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Regulation > Additional Notecards 2 > Flashcards

Additional Notecards 2 Flashcards

1
Q

If the individual actively participates in rental activity

A

can offset up to 25,000 of income that is not from passive activities by losses or credits from rental real estate

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2
Q

“passive activity” includes:

A

any rental activity without recard as to whether or not the taxpayer materially participates in the activity

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3
Q

The rule limiting the deuctibility of passive activity losses and credits applies to

A

Personal service corporations

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4
Q

MACRS is

A

mandator for most depreciable property placed in service after 1986

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5
Q

Recovery property elects to depreciate:

A

under a method not expressed in terms of years

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6
Q

Personal property and depreciation

A

Treated as placed in service or disposed of at the midpoit of the taxable year

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7
Q

A midquarter convetion must be used if more than:

A

40% of all personal property is placed in service during the last quarter of the taxpayer’s taxable year

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8
Q

Real property and depreciation

A

Is treated as placed in service or disposed of in the middle of a month, result in a half-month of depreciation for the month disposed of or placed in service

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9
Q

Bonus (additional first-year) depreciation

A

Equal to 50% of the adjusted basis of qualified property is available for qualifying property acquired after December 31, 2007

Qualified property includes new MACRS property with a recovery period of 20 years or less

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10
Q

Lesehold improvements made by a lessee

A

recoverd over the MACRS period of the underlying property without regard to the lease term

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11
Q

Section 179 expense election

A

A taxpayer may annually elect to treat the cost of qualifying depreciable property as an expense rather than a capital expenditure

maximm cost that can be annually epensed is $500,000

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12
Q

If automobile is not used more than 50% for business use =>

A

MACRS is limited to straight-line depreciation over five years

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13
Q

Business start up costs

A

Deductible in the year paid or incurred if the taxpayer is currently in a similar line of business as the start-up business

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14
Q

Sec. 197 intangible assets

A

Most acquired intangible assets are to be amortized over a 15 year period beginning with the month in which the intangible is acquired

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15
Q

QPAI is equal to:

A

excess of DPGR over the sum of the cost of goods sold allocable to such receipts, and other expenes and deductions allocable to such receipts

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16
Q

DPAD

A

9% of lesser of taxable income or taxable income

*limited to 50% of W-2 wages paid

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17
Q

When sec 179 expense is limited to taxable income:

A

rest of 500,000 can be carried forward

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18
Q

depreciable personal property

A

half-year treatment

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19
Q

depreciable real property

A

mid year treatment

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20
Q

remibursed employee business expenses: makes an adequate accounting

A

The reimburseemnts are excluded from gross income and expenses are not deductible

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21
Q

Reimbursed employee business expenses: does not make an adequate accounting

A

Total amount of reimbursement is included in the employee’s gross income and the related expenses are deductible subject to 50% meals and 2% of AGI floor

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22
Q

Rental of vacation home

Amount deductible =

A

No. of days rented / total days used

x total expenses

= amount deductible

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23
Q

If used as personal residence:

A

personal use exceeds greater of 14 days

or 10% of number of days rented

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24
Q

Any medical insurance premiums not deductible under the rules:

A

are deductible as an itemized medical expense deduction from AGI

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25
Q

Self employed individuals can deduct:

A

50% of self employment taxes in arriving at AGI

deduct 100% of the premiums for medical insurance for the individual spouse, dependents, and any child of the taxpayer under age 27 as of the close of the tax year

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26
Q

Distance between the former residence and the new job

A

must be at least 50 miles longer than former residence to old job

*if no former job, new job must be at least fifty miles from former residence

**must be employed at least 39 weeks out of the 12 months following the move

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27
Q

Nondeductible housing expenses

A

Cost of meals

house hunting trips

temporary lodging in general locaiton of new work site

expenses incurred in selling and buying houses

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28
Q

reiumbursements and expenses allowed under a nonaccountable plan:

A

must be included in taxpayer’s gross income

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29
Q

IRA for married taxpayers filing a joint return

A

Up to 5,500 can be deducted for contributions to the IRA of each spouse

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30
Q

A taxpayer who is partially or totally prevented from making deductible IRA contributions can make:

A

nondeductible IRA contributions

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31
Q

10% penalty tax on early withdrawals of IRA (before 59.5)

