CPA Regulation (REG) : CPA Regulation (REG)
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Example Questions
Example Question #5 : Corporate Income Tax Deductions
Which of the following transactions would not qualify as a charitable contribution by a corporation in order to receive the charitable contribution deduction?
A $10,000 grant to a University
A $500 check written to a nonprofit entity.
Two $2,500 awards to local religious groups
A $3,000 contribution to a political party
A $3,000 contribution to a political party
Donations to political parties, whether by a corporation or an individual, never qualify for charitable contributions. Donations made to nonprofits (which includes universities and colleges) as well as to religious groups qualify for the charitable contribution deduction.
Example Question #6 : Corporate Income Tax Deductions
For year 19, Fallon Corp., an accrual basis calendar-year C corporation, had an $8,000 unexpired charitable contribution carryover from year 18. Fallon’s Year 19 taxable income before the deduction for charitable contributions was $200,000. On December 15, year 19, Fallon’s board of directors authorized a $15,000 cash contribution to a qualified charity, which was made on January 8, Year 20. What is the maximum allowable deduction that Fallon may take as a charitable contribution on its Year 19 tax return?
$20,000
$23,000
$15,000
$8,000
$20,000
C corporations may deduct up to 10% of their gross income before deductions, so Fallon has a maximum of $20,000 it may deduct. Fallon’s board authorized a transfer of $15,000 cash prior to the end of the tax year, and companies are allowed to deduct accrued contributions if paid within 3 ½ months after year-end, meaning they may take the entire $15,000. Fallon also had an $8,000 carryover from the prior year, and corporations may carryover excess charitable contributions for up to five years after the contribution was made. As a result, Fallon can also take an additional $5,000 from the carryover amount and apply that to the Year 19 tax year, for the maximum deduction of $20,000.
Example Question #161 : Cpa Regulation (Reg)
A corporation deduction for charitable contributions that exceed the current limit for deduction in one year can be carried back __ years and forward __ years.
5, 3
3, 5
0, 5
5, 0
0, 5
For the corporate charitable deduction, there is no carryback and only a 5 year carry forward period.
Example Question #11 : Corporate Income Tax Deductions
In the case of a corporation that is not a financial institution, which of the following statements is correct with regard to the deduction for bad debts?
On the approval form the IRS, a corporation may change its method from direct charge-off to reserve.
Either the reserve method or the direct charge-off method may be used, if the election is made in the corporation’s first taxable year.
If the reserve method was consistently used in prior years, the corporation may take a deduction of a reasonable addition to the reserve for bad debts.
A corporation is required to use the direct charge-off method rather than the reserve method.
A corporation is required to use the direct charge-off method rather than the reserve method.
Accrual-basis taxpayers (which includes corporations) are required to use the specific charge-off (aka direct charge-off) method for tax purposes. This does not preclude a corporation from using the reserve method for financial reporting purposes, as required.
Example Question #12 : Corporate Income Tax Deductions
What is the maximum amount of capital losses in excess of capital gains that a C corporation may deduct in a year?
$10,000
$5,000
$0
$3,000
$0
For C corporations, capital losses may only be deducted to the extent of capital gains in a given year. Excess capital losses may, however, be carried back three years or forward five (again, only to the extent of capital gains in those years).
Example Question #13 : Corporate Income Tax Deductions
Funnie, Inc. manufactures consumer products and sells them to distributors. Funnie advertises its products to increase sales and enhance the value of its trade name. What is the appropriate treatment for the advertising costs?
Amortize the costs over 36 months
Amortize the costs over 15 years
Deduct the costs currently as ordinary and necessary business expenses
Amortize the costs over 60 months
Deduct the costs currently as ordinary and necessary business expenses
Advertising expenses are treated as those incurred in the normal course of business, and for tax purposes are expensed in the period the costs are incurred. There is no amortization of these costs.
Example Question #163 : Cpa Regulation (Reg)
ABC Corp, a calendar-year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant and the reimbursement is not treated as wages subject to withholdings. What percentage of meal expenses may ABC deduct?
80%
50%
100%
0%
50%
Only 50% of meal expenses are deductible.
Example Question #164 : Cpa Regulation (Reg)
A corporation’s penalty for underpaying federal estimated taxes is:
Fully deductible if reasonable cause can be established for the underpayment
Not deductible
Partially deductible
Fully deductible in the year paid
Not deductible
The penalty for underpayment of federal estimated taxes is not deductible.
Example Question #165 : Cpa Regulation (Reg)
ABC Corp, a calendar year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant and the reimbursement is not treated as wages subject to withholdings. What percentage of meal expenses may ABC deduct?
50%
0%
100%
80%
50%
Only 50% of meal expenses are deductible.
Example Question #16 : Corporate Income Tax Deductions
A corporation’s penalty for underpaying federal estimated taxes is:
Not deductible
Fully deductible if reasonable cause can be established for the underpayment
Fully deductible in the year paid
Partially deductible
Fully deductible in the year paid
The penalty for underpayment of federal estimated taxes is not deductible.
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