Free CPA TCP Practice Test Online

Correct answer: B. The tax applies to the lesser of net investment income or the applicable MAGI excess.

Section 1411 applies a separate 3.8% tax to the lesser of net investment income or the taxpayer's modified-AGI excess over the applicable threshold. Planning therefore requires both the net-gain computation and the taxpayer-level income limitation; regular income tax remains separate.

• A: Section 1411 applies to net investment income, not gross proceeds or receipts.
• C: The statutory computation uses the lesser, not the greater, of the two measures.
• D: NIIT is imposed in addition to regular income tax rather than replacing it.

Correct answer: C. A qualifying ABLE-to-ABLE rollover for the same eligible individual or an eligible family member.

Section 529A permits specified rollovers between ABLE programs when completed within the statutory period and directed for an eligible individual or qualifying family member. Nonqualified distributions can allocate earnings to income and incur an additional tax.

• A: The rollover rule requires an eligible individual or qualifying family member and a receiving ABLE account.
• B: A payroll account is not a qualifying ABLE program and cannot receive the statutory rollover.
• D: Nonqualified use can allocate earnings to income and trigger additional tax; it is not a qualifying rollover.

Correct answer: C. Increase the basis of remaining partnership property by the recognized loss, allocated under section 755.

A section 754 election activates section 734(b), which adjusts remaining inside basis for distribution-related gain or loss and basis disparities. A distributee loss generally increases remaining property basis, preventing duplicate economic loss.

• A: Section 734(b) adjusts remaining inside asset basis rather than eliminating all partners' outside bases.
• B: A partner distribution loss is not compensation for services.
• D: A basis adjustment does not require partnership termination.

Correct answer: D. Treat the liability-share increase as a deemed money contribution that generally increases outside basis.

Section 752 treats increased liability share as a deemed cash contribution, generally increasing outside basis under section 722. Economic-risk-of-loss rules determine recourse allocation; guarantees and reimbursement rights require substantive review.

• A: Section 752 liability shares are a core component of outside-basis computation.
• B: Partnership liability allocation does not create a corporate dividend.
• C: A decrease in liability share is deemed a distribution; an increase is deemed a contribution.

Correct answer: B. The estate generally owes no estimated income-tax payments for taxable years ending within two years after death.

Section 6654(l)(2) provides a limited estimated-tax exception for an estate during early administration. The exception affects prepayment obligations, not the estate's ultimate income-tax liability or annual return filing.

• A: Federal estimated income tax generally uses quarterly installments, and the early-estate exception can remove them.
• C: The estate is a separate taxpayer and does not transfer its payment duty automatically.
• D: The rule temporarily waives estimated payments, not the estate's ultimate tax or return obligations.