Regulation (REG) — Core Concepts Practice Questions
This topic covers the essential principles of Regulation (REG) as tested in the CPA Exam.
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Apex Corp. incurred $2,000 in expenses for meals with clients at a restaurant to discuss business. The meals were not lavish or extravagant, and a bona fide business discussion occurred. How much of these meal expenses can Apex Corp. deduct for federal income tax purposes?
Examiner's Design Intent
Tests candidate knowledge of IRC Section 274(n) meal deduction limitations and ability to calculate 50% limitation correctly
Sarah sold stock with a basis of $15,000 to her sister, Emily, for its fair market value of $12,000. Sarah had held the stock for three years. How much loss can Sarah recognize on this transaction for federal income tax purposes?
Examiner's Design Intent
Tests candidate knowledge of IRC Section 267 related party loss disallowance rules and whether they override basic loss calculation principles
John received $1,000 in interest from a general obligation municipal bond issued by the City of Springfield. He also received $500 in interest from a corporate bond. How much of this interest income must John include in his federal gross income for the year?
Examiner's Design Intent
Tests fundamental application of IRC Section 103 municipal bond interest exclusion while ensuring candidates can distinguish taxable from tax-exempt interest income
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