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128 multiple-choice questions and 60 flashcards on Entity taxation, about 33% of the CPA TCP bank. Every one carries a written rationale.
Entity taxation is one of 5 chapters in CoStudy's CPA — Tax Compliance & Planning (TCP) [Discipline] bank, and it holds 128 of the bank's 385 multiple-choice questions — roughly 33% of the total. That proportion is not arbitrary: chapters follow the certifying body's published exam outline, and the number of questions in each is set by that domain's published weight, so the share of your practice time this chapter takes matches the share of the real exam it accounts for.
Studying by chapter is worth doing once you have a diagnostic score. A single overall percentage tells you whether you are close; it does not tell you which domain is dragging. Working a weak chapter in isolation, and re-testing it in isolation, is the fastest way to move a score that has stalled — and it is why the mock exams in CoStudy report by domain rather than as one number.
6 questions drawn from this chapter, with the full rationale shown — the controlling principle behind the right answer, and why each wrong option tempts and fails.
A backdoor Roth IRA is executed by making a:
Answer: D — Nondeductible traditional IRA contribution then converting to a Roth
D) Correct — bypasses the Roth MAGI limits via nondeductible-then-convert (watch pro-rata). A) Direct high-income Roth contribution is prohibited. C) That would defeat the Roth's tax treatment. B) QCDs come from traditional IRAs, not Roths.
A high-net-worth client holds shares in a publicly traded REIT and a publicly traded partnership (PTP) generating qualified income. Regarding the §199A 20% QBI deduction on this income, which statement is correct?
Answer: C — Both REIT dividends and qualified PTP income are eligible for the 20% deduction without regard to the wage/UBIA limitation or SSTB rules
A) Incorrect — this is the treatment for ordinary QBI from a trade or business, not REIT/PTP income, which is specifically carved out from those limitations. B) Incorrect — both categories do qualify for a deduction, just computed as a separate component. C) Correct — combined qualified REIT dividends and qualified PTP income get a 20% deduction regardless of taxable income level, wage/UBIA amounts, or SSTB status, computed as a separate component of the §199A deduction. D) Incorrect — REIT dividends remain eligible; no such SECURE Act exclusion exists.
A pass-through entity tax (PTET) election is primarily used as:
Answer: A — A workaround for the federal SALT cap on individual itemized deductions
A) Correct — PTET shifts state tax to entity level, sidestepping SALT cap. B) PTET does not affect SE tax. C) Wage deduction is separate. D) C-corps are not the target.
A comprehensive review of a large publicly traded corporation's tax position touches CAMT exposure, a recent stock buyback triggering the §4501 excise tax, and clean energy tax credits from a new manufacturing facility. The practitioner's overarching framework for this review should recognize that:
Answer: C — Each item requires separate analysis — CAMT's book-income-based minimum tax computation, the §4501 excise tax on net stock repurchases, and the specific eligibility/sourcing requirements for clean energy credits — while recognizing that all three stem from the same broader legislative package (the Inflation Reduction Act) affecting large corporations
A) Incorrect — CAMT (a minimum tax based on adjusted financial statement income), the §4501 excise tax (a 1% tax on net stock buybacks), and clean energy credits (specific eligibility-based credits) are three distinct computations with different bases, rates, and applicability tests, not a single unified calculation. C) Correct — a synthesis of these three areas shows each requires its own distinct analysis (CAMT's AFSI-based minimum tax test for large corporations, the §4501 net-repurchase-based excise tax, and the detailed sourcing/eligibility requirements for clean energy credits), while recognizing that CAMT and the stock buyback excise tax both originated from the same 2022 Inflation Reduction Act legislative package specifically targeting large corporations' tax positions, alongside that same law's expansion of clean energy incentives — useful context for understanding why a large corporation might simultaneously face new minimum tax exposure, buyback excise tax, and expanded credit opportunities. B) Incorrect — CAMT and the §4501 excise tax were both specifically enacted by the Inflation Reduction Act, and the clean energy credits discussed were significantly expanded/modified by that same legislation. D) Incorrect — CAMT and the stock buyback excise tax specifically target LARGE (not small) publicly traded corporations meeting the respective thresholds; small corporations are generally not subject to either provision.
