Reg -
In 2019 taxpayers can contribute and deduct up to XXX per year to an IRA and alimony paid pursuant to divorce or separation agreements executed before 12/31/2018 is considered earned income.
$6,000
When an agent acts for an undisclosed principal, the principal will not be liable to third parties if the
Agent acts outside the grant of actual authority.
An accuracy-related penalty applies to the portion of tax underpayment attributable to
i. Negligence or a disregard of the tax rules or regulations. ii. Any substantial understatement of income tax.
Except for electing large partnerships, a partnership terminates
if no part of its business is carried on within a 12-month period.
liquidating distribution f partnership interest gain/loss
if nothing is left then no gain recognised.
temporary difference
in advance, installment sales, bad debt expense
Cash basis taxpayers deduct interest
in the year paid or the year to which the interest relates, whichever is later.
dividends, interest income & loss or gain from rental real estate
included in agi
State franchise tax refund is
included in income for both book income and tax purposes.
The amount that a partner realizes on the sale of a partnership interest
includes any cash received, plus any partnership liabilities that are assumed by the buyer.
The value of services received is reported as
income by the recipient, using the fair market value of the service.
One of the requirements to qualify as an S corporation is that all its shareholders must either be
individuals, estates or certain trusts.
UNICAP will not apply to
inventory that the taxpayer acquires for resale if the taxpayer's average annual gross receipts for the 3 taxable years period ending with the taxable year preceding such taxable year do not exceed $26 million.
If not expressly granted, a trustee has implied powers to
sell trust property and the power to pay trust expenses
do not include charitable and long-term capital gain in ordinary income and expense
separately stated, schedule k
split monetary gift
split each gift per spouse and annual exclusion is applied individually
meal expenses
50% meal expenses not deductible for tax purposes, but deductible from book income
Like a regular cash distribution, shareholders would treat as taxable dividend income amount up to the extent of higher of:
Current earnings and profit OR Sum of current earnings and profit (CEP) and accumulated earnings and profit (AEP) before the distribution The remaining distribution is treated as a non-taxable return of capital to the extent of the shareholder's basis and excess distributions are treated as taxable capital gain distributions.
A partner has to recognize a pro rata portion of a partnership's income for the partnership's taxable year that ends within or with the partner's taxable year,
even when the cash associated with that income is not distributed to the partner.
under §243(a)(3) and §243(b) Prin is allowed a deduction
for 100% of the dividends received from a corporation that is a member of the same affiliated group. The net result is that the dividends are not taxed on the consolidated return.
taxpayer's overpayment for the year is
regular tax liability - total tax payments including current-year estimated tax payments, amount paid with current-year extension and Federal income tax withheld
under a nonaccountable plan
the full amount received not how much spent is reported as employee gross income for the year
To be deductible, real estate taxes must be paid by
the person on whom the tax is imposed.
To be successful in a civil action under Section 11 of the Securities Act of 1933,
the plaintiff must prove the existence of a false statement or material omission and that the security s/he purchased was offered through the inaccurate registration statement.
When a principal debtor defaults and the surety pays the entire obligation,
the surety inherits from the creditor all of the creditor's rights against the debtor. This is called subrogation.
when stocks are exchanged for stock without loss of control,
the transaction in essence is reorganization not taxable and no gain/loss is recognized.
if an affiliated group decides to file a consolidated tax return
then all components are consolidated
If the tax preparer knowingly included personal expenses as deductible business expenses on the taxpayer's business,
then the tax preparer will be liable for penalties arising from an understatement due to willful or reckless conduct.
85% of the social security benefits is the maximum amount of benefits to be included in gross income.
true
corporations may deduct their losses fully because all losses are considered business losses.
true
All interest income,
unless specifically excluded by law, is includible in taxable income, regardless of the source.
A statutory notice of deficiency explains that the taxpayer has 90 days to either pay the deficiency or else to file a
Petition with the U.S. Tax Court.
What is the tax rate for an S corporation that pays tax on built-in gains?
The highest corporate income tax rate.
The built-in gains tax is imposed on an S-corporation that used to be
a C-corporation and received assets with built-in gains (Fair Value > Carrying Value) at the time of transition from S-Corp. to C-Corp.
considerable flexibility in choosing an accounting period.
a c corporation, generally has the same choice of accounting periods as do individual taxpayers.
if an individual paid tax but no tax return was filed,
a claim for refund of taxes must be filed within 2 years from the date the tax was paid.
The revenue agent's report recommends
adjustments based strictly on tax policy (IRC, regulations, etc.), rather than the likelihood of success in court.
C corporations may choose either a calendar or a fiscal year. Once a tax year is established,
an entity may change the period only with IRS consent. The cash basis of accounting is not allowed for Corporations, Partnerships with a C-Corp partner, or for companies that carry inventories if Gross Receipts is more than $26MM over a three-year period.
The calculation of adjusted gross income includes
annual wages, interest, tips, taxable Social Security benefits, income from rental property, dividends, capital gains, royalties, and income from retirement accounts.
Members in public practice shall not disclose
any confidential client information outside the CPA firm without specific consent from the client.
In the administration of the bankrupt's estate, the trustee can
assume or reject executory contracts and unexpired leases subject to the approval of the court/bankruptcy judge. A trustee may elect not to assume the equipment lease.
actual warranty costs
beginning warranty reserve + estimated warranty expense - ending warranty reserve
Federal income tax expense
deductible from book income, but not deductible for tax purposes
Interest income from municipal bonds is
not considered taxable, and as such, would be deducted from Book Income.
personal expenses are
not deductible under the taxpayer's business.