A

do not apply for “qualified higher education expenses” and “first-time homebuyer expenses”

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32
Q

Simplified Employee Pension (SEP) plan

A

Employer’s contribution to an employee’s SEP plan are deductible by employer

lesser of 25% of compensaiton or 52,000

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33
Q

Deduction for Interest on Education Loans

A

An individual is allowed to deduct up to $2,500 for interest on qualified education loans

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34
Q

Penalties for Premature Withdrawals from Time Deposits

A

Full amount of interest is included in gross income

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35
Q

Alimony or Separate Maintenance Payments

A

Are deducted “above the line”

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36
Q

Costs involving discrimination suits

A

Allowable for deduction from gross income in arriving at AGI

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37
Q

Expenses of Elementary and Secondary Teachers

A

Deduct above the line deduction of 250 dollars for unreiumbersed expenses

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38
Q

Dependent’s standard deduction

A

Greater of;

1,000

or $350 plus income

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39
Q

Deductible medical care does not include:

A

cosmetic surgery - improve patient’s appearence

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40
Q

Expenses incurred by physically handicapped individuals for removal of structural barriers in houses

A

fully deductible medical expenses

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41
Q

Capital expenditures for medical reason

A

deductible as medical expenses

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42
Q

Prescribed medicines and insulin

A

deductible medical expeneses

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43
Q

Assessments for improvements

A

Not deductible but instead must be added to the basis of the property

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44
Q

Personal property taxes

A

are deductible if ad valorem (in relation to property

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45
Q

Contributions cannot be made to an education IRA if:

A

the designated beneficiary is age 18 or older

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46
Q

An individual is allowed to make contributions to a Roth IRA even after age 70 1/2

A

TRUE

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47
Q

No deduction is allowed for __________ interest

A

prepaid

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48
Q

No deduction is allowed for:

A

personal interest

purchase an asset for personal use

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49
Q

Acquisition indebetedness

A

Interest is deductible on up to $1,000,000 of loans secured by the residence if such loans were used to acquire, construct, or substantially improve the home

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50
Q

Home equity indetedness

A

Interest is deductible on up to $100,000 of loans secured by the residence regardless of how the loan proceeds are used

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51
Q

Investment Interest

A

Deduction for investment interest expense for non-corporate taxpayers is limited to the amount of net investment income

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52
Q

A taxpayer may elect to treat qualfied dividends and net capital gain as:

A

investment income

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53
Q

Contribution of 250 or more

A

Donor obtains written acknowledgment of contribution including a good-faith estimate

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54
Q

Overall limitation for contribution deductions is:

A

50% of adjusted gross income

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55
Q

Deductions for contributions of long-term capital gain property

A

limited to 30% of adjusted gross income

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56
Q

Casualty loss is deductible:

A

in the year the loss occurs

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57
Q

Theft loss is deductible in the year:

A

the loss is discovered

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58
Q

If personal casualty and theft gains exceeds losses

A

then all gains and losses are treated as capital gains and losses

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59
Q

If casualty and theft losses exceed gains, the losses:

A
  1. offset gains
  2. are ordinary deductions from AGI to the extent in excess of 10% of AGI
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60
Q

Loss sustained

A

lesser of decrease in FMV or adjusted basis

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61
Q

Itemized deductions subject to reduction:

for high income taxpayers

A

include taxes, qualified residence interst, charitable contributions, and miscellaneous itemized deductions

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62
Q

Itemized deductions not subject to reduction

A

include medical, investment interest, casualty and theft losses, and gambling losses

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63
Q

All of the following taxes are deductible as itemized deductions by a self-employed taxpayer except:

a. foreign real estate taxes
b. foreign income taxes
c. personal property taxes
d. one-half of self-employment taxes

A

d. one-half of self-employment taxes

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64
Q

If you buy property in middle of year that deliquent did not pay taxes on, what portion of the taxes are deductible?

A

1/2 of the taxes for that year

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65
Q

When is self-employment tax deducted?

