Preparing for the CPA REG (Regulation) exam requires mastering taxation, ethics, and business law concepts. In this post, we present MCQs 51–100 with detailed answers and explanations. These questions are structured to reflect the real CPA exam style and cover key areas such as taxation, ethics, business law, compliance, and IRS procedures. Perfect for students in the USA, Canada, UK, and Australia, these practice questions will help you build confidence and maximize your exam score.
CPA REG (Regulation) MCQs Part 2: Questions 51–100 with Detailed Explanations
51. Which of the following is NOT a requirement for an S corporation election?
A) Only individuals, certain estates, and trusts as shareholders
B) Maximum 100 shareholders
C) More than one class of stock allowed
D) Shareholders must be U.S. citizens or residents
Answer: C) More than one class of stock allowed
Explanation: S corporations can issue only one class of stock. Multiple classes disqualify the election.
52. Which of the following is deductible as a qualified medical expense?
A) Cosmetic surgery for appearance
B) Health insurance premiums
C) Over-the-counter vitamins
D) Funeral expenses
Answer: B) Health insurance premiums
Explanation: Medical expenses, including health insurance premiums, are deductible (subject to 7.5% AGI threshold). Cosmetic and funeral are not.
53. Which of the following penalties is the greatest risk for a preparer knowingly understating tax liability?
A) Accuracy-related penalty
B) Civil fraud penalty
C) Late filing penalty
D) Negligence penalty
Answer: B) Civil fraud penalty
Explanation: Fraud carries severe penalties (75% of underpayment) if the preparer knowingly misrepresents.
54. Which of the following is subject to self-employment (SE) tax?
A) Wages as an employee
B) Rental income
C) Partnership guaranteed payments
D) Capital gains
Answer: C) Partnership guaranteed payments
Explanation: Guaranteed payments to partners are SE income. Wages are subject to FICA, not SE. Passive rental and capital gains are excluded.
55. Which of the following is NOT deductible for charitable contributions?
A) Cash donation to a public charity
B) Donation of used clothing to Salvation Army
C) Political campaign contribution
D) Donation of appreciated stock to a church
Answer: C) Political campaign contribution
Explanation: Contributions to political campaigns are nondeductible.
56. Which of the following is included in gross estate for estate tax purposes?
A) Property owned jointly with spouse
B) Life insurance proceeds (if decedent owned policy)
C) Retirement account balance
D) All of the above
Answer: D) All of the above
Explanation: Gross estate includes all property interests, life insurance proceeds (if incidents of ownership), and retirement balances.
57. Which type of bankruptcy allows for business reorganization?
A) Chapter 7
B) Chapter 9
C) Chapter 11
D) Chapter 13
Answer: C) Chapter 11
Explanation: Chapter 11 allows businesses to reorganize and continue operating under court supervision.
58. Which tax credit is partially refundable?
A) Child tax credit
B) Lifetime learning credit
C) American opportunity credit
D) Both A and C
Answer: D) Both A and C
Explanation: The child tax credit (up to $1,600 refundable in 2024) and American Opportunity Credit (40% refundable) are partially refundable.
59. Which of the following cannot file for bankruptcy?
A) Individuals
B) Partnerships
C) Corporations
D) Government units
Answer: D) Government units
Explanation: Federal, state, and local governments cannot file bankruptcy.
60. Which of the following is a preference item for Alternative Minimum Tax (AMT)?
A) State and local income taxes
B) Standard deduction
C) Private activity bond interest
D) All of the above
Answer: D) All of the above
Explanation: AMT disallows deductions such as state taxes, standard deduction, and adds preference items like private activity bond interest.
61. Which of the following retirement accounts has required minimum distributions (RMDs)?
A) Roth IRA (original owner)
B) Traditional IRA
C) Roth 401(k)
D) Both B and C
Answer: D) Both B and C
Explanation: Traditional IRAs and Roth 401(k)s require RMDs. Roth IRAs do not during the owner’s lifetime.
