dec Flashcards

Question

where there has been a purchase money security interest PMSI in consumer goods, and debtor has paid 60% or more of the purchase price, what does the creditor to do ?

Answer 1

requires the creditor to sell the collateral where there has been a purchase money security interest (PMSI) in consumer goods and the debtor has paid 60% or more of the purchase price

Answer 2

The forfeited interest penalty for premature withdrawal of time deposits is a deduction from gross income in arriving at adjusted gross income

Answer 3

taxable interest income are federal income tax refund and state income tax refund ( these are interest paid by federal and state government on late payment of tax refund)interest on federal government obligation is taxableinterest on state government obligation is not taxableinterest income on US treasury certificate is taxableinterest income on veterans admin insurance divident lfet on deposit with the VA is not taxable

Answer 4

webstar position is Incorrect because it failed to object to Northco's purchase orderThe Statute of Frauds requires that a contract for goods of $500 or more be in writing. UCC 2-207, however, provides that in a contract between merchants, the Statute of Frauds is satisfied if a written confirmation is sent within a reasonable time. The confirmation must be received by the other party who knows or should know the confirmation's contents. If the recipient merchant fails to object to the confirmation's contents within a reasonable time, the recipient merchant will be bound to the contract.

Answer 5

only monetary damage

Answer 6

In a like-kind exchange, gain is recognized only to the extent of the lesser of (1) the realized gain, or (2) the amount of cash and/or the fair market value of other property (i.e., "boot") receivedrealized gain = fair value of property received + cash received - adjusted basis of old propertycompare the realized gain with "boot" received; then pick the lower of the two

Answer 7

dependent and child care credit is non refundableavailable for children below 13 or disable dependentcredit is the smaller of actual expense or 3000 for one dependent and 6000 for multiple dependent

Answer 8

Limited partners of a limited partnership only have an interest (right to share of profits and surplus) and limited liability up to their capital commitment. They cannot participate in the management or control of the limited partnership. They can however, act as an agent or employee, consult or advise general partners, vote on extraordinary matters and inspect books and records

Answer 9

change in auditornewly appointed officers or the resignation of a directorLink Corp is required to submit reports on both tender offers to purchase Link's stock and proxy solicitations, as per the 1934 Act bankruptcy, default of a debt instrument, or a sale of assets not in the ordinary course of business

Answer 10

An estate transfer tax return is required to be filed for decedents where the estate’s value at the date of death exceeds the unified estate and gift credit ($11,180,000 in 2018 and beyond) under §6018. Since End’s estate and Law’s estate each are worth less than this minimum (i.e., $950,000 for End and $1,400,000 for Law), no estate tax return is required to be filed for either of their estates. End’s estate is valued at $950,000 as any taxable gifts made during the decedent’s lifetime are added back to the estate in determining if an estate tax return is required.

Answer 11

if employee is own more than 2%, the family coverage premium will be include to his/her incomeemployer can also deduct those

Answer 12

Interest on qualified educational loans is deductible to arrive at adjusted gross income (AGI), subject to modified AGI thresholds. This individual is well under the threshold for single taxpayers.

Answer 13

prove that (i) Material misstatements or omissions were made in the financial statements and (ii) A financial loss was suffered as a result of the above. The plaintiff need not prove reliance on the unqualified opinion.

Answer 14

) individuals are allowed to offset capital losses to the extent of capital gains plus up to $3,000 of ordinary income (assuming they have enough capital loss). For this purpose, married couples filing jointly are considered as one individual. Unused capital losses are carried forward indefinitely until they are absorbed.

Answer 15

Under the Sales Article of the UCC, in an F.O.B. place of shipment contract, risk of loss passes to the buyer when the goods are delivered to the carrier.

Answer 16

however if there is receipt of boot (cash or property other than stock), will have to recognize gain (lesser of realized gain or boot)

Answer 17

If an estate tax return is required, then it must be filed nine months after the date of the decedent’s death. Six months after the date of the decedent’s death is the time frame for the “alternate valuation date” of the gross estate.

Answer 18

nder Rule 504 of Regulation D, there is an exemption for $5 million of securities sold within a 12-month period to any number of investors. No specific disclosure is required, unless general solicitation is used or resale is expected within the first two years. The issuer is required to file some information with the SEC

Answer 19

If an employee has two or more employers during the year and the amount of social security withheld is in excess of the required amount for the year, the excess social security tax paid may be claimed as a credit against the income tax and refunded to the employee. However, if the excess was due to an incorrect withholding from the employer, the employer must refund the excess to the employee

Answer 20

entirely as capital gain

Answer 21

pay (secured creditors' claims, child support, alimony, administrativeexpenses and the claims of involuntary gap creditors first,then pay employ salary claimthe finally pay general unsecured creditor claim

Answer 22

There are two types of shareholder suits: representative suits (direct suits against the corporation by shareholders to prevent a corporate act) and derivative suits (indirect suits brought by shareholders as representatives of the corporation against directors, officers, or outside partners). In the absence of any contrary provision in the articles, indemnification of officers and directors found to be negligent will be made only by court order.

Answer 23

gross business receipts - business expenses that are ordinary ignore federal income tax paid (never deductible), ignore charitable contribution ( deductible as itemized deduction)

Answer 24

Generally, prizes and awards received are taxable and included in gross income. However, the award money is non-taxable when the following conditions are met: (i) Selection without any action on recipient’s part, (ii) Services not required of recipient and (iii) Charity or government gets payment as assigned by the recipient.