A

When arriving at adjusted gross income

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66
Q

Contribution to needy family

A

no deduction available because not a qualifying organization

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67
Q

Deductions to maintain a student

A

deduct up to $50 per school month of unremibursed expenses incurred to maintain a student in the taxpayer’s home

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68
Q

Casualty insurance premiums

A

nondeductible personal expenses

NO DEDUCTION AVAILABLE

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69
Q

Appraisal fee to determine casualy amount

A

miscellaneous itemized deduction subject to a 2% of adjusted gross income floor

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70
Q

legal fee to collect alimony

A

miscellaneous itemized deductions subject to 2% of adjusted gross income floor

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71
Q

Rule 505 D share certificates must be marked with:

A

legend indicating resale is prohibitted

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72
Q

wash sale (repurchase securities within 30 days after selling)

A

no gain or loss reported

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73
Q

child support and life insurance proceeds are not:

A

taxable

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74
Q

related party transactions

A

gains are taxed, losses are not

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75
Q

married filing separately only get:

A

1/2 of capital losses

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76
Q

sending a 12 year old to boarding school

A

considered living with family - qualifying child

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77
Q

When you write off a doubtful account =>

A

can be deducted on tax return because determined to be worthless

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78
Q

releases a portion of the collateral

A

surety would be released

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79
Q

releases principal debtor without reservations about rights of surety

A

surety would be released

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80
Q

Can exemption be filed for dependent?

A

yes

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81
Q

Personal exemption amount:

A

3950

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82
Q

Depedent and joint return

A

Dependent cannot file a joint return

unless filed solely for refund of tax withheld

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83
Q

Dependent gross income

A

Dependent has to have gross income less than 3950

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84
Q

Multiple support agreement

A

May be used if no one person furnishes more than 50% of support

*more than 10% of the support was provided by the person claiming the exemption

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85
Q

Reduction of personal exemptions

A

The deduction for personal exemptions is reduced by 2% for each $2,500 or fraction thereof by which AGI exceeds a threshold amount

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86
Q

Offsetting rental activity losses

A

Individuals may offset up to $25,000 ($50,000 if married filing jointly) of ordinary income with losses from rental real estate activities. This exemption is reduced (but not below zero) by 50% of the amount by which the adjusted gross income of the taxpayer for the year exceeds $100,000.

Therefore, $25,000 - (($120,000 - $100,000) × 0.50) = $15,000 deduction allowed.

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87
Q

Liquidated damages, that is, damages which are predetermined and fixed, are .

A

permitted if they are reasonable in amount and either bear a reasonable relationship with the amount of actual damages, or the calculation of actual damages would be difficult

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88
Q

Open shop

A

An open shop does not discriminate based on union membership in employing or keeping workers. Where a union is active, the open shop allows workers to be employed who do not contribute to a union or the collective bargaining process. A closed shop employs only people who are already union members. A union shop employs both union and nonunion workers, but sets a time limit within which new employees must join the union. An agency shop requires nonunion workers to pay a fee to the union for its services in negotiating their contract. This is also called the Rand Formula. - See more at: http://www.cpareviewforfree.com/exams.cfm?name=question&test_id=3423638#sthash.LZ2Wcc74.dpuf

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89
Q

Whoever certifies financial statements and turns out statements do not comply

A

Whoever certifies any statement knowing that the periodic report accompanying the statement does not comport with all the requirements as set forth in Sarbanes-Oxley may be fined up to $1,000,000 or imprisoned up to 10 years, or both. Willfully violations may result in fines of up to $5,000,000 and imprisonment up to 20 years, or both. The CEO and CFO may also be required to return bonuses or share-based compensation received int he twelve-month period before any restatement due to material omissions in the financials takes place. - See more at: http://www.cpareviewforfree.com/exams.cfm?name=question&test_id=3423638#sthash.BGCeD3P9.dpuf

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90
Q

Jay Wilkinson serves as the host at a fancy restaurant in New Orleans. As such, he wears a nice jacket so that he has an appropriate professional look. However, he must pay $30 per week to have the jacket cleaned and looking nice. How much of the cleaning costs can he deduct as a miscellaneous itemized deduction on his income tax return? - See more at: http://www.cpareviewforfree.com/exams.cfm?name=question&test_id=3423638#sthash.5y383cLc.dpuf

A

0

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91
Q

Long-term capital gain property as a charitable contribution

A

deductible at FMV

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92
Q

Estimated Tax Payments and Company makes more than $1 million

A

Estimated tax payments should be 100% of current year tax liability

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93
Q

Member of an LLC

A

is not an agent solely by reason of being a member

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94
Q

Banks and insurance companies cannot be:

A

LLCs

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95
Q

The company’s attorneys must report securities laws violations and breaches of fiduciary duties to:

A

CEO

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96
Q

The lost wage portion of worker’s compensation

A

2/3 of regular wage

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97
Q

If property is received as a gift: loss is determined by

A

comparing amount received to lower of fmv or basis

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98
Q

if property is received as a gift: gain is determined by

A

amount received - basis

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99
Q

Any money received as a property settlement:

A

not taxable

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100
Q

Unrelated business income for nonprofits

A

not taxed if generated entirely by volunteers

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101
Q

Article 9 of UCC

A

fixtures

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102
Q

Termination of S corporation

A

majority (more than 50%) of stockholders must agree to revocation

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103
Q

Federal income tax expense for a Corporation

A

NOT deductible

add back on M-1

104
Q

Penalties for insider trading can be:

A

as high as 3 times the profit gained

105
Q

Exoneration

A

Right of a surety to force a principal debtor to pay

106
Q

Article 2 of the UCC

A

sale of food items is included under its warranty protection

107
Q

Basis of a gift received:

A

basis of the hands of the giver

108
Q

When property received through inherritance, property’s tax basis is:

A

fmv at date of death unless alternative valuation is used

109
Q

Is reliance an element of 1934?

A

yes

110
Q

When would a surety be released from all or part of his obligation?

A

Creditor releases a portion of the collateral

releases the principal debtor without reservation of rights against the sureties, or

materially changes the contract which created the principal obligation (such as by granting payment extensions)

111
Q

If taxpayers have taxable income that is relatively low, social security benefits

A

are not included

112
Q

Casualty loss floor of $100

A

applied for each casualty loss that happens in a year

113
Q

Payment for registration and licensing of a car may be deductible as

A

a personal property tax only if it is imposed annually and assessed in proportion to the value of the car.

114
Q

Environmental Auditing

A

An Environmental Management System (EMS) relies on the ongoing monitoring function that Environmental Auditing (EA) provides for an organization to ensure its adherence to a proactive environmental stewardship philosophy.

Conducted by both internal and external auditors

115
Q

Senate Finance Committee

A

In charge of tax, trade, and health issues

116
Q

Title holding company organized as a corporation:

A

qualify for federal income tax exemption

117
Q

The child and dependent care credit is:

A

nonrefundable

118
Q

Per stirpes designates:

A

each branch of the family receives an equal share of the estate

119
Q

Within how many months after the date of a decedent’s death is the federal estate tax return (Form 706) due if no extension of time for filing is granted?

A

9 months

120
Q

Retaining client records after an engagement is terminated prior to completion and the client has demanded their return

A

Rule 501 prohibits the retention of client records after the client has demanded them, even if the engagement is terminated prior to its completion

121
Q

When is revenue recognized under the completed-contract method?

A

When the project is complete and is accepted as satisfactory

122
Q

A limited partner can generally:

A

not participate in the active management of the partnership

123
Q

How do limited liability partnerships differ from limited partnerships?

A

LLP, a partner is not liable for dmamages resulting from negliegence committed by other partners. However, each partner is liable for his or her own negligence

124
Q

Special allocations of partner’s distributive share of income or loss:

A

must have substantial economic effect

125
Q

Guaranteed payments

A

Deductible by the partnership

Reported as income by the partners

126
Q

Is Land personal or real property?

A

Real property

127
Q

decrease in individual liability

A

partner’s basis is reduced

128
Q

decrease in partnership’s liabilities

A

reduces partner’s basis

129
Q

increase in the partnership liabilities

A

increases each partner’s basis

130
Q

increase in an individual liability

A

partner’s basis is increased

131
Q

A partner’s basis for the partnership is adjusted in this order:

A
  1. increased for all income items
  2. deceased for distributions
  3. decreased by deductions and losses
132
Q

No losses are deductible from sales or exchanges of oroperty between a partnership and a person:

A

owning (directly or indirectly) more than 50%

133
Q

Valid business purpose

A

A different txable year than the year determined can be used

If a partnership receives at least 25% of its gross receipts in the last 2 months of a 12 month period and has been satisfied for 3 consecutive yerars

134
Q

Any partnership can use the cash method if:

A

average gross receipts of $5 million or less for any prior three year period

Does not have inventories for sale to customers

135
Q

A small partnership with average annual gross receipts of:

