The CPA REG exam tests not only your technical knowledge but also your ability to apply tax law and business regulations to complex scenarios. That’s why Task-Based Simulations (TBS) are such a critical component of the exam. In this Part 4 (Scenarios 16–20) collection, you will practice simulations on corporate tax, S-Corporation shareholder basis, passive activity loss rules, international taxation, and Section 179 deduction. Each scenario provides a structured problem along with a clear step-by-step solution. By practicing these TBS sets, you’ll sharpen your analytical skills and build the confidence needed to excel in the CPA REG exam.
CPA REG Task-Based Simulations (TBS) – Part 4 (Scenarios 16–20)
Scenario 16 – Corporate Tax: Adjusted Taxable Income
Case:
XYZ Corp has book income of $600,000. The following adjustments apply:
- Federal income tax expense: $20,000
- Meals (50% deductible): $12,000
- Municipal bond interest income: $8,000
- Charitable contribution: $40,000 (within 10% limit)
Task: Calculate taxable income.
Solution:
- Start with book income: $600,000
- Add back federal income tax: +$20,000 → $620,000
- Add back nondeductible portion of meals (50%): +$6,000 → $626,000
- Subtract municipal bond interest (nontaxable): –$8,000 → $618,000
- Deduct charitable contribution: –$40,000 → $578,000
✅ Taxable Income = $578,000
Scenario 17 – S-Corp Shareholder Basis
Case:
John owns 100% of an S-Corp. His basis at the beginning of the year was $50,000. During the year:
- Share of income: $40,000
- Cash distribution: $30,000
- Nondeductible expense allocated: $10,000
Task: Calculate ending basis.
Solution:
- Beginning basis = $50,000
- Add income = +$40,000 → $90,000
- Subtract distribution = –$30,000 → $60,000
- Subtract nondeductible expense = –$10,000 → $50,000
✅ Ending Basis = $50,000
Scenario 18 – Passive Activity Loss
Case:
Maria earns $120,000 salary. She also has a $30,000 passive rental loss from a property she actively manages.
Task: Determine deductible passive loss.
Solution:
- Salary = $120,000 (< $150,000 phaseout limit).
- She actively participates → may deduct up to $25,000 passive loss.
- Deductible = $25,000
- Suspended loss carried forward = $5,000
✅ Deductible Loss = $25,000
✅ Carryforward = $5,000
Scenario 19 – International Tax (Foreign Tax Credit)
Case:
ABC Inc. has U.S. tax liability before credits of $100,000. Foreign-source taxable income = $200,000, worldwide taxable income = $800,000. Foreign income taxes paid = $35,000.
Task: Compute allowable Foreign Tax Credit (FTC).
Solution:
FTC limit = (Foreign-source income ÷ Worldwide income) × U.S. tax before credits
= (200,000 ÷ 800,000) × 100,000
= 25% × 100,000 = $25,000
- Foreign tax paid = $35,000, but limited to $25,000.
✅ Allowable FTC = $25,000
Scenario 20 – Section 179 Deduction
Case:
A business purchases new equipment costing $1,050,000 in 2025. The Section 179 limit is $1,220,000, phase-out begins at $3,050,000. Taxable income is $900,000.
Task: Determine deductible Section 179 expense.
Solution:
- Purchase cost = $1,050,000 → within limit.
- Taxable income limit = $900,000.
- Section 179 deduction limited to taxable income.
✅ Deduction = $900,000
✅ Carryover = $150,000
Previous Part: CPA REG TBS Part 1
Previous Part: CPA REG TBS Part 2
Previous Part: CPA REG TBS Part 3
This wraps up CPA REG TBS Part 4 (Scenarios 16–20). These practice simulations covered advanced taxation topics like corporate income adjustments, S-Corp basis limitations, passive activity loss calculations, foreign tax credits, and Section 179 deductions. Together, these problems mirror the style and complexity of the actual CPA exam. If you’ve completed all four REG TBS sets, you now have a solid foundation to approach the simulations section with confidence. Keep reviewing, practicing, and refining your approach—success in CPA REG is built on consistency and depth of practice.
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