A tax advisor is comparing the step transaction doctrine, the substance-over-form doctrine, and the business purpose doctrine for a client structuring a complex reorganization. The advisor should recognize that these three judicial doctrines:
Answer: B — Are related anti-abuse judicial doctrines that often overlap in application — the step transaction doctrine focuses on collapsing prearranged multi-step transactions, substance-over-form looks past formal legal structure to economic reality generally, and business purpose requires a legitimate non-tax rationale for the transaction (particularly relevant to reorganizations) — and a single transaction can implicate more than one simultaneously
A) Incorrect — these doctrines are closely related judicial anti-abuse concepts that frequently overlap when courts analyze the same complex transaction. B) Correct — these three doctrines are related but analytically distinct: the step transaction doctrine specifically addresses collapsing prearranged multi-step transactions into their combined result, substance-over-form is the broader general principle of looking past formal legal structure to economic reality, and the business purpose doctrine specifically requires a legitimate non-tax rationale (especially significant for corporate reorganizations under §368) — and courts often apply more than one of these doctrines together when analyzing the same complex transaction. C) Incorrect — these doctrines are commonly applied to CORPORATE transactions (especially reorganizations), not limited to individual taxpayers. D) Incorrect — while §7701(o) codified the economic substance doctrine specifically, it didn't eliminate or supersede these OTHER related judicial doctrines, which continue to be applied by courts as well.
A US shareholder's controlled foreign corporation (CFC) operates in a jurisdiction with a corporate tax rate high enough that its effective foreign tax rate exceeds 90% of the top US corporate tax rate. The shareholder can potentially avoid GILTI inclusion on this CFC's income by making:
Answer: A — The GILTI high-tax exception election, made annually, excluding income taxed at a rate exceeding the threshold (currently >18.9%)
B) Incorrect — the high-tax exception is elected ANNUALLY, not as a one-time permanent election at formation; the taxpayer must evaluate and elect each year based on that year's facts. A) Correct — the GILTI high-tax exception allows a CFC's income taxed at an effective foreign rate exceeding 90% of the top US corporate rate (currently translating to a threshold above 18.9%) to be excluded from GILTI, made via an annual election, providing relief for CFCs operating in genuinely high-tax foreign jurisdictions. C) Incorrect — §1031 like-kind exchange rules are entirely unrelated to GILTI planning; they concern deferral of gain on property exchanges, not CFC income inclusion regimes. D) Incorrect — the high-tax exception is not limited to passive-income CFCs; it's a general GILTI relief mechanism based on the effective tax rate of the CFC's tested income.
4 cards from the 60 in this chapter.
Unrelated Business Income Tax (UBIT)?
Tax-exempt organizations pay regular corporate tax rates on income from a trade or business regularly carried on that is NOT substantially related to the organization's exempt purpose — designed to prevent unfair competition with taxable businesses.
§754 election — purpose?
Allows a partnership to adjust the basis of partnership property to reflect a transferee partner's purchase price (via §743(b), on a sale/transfer) or a distribution's effect (via §734(b)), preventing basis/value mismatches for the affected partner(s).
Small business exception to inventory/accrual (§471(c)/§263A)?
Taxpayers meeting the §448(c) gross receipts test (~$30M average) can use cash method AND treat inventory as non-incidental materials/supplies OR per their financial statement treatment, avoiding UNICAP capitalization.
Personal holding company tax?
20% on undistributed PHC income. PHC: 5 or fewer own >50% AND 60%+ income passive (interest, dividends, rents, royalties).
These are a sample. The full Entity taxation chapter runs 188 items with per-chapter progress tracking, on the web and in the iOS app.