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Regulation > 3/29 test > Flashcards

3/29 test Flashcards

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1
Q

What is the formula for amount realized in like kind exchanges?

A

FMV new property + Boot received - Boot paid - Adj basis of property given.

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2
Q

What debts cannot be discharged in bankruptcy?

A

Debt incurred through fraudulent representations by the debtor to the creditor. Debts arising from intentional torts.

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3
Q

Under the Sales Article what sales by a manufacturer are automatically perfected?

A

Perfection is automatic for PMSI consumer goods. Purchase Money Security Interest. Sales made direct to consumers.

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4
Q

How do S Corp distributions differ from C Corp distributions?

A

S Corp distributions are non taxable and reduce the shareholder basis. C Corp distributions are a dividend to the extent of current then accumulated E&P. Then beyond E&P it is a return of capital that reduces the basis.

For both S Corp and C Corp excess beyond basis is a capital gain.

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5
Q

For M-1 Schedule, Reconciliation of Income per books with income per return, what are expenses not deductible?

A

Life insurance premiums,

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6
Q

What is the gain or loss recognized by the taxpayer in like kind exchanges?

A

The lesser of the amount realized or the boot received. Do not net boot received with boot paid if they are not the same. IE debt and property.

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7
Q

What is the basis of the new property in like kind exchanges?

A

New basis = Adj basis of old property + Gain Recognized - Boot received + Boot paid

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8
Q

Income generally excluded from UBI

A

Rent from real property, Gains from property not held for sale, Research by University, college, hospital, Interest, Dividends, other investment income.

Exclusion for rent does not apply if services are provided to occupant.

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9
Q

What are elements of valid consideration in a contract.

A

Doing something you are not legally obligated to do, giving up something you are not legally obligated to do.

A mere promise is no consideration.

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10
Q

Elements of the 90 day letter from IRS

A

Taxpayer either pay the deficiency or file a petition with US Tax Court.

Process is audit examination, proposed adjustments, 30 day letter, pay or appeal, 90 day letter, pay or court.

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11
Q

What is the basis for property exchange with a corporation for stock?

A

Corporation with use the rollover basis.

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12
Q

When creating a partnership when would the partner recognize a gain?

A

If the debt against property contributed exceeds basis.

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13
Q

Accrual method accounting is required for what entities?

A

Tax shelters, C Corp that average more than 26 mil over 3 years, manufacturers.

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14
Q

Compensation included on W-2 for employee?

A

Wages, FMV of bonus received (cash or stock), bargain element of nonqualified stock option.

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15
Q

Can a Surety compel the creditor to collect from debtor?

A

No, Surety has no authority to compel creditor to collect from the debtor or proceed against collateral.

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16
Q

In chapter 11 bankruptcy what must be done before court will approve reorganization plan?

A

Administration expenses paid in full, at least one impaired class accepted plan, plan does not discriminate unfairly (fair and equitable to all classes).

No trustee unless fraud or gross mismanagement.

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17
Q

Earnings invested in US property calculation

A

Average basis at each quarter - adj basis of preceding year.

(Q1 + Q2 + Q3 + Q4)/4 - PY end = Earnings invested in US property

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18
Q

C Corp treatment of capital losses

A

Capital losses are carried back 3 and forward 5 years. Capital losses are limited to the extent of taxable income. It cannot create a net operating loss.

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19
Q

Parol evidence rule

A

Prohibits evidence of prior oral or written agreements that contradict the terms of the signed contract.

Prohibits prior written agreements that vary the terms of a fully integrated contract.

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20
Q

In bankruptcy, an creditor’s committee consists of

A

Unsecured creditors

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21
Q

Retirement savings contribution credit

A

Nonrefundable credit for contributions up to $2,000 to either a traditional or Roth IRA

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22
Q

A composition of creditors

A

Agreement between debtor and creditor that the creditors will settle for less that amounts owed. Limited to those who participate in the composition.

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23
Q

Assignment for the benefit of creditors

A

Debtor’s property is transferred to trustee. Trustee sells property and pays creditors. There is no discharge of debt unless Trustee can pay in full.

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24
Q

General discharge in bankruptcy will be denied if

A

Debtor failed to keep adequate books.

