REG Final Review

how to calculate the proportional liability of each cosurety

(amount guaranteed by individual cosurety / amount guaranteed by all *solvent* cosureties) x amount paid

gratuitous surety

- Not compensated - Any variation of surety's risk releases surety - A promise made AFTER the loan contract is made will not bind the gratuitous surety due to lack of consideration

compensated surety

- Paid surety - Only a MATERIAL change in surety's risk discharges them from the contract - A promise can be made at any time since they are paid

creditor's rights upon debtor default

-demand payment from debtor -demand payment from surety -go after collateral EXCEPTION: a surety who signs as a "guarantor of collectibility" promises to pay the creditor only AFTER the creditor exhausts all remedies against the debtor

Chapter 13 Bankruptcy

-individual debt adjustment (debts not discharged, just paid over a longer period of time) -voluntary only, individual only -trustee appointed

Chapter 7 Bankruptcy

-liquidation -individuals, partnerships, or corporations -trustee appointed -voluntary or involuntary nonexempt property goes to trustee to pay creditors (even proceeds of that property gained after filing); earned income and Social Security and disability benefits usually exempt; divorce, inheritance, and insurance can be taken if acquired within 180 days after filing

creditors' rights upon debtor's default

-peacefully repossess and sell or lease -keep the collateral (as long as other creditors agree) -sue the debtor for the debt

Chapter 11 Bankruptcy

-reorganization (restructures debtor's debts) -individuals, partnerships, and corporations - no trustee required -voluntary or involuntary submit plan to restructure debt; plan divides creditors into classes; approved if as few as one class accepts the plan and if court finds plan fair and equitable; once court confirms plan, it is binding on all

three requirements for attachment

1. agreement (written or oral, if written must be signed by debtor and describe collateral; oral only valid of creditor takes possession) 2. creditor must give value 4. debtor must have rights to possess collateral

list of creditor priority when there are multiple creditors

1. buyer in ordinary course of business 2. perfected PMSI 3. perfected non-PMSI 4. unperfected 5. debtor

Circular 230 best practices (3 things)

1. clearly spell out the engagement terms 2. make sure your conclusion is supported by the law and facts 3. importance of conclusions ex. avoid penalties

agency: termination by law (4 situations)

1. death or insanity of other party 2. bankruptcy of the principal 3. failure of the agent to have a required license 4. destruction of the subject matter

duties of the agent to the principal

1. duty of due care 2. duty to inform 3. duty to account 4. duty of loyalty 5. duty of obedience

duties of the principal to agent

1. duty to reimburse 2. duty to compensate 3. duty to indemnify

two requirements for agency

1. offer & acceptance 2. no defenses does NOT require consideration or a writing (most of the time)

3 elements of a contract

1. offer and acceptance (mutual assent) 2. consideration 3. no defenses

two circumstances under which apparent authority could arise

1. principal gives the agent a title or position 2. principal fails to give notice of termination to third parties

priority of debts in Chapter 7 liquidation - 11 categories

1. secured creditors 2. *s*upport obligations (alimony, child support, etc) 3. *a*dministrative costs of the bankruptcy proceedings 4. *g*ap creditors (debt incurred after filing but before the order of relief is entered in an involuntary petition case) 5. *w*ages unpaid, but only if earned within 180 days of filing ($13,650 max) 6. *e*mployee benefits unpaid earned within 180 days of filing ($13,650 max reduced by wage claim) 7. *g*rain producers' and fishermen's claims against storage/processing facilities 8. *c*onsumer deposits for goods and services paid for but not received ($3,025 per claimant) 9. *t*axes unpaid 10. *i*njury claims arising from *i*ntoxicated driving 11. all other debts

4 circumstances in which confidential client information can be revealed to others without the client's consent

1. subpoena 2. state CPA society conducts voluntary quality control review 3. defend lawsuit 4. GAAP/GAAS requires disclosure

four elements of negligence

1. there was a duty of care 2. the duty of care was breached 3. the client suffered damages 4. the damages were caused by the accountant's negligence

when is consideration not required to form a contract?

