Tax Planning & Compliance Flashcards
7 cards from real CPA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Tax Planning & Compliance flashcards as text
A taxpayer receives a $15,000 gift from a family member. What is the tax consequence to the recipient?
Answer: No income tax is owed by the recipient; gifts are excluded from gross income
Under IRC Section 102, gifts are excluded from the recipient's gross income; gift tax liability, if any, rests with the donor not the donee.
Which of the following correctly describes the 'wash sale' rule under IRC Section 1091?
Answer: A loss is disallowed when substantially identical securities are purchased within 30 days before or after the sale
The wash sale rule disallows a loss deduction if the taxpayer buys substantially identical stock or securities within a 61-day window (30 days before to 30 days after the sale).
For federal tax purposes, a partnership's income is taxed at which level?
Answer: Only at the partner level based on each partner's distributive share
Partnerships are pass-through entities; income, gains, losses, and credits flow through to partners' individual returns regardless of whether cash is distributed.
Under the installment sale method, gain is recognized:
Answer: Proportionally as payments are received, based on the gross profit percentage
The installment method spreads gain recognition over the payment period by applying the gross profit ratio (gross profit ÷ contract price) to each principal payment received.
What is a 'qualified opportunity zone' investment and its primary tax benefit?
Answer: Investment in designated low-income areas that defers and potentially reduces capital gain taxes
Qualified Opportunity Zone Funds allow investors to defer capital gains, receive a step-up in basis after 5 and 7 years, and exclude gains on the QOZ investment held 10+ years.
Which penalty applies when a taxpayer substantially understates income tax by the greater of 10% of correct tax or $5,000?
Answer: 20% accuracy-related penalty under IRC Section 6662
IRC Section 6662 imposes a 20% penalty on the underpayment attributable to a substantial understatement, negligence, or disregard of rules.
A taxpayer converts a traditional IRA to a Roth IRA. What is the immediate tax consequence?
Answer: The converted amount (previously untaxed contributions and earnings) is included in gross income in the conversion year
A Roth conversion triggers ordinary income tax on all pre-tax amounts converted, because those dollars are moving from a tax-deferred to a tax-free account.