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25
Purchased shares, later the company redeemed. How to treat the amount of income.
Capital gain, long-term if over one year.
26
What is the MACRS life for non residential property
39 years, mid month convention
27
Regarding common law, what are some details regarding acceptance
When is acceptance specified Mail box rule, offeree can accept upon dispatch by reasonable means Offer open vs acceptance received by Method of acceptance Not following the rules of acceptance is a counter offer.
28
Qualifying expenses for adoption credit
Legal and agency fees. Medical expenses do not qualify.
29
General rules in the formation of a corporation
No gain or loss recognized by corp for issuing stock in exchange for property. Basis in property for corp is greater of NBV or debt assumed Generally non taxable for shareholders if no boot Boot is cash received or relief from liability above basis
30
What is required when admitting a new or replacement partner
Unanimous consent A partner may assign their share of interest without consent but that person only has rights to profits. No voting.
31
What is the QBI phase in range
164,900 - 214,900
32
What is the QBI deduction calculations if the taxpayer is in phase out range
Tentative QBI deduction: QBI income x 20% Wage limitation: wages x 50% A - B = excess amount Phase in percentage: inc bfor deduction - 164,900 / 50k Excess x phase in percentage= reduction amount Tentative - reduction= QBI deduction
33
In regards to creditors, a partners interest in partnership property
Cannot be assigned to individual creditors and cannot be subject to attachment by a partner's individual creditors.
34
A partner sells their interest for cash and relief of debt. What is their gain or loss
Amount realized (cash+relief) - basis = gain
35
What is the calculations for amortization of startup costs
Phase in 50,000 to 55,000 Can deduct 5,000 immediately if below 50k. The remainder is over 180 months. Above 50k the 5k is reduced $ for $.
36
The charitable deduction for property contributed is limited to
The lesser of 30% of AGI or 50% of AGI less cash contributions
37
QBI losses can be offset by
Losses can be allocated to businesses with income. Allocated based on % of income. This will reduce the tentative QBI deduction.
38
Regarding gift exclusion future interests are
Not eligible for gift exclusion
39
Which parties will an accountant who negligently prepares a client's financial report be liable?
To any party or third party who the accountant knows or should foresee will rely on the accountants work.
40
What method are large corporations required to use for deduction of bad debts?
Direct charge off method. Write off as debts become worthless.
41
What is the accuracy related penalty on underpayments.
The penalty to the taxpayer is 20% of the understatement. If the accuracy related penalty is due to the taxpayer and not the preparer no penalty to the preparer.
42
How is the limitation for 179 deduction calculated.
Maximum depreciation is 1,050,000. Phase out begins 2,620,000. Qualified property above the phase out reduced the 1,050,000 $ for $.
43
Requirements for an Incentive Stock Option
Less that 10% shareholder, Option price less than FMV at grant date, held for at least two years.
44
What are the requirements for an Employee Stock Purchase Plan
Less that 5% shareholder, option price is greater than 85% of the stock price when granted, held for at least two years, held for at least one year after exercise date.
45
Subrogation is
The right of a surety to collect against the debtor after they have paid the obligations. They assume the creditors rights.
46
A cash basis taxpayer reports income when
It is constructively or actually received in cash or property.
47
A taxpayer rents their primary residence for 10days, do they need to include it in income
No, less than 15 days are not required to include rental income.
48
When do you deduct self employment tax and self employment health insurance
They are adjustments after AGI
49
Attachment of a security interest requires
Value given by creditor Debtor has rights to collateral Written agreement or creditor takes possession
50
The sale of accounts receivable is included in what article of the UCC
Article 9
51
Net operating losses for a corporation are carried
2018 - 2020 Back 5 years and forward indefinitely | 2021 and beyond 0 back, forward indefinitely. 80% of income limitation
52
Child and dependent care credit is
20 to 50% of expenses to care for qualifying persons. 8,000 one, 16,000 more than one. Under 13, disabled dependent, or disabled spouse. Both parents work.
53
Section 1231 rules
Loss - taken against ordinary income Gain - must be more than one year, treated like cap gain Must look back 5 years to offset any losses taken against ordinary income