Interest earned on dividends left on deposit with the VA is
not included in taxable income
creditors or shareholders confirm the reorganization plan.
not necessary, done by court
Guaranteed payments to partners are deductible
on Form 1065 to arrive at partnership ordinary income. and shown as income and flow through as ordinary income on schedule k-1
in jurisdictions that follows Ultramares vs. Touché
only those in privity and intended third party beneficiary can file a negligence lawsuit against the CPA
Chapter 9 Bankruptcy
Adjustment of municipalities' debts. Not allowed for farmers
shareholders do not have the right to
vote for removal of officers
The statute of limitations begins to run
when the cause of action occurs
Student educators expense
$500
Under TCJA, SALT deductions are allowed up to
$10,000
the limitation on rental loss deduction is always subtracting
$100,000
An exempt organization is not taxed on unrelated business income of less than
$1000, anything greater requires filing and taxation, unless game of chance.
Gift maximum per person
$25 so multiply by number of people to know max. Do not increase amount that is less than 25.
The taxpayer's at risk amount =
$25,000 [adjusted basis]+ $13,000 [original loan]-$3,000 [loan repaid] =$35,000.
Taxpayers, who are active participants in real estate activity but are not real estate professionals, can deduct rental losses up to
$25,000 against ordinary and portfolio income. avaialble in full if AGI less than $100,000. Between 100 - 150: $25,000 - 50%x (AGI- $100,000). For AGI in excess of $150,000, no deduction is allowed.
Student loan deduction
$2500
I'm the case of property purchased for resale, a taxpayer is exempt from Uni cap requirements if it's average gross receipts for the preceding three years are
$27m
individual shareholders in s corp can deduct up to xxx in capital losses
$3000, remaining is carried to next year up to $3000
Qualified organizational expenses may be deducted up to
$5,000 in the first year when incurred and the remaining may be amortized over a period of 180 months.
Five Methods of Perfection
(1) Filing (2) Taking possession of the collateral (3) Control (4) Automatic perfection (5) Temporary perfection
cost recovery deduction
(Cost-land/39) x months/12
How much of a transfer asset if no year identified
(Total amount/ calender e.g 365) * total days before status termination in a year
Discharge of Contracts by operation of law can happen due to the following reasons:
- Death or incapacity of the party obligated to perform a personal service contract - Impossibility or Destruction of subject matter - The illegality of the services to be performed Discharge in bankruptcy
What type of business entity, if the same since its inception, is recognized for federal income tax purposes as a taxable entity?
. A subchapter C corporation
Section 754 election
1. allows a partnership to elect to adjust the basis of property distributed or interest transferred. 2. The purpose is to reconcile a new partner's outside and inside basis in the partnership.
order of payment behind secured claims.
1. secured claim 2. Bankruptcy administrative expenses 3. employees 4. irs past due tax 5. general unsecured creditor
In a C corporation's computation of the maximum allowable deduction for contributions, what percentage limitation should be applied to the applicable base amount?
10%
a tax payer that is a member of the same affiliated group is allowed
100% deduction of dividend received
Business Meals Deduction is temporarily increased to
100% for the years 2021 and 2022.
A claim for refund of erroneously paid income taxes, filed by an individual before the statute of limitations expires, must be submitted on Form
1040X
Goodwill is alway amortized over
15 years
Gain from an involuntary conversion of taxpayer's property may be deferred if the property is replaced within the statutory time limit, which are as follows:
2 years for destruction or theft of property resulting in insurance recovery 3 years for government condemnation or eminent domain award 4 years for conversion in connection with a declared federal disaster
S Corporations that were previously C corporations are subject to a built-in-gains tax at the rate of
21% ( the highest corporate tax rate) if they sell or distribute appreciated assets within 5 years of the election of S-Corp. status.
Amount of distribution classified as dividend corporation's earnings and profits including
Accumulated e&p + e&p
Capital gain property donation
30% of agi then carry forward the rest to future
Meal Expenses for tax
50% deductible add back 50% for tax income because 100% expenses for book
The personal holding company income test requires the company's income for a given taxable year to be at least
60% of adjusted ordinary gross income must be from passive sources.
cash donated to a public charity is limited to
60% of individual agi
A family farmer with regular annual income may file a voluntary petition for bankruptcy under any of the following Chapters of the federal Bankruptcy Code except
9
A simple trust is entitled to
A $300 exemption in calculating the trusts taxable income
Accumulated earnings tax (AET
A 20% penalty tax is imposed on a corporation for accumulating excessive retained earnings to encourage the distribution of dividends. Excessive is considered to be $250,000 for a manufacturing company and $150,000 for a personal services company.
under the taxable income thresholds for the QBI deduction.
A QTB and an SSTB are treated the same for taxpayers
Kiddie Tax Age Requirements
A child who is 17 years or younger at year end; or A child is 18 years of age at year end and the child doesn't have earned income that exceeds half of his or her support; or A child with age 19 to 23 at year-end, he / she is a student (attends college for five months during the year) and doesn't have earned income that exceeds half of his or her support.
A tax-exempt organization must limit its activities to those that fit the classification of exempt organization for it to continue its exempt status.
A church should not provide a retreat to business organizations
Client's consent
A client's consent or a valid subpoena is required in order to share a CPA's working papers with the IRS or the FASB. The IRS cannot request disclosure of working papers without either the client's consent or a lawful subpoena.
Each of the following may qualify as a tax-exempt organization, except
A community savings and loan association.
Under the Sales Article of the UCC, which of the following oral contracts for the sale of goods valued at more than $500 is most likely to be unenforceable?
A contract to sell a work of art.
Official bond
A contract whereby a surety guarantee the faithful performance of duties by a public official
breach of contract
A failure to perform, as promised, at the time the performance was due.
What type of business entity does not require the approval of the state in which the entity is formed?
A general partnership
What type of business entity generally may be formed without filing an organizational document or certificate with a state government agency or office?
