#1: Local Lodging Expense
Which of the following is not a part of the safe harbor test to determine if a local lodging expense is deductible to the employer and not taxable to the employee as a tax-free working condition fringe benefit?
A. Lodging is necessary for the individual to participate fully in or be available for a bona fide business meeting, conference, training activity or other business function.
B. Lodging is for a period that does not exceed fifteen calendar days and does not recur more frequently than once per calendar quarter.
C. The employer requires the employee to remain at the activity or function overnight.
D. The lodging is not lavish or extravagant under the circumstances and does not provide any significant element of personal pleasure, recreation or benefit.
ANSWER: B
The correct answer is B.
The safe harbor test is a four part test that includes A, C, D. The other part of the safe harbor test is that the “Lodging is for a period that does not exceed five calendar days and does not recur more frequently than once per calendar quarter.”
Sample REG Questions #2: Topic: Amended Filings 1040X
- When does an amended filing (1040X) need to be filed?
A. within 2 years after the date you filed your original return
B. within 3 years after the date you paid the tax
C. within 2 years after the date you filed your original
return or within 1 year after the date you paid the tax,
whichever is later.
D. within 3 years after the date you filed your original
return or within 2 years after the date you paid the tax,
whichever is later.
ANSWER: D
The correct answer is D.
Generally, to claim a refund, you must file Form 1040X
within 3 years after the date you filed your original
return or within 2 years after the date you paid the tax,
whichever is later. Returns filed before the due date
(without regard to extensions) are considered filed on the due date.
You can read the full source law here:
Sample REG Questions #3: Topic Tax Return Positions
Firstly, you can read the source law from AICPA about tax return positions.
- According to the AICPA Statement on Standards for Tax Services, which of the following is the correct order of standards from most probable to least probable:
A. More likely than not. Substantial authority. Realistic possibility of success. Reasonable basis.
B. Reasonable basis. Realistic possibility of success. More likely than not. Substantial authority.
C. Substantial authority. Reasonable basis. More likely than not. Realistic possibility of success.
D. More likely than not. Realistic possibility of success. Reasonable basis. Substantial authority.
ANSWER: A
The correct answer is A.
More likely than not standard would have a probability of over 50% if the tax position were to be challenged.
The substantial authority standard would have approximately 40% chance of success.
The realistic possibility standard would have approximately a 33% chance of success.
The reasonable basis standard would have approximately a 20% chance of success .
4. According to the AICPA Statement on Standards for Tax Services, if a CPA is preparing tax returns and recommending tax return position, which of the following statements is correct:
A. A CPA may recommend a position that the CPA concludes is frivolous as long as the position is adequately disclosed on the return.
B. A CPA may sign a tax return as preparer knowing that the return takes a position that will not be sustained if challenged.
C. A CPA will usually not advise the client of the potential penalty consequences of the recommended tax return position.
D. A CPA may recommend a position for which the CPA has a good faith belief there is substantial authority of being sustained if challenged.
ANSWER: D
A CPA may recommend a tax position that the CPA believes in good faith to be sustainable and backed by substantial authority. Substantial authority is defined as an approximately 40% probability of success. The CPA may prepare and sign a return taking such a position.
5. A tax preparer working for H & R Block has advised a company to take a position on its tax return. The tax preparer believes that there is a 75% possibility that the position will be sustained if audited by the IRS. If the position is not sustained, an accuracy-related penalty and a late-payment penalty would apply. What is the tax preparer’s responsibility regarding disclosure of the penalty to the company?
A. The tax preparer is responsible for disclosing both penalties to the company.
B. The tax preparer is responsible for disclosing only the accuracy-related penalty to the company.
C. The tax preparer is responsible for disclosing only the probability of the late-payment penalty to the company.
D. The tax preparer has no responsibility for disclosing any potential penalties to the company, because the position will is more likely than not to be sustained on audit.
ANSWER: A
The correct answer is A.
First of all, this position passes the realistic possibility standard. Subsequently, it is proper for the tax
preparer to recommend it to the client.
The tax preparer is required to notify the client of all possible penalties in the event that the position is not sustained.
Sample REG Questions #6: Bonus Depreciation
- Taxpayer acquires qualified property in February 2016. Which of the following is not a requirement to make bonus depreciation available for the qualified property?
A. New MACRS property with a recovery period of 20 years or less, computer software, water utility property, and qualified improvement property.
B. Original use must begin with the taxpayer.
C. Placed in service before Jan. 1, 2020.
D. Property was placed in service within one year of the acquisition date of the property.
Answer: D
The correct answer is D.
For property placed in service after Dec. 31, 2015, bonus depreciation is available for qualified property that meets the following requirements is placed in service before Jan 1, 2020. The qualified property does not have to be put in use within one year.
Sample REG Questions #7: Debt Forgiveness
Before answering the REG question about debt forgiveness you can review the source law here
- Under what circumstances would the cancellation of debt be taxable to the debtor?
A. Cancellation of qualified farm indebtedness
B. Debt canceled during insolvency
C. Debt canceled were for assets with a market value greater than the debt of the asset
D. Debt that is cancelled in a Chapter 11 bankruptcy case.
Answer: C
The correct answer is C.
If the debts exceed the market value of the debtor’s assets, the amount of canceled debt is not taxable. Otherwise, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs.
If you are looking for more practice REG questions for the CPA exam, you can find 500 sample REG questions that we have compiled over the years.