A

$1 million or less can use cash method and exempt from inventory restriction

136
Q

Partner recognizes gain only to the extent:

A

money received exceeds the partner’s partnership basis

137
Q

Uniform capitalization method

A

manufactucters of tangible personal property

138
Q

The basis to a partner of property distributed in complete liquidation of the partner’s intrest:

A

Adjusted basis of the partner’s interest reduced by any cash distributed to the partner in the same transaction

139
Q

For tax purposes, a retiring partner who receives retirement payments ceases to be regarded as a partner:

A

On the last day of the particular month in which the partner retires

140
Q

Sec. 751 Property

A

A partnerships unrealized receivables and appreciated inventory.

The gain on sale of a partnership interest generally ust be recognized as ordinary income to the extent of the selling partner’s share of unrealized receivables and appreciated inventory

These assets are sometimes referred to as hot assets

141
Q

Sec. 754 election

A

An optional election that can be made by a partnership to adjust the basis of its assets to prevent any inequities that might occur as a result of the partnership’s distribution of property or the sale by a partner of a partnership interest

142
Q

Receipt of boot in 351

A

will cause recognition of gain (but not loss)

143
Q

What is Small Business Stock? (1244)

A

Any domestic corp whos aggregate amount of money oes not exceed 1 million

144
Q

A short form 1120 A

A

may be filed if gross receipts, total income and total assets are each less than $500,000

145
Q

Corporations required estimated tax payments

A

100% of current year’s tax

100% of the preceeding year’s tax

146
Q

Large corporation (1 million or more of taxable income in any of 3 preceeding years)

A

can use its preceeding year’s tax for its first installment and must base its estimated payments on 100% of its current year’s tax to avoid penalty

147
Q

Additions for ACE

A

Tax exempt interst on municipal bonds

Tax exempt life insurance death benefits (less expenses)

70% dividends-received deduction

148
Q

Deductions for ACE

A

Depletion using cost depletion method

Depreciation using ADS straight-line for all property

149
Q

A negative ACE adjustment is limited to:

A

prior years’ net positive ACE adjustments

150
Q

Small Corporation Exemption

A

First year exempt

Second year - first year gross receipts do not exceed 5 million

3rd year - average of first 2 year gross receipts dont exceed 7.5 million

151
Q

A corporation’s penalty for underpaying federal estimated taxes is:

A

not deductible

152
Q

Charitable contributions in excess over 10% limitation

A

may be carried forward for up to 5 years

153
Q

Chariable contributions are limited to:

A

10% of taxable income

154
Q

Maximum deduction for Definted contribution plans

A

Maximum deduction for contributions to qualified profit-sharing or stock bonus plans is generally limited to 25% of the compenation paid or accrued during the year to covered employees

155
Q

Reconcile book and taxable income

Increase book income by:

A

Federal income tax expense

Excess of capital losses over capital gains because a net capital loss is not deductible

Income items in the tax return not included in book income

Charitable contributions in ecess of 10% limitation

Expenses deducted on book but not on tax (business gifts excess of 25, nondeductible life insurance premiums, 50% of meals and entertainment)

156
Q

Reconcile book and taxable income

Deduct from book income

A

Income reported on the books but not on the tax return (tax exempt intest, life insurance proceeds)

Expenses deducted on the tax return but not on the books (MACRS depreciation above straight line)

The dividends received deduction

The domestic production activities deduction

157
Q

Schedule M-1

A

Reconciliation of income per books with taxable income before NOL companies with less than $10 million of total assets

158
Q

Schedule UTP (Uncertain Tax Positions)

A

Must be completed if:

  1. Corportion has total assets of at least $100 million
  2. Corporation has taken a tax posiition on its return and the corporation or a related party has either recorded a reserve with respect to that posiition or did not because expects to litigate
159
Q

Affiliated group

A

Parent-subsidiary chain of corporations in which at least 80% of the combined voting power and total value of all stock are owned by includible corporations

160
Q

Parent-subsidiary

A

Ownership requirement is 80% of combined voting power or total value of stock

161
Q

Brother-sister

A

2 or more coprotaions if 5 or fewer persons who are individuals or trusts own stock possessing more than 50% of voting power or 50% of shares of stock

