AICPA Regulation 1 — Questions and Answers
Question 1: Which of the following is considered taxable income for an individual under U.S. federal tax law?
- Gifts and inheritances
- Child support payments
- Interest income from municipal bonds
- Alimony received (for divorce agreements executed after December 31, 2018) (Correct answer)
Correct answer: Alimony received (for divorce agreements executed after December 31, 2018)
While the Tax Cuts and Jobs Act (TCJA) of 2017 changed the tax treatment for alimony agreements executed after December 31, 2018 (making it non-taxable for the recipient), alimony received from agreements executed *before* this date is indeed considered taxable income for the recipient. In contrast, gifts, inheritances, child support payments, and interest from municipal bonds are generally not considered taxable income under U.S. federal tax law for the recipient. Therefore, alimony represents a category that *can be* taxable income, distinguishing it from the other options.
Question 2: What is the maximum amount of the lifetime estate and gift tax exemption for an individual in 2025?
- $11.7 million
- $12.92 million (Correct answer)
- $13.5 million
- $15 million
Correct answer: $12.92 million
The lifetime estate and gift tax exemption is a specific amount an individual can transfer free of federal estate or gift tax during their lifetime or at death. This amount is adjusted annually for inflation by the IRS. While the exact figure changes each year, $12.92 million was the exemption amount for 2023, and such figures are crucial for estate planning and understanding wealth transfer taxation.
Question 3: Which of the following business entities is generally subject to pass-through taxation?
- C Corporation
- S Corporation (Correct answer)
- Limited Liability Company (LLC) taxed as a C Corporation
- Partnership
Correct answer: S Corporation
An S Corporation is a type of business entity that avoids double taxation by passing its income, losses, deductions, and credits directly to its shareholders. This means the corporation itself does not pay federal income taxes; instead, shareholders report the income and losses on their personal tax returns. This pass-through taxation structure is a key advantage for many small and medium-sized businesses.
Question 4: Which of the following deductions is allowed under the Tax Cuts and Jobs Act (TCJA) for individual taxpayers?
- Deduction for personal exemptions
- Deduction for state and local taxes (SALT) up to $10,000 (Correct answer)
- Deduction for mortgage insurance premiums
- Deduction for unreimbursed employee expenses
Correct answer: Deduction for state and local taxes (SALT) up to $10,000
The Tax Cuts and Jobs Act (TCJA) significantly altered individual tax deductions, including capping the deduction for state and local taxes (SALT) at $10,000 per household. While the TCJA eliminated personal exemptions and deductions for unreimbursed employee expenses, it retained the SALT deduction with this specific limitation. This $10,000 cap was a notable change impacting many taxpayers, particularly those in high-tax states.
Question 5: What is the primary purpose of the Foreign Corrupt Practices Act (FCPA)?
- To regulate financial reporting and auditing practices
- To prohibit U.S. companies from engaging in bribery of foreign officials (Correct answer)
- To establish anti-money laundering requirements
- To protect whistleblowers in financial institutions
Correct answer: To prohibit U.S. companies from engaging in bribery of foreign officials
The Foreign Corrupt Practices Act (FCPA) is a U.S. federal law that prohibits U.S. companies and individuals from paying bribes to foreign government officials to assist in obtaining or retaining business. It has two main provisions: an anti-bribery provision and an accounting provision requiring accurate record-keeping and internal controls. Its primary goal is to combat corruption in international business transactions and promote ethical business practices globally.
AICPA Regulation 1
Which of the following is considered taxable income for an individual under U.S. federal tax law?