Answer 25

The annual exclusion is $15,000 and gift-splitting is elected, then the couple can give up to 30,000 per recipient without it being a taxable gift. Since the married taxpayers elected to split the gifts, the annual exclusion is applied individually to the split gifts. Each of the gifts, when split, is within the annual exclusion limit of $15,000. and therefore, there is no taxable amount of gift for the husband and wife ($20,500/2 = $10,250 and $17,000/2 = $8,500).

Answer 26

May be either a calendar year, or a fiscal year beginning on the date of the decedent's death

Answer 27

to periodically update the prospectus, but allows continuous sales and resales of securities. This option is not available to first time issuers.

Answer 28

(B) is incorrect because installment sale income is an item that requires an adjustment in computing current E&P. While gain recognition can be deferred for tax purposes as and when installments are received, for US GAAP purposes the entire gain is recognized in the year of sale. (C) is incorrect because amortization of organizational expenses is done only for tax purposes. For US GAAP purposes, full deduction is taken in the year the expense is incurred. (D) is incorrect because Earnings & profits are reduced by 100% of meals & entertainment expenses but taxable income is reduced by only 50% of meals & entertainment expenses. This means that a reconciliation between the 50% and 100% of meals & entertainment expenses is required.

Answer 29

Under the anti-fraud provisions of Section 10(b) and Rule 10b-5 of the Securities Act of 1934, the injured party does not have to prove that s/he was the intended user of the false registration statement. In other words, privity of contract is not a requirement under the Acts anti-fraud provisions. It is only necessary that 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.

Answer 30

The deduction of a charitable contribution of appreciated property depends on the status of the property. Appreciated property that would realize long-term capital gain if sold instead of donated is valued at fair market value. Other property (including short-term capital gain property) is valued at the lesser of basis or fair market value. Stock owned for four months would not realize a long-term gain.

Answer 31

The taxpayer has a filing status of married filing separately.

Answer 32

required to file a joint return with spouse

Answer 33

Amended tax returns may be filed 3 years after the original due date including extensions or 2 years after actual tax payment, whichever is later. In the case of a calendar year individual who filed the original tax return in April, the amended tax return must be filed no later than April 15 of the third year, i.e., three years, three months and 15 days after end of the calendar year or 2 years after actual tax payment, whichever is later

Answer 34

$50 for each failure, but no more than $26,000 in a return period

Answer 35

limited to 25 per donee

Answer 36

On dissolution of a general partnership, distributions will be made first to satisfy amounts owed partners for loans to the partnership, then to satisfy partners' capital accounts, and finally each partner will receive his or her share of the profits. This distribution scheme is consistent with the general business philosophy of paying creditors before distributing profits to the owners of a business. In this case, the creditors happen to be the partners.

Answer 37

each partner is entitled to an equal share of the profits (and losses) if not otherwise addressed in the partnership agreement.

Answer 38

substituted contract

Answer 39

A novation, by definition, requires at least one party of the original contract be substituted for by a new party, and the new party assumes all of the responsibilities of the original party as if that original party was never part of the contract (i.e., a discharge of that original party).

Answer 40

When a debtor moves collateral subject to a perfected security interest to another jurisdiction, the original creditor retains the status of a perfected creditor for up to four months after the collateral is moved.

Answer 41

Exempt securities also include commercial paper; government securities; securities of nonprofit organizations; securities of savings and loan associations; securities of common carriers or contract carriers; and insurance, annuity, and endowment policies.

Answer 42

A preferential transfer is a transfer of an interest by a debtor to any party within 90 days of filing the petition or with an insider (or family member) between 90 days and one year of filing the petition. The debtor was insolvent at the time of the transfer, the payment made allowed the creditor more than what the creditor would have received from the Chapter 7 bankruptcy, the payment was made on debt the debtor already owed, and the debtor paid more than $6,225 to one creditor. Therefore, since Master’s assets exceeded its liabilities at the time of the transfer, Masters was not insolvent and the payment to Acme could not be set aside.

Answer 43

A partner's interest in specific partnership property is not assignable to the partner's individual creditors. A partner's interest in specific partnership property is not subject to attachment by the partner's individual creditors. A creditor may not obtain a partner's interest in specific partnership property of the partnership. A court will not award a partner's creditor with a lien on specific partnership property.

Answer 44

The offering would be exempt from the registration requirements of the Securities Act of 1933.the securities can not be resold to investor outside of the state for at least 12 + 9 months

Answer 45

According to Sec. 1031, any gain realized from a like-kind exchange can be tax-deferred and recognized only when the replacement property is ultimately sold.However, as per the new Tax Cut and Jobs Act of 2017, Sec. 1031 no longer applies to personal property and only applies to the exchanges of real property.As Hogan’s exchange of business use machine for business-use equipment is an exchange of personal property for personal property, it doesn’t qualify as a like-kind exchange even they are both of the same character. Therefore, Hogan’s exchange of personal property will be considered as an ordinary sale and full gain will be recognized.Basis in the machine: $70,000 ($100,000 – $30,000).Boot: $3,000 ($1,000 cash + $2,000 debt relief).Total value: $83,000 (equipment worth $80,000 + $3,000 boot).Realized and recognized gain: $13,000 ($83,000 – $70,000).

Answer 46

85% of the social security benefits is the maximum amount of benefits to be included in gross income.

Answer 47

ERISA applies to employers who have chosen to provide private pension benefits to employees. Under the Act, amounts paid into plans by employees must be vested immediately and amounts paid by employers must vest within a reasonable period of time. Employer must remit to an independent trustee amounts collected from employees and amounts owed by the employer within reasonable periods of time.