162
Q

Three-step treatment of corporate distributions of property

A
  1. dividend - to be included in gross income
  2. return of stock basis - nontaxable and reduces shareholder’s basis for stock
  3. gain - to extent distribution exceeds shareholder’s stock basis
163
Q

Current earnings and profits are first allocatedL

A

to distributions on preferred stock

then on common stock

164
Q

Distributing orporation recognizes gain:

A

on the distribution of appreciated property as if such property were sold for its FMV

165
Q

Current earnings and profits

A

similar to book income

Add - tax exempt income, DRD, excess of MACRS deprecation over dep. under ADS

Deduct - federal income taxes, net capital loss, excess charitable contributions, expenses related to tax exempt income

166
Q

Stock redemption is treated as exchange:

A

if at least one of the tests is met

*if not, taxable as a dividend

167
Q

John Johnson is 60 years old and has had a non-Roth IRA since 2001. During 2009, he rolls over his existing IRA into a new Roth IRA. What is the first year he can take tax-free distributions from his Roth IRA?

A

A tax-free distribution must take place after the 5-tax-year period that begins with the first tax year (2009) in which a contribution was made to a Roth IRA or rolled over from a non-Roth IRA to a Roth IRA. In this case, the 5-tax-year period would be from 2009 through 2013 inclusive. Thus, the first year that a distribution could be tax-free would be 2014.

168
Q

Consulting services

A

Advisory, implementation, and product services

169
Q

What collectibles are an acceptable investment for IRA

A

coins and bullion

170
Q

appraisal right

A

However, a minority shareholder has a right in every case (under the Revised Model Business Corporation Act) to dissent and be paid the so-called fair value for their shares on the date of the merger or consolidation,

171
Q

What is the percentage depletion rate allowed by the Internal Revenue Code for the recovery of capital invested in mining coal?

A

10%

172
Q

Consent dividends

A

Hypothetical dividends that are treated as if they were paid on the last day of the corporation’s taxable year

Shareholders increase their stock basis by the amount of consent dividends

173
Q

Accumulated earnings tax (AET)

A

In additiona to regular income tax

If a corporation accumulate earnings beyond reasonable business needs in order to avoid a shareholder tax on dividend distributions

174
Q

Accumulated earnings credit

(in calculation of AE tax)

A

greater of

  1. 250,000 minus aep at end of prior year
  2. reasonable needs of business
175
Q

Accumulated earnings tax does not apply to:

A

Personal holding companies

176
Q

Accumulated Earnings Tax

A

Taxable Income

+ dividends received deduction

+ NOL deduction

  • Federal and foreign income taxes
  • excess charitable contributions
  • net capital loss
  • Net LTCG over net STCL

= ATI

  • Dividends paid in last 9.5 months and 2.5 months after close
  • consent dividends
  • accumulated earnings credit

= accumulated taxable income

x 20%

= AE tax

177
Q

Qualified subchater S subsidiary (QSSS)

A

Any domestic corporation that qualifies as an S corporation and is 100% owned by an S corporation parent

178
Q

LIFO Recapture (S corporation)

A

A C corporation using LIFO that converts to S status must recapture the excess of the inventory’s value using a FIFO cost flow assumption over its LIFO tax basis as of the close of its last tax year as a C corp

179
Q

A corporation making an S election is generally required to change to:

A

a year ending December 31

180
Q

S corp form

A

Form 1120S by March 15th

181
Q

If an S corporation fails to satisfy any of the eligibility requirements:

A

Termination is effective on the date an eligibility requirement is failed

182
Q

An S corporation generally pays no:

A

federal income taxes

183
Q

All the separately stated items for an S corp plus the ordinary income or loss:

A

are alllocated on a per-share, per-day basis

184
Q

A S corp shareholders loss and deduction is limited to:

A

shareholder’s basis for stock plus basis for debt

185
Q

An S Corp shareholder stock basis is adjusted in the following order:

A

a. increased for all income items
b. decreased for distributions that are excluded from gross income
c. decreased for nondeductible, noncapital items
d. decreased for deductible expenses and losses

186
Q

Distributions in S corporations:

A

nontxable to the extent they are applied to reduce the AAA and the shareholder’s stock basis

187
Q

Distributions in excess of the AAA:

A

treated as ordinary dividends to extent of the corporations accumulated earnings and profits (AEP)

188
Q

Health and accident insurance premiums and other fringe benefits paid by an S corporation

