misc :)

Define reimbursement:

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

Define exoneration

*Before making payment* The right of a surety to obtain a court order prior to default demanding that the debtor pay.

Attachment requires what 3 elements?

1) an agreement between the creditor and the debtor evidenced by the debtor's taking possession of the collateral or by an authenticated record of the agreement, 2) the creditor must give value, and 3) the debtor must have rights in the collateral.

The three broad categories of misconduct subject to the disciplinary power of the state boards of accountancy are:

1) misconduct while performing accounting services, 2) misconduct outside the scope of performing accounting services, and 3) a criminal conviction

Under the "Ultramares" rule, to whom will an accountant be liable for negligence?

1) parties in privity and 2) intended third party beneficiaries (parties who are merely "foreseen" cannot recover)

A plaintiff must show four elements to make a case for negligence against a CPA:

1) that the defendant owed a duty of care to the plaintiff, 2) the defendant breached that duty by failing to act with due care, 3) the breach caused the plaintiff's injury, and 4) damages.

To whom must a CPA pay license fees in order to maintain a CPA license? 1. The Public Company Accounting Oversight Board. 2. The American Institute of Certified Public Accountants. 3. The state board of accountancy of the CPA's state of licensure. 4. The state society of certified public accountants of the CPA's state of licensure.

3. The state board of accountancy of the CPA's state of licensure. (State boards of accountancy have the sole power to license CPAs; thus, the only body to which the CPA must pay fees in order to maintain the CPA license is to the state board of accountancy for the state in which the CPA is licensed.)

Officers are empowered to: 1. hire the directors 2. make fundamental changes within the corporation 3. run the day to day operations of the corporation 4. declare dividends

3. run the day to day operations of the corporation

Which of the following bodies ordinarily would have the authority to suspend or revoke a CPA's license to practice public accounting? 1. A state CPA society 2. The SEC 3. The AICPA 4. A state board of accountancy

4. A state board of accountancy. (Only a state board of accountancy has the authority to suspend or revoke a CPA's license to practice public accounting.)

The US Tax Court is:

a specialized trial court that hears only Federal tax cases. The trials are by judge and not by a jury.

Which of the following statements best describes a tax shelter? 1. Any (1) partnership or other entity; (2) investment plan or arrangement; or (3) other plan or arrangement if a significant purpose of such partnership, entity, plan, or arrangement is the avoidance or evasion of federal income tax. 2. Any transaction with respect to which information is required to be included with a return or statement because such transaction is of a type that the Treasury Department secretary has determined as having a potential for either tax avoidance or tax evasion. 3. A tax return prepared by someone other than a tax return preparer or tax practitioner. 4. A tax return position taken without substantial tax authority.

1. Any (1) partnership or other entity; (2) investment plan or arrangement; or (3) other plan or arrangement if a significant purpose of such partnership, entity, plan, or arrangement is the avoidance or evasion of federal income tax.

A CPA who prepares clients' federal income tax returns for a fee must: 1. Keep a completed copy of each return for a specified period of time. 2. File certain required notices and powers of attorney with the IRS before preparing any returns. 3. Indicate the CPA's federal identification number on a tax return only if the return reflects tax due from the taxpayer. 4. Receive client documentation supporting all travel and entertainment expenses deducted on the return.

1. Keep a completed copy of each return for a specified period of time. (The CPA must retain a completed copy of each return for three years after the close of the return period (IRC Section 6107).)

Porthos wants to give Athos a power of attorney. Which of the following is a requirement that must be met in order for Porthos to achieve his goal? 1. The power must be in writing and signed by Porthos. 2. Athos must be a licensed attorney. 3. Athos must be at least 18 years of age. 4. Porthos must limit Athos' authority to a particular task.

1. The power must be in writing and signed by Porthos. (A power of attorney, by definition, is a written appointment of agency, signed by the principal and giving the agent authority to act on the principal's behalf.)

Which of the following is NOT a specific requirement regarding a practitioner's written advice? 1. The practitioner must possess necessary competence. 2. Advice must be based on reasonable factual and legal assumptions. 3. The practitioner must reasonably consider all known relevant facts and circumstances. 4. 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.

1. 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.)