Answer 48

“Negligence by the CPA”. Negligence is not enough to bring action under the 1934 Act. Gross Negligence or Fraud on the part of the CPA is required to be proven to bring action.

Answer 49

Under the Sales Article of the UCC, and unless otherwise agreed to, the seller's obligation to the buyer is to hold conforming goods and give the buyer necessary notice to take delivery. The UCC does not require, absent an agreement, that the goods be held for the buyer's inspection prior to delivery, that the goods be delivered to the buyer's place of business, or that all goods be delivered to a common carrier.

Answer 50

This is an IRC Section 1033 exchange question (i.e., involuntary conversion). This is the case with involuntary conversions (due to destruction or theft, government condemnation or federal disaster area), where the gains from the converted property can be deferred if a replacement property is purchased within the statutory time limit established by law. In cases where the proceeds of involuntary conversion are not fully reinvested, the gain is taxed/recognized to the extent of the un-reinvested amount and the deferred/unrecognized gain reduces the basis of the new replacement property.Dawson has a total gain of $120,000 ($195,000 proceeds - $75,000 old warehouse basis), but since only $167,000 is reinvested in the replacement property, only $92,000 ($167,000 reinvested proceeds - $75,000 old warehouse basis) of the gain can be deferred. Unused proceeds of $28,000 ($195,000 total insurance proceeds - $167,000 reinvestment) must be recognized as a gain in the current year.The basis of the replacement property in an IRC Section 1033 involuntary conversion will equal its replacement cost of $167,000 minus the deferred gain of $92,000 = $75,000.

Answer 51

use a calendar year or a year that does not create a deferral period which exceeds three months. A partnership formed during the year must elect to have a taxable year that ends in September, October, November, or December. A partnership can elect to have a taxable year other than a required taxable year as long as the deferral period does not exceed three months. The only form which must be filed with the IRS to adopt its tax year is Form 1065, US Partnership Return of Income, which is due three and a half months after the end of its tax year.

Answer 52

(1) false statements of a material fact knowingly made (scienter) or made with reckless disregard for the truth (constructive fraud), (2) the plaintiff relied on the false statements and suffered damages thereby. The suit is not based on negligence where privity is an essential element; privity is not an element in a fraud suit. It does not matter if the CPA benefited from the alleged fraud or not; this is not a defense. The amount of damages suffered by the third party (the stockholder) is the important factor. Contributory negligence applies only if the suit is based on negligence.

Answer 53

in the us tax court

Answer 54

payable in addition to the regular tax

Answer 55

When investments in a small business investment company become worthless, §1244 allows for an ordinary rather than a capital loss deduction. Qualified small business stock must be acquired by the taxpayer at the original issuance in exchange for money, other property (not stock), or as compensation for services provided to the corporation. Thus, Jackson cannot take an ordinary deduction for the worthless stock but is entitled to a long-term capital loss of $25,000 (the stock’s fair market value at the time of the inheritance).

Answer 56

provides a general definition of dependent that includes a son or daughter of the taxpayer and a mother-in-law or mother 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 (i.e., the amount earned by Gail's mother). Also, a medical dependent must meet neither the joint return nor the citizenship/resident tests. The mother and son both come within the definition of a medical dependent under §152, and the entire $1,200 may Gail's as qualifying medical expenses.

Answer 57

report the ordinary income from the share of partnership and report the guarantee paymentthe cash distribution is a tax free return of capital and not income

Answer 58

100000As the basis of the personal property placed in service is less than the annual Section 179 limit, the full amount of the personal property is deductible; a taxpayer may not deduct more than the basis of depreciable assets. Land is not depreciable.

Answer 59

under 1933, CPA is liable for fraud if the registration statement contain material misstatement, it is not necessary that CPA have scienter or that the client relied on the registration materialsunder 1934 act, require proof of intent to deceive ( scienter), plaintiff must also prove reliance on da mistated financial statement, suffered a loss, error due to reckless misconduct or intent to deceiveon the other side, for 1933 act, if CPA can prove due diligence, CPA will not be liable

Answer 60

tax exempt income increase S corp's shareholder basis

Answer 61

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.

Answer 62

in common law principle to establish negligency only

Answer 63

Only if the decedent's will specifically provides for the contribution

Answer 64

Gibson’s $6,000 gain ($18,000 – $12,000) on the sale is partially offset by the $4,000 loss ($16,000 – $12,000) incurred by Gibson’s child. $6,000 gain – $4,000 loss = $2,000 gain.

Answer 65

Are exempt from paying estimated tax during the estate's first two taxable years

Answer 66

When a partner dies and the business is continued without any settlement of accounts; the partner’s estate has the option of taking the value of the partner’s partnership interest as of the date of dissolution and either any interest accruing or profits attributable to that interest until the date of discharge. One can become a partner only with the consent of all the other partners; no one can become a partner automatically. The claims of a decedent’s individual creditors have priority over those of any partnership creditors as against the nonpartnership property. RUPA provides that a dissociated partner is not liable for the debts of the continuing business simply because of continued use of the dissociated partner’s name as a part of the partnership name.

Answer 67

The $6,000 in municipal bond interest income must be removed from book income to reconcile to taxable income, as it is not taxable income. The $1,500 of interest incurred to carry a tax-exempt investment is not an expense deductible for taxes and thus must be added back to book income to reconcile to taxable income. The advertising expense is deductible for both tax and book purposes; no adjustment need be made for it.