A general partnership
What type of business entity is the most similar to a joint venture?
A general partnership
Two individuals are planning to form a business with equal ownership. The individuals would like to limit their personal liability, avoid double taxation, and be active in the business. What type of business entity would meet their requirements?
A limited liability company
Aside from a limited liability company and a corporation, which type of business entity must file a copy of its certificate with the proper state authorities?
A limited partnership
Which of the following statements best describes what is meant by the legislative reenactment doctrine?
A long-standing finalized regulation presumably has congressional approval if Congress has not amended the relevant section of the Internal Revenue Code.
In which type of business entity is income taxes sometimes required to be paid by the entity on profits earned as well as by the owners upon distribution thereof?
A subchapter C corporation
In the absence of an election to adopt an annual accounting period, the required tax year for a partnership is:
A tax year of one or more partners with a more-than-50% interest in profits and capital.
Specified Service Trade or Business (SSTB)
A trade or business involving performance of services in the fields of health, law, accounting, actuarial services, consulting, performing arts, athletics, financial services, investing, investment management, trading or dealing in securities, and any trade or business where the principal asset of the business is the reputation or skill of one or more of its owners. SSTBs are permitted only limited use of the QBI deduction. . Income from SSTB will not be subject to any QBI deduction if the taxable income exceeds $440,100 [2022] for a married couple filing a joint return, or $220,050 [2022] for all other taxpayers.
AET can be eliminated/reduced if:
Actual dividends are paid during the tax year or within 3 1/2 months after the tax year (i.e. due date of tax return) Accumulated earnings which have "reasonable" needs as demonstrated by a specific , definite and feasible plan for use.
Excess capital losses
Added back to book income
Separately Stated Items, itemized deduction, qbi
Adjustment from agi
Which of the following partners of a limited liability partnership (LLP) may avoid personal liability when a partner commits a negligent act?
All the partners other than the supervisor of, and, the negligent partner
Related Party Sales
Always compared to basis unless in the middle of basis & fmv
The corporations capital loss carry back or carryover is
Always treated as a short term capital loss in the year it is carried to
If you buy something from charity
Amount you paid - fmv of item
Which one of the following statements is correct with regard to unrelated business income of an exempt organization?
An exempt organization is not taxed on unrelated business income of less than $1,000.
Charitable Contribution Deduction
An itemized deduction for contributions of cash or property to a qualified tax-exempt organization limited to .60 of agi, each item
Under the position taken by a majority of the courts, to which third parties will an accountant who negligently prepares a client's financial report be liable?
Any foreseen or known third party who relied on the report
The tax on built in gains is a corporate-level is a corporate level tax on s corp that dispose of assets that
Appreciated while the company was a c corp
Under which of the following conditions is an on-site inspection of a workplace by an investigator from the OSHA permissible
At the request of employees
Which of the following limitations will apply in determining a partner's deduction for that partner's share of partnership losses?
At-risk Passive loss
MACRS 5 year property includes
Automobiles, light trucks, computers, and copiers
Both residential and non residential real property are depreciated using
Mid month convention
The private foundation status of an exempt organization will terminate if it
Becomes a public charity
MACRS 10 year class
Boats and water transportation equipment
A phc can deduct
Bothe consent & actual dividends paid during the year or three 1/2 months after the tax year
Deductible for AGI
Business expenses, rental expense, partnerships, adjustments
General rule for gift acquire basis is
Carryover
When a partner sells partnership interest to another party, consideration is the sum of:
Cash paid by transferee to transferor Transferee's share of partnership liabilities
None of the answer choices are an itemized deduction on Schedule A.
Casualty loss from a fire caused by a space heater Life insurance premiums Tax return preparation fees
For a corp separately stated
Charity, capital loss & bank interest income
Under the Securities Exchange Act of 1934, which of the following penalties could be assessed against a CPA who intentionally violated the provisions of Section 10(b), Rule 10b-5 of the Act?
Civil liability of monetary damages Criminal liability of a fine
Even if a spouse itemized dedication the other spouse can still
Claim qualified business deduction
S corps status can be revoked if
Combination of current voting rights is more than 50% of total votes
If an exempt organization is a corporation, the tax on unrelated business taxable income is
Computed at corporate income tax rates
When computing a corporation's income tax expense for estimated income tax purposes, which of the following should be taken into account?
Corporate Tax Credits Base Erosion Anti-Abuse Tax (BEAT)
Which of the following statements concerning the similarities between a general partnership and a corporation is correct?
Corporations and general partnership can declare bankruptcy.
An irrevocable trust that contains no provision for change or termination can be changed or terminated only by the
Courts
Section 501c 1
Created by act of congress, tax exempt organizations. No need to apply for tax exempt like federal credit union
Dividend income for tax from book
DRD, qualified dividend * 50% if less than 1% then deduct that
Any cash or gift given to spouse in marriage is
Deductible as marital deduction
Self employment tax
Deductible for 50% for agi
Qualified medical expenses
Deductible from agi, with a cap of whatever is left after taking out 7.5%
State and local property taxes
Deduction from agi for $10000
Arno plans to establish a spendthrift trust naming Ford and Sims as life income beneficiaries, Trip residuary beneficiary, and Bing as trustee. Arno plans to fund the trust with an office building. For the trust to be enforceable, Arno must
Deed the property to Bing as trustee
To be successful in a civil action under Section 11 of the Securities Act of 1933 concerning liability for a misleading registration statement, the plaintiff must not prove the
Defendant's intent to deceive Plaintiff's reliance on the registration statement
Section 1231 Assets
Depreciable assets and land used in a trade or business held for more than one year ( delivery truck, building, office equipment )
Affiliated group of corporations, where one corporation, the parent has 80% or more control over the other (subsidiary)
Dividends received are 100% eliminated as inter-company dividends
Disclosure will reduce or eliminate an accuracy-related penalty if the position
Does not involve a tax shelter Is not frivolous has a reasonable basis Is properly substantiated.
