Tax Planning & Compliance Flashcards

A cross-border fintech payment platform processes transactions between US merchants and EU customers. Under FATCA, the platform's foreign financial institution partners must report to the IRS information about accounts held by:

Answer: Specified US persons with financial interests in foreign financial accounts

FATCA requires FFIs to identify and report on accounts held by specified US persons, including US citizens and residents with foreign financial accounts.

An embedded finance company issues co-branded credit cards. For tax purposes, cash-back rewards earned by cardholders through purchases are generally treated as:

Answer: A non-taxable reduction in the purchase price (rebate)

The IRS treats cash-back and purchase rewards as non-taxable rebates or purchase price reductions, not as income, because they are tied to spending.

A US fintech company earns income from a subsidiary in a low-tax jurisdiction. Under the GILTI (Global Intangible Low-Taxed Income) rules, this income is subject to US tax at an effective rate of approximately:

Answer: 10.5% (half the corporate rate of 21%) with a 50% deduction and 80% foreign tax credit

GILTI is taxed at an effective rate of approximately 10.5% for C-corporations after applying the 50% Section 250 deduction and 80% foreign tax credit.

Under the CARES Act and subsequent guidance, a fintech company that issued PPP loans must recognize fee income from the SBA over the:

Answer: Period the loan is outstanding, accelerated upon forgiveness

PPP origination fees paid by the SBA are recognized as interest income over the loan's life using the effective interest method, accelerated when loans are forgiven.

A neobank operating as an S-corporation distributes profits to shareholders. Unlike C-corporations, S-corporation distributions are generally:

Answer: Not subject to corporate-level income tax; income passes through to shareholders

S-corporations are pass-through entities; income is not taxed at the corporate level but flows through to shareholders who report it on their personal returns.

A US resident receives an airdrop of new cryptocurrency tokens she did not request. Per IRS Revenue Ruling 2023-14, she must recognize:

Answer: Ordinary income equal to the fair market value of the tokens when she gains dominion and control

IRS Revenue Ruling 2023-14 clarifies that unsolicited airdrop tokens are taxable as ordinary income at fair market value when the taxpayer acquires dominion and control.

A fintech company's R&D department develops a proprietary fraud detection algorithm. Under the TCJA change effective 2022, domestic R&D expenditures must be:

Answer: Amortized over 5 years using the midpoint convention under Section 174

Starting in 2022, Section 174 requires domestic R&E costs to be amortized over 5 years (15 years for foreign research) rather than immediately expensed.