Which of the following statements is correct for the disciplinary power of the state boards of accountancy? 1. The state board of accountancy can conduct a formal hearing for possible disciplinary action. 2. The state board of accountancy does not have to provide due process of law. 3. Adverse state board decisions cannot be reviewed by the courts. The state board's decision is final. 4. The state board of accountancy must find, by proof beyond a reasonable doubt, that the CPA's actions constituted professional misconduct.

1. The state board of accountancy can conduct a formal hearing for possible disciplinary action.

What is the correct order of applying the loss limitation rules? 1. Passive loss limits, tax basis, at-risk amount 2. Tax basis, at-risk amount, passive loss limits 3. At-risk amount, tax basis, passive loss limits 4. Passive loss limits, at risk amount, tax basis

2. Tax basis, at-risk amount, passive loss limits

Which of the following bodies has the authority to suspend or revoke a CPA's license for acts discreditable to the profession? 1. The AICPA 2. The state board of accountancy 3. The PCAOB 4. The state society or certified public accountants

2. The state board of accountancy (A suspension or revocation of a CPA's license may only be imposed by a state board of accountancy)

Directors are authorized to: 1. Act individually when entering into corporate agreements. 2. Individually confess judgments on behalf of the corporation. 3. Declare dividends. 4. Act as agents individually for the corporation.

3. Declare dividends.

To avoid tax return preparer penalties for a return's understated tax liability due to an intentional disregard of the regulations, which of the following actions must a tax preparer take? 1. Audit the taxpayer's corresponding business operations. 2. Examine the taxpayer's supporting documents. 3. Make reasonable inquiries if the taxpayer's information is incomplete. 4. Review the accuracy of the taxpayer's books and records.

3. Make reasonable inquiries if the taxpayer's information is incomplete. (Rule: A compensated preparer is liable for a penalty if his understatement of taxpayer liability on a return or claim for refund is due to negligent or intentional disregard of rules and regulations. A preparer is not required to obtain supporting documentation unless he has reason to suspect the accuracy of the taxpayer's figures; however, the preparer must make reasonable inquiries if the taxpayer's information appears incorrect or incomplete.)

Which of the following may NOT be claimed as a deduction by a taxpayer who claims the standard deduction? 1. Interest penalty on early withdrawal of savings 2. Self-employed health insurance 3. State income tax paid 4. IRA contribution

3. State income tax paid (this is an allowable itemized deduction (deductible from AGI), but taxpayers who file using the standard deduction will not get the benefit from those itemized deductions that total less than the standard deduction. Choices 1, 2, and 4 are all deductible to arrive at AGI and are termed "adjustments." Adjustments benefit taxpayers who itemize as well as those who file using the standard deduction.)

With respect to the penalty for aiding and abetting understatements of tax liability on a tax return: 1. Applies only when the understatement is with the knowledge and consent of the persons authorized or required to file the return. 2. The penalty applies to tax return preparers only. 3. The burden of proof shifts to the IRS from the taxpayer. 4. The civil penalty is $10,000 for all taxpayers except corporations and $100,000 for corporations.

3. The burden of proof shifts to the IRS from the taxpayer.

Define contribution:

Once one cosurety pays the creditor, she may obtain a pro rata contribution from the other cosureties if they are solvent. ((Amount guaranteed by individual cosurety/amount guaranteed by all cosureties) * amount paid) = amount owed by cosurety

Which of the following items may be deducted by an estate for income tax purposes on Form 1041? 1. Funeral costs. 2. Medical expenses. 3. Outstanding debts of the decedent. 4. Administrative expenses.

4. Administrative expenses. (Administrative expenses may be deducted against the estate tax on Form 706 OR income tax on Form 1041. Note that the same expense may not be deducted on both forms. The executor must decide which one is more advantageous. Funeral costs are only allowed as a deduction against estate tax on Form 706. Medical expenses may be deducted against the estate tax on Form 706 or income tax on the decedent's final Form 1040. Outstanding debts are only allowed as a deduction against estate tax on Form 706.)

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? 1. Only those third parties in privity of contract with the accountant. 2. Any third party whose reliance on the report was reasonably foreseeable. 3. All third parties who relied on the report and sustained injury. 4. Any foreseen or known third party who relied on the report.