Which statement about health savings accounts is not correct?
Eligible individuals for HSA purposes are entitled to receive Medicare benefits.
Which of the following will be included in Qualified Business Income for QBI deduction when taxable income for MFJ is $500,000?
Eligible taxpayers may be entitled to a deduction of up to 20 percent of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate.
A shareholder must repay illegal distribution from corp that was insolvent
Even though the shareholder is unaware of illegality
Gain in c distribution is
FMV - basis
Which Senate committee considers new tax legislation?
Finance
Property exchanged for stocks has a basis of
Fmv
Health insurance premiums for self employed insurance
Full Deductible
Which of the following items must be separately stated on Form 1120S, US Income Tax Return for an S Corporation, Schedule K-1?
Gain or loss from the sale of collectibles
A distinguishing feature between the making of an inter vivos gift and the creation of a trust is that
Generally, a gift is irrevocable whereas a trust may be revoked in certain cases.
An express trust is simply a trust created on purpose, and not imposed by a court. An express trust will always have the following parties:
Grantor Trustee Beneficiary
MACRS Personal Property
Half year unless you add another later in the one that's greater than 40%
Which of the following correctly lists the order, from earliest to latest, that US legislative bodies consider new tax legislation?
House of Representatives, U.S. Senate, Joint Conference Committee.
In a suit based on fraud, the plaintiff must prove:
In a suit based on fraud, the plaintiff must prove:
MACRS Nonresidential Real Property
Mid month
An S Corp shareholder's basis must be computed as follows:
Initial Basis (cash and/or property contributed)Add: Separately & non-separately stated income itemsLess: DistributionsLess: Nondeductible expensesLess: Deductible expensesLess: Losses*Net Basis
Properly allocated to trustee principal
Insurance proceeds
DNI Calculation
Interest income from corporate bonds + Taxable dividend income - Trustee fees allocable to income
The other circumstances where a CPA can disclose client information without prior notice are:
Investigation authorized by AICPA, a state CPA society, or a State Board of Accountancy Inquiry by AICPA, a state CPA society, or a State Board of Accountancy requires documentation to be shown as the accountant's defense Subpoena or summons from valid judicial authorities
The corporate dividends-received deduction
Is affected by a requirement that the investor corporation must own the investee's stock for a specified minimum holding period.
Consumer debt for less than $600 like credit card
Is not preferential
The filing of a return covering unrelated business income
Is required of all exempt organizations having at least $1,000 of unrelated business taxable income for the year
For the first tax year in which a corporation has qualifying research and experimental expenditures, the corporation
Is required to capitalize such expenditures and amortize them ratably over a period of not less than 60 months
For partnership basis when there is a distribution of cash
It is deducted from basis
Non requirements for trust property
It is not necessary to provide for payment of fees to the trustee since it is implied that a trustee can collect a reasonable fee for his or her services. There is no requirement that an alternate trust beneficiary be designated.
In determining whether the consideration requirement to form a contract has been satisfied, the consideration exchanged by the parties to the contract must be
Legally sufficient.
joint venture
Made for the purpose of one transaction
Which of the following factors help determine whether an item of personal property has become a fixture?
Manner of affixation Intent of the annexor
If a tax payer makes an early withdrawal from traditional IRA the withdrawal is subject to
Marginal rate tax and an additional 10%
In a common law negligence lawsuit against a CPA, a client must prove the following:
Material misstatement or omission in the financial statements. Loss (Damages): Client suffered a financial loss as a result of the misstatement. Information on the financial statement was the proximate cause of the harm. Error due to absence of due care.
There are two criteria in determining whether a company is a personal holding company:
More than 50% of the stock must be owned by 5 or fewer individuals. At least 60% of the adjusted ordinary gross income must consist of certain investment income such as interest, dividends, etc.
Which of the following expenditures resulting from a trust's ownership of commercial real estate should be allocated to the trust's principal?
Mortgage principal payments
An incorporated exempt organization subject to tax on its current year unrelated business income
Must comply with the Code provisions regarding installment payments (quarterly) of estimated income tax by corporations
To qualify as an exempt organization other than a church or an employees' qualified pension or profit-sharing trust, the applicant
Must file a written application with the Internal Revenue Service
Net capital loss from sale of investments & state local bonds
No effect on tax income
When there is wash sales( sale within 30 days of purchase)
No loss is recognized
Macrs 39 years property
Non residential
Professional services donated
Non- deductible
A corporation's penalty for underpaying federal estimated taxes is
Not deductible
MACRS 7 year property
Office furniture and fixtures, equipment, property with no ADR midpoint not classified elsewhere, railroad track
Obligation of the surety
Official bonds
when a partner dies
The partner would be dissociated from the partnership automatically.Yes. The deceased partner's estate would be free from any partnership liabilities. No. The deceased partner's executor would automatically become a partner. No.
Consolidated returns may be filed
Only by parent-subsidiary affiliated groups
Gambling losses
Only deductible from agi ( itemized) up to gambling winning
Penalties, bad debt expense, goodwill impairment, federal income tax expense
Or deductible for tax so add back to tax income
Which of the following are necessary for a state to impose a net income tax on a foreign corporation related to sales of tangible personal property within the state?
Orders are approved or rejected within the state. Orders are filled from within the state.
Ira distributions are classified as
Ordinary income
Which of the following come(s) into existence upon receipt of a grant from an agency of the US government?