1. when you've made enforceable a promise to pay a debt barred by the statute of limitations 2. foreseeable and reasonable detrimental reliance on a promise (promissory estoppel)

4 situations under which a tax preparer may face a penalty

1. willful, intentional, reckless conduct 2. disclosed position, but not reasonable 3. undisclosed position, but no substantial authority 4. tax shelter but position not more likely than not to prevail GR: no penalty if error made in good faith

Circular 230: substantial authority for tax position

33-50% chance of succeeding avoid most penalties *even if undisclosed* EXCEPT tax shelters

Circular 230: reasonable basis for tax position

= > 20% likelihood of succeeding *if disclosed*, avoid most penalties

Circular 230: more likely than not tax position

> 50% chance of succeeding avoid most penalties (even tax shelters) tax avoidance/evasion = covered opinion - no guarantees

Circular 230: what a tax practitioner should do if they have knowledge of an omission by a client

DO NOT NOTIFY IRS advise client of any noncompliance, consider withdrawing from the engagement

five elements of actual fraud

MAIDS *M*aterial misrepresentation of fact *A*ctual reliance *I*ntent to induce reliance *D*amages *S*cienter

unilateral mistake

ONLY voidable IF other party knew or should have known a mistake was being made (the mistake was obvious)

passing of risk of loss: shipment contract

ROL and title pass to buyer when the seller delivers the goods to a carrier

passing of risk of loss: destination contract

ROL and title pass when goods reach the destination and the seller tenders delivery

passing of risk of loss: nonconforming goods

ROL is always on the seller

passing of risk of loss: merchant sellers (no common carrier)

ROL passes only when the buyer takes physical possession of the goods

passing of risk of loss: nonmerchants (no common carrier)

ROL passes to the buyer upon the seller's tender of delivery

What is the purpose of Circular 230?

To address the practice before the IRS of *practitioners* with regard to the rules governing the authority to practice before the IRS, the duties and restrictions relating to the practice before the IRS, the sanctions for violation of the regulations, and the rules applicable to the disciplinary proceedings

debts that cannot be discharged

WAFTED debts from causing *w*illful and malicious injury to others debts concerning *a*limony/child support debts resulting from *f*raud *t*axes owed within three years of filing *e*ducational loans (unless undue hardship) *d*ebts not reported by debtor in schedule of debts

purchase money security interest creditor

a creditor who advances money or credit to enable a debtor to obtain property and retains a security interest in that property (high priority)

Which of the following is not a specific requirement regarding a practitioner's written advice? a. the practitioner must possess necessary competence b. advice must be based on reasonable factual and legal assumptions c. the practitioner must reasonable consider all known relevant facts and circumstances d. the tax practitioner may not take into account that a tax return may not be audited or the issue will not be raised in an audit

a. the practitioner must possess necessary competence A practitioner must possess the necessary competence to engage in practice before the IRS in all matters, not just with respect to written advice. Choices "2", "3", and "4" are all incorrect, as these are specific requirements with respect to written advice.

duties of buyer under UCC

accept conforming goods and pay for them at delivery

accord and satisfaction

accord = agreement to substitute one contract for another; satisfaction = the execution of the accord this discharges the original duty

liability of third parties for negligence - privity defense

accountants are usually NOT liable to third parties for negligence because there is no privity of contract. EXCEPTION: accountant is liable to third parties for negligence if the accountant had reason to know the third party would rely on the accountant's work Ultramares rule (minority view): accountant only liable to third parties if there is privity of contract or the accountant knows the exact name of the third party relying on their work

agency coupled with an interest

agent has interest in the subject matter of the agency (such as a security interest or buyer of stock who was appointed the seller's agent to vote the stock) NOT terminable by principal; only agent

undisclosed principal

agent never reveals to the third party that there is a principal involved; an agent for an undisclosed principal can only have actual authority, NOT apparent authority

partially disclosed principal

agent reveals to the third party that there is a principal, but does not disclose the principal's identity

implied warranty of title

all sellers impliedly promise good title and no unstated liens or attachments; to disclaim, must use very specific language

mutual mistake

allows the adversely affected party to avoid the contract

mailbox rule

an acceptance is valid when sent if properly addressed and stamped and the offeree uses either the expressed means of communication or any reasonable means of communication if the means was not expressed can opt out of this by stating the acceptance must be RECEIVED to be effective

creditors' composition

an agreement between the debtor and at least two creditors that the debtor pays the creditors less than their full claims *in full satisfaction of their claims*

when can a minor disaffirm a contract?

any time while they're a minor or a reasonable time thereafter

agent

anyone authorized to act for another; minors can be agents

apparent authority

arises from the principal's communications or actions towards third parties, which make it appear to the third parties that the agent is authorized; principal creates this, NOT agent