A

deductible by the S corporation

189
Q

The built-in gains tax:

A

treated as a loss sustained by the S corporaitn during the taxable year

190
Q

Excess Net Passive Income (ENPI) =

A

Net passive income x (Passive investment income - 25% of gross receipts / passive investment income)

191
Q

Passive investment income exceeds:

A

25% of gross receipts…a tax is imposed

192
Q

Gift tax return

A

Must be filed on a calender-year basis

Return due and tax paid on or before April 15th

193
Q

Gross estate

A

includes the FMV of all property in which the decedent had an interest at time of death

194
Q

General power of appointment

A

Include in a decedent’s gross estate if they had general power of appointment

195
Q

Portability of unused exclusion between spouses

A

Surviving spouse may qualify to utiliz the unused portion of the estate tax applicableexclusion amount (5.34 million)

196
Q

Form 706: United States Estate (and Generation-Skipping Transfer)

A

Must be filed if the decedent’s gross estate exceeds $5,340,000.

filed return must be filed in 9 months

197
Q

A trust must adopt:

A

a calender year as its tax year

198
Q

Estates do not have to make:

A

estimated payments for taxable years ending within 2 years of the decedent’s death

199
Q

Simple trust

A
  1. Required to distribute all if its income to beneficiaries each year
  2. cannot make charitable contributions
  3. makes no distribution of trust corpus (principal) during the year
200
Q

Estates and personal exemptions:

A

$600 for estate

$300 for trusts required to distribute all income currently

$100 for all other trusts

201
Q

Distributable net Income

A

The maximum amount of deduction for distributions to beneficiaries in any taxable year and also determines the amounts and character of the income reported by the beneficiaries

202
Q

Grantor Trusts

A

Trusts over which the grantor (or grantor’s spouse) retain subsantial control

203
Q

Publicly supported

A

An organization is publicly supported if it normally receives at least one-third of its total support from governmental units and the general public

204
Q

Sec 501 (c)(3) organizations qualifications

A

ORganizational test - limit organization’s purpose to one or more exempt purposes

Operational test - operate exclusively for an exempt purpose

Inurement - private benefit provided to insiders who have the institituional opportunity to direct the organization’s resources to themselves

Organization cannot as a substnatial part attempt to influence legislation

205
Q

Feeder organizations

A

Carries on a trade or business for the benefit of an exempt organization and remits its profits to the exempt organization

Do not qualify for tax-exempt status

206
Q

Most exempt organizations must file a________________

A

annual information return

207
Q

Unrelated business income (UBI)

A

Income that is:

  1. regularly carried on
  2. unrelated to the organizations exempt purpose

*UBI is taxed to the extent in excess of $1,000

208
Q

Nexus

A

The presence or actiity required within a state before the state may tax a nonresident

209
Q

Provides rules for allocating and apportioning a multistate or mltinational enterprise’s nonbusiness and business income among states and foreign countries

A

The Uniform Division of Income for Tax Purposes Act (UDITPA)

210
Q

Sales factor

A

Ratio of total sales to in-state customers divided by total sales from all sales made by the taxpayer

211
Q

Payroll factor

A

Ratio of compensation paid to employees working in a state divided by the total compensation paid by the taxpayer

212
Q

Property factor

A

The ratio of the average cost of real and tangible personal property owned or rented and located in a state divided by the total average cost of all such property owned or rented by the taxpayer

213
Q

Unitary concept

A

If one company in a group of entities has nexus with a state, the state’s apportionment factor is applied to the unitary income of the entire group

214
Q

US taxation of US persons on Foreign Activities

A

US persons are subject to US tax on their worldwide income

215
Q

Controled foregin corporation (CFC)

A

Foreign corporation whose stock is more than 50% owned by US shareholders that own at least 10% of the combined voting power of the foreign corporation’s stock

*taxed even without distributions

216
Q

Foreign tax credit

A

Mitigates the double taxation of foreign-source income

overall limitation is: Foreign source taxable income / worldwide taxable income

x US income tax

217
Q

The Internal Revenue Code (IRC)

A

Basic foundation of federal tax law, and represents a codificication of the federal tax laws of the United States

218
Q

Revenue rulings

A

Have less force and effect than regulations, but are second to regulations as important administrative sources of federal tax law