Patent
For s corp non deductible
Penalties and fines
Charitable organizations exempt under the IRC 501(c) (3) are classified into two types:
Private foundations - Those that receive less than 1/3 of support from general Public Charities - Those that receive more than 1/3 of support from general public
MACRS 15 year property
Qualified improvement
When a partner in a general partnership lacks actual or apparent authority to contract on behalf of the partnership, and the party contracted with is aware of this fact, the partnership will be bound by the contract if the other partners:
Ratify the contract not amend the partnership
A cpa will not be liable to tax client for damages resulting from
Refusing to sign a clients request for filling extension because either the preparer or client can sign it
Goodwill impairment for tax
Remove 1/15 of the total amount
In c corp a dividend can be distributed up to
Reported earning and profits
Which of the following costs incurred before the first day of active business are not amortizable start-up expenditures?
Research and experimental costs
MACRS 27.5 year property
Residential real property
The old-age, survivors, disability, and hosp
Retirees Survivors Disability, and hospital insurance programs for the elderly
S corp ordinary income expense
Salaries & wages, business insurance, depreciation(macrs), payroll taxes
Which of the following statements is correct concerning the voluntary filing of a petition in bankruptcy?
The petition may be filed jointly by both spouses.
Removal of directors
Subject to shareholder approval
Bad debt expense for tax
Subtract actual write off
book depreciation
Subtracted for tax and book
"Mom and Pop" exception
Taxpayers may deduct up to $25K per year of net passive losses attributable to passive losses ONLY IF the individuals are ACTIVELY PARTICIPATING and own AT LEAST 10% off the rental activity Carried forward indefinitely P.O. reduced by 50% of the amount over 100,000 phased out when modified AGI reaches $150,000
Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a clients financial statements?
The CPA probably is liable to any person who suffered a loss as a result of the fraud.
Which of the following statements is correct regarding an accountants working papers?
The accountant owns the working papers but generally may not disclose them without the client's consent or a court order.
In liquidation of a subsidiary by a parent firm
The property given is the carryover basis
In a minority situation
The seller is bound by the contract regardless of payers minority. It is voidable
A C corporation must use the accrual method of accounting in which of the following circumstances?
The business has more than $26 million in average sales for the past three years.
Corporate taxpayers may deduct capital losses only up to
The extent of capital gains
When a corporation liquidates & distributes assets to shareholders gain is recognized to
The extent that fmv of assets distributed exceeds basis
Organization costs are costs of forming a new corporation
The first $5,000 of such costs is immediately deductible as long as the expenditures do not exceed $50,000. Any amounts after the applicable immediate deduction are amortized over 180 months, beginning with the month in which the active trade or business begins.
Chapter 7 Bankruptcy
The forfeiture of an individual's assets in exchange for the discharge of debts.
There are several exceptions which could make an oral contract enforceable:
The goods are specially manufactured. The goods have been paid for and accepted, or received and accepted. The person admits in court to have contracted with the plaintiff. One of the merchants sends a written confirmation to the other and receives no objection within 10 days after sending it.
If a security becomes worthless in the current year it is treated as sold or exchanged on
The last day of the current taxable year
The organizational test to qualify a public service charitable entity as tax exempt requires the articles of organization to:
The organizational test to qualify as a public service entity as tax exempt only requires the articles of organization to limit the purpose of the entity to the charitable purpose, but not state that an information return should be filed annually with the Internal Revenue Service.
Basis of joint transfer property
The transferred basis not fmv
Disadvantage of a revocable trust
The trust is included in the gross estate of the grantor.
Which of the following statements is correct regarding the Federal Unemployment Tax Act?
The unemployment insurance system is administered by the states through their employment laws.
Partnership income is taxable
To partner whether or not it was distributed
To properly create an inter vivos trust funded with cash, the grantor must
Transfer the cash to the trustee. And it is not required to be in writing.
C corp and limited liability liability partnership require filing papers
True
Corporations can not deduction capital loss but can instead carry back 3 years and 5 years forward
True
Inheritances are excluded from taxable income
True
Trusts are separate tax paying entities
True
Wages and Unemployment compensation are taxable income.
True
privity of contract is not a requirement under the Acts anti-fraud provisions.
True
MACRS depreciation method
Used for tax purposes so subtracted from income for tax
Charity even and dinner
Whatever is left from the services received
attachment requires 3 elements
an agreement between the creditot and the debtor , creditor must give value and debtor must have rights in the collateral
Consolidated income tax returns
When entities file consolidated income tax returns, 100 percent of their net income (losses) is consolidated. Net capital losses are not allowable deductions for corporations. A corporation can only use capital losses to offset capital gains. Further, the deduction for charitable contributions may be limited in some cases, and no charitable contribution deduction is allowed in calculating the NOL.
A company is insolvent when
When the total liabilities exceed the fmv
For partnership basis nonliquidating distribution of cash
Will not be included in gross income of the partner for the year
Section 2523 indicates that where a donor transfers by gift an interest in property to his spouse,
a deduction will be allowed in computing taxable gifts for the calendar year equal to the amount of the gift.
patent
a grant of the exclusive right to make, use, and sell an invention for a term of years.
for tax purpose, if elected
a maximum expense deduction of $5,000 is allowed for organization costs
Except for electing large partnerships,
a partnership terminates if no part of its business is carried on within a 12-month period.
An express trust may be created without
a remainderman or a successor trustee
Chapter 13 Bankruptcy
a reorganization form of bankruptcy for individuals that allows the debtors to keep their property and use their income to pay a portion of their debts over three to five years
Guaranteed Payments
a salary or other payment to a partner that is not calculated with respect to partnership income.
A corporation that is classified as a personal holding company must pay
a self-assessed penalty tax in addition to the regular corporate income tax.
