CPA REG C Corporations & State Tax Practice Questions
C Corporations & State Tax makes up 6 of every 50 questions on a Tigertest CPA REG practice test. Here are 10 of the 24 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on the AICPA's 2026 REG blueprint. Original multiple-choice questions; 50 per test, weighted like the real section's five areas, 75% target. Not affiliated with the AICPA or NASBA.
1. A corporation's book income is $500,000 after $105,000 of federal income tax expense. On Schedule M-1, adding back the tax expense gives:
- A.$710,000
- B.$605,000
- C.$395,000
- D.$500,000
Answer: B. Federal income tax expense reduces book income but is not deductible, so it is added back: $500,000 + $105,000 = $605,000.
2. A corporation's book income of $400,000 includes $12,000 of municipal bond interest and is net of an $8,000 fine paid to a state. Adjusting for these two items, taxable income is:
- A.$420,000
- B.$380,000
- C.$404,000
- D.$396,000
Answer: D. Tax-exempt interest is subtracted and the nondeductible fine is added back: $400,000 - $12,000 + $8,000 = $396,000.
3. On Schedule M-1, which item is subtracted from book income to reach taxable income?
- A.Life insurance proceeds received
- B.Nondeductible meal costs
- C.Excess of capital losses
- D.Federal income tax expense
Answer: A. Life insurance proceeds are book income but excluded from taxable income, so they are subtracted. The other three are added back to book income.
4. A corporation's books show $18,000 of business meals with clients, all properly documented. The Schedule M-1 add-back for them is:
- A.$0
- B.$4,500
- C.$9,000
- D.$18,000
Answer: C. Business meals are generally 50% deductible, so half of the $18,000 book expense is added back to reach taxable income.
5. A corporation pays a $25,000 penalty to a state agency for breaking a law. For tax purposes, the penalty is:
- A.50% deductible
- B.Amortized over 15 years
- C.Not deductible
- D.Fully deductible
Answer: C. Fines and penalties paid to a government for violating a law are not deductible, apart from amounts identified as restitution or costs of coming into compliance.
6. A corporation pays premiums on a life insurance policy on its president, with the corporation as beneficiary. The premiums are:
- A.Not deductible
- B.Deductible when paid
- C.Capitalized and amortized
- D.Deductible as pay
Answer: A. Premiums are not deductible when the corporation is the beneficiary, because the proceeds will be tax-exempt. Book expense is added back on Schedule M-1.
7. In December, an accrual-method landlord corporation receives the next January's rent in advance. For tax purposes, the rent is taxed:
- A.Ratably over the lease
- B.In the year it is earned
- C.When the lease ends
- D.In the year received
Answer: D. Prepaid rent is taxable when received, even under the accrual method, though books record it as income when earned.
8. A C corporation's taxable income is $300,000. Its regular federal income tax is:
- A.$75,000
- B.$63,000
- C.$105,000
- D.$102,000
Answer: B. C corporations pay a flat 21% rate: $300,000 x 21% = $63,000.
9. Corporation A owns 30% of Corporation B and receives $100,000 of dividends from it. Ignoring the taxable income limit, A's dividends received deduction is:
- A.$80,000
- B.$65,000
- C.$50,000
- D.$100,000
Answer: B. A corporation owning at least 20% but less than 80% of the payer deducts 65% of dividends received.
10. A corporation owns 10% of another domestic corporation and receives $40,000 of dividends. Ignoring the taxable income limit, its dividends received deduction is:
- A.$40,000
- B.$28,000
- C.$26,000
- D.$20,000
Answer: D. Ownership under 20% gives a 50% deduction: $40,000 x 50% = $20,000. 65% applies at 20% or more and 100% at 80% or more.
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