Irving R. Spayer has not filed federal income tax returns or paid any federal income taxes for the last several decade because he feels that the federal income tax is unconstitutional. Which of the following penalties might apply to him? a. the failure-to-file penalty in the amount of 10% of the tax due for each year (or fraction thereof) the return is not filed b. the failure-to-pay penalty in the amount of one-half of one percent of the tax due for each month (or fraction thereof), up to a maximum of 25% of the unpaid tax c. the total of the failure-to-file penalty and the failure-to-pay penalty d. the failure to file penalty of $200 for each month or part thereof (up to a maximum of twelve months) the return is late

b. the failure-to-pay penalty in the amount of one-half of one percent of the tax due for each month (or fraction thereof), up to a maximum of 25% of the unpaid tax The failure-to-pay penalty will apply to Spayer, and the failure-to-pay penalty is generally 0.5% of the tax due for each month (or any fraction thereof) the tax is not paid, up to a maximum of 25% of the unpaid tax. Choice "1" is incorrect. The failure-to-file penalty will apply to Spayer, but the failure-to-file penalty is generally 5%, not 10%, of the tax due for each month (or any fraction thereof), not year, the return is not filed, up to a maximum of 25% of the unpaid tax. Choice "3" is incorrect. If both the failure-to-file penalty and the failure-to-pay penalty apply, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty. The penalty is thus not the total of the two penalties. Choice "4" is incorrect. The penalty for failure to file a partnership tax return is $200 for each month or part thereof (up to a maximum of twelve months) the return is late (or required information is missing) times the number of persons who are partners in the partnership at any time during the year.

who is liable under the contract when a principal is partially disclosed or undisclosed

both the principal and the agent; third party gets to choose who to hold liable

Circular 230: sanctions

censure (publicly reprimand), suspend, or disbar if practitioner (i) is shown to be incompetent or disreputable, (ii) fails to comply with Circular 230, or (iii) with intent to defraud, willingly and knowingly misleads or threatens a client or prospective client

best defense to breach of contract

client failed to cooperate

Who does the Fair Debt Collection Practices Act apply to?

collection agencies only

assignment for the benefit of creditors

debtor transfers some or all of his or her property to a trustee, who disposes of the property and uses the proceeds to satisfy the debtor's debts; debtor is *NOT discharged from unpaid debts*

best defense to negligence

due diligence

the failure to ___ penalty is reduced by the failure to ___ penalty

file; pay

IRS audit and appeals process

first step: audit - returns may be audited second step: appeals - Appeals Division authorized to settle all tax disputes third step: federal judicial process - if taxpayer and IRS cannot reach agreement in appeals process, go to court

duress

forcing someone into a contract by threat of violence of criminal action; contract = void if physical threat, voidable if other threat

conflict of interest rules: Circular 230

former government employee to represent a client (on the other side of the transaction now) personally/substantially represent them = can never do this official responsibility = 2 year wait participate in rule development = 1 year wait

Circular 230: return of client records

generally, at the request of the client, the practitioner must return all client records BUT must maintain confidential copies for 3 years

exoneration

happens before the surety makes a payment; obtains a court order prior to default demanding that the debtor pay

Circular 230: "merely" arguable tax position

has no defense to penalties

Circular 230: "patently improper" tax position

has no defense to penalties

constructive fraud/gross negligence

has the same elements of actual fraud, but scienter is replaced by a lower standard - reckless disregard for the truth

notice to third parties: termination at will

if agent resigns or is terminated by the principal, to terminate apparent authority, the principal must give actual notice to persons with whom the agent has dealt AND construction notice (ex. advertisements) to all others

Implied Warranty of Fitness for a Particular Purpose

if the buyer tells the seller of a particular purpose for which the goods are needed and relies on the seller to provide goods fits for that purpose, and the seller knows of this reliance, there is a warranty that the goods will be fit for that purpose. can be disclaimed by selling "as is"

entrusting

if the owner of goods entrusts them to a merchant who deals in goods of the kind sold, and the merchant sells them in the ordinary course of business to a bona fide purchaser for value, the purchaser gets good title even though the merchant did not have good title

merchant's firm offer

irrevocable without consideration must be for the sale of goods, made by a merchant, be in writing, and guarantee that it will be held open irrevocable for the time stated, but max is 3 months

best defense to fraud

lack of scienter or good faith; misstatement was immaterial

liability of the principal to third parties if agent has actual or apparent authority

liable for all authorized contracts made by the agent whether authority was express, implied, or apparent and whether the principal was disclosed, partially disclosed, or undisclosed NOT liable for unauthorized contracts UNLESS ratified

liability of an agent

liable for all unauthorized contracts NOT liable for authorized contracts unless principal was undisclosed or partially disclosed

incompetency and intoxication

makes a contract voidable, unless adjudicated incompetent = void

what is the effect of a material change in acceptance under common law?