Under the Sales Article of the Uniform Commercial Code (UCC), if the place of shipment is named, as "F.O.B. Seller's Location," the contract is
a shipment contract
simple trust
a trust that requires all of the trust income to be distributed on an annual basis to the beneficiaries and does not have a charitable organization as one of its beneficiaries
Kiddie Tax Requirements
above $2300 not pay for more than half Does not file a joint return; Has one or both parents that are alive
Coverdell Education Savings Account
accumulate tax free
when calculating mortgage in like exchange
add what you are receive - what you are giving then compare to boot, the greater of is recognised
A writ of execution
allows the debtor's property to be seized and sold to satisfy a judgment.
A writ of attachment
allows the debtor's property to be seized to secure payment of a judgment.
grantor trust
allows the grantor to retain control or ownership interest in the trust.. Trust is ignored for tax purposes and grantor reports on individual return.
Section 179 Expense
an incentive for small businesses that allows them to immediately expense a certain amount of tangible personal property placed in service during the year. Land is not depreciable so does not apply to land
Casualty losses are deductible as
an itemized deduction subject to a 10% AGI floor when the property is held for personal use and there is a federally-declared disaster causing the asset loss or value drop.
mortgage interest payments
an ordinary expense, properly allocated to trust income.
If shares are issued in exchange for services, the FMV of the service provided or the FMV of the stock received is treated as
an ordinary income to the shareholder and an expense to the corporation.
An unrelated business does not include
any activity where all the work is performed for the organization by unpaid volunteers.
When dividedn income is received from an unrelated corporation with ownership of less than 20%
applicable percentage is 50% multiplied by dividend
Generally officers
are agents of the corporation and owe the same duties that agents owe.
corporations that received dividends from taxable domestic corporations/unrelated taxable domestic corporation
are allowed a 50% dividends-received deduction on the dividend. Then subtract from gross income
Gambling losses, to the extent of gambling winnings,
are an itemized deduction on Schedule A
Accounting fees to prepare representations in offering materials
are part of selling expenses and not considered as organizational expenses relating to the formation of the partnership.
The built-in gains tax is imposed on
assets that are disposed of within 5 years of the S-Corp election.
whether a partnership agreement must be in writing is determined when
at the time the agreement is made
MACRS The 5-year class includes
automobiles, light trucks, and computers.
officers are selected and removed by
board of directors
The Sarbanes-Oxley Act prohibits registered public accounting firms from providing the following "nonaudit" services to an "audit" client:
bookkeeping; financial information system design and implementation; appraisal or valuation services; actuarial services; internal audit outsourcing services; management functions or human resources; broker or dealer, investment advisor or investment banking services; legal services and expert services.
According to the standards of the profession, a CPA may consider
both information provided by the client that appears to be correct based on prior year filings and information actually known to the CPA from the tax return of another client.
The Appeals Division is
bound by a technical advice memorandum (TAM) that supports the taxpayer's position. A TAM that supports the IRS' position does not require the Appeals Division to forgo settlement if success in court is unlikely.
all members of an llc
can participate in the management of the llc unless the llc has chosen to be manager managed like a corporation.
If American opportunity tax credit claimed by a child in a year,
cannot claim lifetime in same year
basis in s corp is increased by
capital gain & municipal bond interest income.
Instead, the basis of the subsidiary's assets and other tax attributes, such as the net operating loss deduction and excess charitable contributions, are
carried over by the parent
when calculating partnership interest with mortgage
cash + adjusted basis of land, subtract debt relief, then add partners share of debt relief and recourse
Examples of distributions
cash dividends property dividends liquidating dividends
A partner's basis in partnership is increased for
cash or adjusted basis of property contributed
liquidating distribution f partnership interest
cash/marketable securities is first then what is left for property.
reported separately on the partnership return
charitable contributions, gain or loss on the sale of securities, and portfolio income and expense
capital gain tax on form 1040
compare taxable income, if it falls into the taxable category then multiply the total capital gain and qualified dividend by tax
admitting liability for a beach of a contract requires
consent of all partners of a partnership
Property acquired from a decedent is
considered automatically to have been held for more than the requisite long-term holding period [Section 1223(11)]. Regardless of sale or no sale afterwards
Partnership Basis Formula
contribution + share of income - distribution.
what may a taxpayer deduct in calculating business income
cost of merchandise not expense
included in calculation for gross income from rent
current rents, advance rents for the next year, lease cancellation payments
Home mortgage interest
deductible as itemized deduction on schedule A of Form 1040.
loss on non-active passive activity
deductible up to rental income
Exempt organizations that are required to file annual information returns must
disclose the total contributions during the year, and the names and addresses of all substantial contributors.
even if a partner sells his/her partnership interest the transferee
does not become a partner without the consent of all other partners.
For a state to impose income tax on sales of tangible property
either the order must be approved or rejected within the state or filled from within the state. Public Law 86-272
stockholders have the right to
elect directors and vote on fundamental changes
kiddie tax is applicable to unearned income of a 17-year-old child,
even if he / she had earned income more than one half of his / her support.
municipal bond interest
excluded from gross income subtract
tax basis for c corp is
fmv - mortgage assumed
The Small Claims Division of the U.S. Tax Court
handles tax disputes for amounts less than $50,000. The Small Claims Division results in speedy judgments with simplified procedures and taxpayers can represent themselves without an attorney. Cases tried in the Small Cases Division have no appeal
Social Security income
is nontaxable and not included for the gross income test.
The office building
is subject to a recovery period of 39 years under §168.
if the computer-generated investment interest expense deduction is less than the original amount of expense,
it implies that the client's investment interest expense exceeds the net investment income and thus is limited.
A dividend is not income until
it is actually received by the taxpayer although it is declared earlier.
When an agency is terminated due to the operation of law,
it is not necessary to give notice to third parties of the termination of the agency's existence to end actual and apparent authority.