Answer 68

can be claimed up to 2 year after the death of a spousedoes not remarryprovide more than 50 percent cost of maintaining the household for dependent child for ENTIRE YEAR

Answer 69

There is no standard deduction available for an estate or trust on the fiduciary income tax return (Form 1041).

Answer 70

Foreign taxes paid by an individual can either be taken as an itemized deduction or may be taken as a credit against federal taxes due

Answer 71

employer-provided medical insurance coverage under a health plan is a nontaxable fringe benefit for the employee

Answer 72

trust's beneficiary only pay tax if earning are distributedestate's beneficiary pay tax on DNI, regardless if distributed1041 fiduciary return due if estate has greater than 600 gross income

Answer 73

The gain on the sale from Potter to Sly is not recognized at the time of the sale because Porter and Sly file a consolidated tax return. Instead, it is recognized when Sly sells the land to an unrelated third party in a fully taxable transaction.

Answer 74

C Corporations are eligible for capital loss deductions only up to the amount of capital gain income. Excess capital losses not deducted can be carried back 3 years and forward 5 years as short term capital loss and deducted against capital gain income in those years

Answer 75

Interest on U.S. obligations, such as U.S. Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes. Whereas the interest income earned from most municipal bonds is exempt from all federal income taxes regardless of the taxpayer's tax bracket. Therefore, only $200 of interest from U.S. Treasury bonds will be included in the taxpayer's gross income and $300 interest from the municipal bond will be exempt from gross income.

Answer 76

Respondeat superior is a doctrine that the master is liable in certain cases for the wrongful acts of the servant when committed within the scope of the agency. Ultra vires acts are acts by the corporation or its management that are beyond the scope of corporate authority as granted by its charter, bylaws, and state law. Estoppel refers to a party’s own acts preventing him or her from a contrary claim to the detriment of another who reasonably relied on those acts. Ratification is the subsequent confirmation of a previous act, such as the validation of the actions of an agent who exceeded actual authority.

Answer 77

Corporations must make quarterly estimated tax payments if the liability is $500 or more in any year. The estimates are calculated on the least of (1) 100% of current year tax liability or (2) 100% of previous year tax liability.

Answer 78

Attachment (i.e., creation) of a security interest under Article 9 of the Uniform Commercial Code (U.C.C.) occurs when:a secured party (Pine) has given value (made the loan),the debtor (Winslow) has rights in the collateral at the time a security interest is created by the contract, anda security agreement is properly executed by both secured party and debtor.Attachment does not require the filing of a financing statement, although such may be filed prior to attachment. Thus, attachment of the security interest occurred when the loan was made and Winslow executed the security agreement. Perfection of a security interest may occur by filing a financing statement in the proper locale, or by the secured party retaining possession of the collateral, or automatically by attachment alone, but only in the case of a purchase money security interest in consumer goods. A security interest in accounts can be perfected only by filing. There is no automatic perfection arising from merely having the security interest.

Answer 79

When the surety pays the creditor the entire obligation, the surety assumes the rights of the creditor to pursue any remedies relative to the debt, including the foreclosure of any mortgages (liens) held by the creditor. This right of the surety to pursue the remedies of the creditor is known as “subrogation.”

Answer 80

a corporation

Answer 81

Generally, single taxpayers may exclude $250,000 of gain on the sale of a principal residence. If the residence which was sold has not been occupied for at least two years, the $250,000 exclusion is prorated if the sale is due to a change in place of employment, health, or unforeseen circumstances as provided in the regulations. Jim can exclude only $125,000 of the gain since he lived in the residence only one year. Jim has a taxable gain of $125,000 ($300,000 − $50,000 − $125,000)

Answer 82

Capital stock inherited from a decedent gets a basis equal to its fair market value on the date of death (or six months after the date of death if the alternative valuation date is elected). The original purchase price is irrelevant.When a taxpayer receives a stock dividend due to a 2-for-1 stock split, the basis in the original stock must be allocated between the old and the new shares.Capital stock received as a gift gets carryover basis equal to the basis in the hands of the donor, as long as the fair market value at the date of the gift is greater than the basis. Special rules apply if the carryover basis is more than the fair market value at the date of the gift.

Answer 83

An unlimited marital deduction is allowed against the estate tax. For this deduction to apply, the decedent must be married and survived by their spouse; the spouse must be a U.S. citizen; the property must be included in the decedent’s gross estate and pass to the surviving spouse; and the spouse’s interest in the property must not be a terminable interest.

Answer 84

section 1231 capital asset

Answer 85

Value received $65,000 Mortgage relief 10,000 Cash received 15,000 Amount realized $90,000 Less: Basis given 60,000 Realized gain $30,000The realized gain is recognized to the extent of the boot (mortgage relief and cash received) of $25,000.In a like-kind exchange, the basis of property received is the basis of the property given up plus any gain recognized, plus boot (cash or property not of a like kind, including mortgage relief) paid, less any loss recognized, less boot received. (Note that under the Tax Cuts and Jobs Act (TCJA), like-kind exchanges are applicable only to business and investment real estate; like-kind exchanges of personal property are no longer eligible for deferment of gains.)

Answer 86

The remainder interest is not a completed gift because the grantor retained the power to revoke the remainder interest.To be a completed gift, the grantor must relinquish all dominion and control over the transferred property. Generally, if any right is retained to revoke or change the disposition of the property the gift is not complete. A transfer in trust can be a complete gift if it is irrevocable and the grantor does not retain any powers over the trust.A gift that is not complete is not subject to gift tax.