54
How do you calculate the SEP IRA deduction
Lesser of 20% of SE inc minus one half SE tax 58,000
55
Does a creditor have to collect against the debtor before going against the surety
No,
56
Guarantors vs creditors, creditors must collect
Against the debtor before collecting against guarantors.
57
The fair debt collection practices act allows what for collection services using improper practices
Sue for damages
58
Under the uniform fraudulent conveyance act what are indications of fraudulent conveyance
``` Debtor remains in possession Secret, undisclosed conveyance Debtor retains equitable benefit Transfer to insider Transfer was substantially all assets Became insolvent after transfer ```
59
Are S corp distributions included in income
No
60
Guaranteed payments to a partner for services without regard for ratio of ownership
Are subject to self employment income tax.
61
Calculations for forming a corporation Realized Recognized Shareholder basis for stock Corp basis for property
Realized - FMV contributed minus basis. Recognized - 0 for qualifying section 351, or boot received Shareholders Basis in stock - carryover or basis + gain recog - cash received Corp basis - carryover basis + gain recog by shareholder
62
In a partnership fees for late payment of taxes
Are nondeductible but reduce partner's basis.
63
What expenses can be deducted against investment income
Investment interest expenses | Cannot deduct non interest investment expenses
64
A partner buys a portion of another partners interest, what is the calculation for new basis
``` Purchase price -old basis x new interest % =Basis adjustment +Old basis =New basis ```
65
Charitable contributions not paid by the end of the year are still deductible if
Board approval | Paid before 3.5 months after tax year
66
Company owns land with a parking lot and shed on it. The parking lot and shed are defined as
Section 1231 property as they are depreciate property or real estate property used in business
67
Personal service and personal holding companies must include 100% of dividends received from unrelated corps
Yes, included in gross income
68
Gains on the sale from illegal activity can deduct
Cost of merchandise | Cannot deduct business expenses
69
What type of businesses are qualified trade businesses
Rental real estate Coffee shop Gift shop Bookstore A restaurant is neither a QTB or SSTB
70
Gift of remainder interest is
Taxable income, calculated as FMV - value of interest for primary recipients
71
A partnership without a specific duration
A partnership at will
72
Partner inherited a million dollars, how much can they give their spouse tax free
Up to 11,700,000 lifetime exclusion.
73
What are the regulations governing practice before the IRS
Circular 230 Avoid advising improper tax position Provide info unless priveleged Conflict of interest
74
Situations that would result in a tax return preparer penalty
``` Aids or abets tax evasion Endorse or negotiate refund Takes unreasonable position Failed to furnish return copy Failed to sign Failed to provide PTIN Failed to file correct info Promote abusive tax shelter ```
75
What are $50 TRP penalties
Failure to provide client copy Failure to sign Failure to retain copy Failure to file correct info
76
What are $545 TRP penalties
Endorse or negotiate refund | Failure to determine Earned Income Credit
77
What are $1000 TRP penalties
Take unreasonable position Promote abusive tax shelter Aiding and abetting understatement Unauthorized disclosure
78
Penalty for fraud and false statements
Up to 100,000 and 3 years in prison
79
Penalty for fraudulent returns
Up to 10,000 and one year in prison
80
The role of the state boards of accountancy is to
Govern CPAs | Impose penalties
81
General audit and appeals process
``` Select returns to audit Agent issues report Negotiate No agreement, 30 day letter. Pay or file petition with appellate No agreement with appellate 90 day letter 90 days to pay or file with tax court, district court or claims court ```
82
What is appropriate disclosure for a tax position
When taking a tax position that needs a basis of authority to be legal.
83
What are the levels of substantiation
Reasonable basis >20% must add disclosure Realistic possibility >33% AICPA Substantial authority>40% IRS More likely than not >50% tax shelter
84
Non-filing penalty for taxpayer
5% per month up to 25% of tax due | Tax payer doesn't owe if no liability or due refund
85
Non-payment or late penalty
.5% per month up to 25%. | Limited if non-filing penalty also applies
86
Accuracy penalty for taxpayer
20% of tax due Waived if reasonable basis or substantial authority
87
Hierarchy for tax authority
Constitution/ congress IRS internal revenue code US Treasury regulations Judicial - Supreme Court, appeals, district, tax court, fed claims
88
To recover from a CPA, under common law, a client must prove