62. Which of the following does NOT reduce a corporation’s earnings & profits (E&P)?
A) Federal income tax paid
B) Charitable contributions
C) Dividends received deduction
D) Cash distributions to shareholders
Answer: C) Dividends received deduction
Explanation: The DRD is not an E&P reduction. Taxes, contributions, and distributions reduce E&P.
63. Which of the following taxpayers can file as “Head of Household”?
A) Single person supporting a dependent child
B) Married couple living together
C) Married couple living apart but filing separately
D) Single person with no dependents
Answer: A) Single person supporting a dependent child
Explanation: HOH requires being unmarried and paying >50% support for a qualifying dependent.
64. Which of the following is NOT a passive activity?
A) Rental real estate (not a real estate professional)
B) Limited partnership interest
C) Ownership of S corporation stock where taxpayer materially participates
D) Equipment leasing
Answer: C) Ownership of S corporation stock where taxpayer materially participates
Explanation: Passive activities include rentals and limited partnerships. Material participation excludes passive classification.
65. Which of the following taxes is not deductible for individuals?
A) Real estate taxes on personal residence
B) State income taxes
C) Federal income taxes
D) Personal property taxes
Answer: C) Federal income taxes
Explanation: Federal income taxes are never deductible on federal returns.
66. A corporation donates inventory to a charity. What is the deduction allowed?
A) Cost of inventory only
B) FMV of inventory only
C) Lower of cost or FMV
D) Cost plus 50% of appreciation (limited)
Answer: D) Cost plus 50% of appreciation (limited)
Explanation: Corporations donating inventory get special enhanced deduction = cost + 50% appreciation (not exceeding twice cost).
67. Which of the following is an example of a tax preference item?
A) Medical expense deduction
B) Private activity bond interest
C) State sales tax deduction
D) Student loan interest deduction
Answer: B) Private activity bond interest
Explanation: Certain items like private activity bond interest are preference items under AMT.
68. Which of the following organizations is tax-exempt under Section 501(c)(3)?
A) Political parties
B) Charitable and religious organizations
C) Social clubs
D) Labor unions
Answer: B) Charitable and religious organizations
Explanation: 501(c)(3) covers charitable, educational, and religious groups. Political and social groups fall under other subsections.
69. Which of the following is included in Alternative Minimum Taxable Income (AMTI)?
A) Standard deduction
B) Tax-exempt income from municipal bonds
C) Both A and B
D) Neither A nor B
Answer: C) Both A and B
Explanation: AMTI adds back standard deduction and certain tax-exempt bond interest.
70. Which of the following allows losses to offset ordinary income without limitation?
A) Passive activity losses
B) Capital losses
C) Net operating losses (NOLs)
D) None of the above
Answer: C) Net operating losses (NOLs)
Explanation: NOLs can offset taxable income (limited to 80% post-2017). Passive and capital losses have stricter limits.
71. Which type of trust is taxable at the highest marginal rates on undistributed income?
A) Grantor trust
B) Simple trust
C) Complex trust
D) Revocable trust
Answer: C) Complex trust
Explanation: Complex trusts pay tax on undistributed income and reach top tax rates at very low income levels.
72. Which of the following penalties applies when a taxpayer fails to file a return?
A) Accuracy-related penalty
B) Late filing penalty
C) Late payment penalty
D) Negligence penalty
Answer: B) Late filing penalty
Explanation: Failure-to-file penalty is generally 5% per month (max 25%).
73. Which of the following entities is not considered a pass-through for tax purposes?
A) Partnership
B) S corporation
C) C corporation
D) LLC (if treated as partnership)
Answer: C) C corporation
Explanation: C corporations are taxpaying entities, not pass-through.
74. Which of the following qualifies for like-kind exchange under IRC §1031 (post-2017 law)?
A) Exchange of stocks
B) Exchange of equipment
C) Exchange of real estate
D) Exchange of partnership interest
Answer: C) Exchange of real estate
Explanation: After 2017 TCJA, only real property qualifies for like-kind exchange.