Answer 87

The basis to compute loss is the lower of (a) donor’s basis plus the gift tax adjustment or (b) fair market value at date of gift. In certain situations, neither a gain nor a loss can be computed on the sale of property received by gift. In such a situation, the selling price is less than the basis for gain and more than the basis for loss.

Answer 88

When gifts are made for tuition of any other person at a university, the gift is not subject to federal gift tax. When gifts are made directly to hospitals and other medical providers for expenses incurred for another person, the gifts are not subject to federal gift tax.In the case of gifts to pay for university room and board, no such exclusion exists. A payment for room and board would be taxable by the federal gift tax.

Answer 89

deductible to get to AGIhalf of self employment tax is deductible to get to AGI

Answer 90

fully deductible on 1040 to get to AGI

Answer 91

Lifetime Learning Credit: This nonrefundable credit is equal to 20% of up to $10,000 of tuition expenses paid each year by the taxpayer. Expenses for which the American Opportunity Tax Credit is claimed do not qualify for this credit. In contrast to the American Opportunity Tax Credit, this credit:(1) does not vary with the number of students in the household,(2) is available for an unlimited number of years,(3) applies to undergraduate, graduate, and professional degree expenses,(4) applies to any course at an eligible institution that helps individuals acquire or improve their job skills, and(5) does not require half-time enrollment for one semester. (Thus, CPE credit courses and professional seminars provided by eligible educational institutions may qualify for the credit.)For taxable years beginning in 2018, a taxpayer's modified adjusted gross income in excess of $57,000 ($114,000 for a joint return) is used to determine the reduction in the amount of the Lifetime Learning Credit otherwise allowable.

Answer 92

Mortgage interest expense is limited to three personal residences.

Answer 93

Royalties received are includible as taxable income. Expenses incurred directly related to those royalties can be deducted against the gross royalty income.

Answer 94

Because neither spouse is covered by a qualified pension plan, there is no maximum income limitation. Since Hal and Joy are at least age 50, they both can contribute $6,500 instead of $5,500, for a total of $13,000. If one spouse has no income, a contribution can be made for both provided the combined income is at least equal to the contribution. If one either lives with his or her spouse or files a joint return, and one spouse is covered by a retirement plan at work, but the other is not, the deduction is phased out if modified AGI is more than $189,000 but less than $199,000. If the modified AGI is $199,000 or more, no deductions may be made for contributions to a traditional IRA.

Answer 95

individuals (and married taxpayers filing jointly) may offset up to $25,000 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 (AGI) of the taxpayer for the year exceeds $100,000. (Note that married taxpayers filing separately may each offset $12,500, reduced (but not below zero) by 50% of the amount by which the AGI of each taxpayer exceeds $50,000.)Therefore, $25,000 − (($120,000 − $100,000) × 0.50) = $15,000 deduction allowed.

Answer 96

The $1,000 tax refund is a negative adjustment in the calculation of alternative minimum taxable income.The state tax refund is not included in income for AMT purposes. Also, state and local taxes are not deductible for AMTI purposes.

Answer 97

long term capital loss = 3000deductible IRAthese two r deductible to get to AGIThe mortgage interest on personal residence and unreimbursed medical expenses are deductions from AGI and would not be part of the above calculation. The taxpayer may elect to take the standard deduction if it is greater than all of the taxpayer's itemized deductions.

Answer 98

If you're self-employed and your business has a net profit, you can deduct 100% of your medical, health, and qualified long-term care insurance premiums for yourself, your spouse, and your dependents. The insurance can also cover your child who was under the age of 27 at the end of the year, even if the child was not your dependent.

Answer 99

When a taxpayer changes an accounting period, the change must have prior approval of the IRS. Generally, a short-period return from the old year-end date to the new year-end date is required.

Answer 100

Unless proven otherwise, rental real estate activities are defined as passive activities. In general, passive activity losses can only be used to offset passive activity gains. If the losses cannot be used by passive activity gains, these losses can be carried forward indefinitely or until the property is disposed of in a taxable transaction.

Answer 101

Any payments made to students for teaching, research, or any other service must be included in gross income.Therefore, a payment made to a graduate assistant for a part-time teaching assignment at a university, when teaching is not a requirement toward obtaining the degree, must be included in his or her income.Also, when a Ph.D. candidate receives a grant for his or her participation in a university-sponsored research project for the benefit of the university, it must be included in his or her income.

Answer 102

A self-employed taxpayer’s whose business reports a taxable net profit can deduct 100% of the medical, health, and qualified long-term care insurance premiums for themselves, spouses, and dependents.

Answer 103

A long-term capital loss deduction and tax-exempt interest paid by a state are neither preferences nor adjustments for AMT. Tax-exempt interest paid on private activity bonds issued after August 7, 1986, generally is a tax preference which is an exclusion item.

Answer 104

Individuals may offset up to $25,000 of ordinary income with rental real estate activities. This deductible loss is reduced (but not below zero) by 50% of the amount by which the modified adjusted gross income of the taxpayer for the year exceeds $100,000.First, the passive activities were netted $15,000 from the S corporation − $35,000 from the rental = $(20,000).Second, the salary of $160,000 is decreased by the net $20,000 passive activity loss for a modified AGI before limitation of $140,000.Third, the amount of $140,000 that exceeds $100,000 is multiplied by 50%, equaling $20,000.Fourth, the rental loss of $35,000 is decreased by the $20,000 limitation, leaving an allowable deduction of $15,000.