material change constitutes a counteroffer

actual authority

may be either expressed or implied; the power that the principal specifically tells the agent that they have, or the power that the agent reasonably believes the agent has based on the communications and past deals between the principal and agent

Implied Warranty of Merchantability

merchant sellers impliedly promise goods are fit and safe for normal uses; such warranties may be disclaimed by an "as is" sale or by telling the buyer there is no warranty of merchantability

what is the effect of a material change in acceptance under the UCC?

minor changes are okay and do not affect the validity of the acceptance and do not prevent formation of a contract

notice to third parties: termination by law

no notice to third parties required when agency is terminated by law

statute of fraud exceptions

no writing required with respect to (i) specially manufactured goods or (ii) where a merchant sends another merchant a written conformation of a contract that is sufficient to bind the sender and the recipient does not object within 10 days

fraud in the inducement

occurs when the victim knows a contract is being made, but the terms are misrepresented; contract = voidable at option of good guy

subrogation

once a surety pays the creditor in full, the surety acquires all of the creditors' rights (ex. if the creditor was a secured creditor, the surety would have the rights of a secured creditor to the collateral)

contribution

once one cosurety pays the creditor, she may obtain a pro rata contribution from the other solvent cosureties

when can a minor ratify a contract?

only after becoming an adult

express warranties

oral or written warranties made by sellers to induce purchase; goods must conform to this; express warranties are part of the basis of the bargain CANNOT be disclaimed

novation

parties agree to replace one party in a contract with a new party; releases the old party

passing of risk of loss: general rule

passes upon delivery, not title, but title typically passes on delivery unless parties agree otherwise

duties of seller under UCC

perfect tender, reasonable notice of buyer to take delivery

section 10b and rule 10b-5 of the 1934 act

permits civil suits against anyone buying or selling stock must prove MAIDS

section 11 of the 1933 act

permits civil suits against issuers, directors, accountants, and attorneys must prove LAM: *l*oss *a*cquired stock *m*aterial misstatement privity NOT required, nor must prove scienter, reliance, or negligence

who must sign a power of attorney?

principal NOT the agent

liability for torts - respondeat superior

principal is liable for all torts of employees committed while the employee was acting in the scope of employment, even if employee disobeyed instructions NOT liable for independent contractors the agent is also liable for torts that they commit, even if they were following the principal's orders

parol evidence rule

prior oral or written statements and contemporaneous oral statements generally cannot be admitted into evidence at trial in an attempt to vary the terms of a fully integrated written contract HOWEVER, can introduce: -subsequent modifications -explanations of ambiguities -fraud, duress, or mistake

preferential payments

property transfers by the debtor before filing for bankruptcy that the trustee may set aside there must be: 1. a transfer 2. an antecedent debt (existing) 3. transfer occurred within 90 days of filing (1 year for insider) 4. transfer made while debtor was insolvent 5. creditor received more than he or she would have received in bankruptcy (thus, fully secured creditors are exempt)

statute of limitations

provides that lawsuits must be commenced within a certain period of time (4-6 years usually) or else it is unenforceable; time period measured from time of *breach*

termination of offers

revocation can occur any time before acceptance except option contracts, merchant's firm offers, and unilateral contracts where there has been a substantial beginning in performance

reimbursement/indemnification

surety has the right to recover (be reimbursed) from the debtor any money the surety had to pay the creditor due to the debtor's default

tax practitioner vs tax preparer

tax practitioner usually a CPA, attorney, EA, etc.; higher standard than tax preparer, who merely prepares federal tax returns for a fee

fraud in the execution

victim never knew a contract was being made (ex. tricked into signing); contract = void

Chapter 7 involuntary bankruptcy - how many creditors must file and in what amount must they be owed?

with 12 or more creditors - three or more creditors must file who are owed $16,750 or more in the *aggregate* in *un*secured claims with fewer than 12 creditors - one or more are required to file who are owed $16,750 or more in the *aggregate* in *un*secured claims