75. Which of the following types of income is not subject to the net investment income tax (NIIT)?
A) Dividends
B) Rental income
C) Capital gains
D) Wages from employment
Answer: D) Wages from employment
Explanation: NIIT applies to investment income (dividends, gains, rentals), not wages.
76. Which of the following is a characteristic of a partnership?
A) Limited liability for all partners
B) Single taxation
C) Issuance of stock
D) Double taxation
Answer: B) Single taxation
Explanation: Partnerships are pass-through entities and taxed once at partner level.
77. Which of the following items is subject to capital gains treatment?
A) Sale of business inventory
B) Sale of stock held for investment
C) Sale of accounts receivable
D) Sale of depreciable equipment (ordinary income portion)
Answer: B) Sale of stock held for investment
Explanation: Stocks held for investment generate capital gains. Inventory and receivables are ordinary.
78. Which of the following entities pays tax at the entity level?
A) S corporation
B) General partnership
C) Sole proprietorship
D) C corporation
Answer: D) C corporation
Explanation: C corporations are separately taxable entities.
79. Which of the following is deductible as an above-the-line adjustment to income?
A) Alimony paid (pre-2019 agreements)
B) Mortgage interest on residence
C) Charitable contributions
D) State income taxes
Answer: A) Alimony paid (pre-2019 agreements)
Explanation: Pre-2019 divorce alimony is deductible above the line.
80. Which of the following is an example of a refundable credit?
A) Earned Income Tax Credit (EITC)
B) Child Tax Credit (partially)
C) Premium Tax Credit
D) All of the above
Answer: D) All of the above
Explanation: These credits can generate a refund even if no tax liability exists.
81. Which of the following is not included in gross income?
A) Gambling winnings
B) Workers’ compensation
C) Prizes and awards
D) Cancellation of debt income
Answer: B) Workers’ compensation
Explanation: Workers’ comp is excluded. The rest are taxable.
82. Which of the following penalties applies to underpayment of estimated tax?
A) Negligence penalty
B) Underpayment penalty
C) Late filing penalty
D) Civil fraud penalty
Answer: B) Underpayment penalty
Explanation: Taxpayers failing to pay sufficient estimates may incur underpayment penalty.
83. Which of the following is eligible for the dividends-received deduction (DRD)?
A) Dividends from a foreign corporation
B) Dividends from a U.S. corporation
C) Dividends from tax-exempt bonds
D) Dividends received by an individual
Answer: B) Dividends from a U.S. corporation
Explanation: Corporate shareholders may claim DRD on domestic dividends.
84. Which of the following is subject to capital loss limitation of $3,000 per year for individuals?
A) Net short-term losses
B) Net long-term losses
C) Both A and B combined
D) Neither A nor B
Answer: C) Both A and B combined
Explanation: Individuals can deduct up to $3,000 net capital loss annually.
85. Which of the following is deductible as an ordinary and necessary business expense?
A) Bribes
B) Lobbying expenses
C) Fines and penalties
D) Employee salaries
Answer: D) Employee salaries
Explanation: Reasonable salaries are deductible. Illegal payments and fines are not.
86. Which of the following is subject to gift tax?
A) Tuition payments made directly to a university
B) Annual gifts below the annual exclusion
C) Gift of $50,000 cash to a friend
D) Payments for medical bills made directly to hospital
Answer: C) Gift of $50,000 cash to a friend
Explanation: Direct tuition/medical payments are exempt. Annual exclusion (2024 = $18,000) applies.
87. Which of the following is eligible for installment sale reporting?
A) Sale of inventory
B) Sale of stocks and securities
C) Sale of real property
D) Sale of publicly traded securities
Answer: C) Sale of real property
Explanation: Installment sale method applies to property sales, not inventory or publicly traded securities.