Answer 105

The child and dependent care credit is nonrefundable. In order to use the credit, the taxpayer must report more taxable income than the amount of the credit.A qualifying child must be under the age of 13. The child must be a dependent of the taxpayer but is not required to be a direct descendant.The amount of the employment-related expenses incurred during any taxable year shall not exceed $3,000 if there is one qualifying individual or $6,000 if there are two or more qualifying individuals.

Answer 106

Both C corporations and S corporations will recognize a gain or loss when the corporation is liquidated. Gain is recognized by a partner if cash received in a liquidating distribution exceeds the partner's adjusted basis. Additionally, in a partnership, if no cash equivalents are distributed, no gain is recognized.

Answer 107

Corporate capital losses can never be deducted from ordinary corporate income.Losses can only be offset against the capital gains of that year. Any excess capital losses can be carried back three years and forward five years.It is true that corporate capital gains are taxed at the same rate as ordinary income.

Answer 108

The 20X1 declared bonus (paid on March 13, 20X2) will be allowed as an expense in 20X1.As long as an accrual-basis corporation pays a declared bonus within two months and 15 days after the end of the year, the bonus is deductible in the year declared, not the year paid. Since the bonus was declared in 20X1 and paid March 13, 20X2, it is deductible in 20X1.In other words, an accrual-basis taxpayer deducts bonuses in the year in which the liability to pay the bonus becomes fixed if paid within 2-1/2 months after the close of the tax year.

Answer 109

Items allocated differently from the general profit and loss ratio must be separately stated. Tax-exempt income is not included in ordinary income because it is not taxable.

Answer 110

Distributable net income (DNI) is an amount that sets the limit on the deduction of an estate for distributions to beneficiaries. Since Raff's estate had DNI of $15,000 and $9,000 was paid to the beneficiary, the estate is allowed a $9,000 deduction.The beneficiary will report $9,000 as taxable income assuming that all $15,000 of DNI was composed of taxable income.

Answer 111

partner gonna use the adjusted basis # of the partnershipInitial basis in a partnership interest is the sum of cash and adjusted basis of other property contributed (IRC Section 722), plus share of partnership debt assumed, reduced by amount of debt transferred to the partnership (IRC Section 752; Regulation Section 1.752-1(e))Note that the adjusted basis in other property contributed is used to determine the basis in the partnership interest rather than the property's fair market value. Likewise, the partnership's basis in the property is the same as the contributing partner's basis was (IRC Section 723). The contributing partner generally does not recognize gain when contributing appreciated property to a partnership (IRC Section 721).

Answer 112

Members of S corporations must be individuals, certain estates, certain trusts, banks, or certain exempt organizations. Only 100 shareholders are permitted, and a shareholder may not be an illegal alien. Partnerships and corporations cannot be shareholders. An S corporation may only issue one class of stock.

Answer 113

Organization expenses are those expenses connected directly with the creation of the corporation. These include: Expenses of temporary directors $20,000 Fees paid to a state for incorporation 5,000 Accounting and legal fees incident to organization 35,000 Total $60,000 =======Brand New can deduct $4,000 on its Year 5 tax return. Taxpayers may deduct up to $5,000 in the taxable year in which the business begins; however, the $5,000 amount is reduced by the amount by which the cumulative cost of organizational expenditures exceeds $50,000. Since the amount over $50,000 is $10,000, the $5,000 would be reduced to $0. The entire amount must be capitalized and amortized over 180 months ($60,000 × (12 ÷ 180) = $4,000).

Answer 114

Any time a corporation is formed and “property” (not services rendered) is transferred to the corporation “solely in exchange for stock” of that corporation and immediately after the transfer, the transferors (Beck and Carr) are in “control,” no gain or loss is recognized. (IRC Section 351(a))Note: “Property” includes cash, intangible personal property and tangible property.“Solely in exchange for stock” does not include stock rights or warrants or similar options. (Regulation Section 1.351-1(a))“Control” is defined as 80% of the voting power. (IRC Section 368(c))Since Beck and Carr own 90% of Flexo Corp., there is no gain or loss from forming this corporation.Comment: Beck's stock basis is $5,000 and Carr's stock basis is $60,000. (IRC Section 358)

Answer 115

The basis of property received in a liquidating distribution is the adjusted basis less the cash received. Smith will take an adjusted basis in the real estate of $80,000, computed as follows:Smith’s adjusted basis prior to liquidating distribution $230,000Less: Cash received is return of capital (150,000)Adjusted basis allocated to real estate received $ 80,000

Answer 116

When a partner retires from a partnership, all debt relief and cash payments are first treated as a return of capital and then capital gains.Since the debt relief and cash payments in Year 14 total $60,000 and Berk's basis was $80,000, no gain is reported in Year 14.Year 14: $80,000 basis - $60,000 debt relief and cash payment = $20,000 remaining basisYear 15: $20,000 basis - $60,000 cash payment = $40,000 gain in Year 15Berk's capital account before retirement: Capital account $50,000 Share of liabilities 30,000 Berk's basis $80,000 Berk's retirement payment in Year 14: Relief of all liabilities in Year 14 - 30,000 $50,000 6 months x $5,000 in Year 14 - 30,000 Capital basis at 12/31/Yr. 14 $20,000 Beck's retirement payment in Year 15: 12 months x $5,000 in Year 15 - 60,000 Capital gain in Year 15 $40,000 ========

Answer 117

If an S corporation has no accumulated earnings and profits, the amount distributed to a shareholder decreases the shareholder's basis for the stock.When an S corporation has income, the income passes through to the shareholder on a Form 1120S, K-1. The shareholder pays the taxes on the income. When this happens, the shareholder increases the basis of his or her stock. That income creates an accumulated adjustment account (AAA) in the S corporation. When the S corporation makes a distribution, the basis of the stock and the AAA goes down.