Duty of care Breach of duty Losses Causation
89
To recover against the CPA, a third party must prove the CPA
Had a duty of care Breached that duty of care Breach was a direct cause of loss Prove loss suffered
90
Situations when CPA can legally disclose confidential information
``` GAAP disclosure Subpoena Peer review Ethics review Firm member on the engagement ```
91
Types of agency
General agent - broad authority Universal Agent - handle affairs in absence Power of attorney - usually specific matters Special agent - specific or designated instances Independent contractor - given authority, limited
92
Express authority vs apparent authority
Express given by principal. Apparent implied through actions of principal.
93
Contract termination based on parties
One party ends agreement Fulfillment of agreement Time frame passes Mutual end If termination by party, principal has duty to notify third parties.
94
Termination based on operation of law
``` Death of principal or agent Insanity of principal Bankruptcy of principal Bankruptcy of agent if compromises ability Change of law ```
95
Proper formation of a contract needs
Offer - invitation is not an offer Acceptance - Consideration Lack of defenses
96
Types of contracts
Express contract - oral or written, simple Implied - formed by actions, intent Quasi - court imposed Bilateral - both sides make promise Unilateral - in exchange for a performance Partially executed - one side has performed Valid - legally formed Void - illegal or lacks legal purpose Voidable - valid but can be void Unenforceable - court would not enforce
97
Ways a contract can be discharged
Duty - failure of conditions, mutual, novation, accord & satisfaction Law - statute of limitations, bankruptcy, impossibility, death or insanity, destruction, illegal Performance - both parties complete Material - one side violation, other not req to perform Personal satisfaction - must be stipulated in contact
98
Remedies for breach of contracts
Sue for damages - monetary, punitive, compensatory Mitigation of damages - if you can replace, do Specific performance - only when money won't do Recision - back to original positions Reformation - rewritten
99
Bankruptcy and insolvency | Chapters and general rules
Ch 7 - liquidation, voluntary or involuntary, abuse test, no banks, insurance, railroad Ch 11 - re-organization, court supervised, voluntary or involuntary, must be approved by 1/2 of creditors with at least 2/3 amount owed.no banks Ch 13 - adjustment of debt, voluntary, no corporations,
100
What is the calculation for the taxable portion of life insurance proceeds
Amount received per year -(benefit/ total years) =Taxable portion
101
Insurance premiums to pay if you become sick or injured
Not deductable
102
The ultramares rule limits the accountants liability for negligence to
Parties in privity Intended third parties Merely foreseen parties cannot recover
103
What is not a category of income for foreign tax credit limitations?
Foreign-derived intangible income. The categories are general, passive, foreign branch, and global intangible.
104
Corp A owns 100% of a foreign corp. What statements are correct.
It is a Controlled foreign corp, income earned is subject to immediate tax. CFC is more than 50% ownership. It is not a foreign branch, foreign branches are unincorporated.
105
Debtors' rights in regards to personal property and SS benefits
Federal law does not allow creditors to garnish SS Federal law controls what assets can be sold. State law does not govern either.
106
After the period for statute of limitations expires the contract
is now barred from judicial remedies. The contract is unenforceable but is not invalid or void.
107
How is the depreciation method chosen for partnership property
The partnership chooses, may be any method approved by IRS
108
Life insurance expense on officers where corp is the owner and beneficiary
Are not tax deductible
109
Foreign income eligible for a 100% dividends received deduction
From a foreign corp to a 10% or more US corp shareholder
110
Shareholder of a controlled foreign corp is considered a US shareholder if
Shareholder owns at least 10% of the stock value OR voting stock
111
What property is available for bonus depreciation
New or used business property with a less that 20 year life.
112
Foreign income taxes paid by a corp may be
claimed either as a deduction or credit, corp decides
113
Filing an automatic stay of actions in bankruptcy
Stops collections on wages. Does not stop collection on alimony.
114
Preparer willful understatement of tax liability penalty
Greater of 5,000 or 75% of fee
115
Deduction for an individual taxpayer for interest on investment indebtedness is
Limited to the taxpayer net investment income

Regulation (3 decks)

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