Free CPA TCP (Tax Compliance & Planning) Entity Tax Compliance Practice Questions
Master entity tax compliance for the CPA TCP exam. Questions test partnership, S corporation, and C corporation tax returns, including Schedule K-1 reporting, estimated taxes, and filing requirements.
Sample Questions
Question 1
Easy
Which of the following entities is required to file Form 1120-S?
Solution
A is correct. Form 1120-S (U.S. Income Tax Return for an S Corporation) is filed by domestic corporations that have made a valid S election by filing Form 2553 under IRC Section 1362. The election must be in effect for the tax year. A C corporation that has not filed Form 2553 files Form 1120, not Form 1120-S, regardless of its number of shareholders. A single-member LLC taxed as a disregarded entity reports on the owner's return (Schedule C if the owner is an individual). A publicly traded partnership generally files Form 1065 and is taxed as a corporation under Section 7704.
Question 2
Medium
USCo wholly owns ForeignSub, a CFC with \$4,000,000 of tested income and QBAI of \$10,000,000. What is USCo's GILTI inclusion before the Section 250 deduction?
Solution
D is correct. GILTI equals net CFC tested income minus DTIR. DTIR = 10% times \$10,000,000 = \$1,000,000. GILTI = \$4,000,000 minus \$1,000,000 = \$3,000,000. The Section 250 deduction (50%) would further reduce taxable GILTI to \$1,500,000, but the question asks for the pre-deduction inclusion. Choice A ignores the DTIR exclusion. Choice B prematurely applies the Section 250 deduction. Choice C applies both DTIR and the Section 250 deduction.
Question 3
Hard
An S corporation has passive investment income of 150,000 and gross receipts of 400,000. The corporation has accumulated E&P from its C corporation years. Under Section 1375, what tax applies, and is the S election at risk?
Solution
A is correct. Under IRC Section 1375, an S corporation with accumulated E&P from C corporation years that has passive investment income exceeding 25% of gross receipts is subject to a tax on its excess net passive income at the highest corporate rate (21%). Here, passive investment income of 150,000 is 37.5% of gross receipts (400,000), exceeding the 25% threshold (100,000). The excess passive income is the amount by which passive investment income exceeds 25% of gross receipts. Under Section 1362(d)(3), if the corporation has accumulated E&P and passive investment income exceeding 25% of gross receipts for three consecutive tax years, the S election is automatically terminated on the first day of the fourth year.
Choice B is incorrect because the 25% test was not repealed or substantially modified by the TCJA; it remains in effect for S corporations with accumulated C corporation E&P.
Choice D is incorrect because the Section 1362(d)(3) termination provision applies specifically to S corporations with C corporation E&P, not to C corporations converting to partnerships.
Choice C is incorrect because the threshold is 25% of gross receipts, not 50%, and termination occurs after three consecutive years, not five.
Choice B is incorrect because the 25% test was not repealed or substantially modified by the TCJA; it remains in effect for S corporations with accumulated C corporation E&P.
Choice D is incorrect because the Section 1362(d)(3) termination provision applies specifically to S corporations with C corporation E&P, not to C corporations converting to partnerships.
Choice C is incorrect because the threshold is 25% of gross receipts, not 50%, and termination occurs after three consecutive years, not five.
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