Answer 118

Since a trust/estate is a pass-through entity, the character of the income distributed is the same to the beneficiary as it was to the estate or trust.

Answer 119

Book income $380,000Less: 1. Municipal bond interest income - 50,000 $330,000Add: 2. Federal income tax expense + 170,000 3. Interest expense on the debt incurred to carry tax-exempt bonds 2,000 Taxable income $502,000 ========A corporation's Schedule M-1 (Form 1120) reconciles book income to taxable income.Municipal bond interest is not taxable income.Federal income taxes are not deductible in determining taxable income.No deduction is allowed for interest paid on a debt incurred or continued in order to purchase or carry tax-exempt bonds.Corporations with over $10,000,000 in assets must use Schedule M-3.

Answer 120

A shareholder’s tax basis in an S corporation is increased by capital contributions, taxable income, and separately stated income items, and is decreased for losses, separately stated loss items, returns of capital (distributions), and nondeductible losses. Greene’s basis in Seagull at the end of the year is $6,000 ($15,000 – $5,000 + $2,000 – $6,000).

Answer 121

et income per books $52,800Add back: Federal income tax + 8,478 Capital losses + 3,000 Depreciation + 7,222 Officer life insurance + 1,500 Meals in excess of 50% limitation + 400 Excess contributions + 1,710 Total $75,110Deduct: Nontaxable interest 500Taxable income $74,610 ========Corporations are not allowed a deduction for capital losses. Corporate capital losses are only deductible against capital gains.Contributions are limited to 10% of taxable income.

Answer 122

Underwriting fees are not organizational expenses; rather, they are a cost of (and netted against the proceeds of) stock issued. Legal fees to draft the corporate charter are organizational expenses. Total organization expense is under $50,000, so the first $5,000 is deductible and the rest is amortized over 180 months.$5,000 + (($16,000 − $5,000) × (12 months ÷ 180 months)) = $5,733For organizational expenditures incurred after August 16, 2011, taxpayers may elect to deduct up to $5,000 in the taxable year in which the business begins. The $5,000 amount is reduced by the amount by which the cumulative cost of organizational expenditures exceeds $50,000. Any remaining organizational expenditures not deducted are amortized over a 15-year period (180 months) beginning with the month the active trade or business begins.

Answer 123

Wein's charitable contribution is not deductible for tax purposes since a net loss was incurred. A dividends-received deduction (DRD) is allowed.A dividends-received deduction reduces taxable income. In addition, there is no limit in deducting 50% of dividends received if a net operating loss (NOL) is either created or increased.According to the instructions for Form 1120, U.S. Corporation Income Tax Return, “In a year in which an NOL occurs, this 50% limitation does not apply even if the loss is created by the dividends-received deduction.” (IRC Sections 172(d) and 246(b)) Loss from operations $(50,000) Dividends 10,000 Total income (loss) $(40,000) Add back charitable contributions 2,000* Loss before $(38,000) Less: DRD deduction (50% x $10,000) (5,000) Net operating loss $(43,000) =========* A charitable contribution is not deductible for tax purposes since a loss occurs. According to the scenario, the $2,000 was already included in the $50,000 net loss from operations.The dividends from a less-than-20%-owned domestic corporation are allowed a 50% special deduction. The $10,000 in dividend income Wein Corporation received from a 15%-owned domestic corporation would be reported on line 1 in Schedule C of Form 1120. The totals of line 1 through 8 in Schedule C are then subject to a taxable income limitation. A corporation's percentage DRD for any tax year cannot exceed a certain applicable percentage of its taxable income. There is a worksheet for Schedule C, line 9, in the Form 1120 instructions that helps a taxpayer determine the amount of the taxable income limitation. A corporation's DRD is generally limited to 50% of its taxable income. This income limitation does not apply for any tax year for which the shareholder has an NOL.This is not saying that the corporation gets a 100% DRD when there is an NOL in that tax year. Instead, this taxable income limitation is determining what amount of the 50% DRD is going to be allowed based upon the corporation's income. Due to the NOL, Wein Corporation is allowed to deduct 100% of its 50% special dividend deduction, or $5,000.

Answer 124

Under a lookback rule, the taxpayer is required to recalculate the annual profit reported on a contract. In other words, it requires the taxpayer to substitute the actual costs and revenues for the estimated revenues and costs.

Answer 125

The net long-term capital gains of $10,000 allocable to corpus are not part of “DNI.”

Answer 126

The organizational expense deduction will be: Legal fees to obtain corporate charter $45,000 State incorporation fees 5,000 Temporary director expenses 2,000 Total $52,000Since total costs are $2,000 greater than $50,000, the $5,000 portion of the deduction is reduced by $2,000 and the balance of the costs are capitalized and amortized over 180 months.($5,000 − 2,000) + (($52,000 − 3,000) × (6 months ÷ 180 months)) = $4,633Organizational expenses are those which are (1) incident to the creation of the corporation, (2) chargeable to a capital account, and (3) of a character which, if expended incident to the creation of a corporation having a limited life, would be amortizable over such life.Examples of these expenditures are (1) temporary director fees and organizational meeting costs, (2) state incorporation fees, (3) accounting fees incident to organization, and (4) legal fees for drafting documents, minutes of organizational meetings, and terms of the original stock certificates.Commissions paid to an underwriter and other stock issue costs should be offset against the stock sale and not added to organizational costs.For organizational expenditures incurred after August 16, 2011, taxpayers may elect to deduct up to $5,000 in the taxable year in which the business begins. The $5,000 amount is reduced by the amount by which the cumulative cost of organizational expenditures exceeds $50,000. Any remaining organizational expenditures not deducted are amortized over a 15-year period (180 months) beginning with the month the active trade or business begins.