IRS’s interpretation of how the Code and regulations apply to a specific fact situation

219
Q

Draft (negotiable instrument)

A

3 parties

One person (drawer) orders another (drawee) to pay a third party (payee) a sum of money

220
Q

Note

A

Maker makes promise to pay a specified sum of money to another party alled the payee

2 party instrument

May be payable on demand or at a definite time

ex. Certificate of Deposit (CD)

221
Q

Requirements to be negotiable

A

Be written

be signed by maker or drawer

Contain an unconditional promsie or order to pay

State a fixed amount in money

Be payable on demand or at a definite time

Be payable in order or to bearer, unless it is a check

222
Q

Signature requirement for instruments

A

Can be symbols used with intent to authenticate instrument

223
Q

An instrument states, :I charlie, promise to pay to the order of Richard Hoy, 100 dollars if the stereo delivered tome is not defective

A

The instrument is not negotiable

Whether the stereo is defective or not is a conditional promise

224
Q

IOUs

A

nonnegotiable

225
Q

A note is payable in $1,000 or its equivalent in gold

A

This note is NOT negotiable

226
Q

If check says “Pay to John”

A

IS negotiable order paper

*would not be negotiable for other instruments

227
Q

A draft that is otherwise negotiable states: “Pay to XYZ Corporation”

A

This statement destroys negotiability because the draft is not payble “to the order of” XYZ corporation

228
Q

What controls? words or figures

A

words

229
Q

A check is a type of:

A

draft

230
Q

Notes and certificates of deposits make:

A

a promise to pay

231
Q

Holder in due course can obtain:

A

more rights than what transferor had

232
Q

Bearer paper

A

Negotiable instrument that is payable to any party

233
Q

HDC

A

entitle to payment on negotiable instrument despite personal defenses that maker or drawer of instrument may have

234
Q

Purchase of a $1,000 instrument in good faith for $950 (HDC question_

A

considered full value

But purchase of same instrument for $500 is not considered full value when market conditions show that the discount is excessive

*examiners will say if it is excessive

235
Q

If one acquires notice after becoming a holder and giving value

A

He may still be an HDC to the extent of the value given

236
Q

The general rule is that a transfer of a negotiable instrument to an HDC cuts of:

A

all personal defenses against an HDC

237
Q

Some defenses are assertable against any party including an HDC

A

these defenses are called real (or univeral) defenses

238
Q

Shelter Rule for HDC

A

A party who does not qualify as an HDC but obtains a negotiable instrument from an HDC has the standing of HDC

239
Q

Contractual liability

A

The liability for payment of the instrument’s face value

240
Q

2 types of warranty liabilities under which holder can seek payment from secondary parties:

A

transfer warranties

presentment warranties

241
Q

forged endorsement

A

Does not transfer title

242
Q

Imposter rule

A

When maker or drawer issues a note or draft to an imposter thinking he is real payee - when the imposter forges the real payee’s name, negotiates the instrument so subsequent holder can collect from maker or drawer

243
Q

Stewart submits a time card for a nonexistent employee and the employer issues the payroll check. Steward forges the endorsement and transfers it to L. Reed.

A

Reed wins against the employer even thoug the employer was unaware of the scheme at the time

244
Q

Oral stop payment order

A

good for 14 days

written stop payment order is good for 6 months

245
Q

Bill of lading

A

A document issued by a common carrier and given to the seller evidencing receipt of the goods for shipment

246
Q

warehouse receipt

A

document issued by a warehouseman and given to seller evidencing receipt of goods for storage

247
Q

Central bank of US which regulates US monetary system and oversees bank holding companies

A

Federal reserve

248
Q

Us entity which insures customer deposits against bank failure

A

FDIC

249
Q

Arm of treasury department established to regulate and supervise national banks and federal branches of foreign banks

A

OCC

250
Q

US agency established to ensure open and efficient operation of futures markets which have grown from trading agriculturla futures to more sophisticated financial products

A

CFTC

251
Q

Issues and enforces regulation governing nation’s savings and loan industry

A

OTS

252
Q

Negotiable

A

A characteristic of an instrument that means the instrument is freely transferable from one party to another

253
Q

Breach of contract is a ______ defense

A

personal

254
Q

A party who found an instrument payable to bearer

A

NOT a holder in due course

255
Q
A

Regulation (23 decks)

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