Pursuant to §6075(b), when a gift tax return is due,
it must be filed on or before the fifteenth day of April following the year of gift, regardless of whether the taxpayer uses a calendar year or a fiscal year, unless an extension of time for filing is requested.
Unrelated business income (UBI) excludes
legal games of chance used to raise funds e.g. bingo. So income from that is completely tax exempt
Investment interest expense is deductible only to the extent of
lesser than or equal to your net investment income.
Section 6655(d)(1)(B) provides that a corporation may avoid the penalty for underpayment of estimated tax by
making a payment equal to 100% of the tax for the preceding year. Unless the corporation did not file a return for the previous tax year showing a liability for tax. then use annualized income method to determine its estimated tax for the first quarter of Year 1.
Excess capital losses for c corporations
may be carried back 3 years and carried forward 5 years.
passive-activity losses (PAL)
may be used to offset only passive-activity income, not ordinary or portfolio income.
UCC 2-718 provides that a seller
may retain a deposit of up to $500 when a buyer defaults even if there is no liquidated damages provision in the contract. An injured party may collect a reasonable amount of liquidated damages. A term fixing unreasonably large liquidated damages is void as a penalty.
Compensation for jury duty
must be included in gross income.
Trust Property
must exist at the time of the creation of the trust and must be transferred to the trustee during the grantor's lifetime.
Cases tried in the Small Cases Division have
no appeal
personal property expenses deductible
no, no matter the price
anything used for educational expenses
non taxable, interest or all.
The Sarbanes-Oxley Act does not prohibit
non-audit services from being provided to non-audit clients.
related party loan
non-taxable but imputed interest is subject to the gift tax each year the loan is outstanding.
Roth IRA contributions are
nondeductible
nonliquidating distribution
nontaxable and not added to gross income
Uncles, aunts, nephews, in-laws
not considered related parties for this purpose.
Generally, losses from rental real estate are PAL and, hence,
not deductible against ordinary or portfolio income.
Copyrights
not granted. No notice or registration is required to secure a copyright. An author automatically secures a copyright when an original work is fixed in a tangible form.
value of property acquired by gift, bequest, devise, or inheritance.
not included in gross income
exception for municipal income
not taxable but included in s corp basis
State Tax Refunds
not taxable in the cy if taxpayer chose standard deduction instead of itemize deductions.
MACRS 7-year class includes
office furniture and office equipment.
spendthrift trust
often is created to protect a beneficiary from creditors or from her/his squandering of the trusts' assets. This type of trust prohibits any transfer of the beneficiary's rights by assignment or otherwise, and prevents creditors of the beneficiary from obtaining trust principal or its income until it actually is paid to the beneficiary.
Lifetime Learning Credit
use $2000 only once per yer per family.
Which one of the following is an itemized deduction on Schedule A?
one or more corporations in a group connected through stock ownership and having a common parent that owns at least 80% or more of the voting power and total value of the stock. Only an affiliated group of corporations can file a consolidated tax return instead of filing separately.
American Opportunity Tax Credit
only for post secondary(college) not grad school
When a partner renders services to a partnership in exchange for an interest in the partnership, the partner reports
ordinary income equal to the Fair Market Value (FMV) of the partnership interest being granted.
basis in s corp is reduced by
ordinary loss and capital loss
schedule c nondeductible expense
parking fines and illegal expenses
Generally passive activity losses is limited to
passive activity income
The old-age, survivors, disability, and hospital insurance programs are financed through
payments made under the provisions of the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act.
Parol evidence rule
permits the admission of any subsequent oral or written modification but nothing prior.
Dividend income from a taxpayer's investment portfolio is considered
portfolio income and reported on Schedule B of Form 1040.
The Clayton Act
prohibits arrangements that tend to create a monopoly or may substantially lessen competition, including exclusive dealing arrangements. There is no maximum or minimum exempt time limit in antitrust law.
Chapter 11 Bankruptcy
protects an insolvent firm from creditors during a period of reorganization to restore profitability. Not allowed for stockbrokers
When cash basis is used for reporting,
receipts would include cash received, Fair Market Value (FMV) of property received and cancellation of debt. Income is recognized earlier of actual or constructive receipt
Active participation in passive activity losses
rental real estate activities that allows the taxpayer to deduct losses from the rental activities against other income, subject to limitation.
Examples of passive income are
rental real estate, royalties, closely held C Corps and personal service corporations, and income from Schedule K-1 (partnerships, S Corps, estates, and trusts). Income from a taxpayer's limited partnership interest
The rule providing for technical termination of partnerships ([§708(b)] sale or exchange of 50% or more of total partnership interest)
repealed under the Tax Cuts and Jobs Act for partnership tax years beginning after December 31, 2017.
partner's bankruptcy
results in that partner's dissociation from the partnership. As long as it does not violate the partnership
Passive activity losses
salary + partnership income- current pal - pal carryover
The $500 threshold applies to contracts for
sale of goods, not for the performance of services.
Scholarships deductible
scholarships received by degree seeking students are non-taxable to the extent the amount is spent of tuition, fees books and supplies
The client need not prove ______ for suing a CPA for negligence under common law.
scienter
Under the Revised Model Business Corporation Act, which of the following dividends is not defined as a distribution?
stock dividends
nonresidential real property deduction
straight line 1/39 if placed in mid month use midpoint method
The Uniform Capitalization Rules (UNICAP) apply to
tangible personal property produced by the taxpayer. Section 263A(b)(2)(A) provides that UNICAP applies to inventory acquired by the taxpayer for resale.
