Ch10. CPA/EA Exam Final Review — Complete Summary of All Topics

CPA Exam Section Structure

CPA Exam (4 sections):
AUD (Auditing and Attestation)
FAR (Financial Accounting and Reporting)
REG (Regulation — Tax, Business Law, Ethics)
BAR or TCP or ISC (discipline-specific section, choose 1)

EA Exam (Special Enrollment Examination — 3 parts):
Part 1: Individuals
Part 2: Businesses
Part 3: Representation, Practices, and Procedures

Passing Standards:
CPA: scaled score of 75 or higher on each section
EA: scaled score of 105 or higher (scale: 40–130)

US Tax Rate Summary

┌──────────────────────┬──────────────────────────────────────────┐
│ Tax                  │ Rates                                    │
├──────────────────────┼──────────────────────────────────────────┤
│ Corporate (C-Corp)   │ 21% flat (post-TCJA)                    │
│ Individual Income    │ 10 / 12 / 22 / 24 / 32 / 35 / 37%      │
│ Self-Employment Tax  │ 15.3% (12.4% SS + 2.9% Medicare)       │
│ Long-Term Cap Gains  │ 0% / 15% / 20% (+ 3.8% NIIT if above  │
│                      │ $200K/$250K MAGI)                       │
│ Estate & Gift Tax    │ 40% (above $13.99M exemption, 2025)     │
└──────────────────────┴──────────────────────────────────────────┘

Key Deadlines Summary

Individual (Form 1040): April 15 (extension to Oct 15 — no payment extension)
C-Corporation (Form 1120): April 15 (extension to Oct 15)
S-Corp (Form 1120-S): March 15 (extension to Sept 15)
Partnership (Form 1065): March 15 (extension to Sept 15)
Estate tax (Form 706): 9 months after date of death (6-month extension available)
Gift tax (Form 709): April 15 of following year
Estimated tax payments: April 15 / June 15 / Sept 15 / Jan 15
IRS assessment SOL: 3 years (general) / 6 years (>25% omission) / unlimited (fraud)

Top 10 Most Missed Points

① Corporate rate = 21% flat (no graduated brackets)
② NIIT = 3.8% on NII above $200K/$250K MAGI
③ LTCG / qualified dividends = preferential 0/15/20% rates
④ Annual gift exclusion = $19,000 per donee (2025)
⑤ §2503(e) tuition/medical = unlimited, no gift tax
⑥ Estate basic exclusion = $13,990,000 (2025)
⑦ NOL deduction capped at 80% of taxable income (post-TCJA)
⑧ Entertainment expenses = 0% deductible (post-TCJA)
⑨ Tax Court: no prepayment required (unlike District Court)
⑩ Tax credits > deductions in value (dollar-for-dollar vs. rate × deduction)

Key Concept Cards

Corporate Tax = 21% Flat ★★★★★ : Single rate on all C-corporation taxable income — memorize as the baseline. Memory hook: Corporate = 21, not graduated

Individual Tax = 10%–37%, 7 Brackets ★★★★★ : Marginal progressive rates. Most capital income taxed at preferential 0/15/20%. Memory hook: Individual = 7 brackets; LTCG = separate preferential rates

Tax Court = No Prepayment ★★★★★ : Unique among federal courts. File within 90 days of NOD to contest without paying. Memory hook: Tax Court = contest first, pay (if ordered) later

Comprehensive Practice Quiz

Q. What is the difference in exclusive practice rights between CPAs and Enrolled Agents?

EAs have unlimited right to practice before all IRS administrative levels — examination, collection, and appeals — for any taxpayer, anywhere in the US. CPAs also have the right to practice before the IRS, but their license is state-issued and their practice rights are grounded in the state CPA credential. Attorneys have unlimited practice rights including federal court representation. A critical distinction: only attorneys and CPAs (in most cases) can represent clients in U.S. Tax Court, while EAs cannot appear in Tax Court as counsel. However, for all IRS administrative matters (audits, appeals, installment agreements, OICs), EA representation is full and unlimited.

Q. How does the corporate tax system interact with individual taxes on dividends?

The US has a classical double-taxation system: a C-corporation pays 21% corporate tax on its income, and when it distributes dividends to shareholders, those dividends are taxed again at the shareholder level. To partially mitigate this, qualified dividends from domestic corporations are taxed at preferential rates (0/15/20%) rather than ordinary income rates. This is still economic double taxation — corporate income is taxed twice. By contrast, S-Corps and partnerships (pass-through entities) avoid entity-level tax; income flows directly to owners and is taxed once at individual rates. This is why high-income small businesses often weigh the C-Corp 21% rate against top individual rates (37%) plus the pass-through QBI deduction (§199A, up to 20% deduction) when choosing entity structure.