88. Which of the following is excluded from gross income?
A) Jury duty pay
B) Employer-paid health insurance premiums
C) Taxable scholarships
D) Punitive damages
Answer: B) Employer-paid health insurance premiums
Explanation: Premiums are tax-free benefits. Others are taxable.
89. Which of the following allows a credit for foreign taxes paid?
A) Foreign tax credit
B) Earned income tax credit
C) Additional child tax credit
D) Standard deduction
Answer: A) Foreign tax credit
Explanation: FTC prevents double taxation of foreign income.
90. Which of the following items is subject to the 3.8% Net Investment Income Tax (NIIT)?
A) Wages
B) Interest
C) Self-employment income
D) Social Security benefits
Answer: B) Interest
Explanation: NIIT applies to investment income (interest, dividends, gains).
91. Which of the following is included in ordinary income?
A) Wages
B) Rent received
C) Partnership guaranteed payments
D) All of the above
Answer: D) All of the above
Explanation: Wages, rents, and guaranteed payments are ordinary income.
92. Which of the following cannot be discharged in bankruptcy?
A) Credit card debt
B) Student loans (absent undue hardship)
C) Medical bills
D) Personal loans
Answer: B) Student loans (absent undue hardship)
Explanation: Student loans generally survive bankruptcy.
93. Which of the following is deductible as moving expenses (post-2017 law)?
A) Armed forces member moving under orders
B) Civilian moving for new job
C) Retiree moving to another state
D) All of the above
Answer: A) Armed forces member moving under orders
Explanation: Only military moves are deductible post-2017.
94. Which of the following is subject to alternative minimum tax (AMT)?
A) Incentive stock option bargain element
B) Standard deduction
C) State tax deduction
D) All of the above
Answer: D) All of the above
Explanation: AMT requires add-back of these items.
95. Which of the following income items is considered passive?
A) Dividend income
B) Interest income
C) Rental real estate (unless exception applies)
D) Wages
Answer: C) Rental real estate
Explanation: Rentals are passive unless taxpayer is a real estate professional.
96. Which of the following entities may NOT elect S corporation status?
A) Partnership
B) Corporation with 50 shareholders
C) LLC electing corporate taxation
D) Domestic corporation with one class of stock
Answer: A) Partnership
Explanation: Partnerships cannot elect S status. Eligible entities must be domestic corporations or LLCs.
97. Which of the following is taxable income to the recipient?
A) Child support
B) Alimony (post-2018 divorces)
C) Inheritance
D) Gambling winnings
Answer: D) Gambling winnings
Explanation: Child support and inheritance are not taxable; post-2018 alimony is not. Gambling winnings are taxable.
98. Which of the following credits is available only to individuals?
A) Research and development credit
B) Work opportunity credit
C) Earned income credit
D) Foreign tax credit
Answer: C) Earned income credit
Explanation: EITC applies only to individuals with low/moderate income.
99. Which of the following is subject to federal unemployment tax (FUTA)?
A) Independent contractor payments
B) Wages paid to employees
C) Partner guaranteed payments
D) Shareholder distributions
Answer: B) Wages paid to employees
Explanation: FUTA applies only to employee wages.
100. Which of the following statements about AMT is correct?
A) AMT ensures high-income taxpayers pay minimum tax
B) AMT is calculated separately and compared with regular tax
C) Taxpayer pays the higher of regular tax or tentative minimum tax
D) All of the above
Answer: D) All of the above
Explanation: AMT is a parallel system to ensure minimum tax liability is met.
👉 Next, check out:
- CPA REG Batch 1
- CPA REG Batch 3
- CPA REG Batch 4
- CPA AUD (Auditing and Attestation)
- CPA FAR (Financial Accounting and Regulation)
You’ve now completed CPA REG Part 2 (MCQs 51–100). To strengthen your preparation further, continue with the next sections of our CPA Regulation series for complete coverage. These resources are designed to be unique, reliable, and exam-focused so that you’re fully prepared to pass the CPA exam on your first attempt. Bookmark this page, share with fellow candidates, and explore our CPA MCQs hub for all exam sections.