If a taxpayer makes an early withdrawal from traditional IRA account before reaching the age of 59 ½ years, the withdrawal is subject to
tax and penalty of 10% on distribution unless an exception applies
section 501 c 3 organization
tax deductible donations, not used for lobbying Most common, must apply for tax exempt
s corp individual distribution
taxable income * percentage of outstanding stock
A gain exclusion ($500,000 for MFJ) is generally available to
taxpayers who owned and occupied a home as a principal residence in two of the five years immediately preceding the sale.
if it states cash collections in cash basis question
that is the answer
Returns of corporations, made on the basis of the calendar year, are to be filed on or before xxx following the close of the calendar year
the 15th day of March
A party losing in Federal District Court may appeal in
the U.S. Court of Appeals for the Federal Circuit.
A party losing in the U.S. Court of Federal Claims or U.S. Tax Court may appeal in
the U.S. Court of Appeals, which is divided into geographical districts.
In the event of a liquidating distribution, gain or loss is realized as
the amount cash received is greater than basis or the amount fmv is greater than property or cash received (loss)
Issuance of stock in exchange for a property with mortgage
the basis - full mortgage
dividends are declared by
the board, not the officers
If a creditor obtains a surety's promise through fraud,
the contract is voidable by the surety not void and only if the creditor knew of the fraud.
When a C corporation distributes assets to its shareholders in a nonliquidating distribution,
the corporation is treated as having sold the assets for fair market value and is subject to tax on any gain. However, losses are not deductible.
The depreciable basis of property includes
the costs necessary to put the equipment in a condition and location for use.
Following the filing of a Chapter 7 involuntary petition,
the court issues a stay against creditor collection proceedings and, in most cases, a trustee will be appointed.
Refund of state taxes is taxable income in
the current year to taxpayers to the extent the taxpayer received the benefit of state tax deduction by itemizing on Schedule A in the previous year (tax benefit rule). If the taxpayer used standard deduction refund would not be taxable to him.
Section 152 provides that
the deduction may be taken even though the dependent has gross income in excess of the amount allowable to claim a dependency exemption for such individual
if the fair market value of the gift on the date of the gift exceeds the donor's adjusted basis for the property on this date,
the donor's adjusted basis will be used in all gain or loss situations.
The deduction for casualty loss is calculated as
the drop in FMV less any insurance reimbursements less $100 per event, subject to an overall 10% AGI limitation.
contracts entered into by incompetent taxpayer
void
Refund of state taxes is taxable income in the current year to taxpayers to
the extent the taxpayer received the benefit of state tax deduction by itemizing on Schedule A in the previous year (tax benefit rule). If the taxpayer used standard deduction refund would not be taxable to him. eg. if used is $2250 in py but refund is $2500, $2250 is used as that is benefit extent
When a distribution of property other than cash is made (a non-cash distribution), the amount of dividend is
the fair market value (FMV) of the property at the date of distribution.
ordinary gross income from services rendered in an amount equal to
the fair value of the property received as compensation under §61 and §83.
In allocating benefits between the income beneficiary and the remainderman,
the general rule is that ordinary receipts(interest income) and current administration expenses(fiduciary fees) are allocated to trust income, while extraordinary receipts and expenses are allocated to trust principal.
To be UBI for a charity
the income must be from a continuous trade or business activity that is substantially unrelated to the exempt purpose or function of the organization.
Distributable Net Income (DNI)
the income that is available for distribution to the income beneficiaries of a trust each year. It is also the maximum amount of deduction allowed for distribution to income beneficiaries. Anything in excess is a tax-free distribution of principal.
If an existing partnership divides into two or more separate partnerships,
the partnership which receives the majority of the interests is a continuation of the old partnership. The other partnerships are treated as brand new businesses with new partnership Tax Identification Numbers (TINs).
Privity of contract is only necessary when
the plaintiff prove that s/he relied on the false registration statement and that the CPA acted in a fraudulent manner or with gross negligence.
neither temp or permanent adjustments
the provision for state taxes, interest from US treasury bonds and interest expense to purchase the bonds
Under the Ucc, if the goods are specially manufactured goods,
the seller is entitled to the contract price plus incidental damages incurred relating to the sale
in the year of disposition of a PAL activity,
the suspended and current year PAL become treated as non-passive (after first offsetting any passive income or gain from the sale of a passive activity).
Total gain on sale of partnership interest is a capital gain
the total gain, ordinary income must be recognized to the extent of partner's share of inventory and receivables in the partnership.
If the partnership agreement is silent as to duration,
then the partnership is at-will, and any partner may terminate at any time without incurring liability.
Generally, under §219, an employee and her/his nonworking spouse may each contribute (and deduct) up to $6,000 of earnings to an IRA in 2019 but If one spouse is covered by an employer pension plan, and their AGI is greater than the active participant phase-out limit,
then their deduction is disallowed
stock qualified option
there is no recognition of income in the year of grant
to form a limited partnership
there must be at least one gp and one lp. Gps have unlimted liability
if casualty loss is negative
there will be no deduction on schedule c
phc shareholders can increase their basis by the amount of consent dividends included in their gross income
therefore a phc can deduct both actual dividends and consent dividends
reportable income for parent receiving alimony before 2018
total amount - % on child(child support)
ordinary income
total income - capital gains
income from illegal activities is taxable
true
kiddie tax treatment
unearned income - 2300, taxed at parents marginal rate. earned income +2300 - standard deduction ( greater 1150 or earned +350)
Under TCJA, if the taxpayer actively participates in the rental activity.
up to $25,000 of losses from the rental activity may be deducted against ordinary and portfolio income,
dividend income for c corp is
up to max of current earnings and profits of $10,000
s corp loss deduction
up to the tax basis of taxpayer
contracts entered into without knowledge of it
voidable
There is an exception under Regulation §301.7216-2(g)
which specifically states that a preparer may disclose tax return information to an attorney for purposes of securing legal advice.
An order of garnishment
will enable a creditor to collect money from a debtor's wages.
An order of receivership
would allow a receiver appointed by the court to take possession but not title to the debtor's property.
