the highest bracket pay 15% on net long-term capital gains; the 20% rate applies only in the top bracket.

Which IRS form must a tax-exempt organization file annually to maintain its exempt status, reporting revenues, expenses, and activities?

Answer: Form 990

Tax-exempt organizations generally must file Form 990 annually to maintain transparency and compliance with IRC Section 501 requirements.

An S corporation has accumulated earnings and profits (E&P) from prior C corporation years. A distribution in excess of AAA is taxed to shareholders as:

Answer: A dividend to the extent of E&P

S corporation distributions exceeding Accumulated Adjustments Account (AAA) are treated as dividends to the extent of any accumulated C corporation E&P.