4. Any foreseen or known third party who relied on the report. (Under the majority position an accountant is liable for negligence only to third parties whom the accountant knows or should foresee will be relying on the accountant's work)

With regard to S corporations and their stockholders, the "at risk" rules applicable to losses: 1. Depend on the type of income reported by the S corporation. 2. Are subject to the elections made by the S corporation's stockholders. 3. Take into consideration the S corporation's ratio of debt to equity. 4. Apply at the shareholder level rather than at the corporate level.

4. Apply at the shareholder level rather than at the corporate level. (Rule: the "at risk" rules limit the deductibility of the distributive share of the losses of an S corporation to the amount the taxpayer has "at risk" (non-recourse loans are not considered "at risk") and could actually lose from an activity.)

An S corporation may deduct: 1. Charitable contributions within the percentage of income limitation applicable to corporations. 2. Net operating loss carryovers. 3. Foreign income taxes. 4. Compensation of officers.

4. Compensation of officers. (This is an ordinary and necessary business deduction as long as it is reasonable in amount.)

Which of the following statements concerning an accountant's disclosure of confidential client data is generally correct? 1. Disclosure may be made to comply with GAAP. 2. Disclosure may be made to comply with an SEC audit request. 3. Disclosure may be made to any state agency without subpoena. 4. Disclosure may be made to any party on consent of the client.

4. Disclosure may be made to any party on consent of the client.

Under the unified rate schedule in effect, 1. Lifetime taxable gifts are taxed on a noncumulative basis. 2. Transfers at death are taxed on a noncumulative basis. 3. The gift tax rates are 5% higher than the estate tax rates. 4. Lifetime taxable gifts and transfers at death are taxed on a cumulative basis.

4. Lifetime taxable gifts and transfers at death are taxed on a cumulative basis. (Rule: Estate taxes are computed by applying the unified rate schedule to the aggregate of cumulative deathtime and lifetime transfers and subtracting the gift taxes payable on the lifetime transfers. Gift taxes are computed by applying the unified rate schedule to the cumulative lifetime taxable transfers and subtracting the current year taxes attributable to prior taxable transfers.)

Which of the following statements about the estate tax is NOT correct? 1. An estate is allowed an unlimited marital deduction. 2. The estate tax return, Form 706, is due 9 months after the date of death. 3. The alternate valuation date for an estate, if elected, is 6 months after the date of death. 4. The estate may not deduct outstanding debts of the decedent.

4. The estate may not deduct outstanding debts of the decedent. (Outstanding debts are allowed as a deduction against the gross estate.)

The governing document in a corporation is called the: 1. articles of organization 2. operating agreement 3. voting trust agreement 4. articles of incorporation

4. articles of incorporation

After a corporation's status as an S corporation is revoked or terminated, how many years is the corporation required to wait before making a new S election, in the absence of IRS consent to an earlier election?

5 years

Upon receipt of a notice of deficiency from the IRS, the taxpayer has _______ days to pay the deficiency or file a petition with the Tax Court for a redetermination of the deficiency.

90 days from the mailing date of the notice if the notice is NOT addressed to a taxpayer outside the United States

What are the due diligence requirements exercising for the earned income credit?

The due diligence requirements address eligibility checklists, computation worksheets, and record retention.

If a CPA recklessly departs from the standards of due care when conducting an audit, the CPA will be liable to third parties who are unknown to the CPA based on:

GROSS negligence (not ordinary negligence)

If a manufacturer assigns 90% of its AR to a factor, how may the factor perfect its security interest?

ONLY by filing a financing statement (since AR are intangible and they are large scale)

Define subrogation:

Once a surety pays the creditor in full, the surety acquires all of the creditors' rights. It is the surety's right to succeed to the creditor's rights against the principal debtor after the surety pays the creditor.

Decisions of the US Tax Court Small Claims Division:

cannot be relied on as precedent and cannot be appealed.

A statutory note of deficiency explains that the taxpayer has 90 days to either pay the deficiency or else to file a:

petition with the US Tax Court.

A taxpayer can generally avoid penalties if:

she acted in good faith, if there was a reasonable basis to support the tax return position, and if the taxpayer did not have willful neglect.

The courts of original jurisdiction for tax cases (the courts in which a taxpayer would first bring a lawsuit against the IRS) are:

the Tax Court, The US District Court, and the US Court of Federal Claims.