Answer 127

Distributable net income (DNI) is increased by the personal exemption, net tax-exempt interest, and net capital loss deduction. It is decreased by net capital gains taxable to the entity, as well as dividends allocable to corpus (for simple trusts only).

Answer 128

A corporation's charitable contribution deduction each year cannot exceed 10% of its “taxable income” for the year. Taxable income means income before deducting the charitable contribution, the dividends-received deduction or net operating loss, or any capital loss carrybacks (only) to that year.

Answer 129

Shareholders of an S corporation report their share of S corporation income whether distributed or not.

Answer 130

Shareholders of an S corporation report their share of S corporation income whether distributed or not. Because Joe B is a 50% owner, 50% of the ordinary income of $50,000 is taxable to him. Tax-exempt income flows through and is not taxable to Joe B. Because income is taxed to Joe when it is earned, the distribution is not a taxable event.

Answer 131

The medical expense in the amount of $2,000 can reduce the taxable estate (Form 706) of Bell or they can be deducted on her final income tax return (Form 1040)Since the executor filed the appropriate waiver for the medical expenses, they cannot be deducted on the estate tax return.

Answer 132

Cost or percentage depletion for oil and gas wellsReduction of basis of depreciable property when excluding income from discharge of indebtednessTake a deduction or credit for foreign taxes paid

Answer 133

Under IRC Section 351, transfers of appreciated property to a controlled corporation (80%) are tax free to the extent they are exchanged solely in exchange for stock in the corporation. If cash or other property is received, gain is recognized equal to the cash and fair market value of other property received, limited by the amount of appreciation in the property transferred to the corporation.Dole was the sole owner of Enson, so he meets the control test. He transferred a building with a basis of $35,000 and a fair market value of $100,000, so the building has appreciation of $65,000. Dole received cash of $40,000 and Enson stock worth $60,000 in exchange for the building. Since he received cash, the exchange is not completely tax free.The amount taxable is the lesser of the amount of cash received ($40,000) or the appreciation ($65,000), so Dole is taxed on $40,000.

Answer 134

The first estimated tax payment is due by the 15th day of the 4th month following the close of the tax year. Other payments are due on the 15th day of the 6th, 9th, and 12th months of the fiscal year

Answer 135

an S corporation terminates when the shareholders holding a majority of the total voting and nonvoting shares of stock consent. Revocation does not require more than one-half of each class of stock, only one-half of the total outstanding shares. Thus, more than 1/2 (60,000 shares + 40,000 shares), or at least 50,001 shares are needed for consent to terminate.

Answer 136

A corporation is required to make installment payments if the estimated tax (not estimated income) is $500 or more. If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty.

Answer 137

Jones's initial basis in his partnership interest is computed as follows: Cash contributed $45,000 Add: 50% of partnership debt 6,000 Initial basis $51,000 =======Initial basis in a partnership interest is the sum of cash and adjusted basis of other property contributed (IRC Section 722), plus share of partnership debt assumed, reduced by amount of debt transferred to the partnership (IRC Section 752; Regulation Section 1.752-1(e)).

Answer 138

($12,000 - $1,050 standard deduction - $1,050 threshold limit) x Tax rates applicable to trusts and estates

Answer 139

under the unified transfer tax syster, Lifetime taxable gifts and transfers at death are taxed on a cumulative basis.

Answer 140

Registration statement consists of two parts, (1) prospectus and (2) registration statement (disclosure document). A prospectus summarizes information in part (2) i.e. the registration statement. It contains historical company information and discusses the risk involved.

Answer 141

When Porter transferred property to Preston Corp, he met the 80% control test under Sec 351 and had no gain or loss to recognize on the transaction. Corporation’s basis in the property is equal to the carryover basis of $50,000.But when Corley transferred property a couple of years later, the transfer did not qualify as a nontaxable exchange because Corley received only 10% interest in the stock. Therefore, the property is transferred to the corporation at its FMV of $500,000 and Corley must recognize gain of $250,000 (FMV $500,000 - Basis $250,000). The total basis in property received by the corporation is $550,000.

Answer 142

The lamps were not identified to the contract.buyer Bell has a right to the goods if it has 'a special property' under UCC 2-501. Without an identification of existing goods, no such 'special property' arises. Thus, Bell's rights do not include obtaining the goods themselves after Glow became insolvent. Absent the problem of identifying the lamps to the contract, Bell could recover the lamps because Glow became insolvent within 10 days after the first payment was received [UCC 2-502(1)]. Whether Bell is a merchant or paid the full price at the time of purchase are irrelevant.

Answer 143

Spencer can also deduct $400 for the purchase of the art object, which is the difference between what he paid and the fair market value of the art object ($1,200 – $800 = $400).

Answer 144

There was a material omission.Additionally, the plaintiff must prove that:Loss was suffered as a result of the misstatementsInformation was relied uponError - grossly negligent or scienter.

Answer 145

net the short term loss and net long term gain together for year 3then Maximum amount of ordinary income that may be offset by capital losses, 3000= net short term capital loss carried over to year r4 is (1000)

Answer 146

Life insurance proceeds which are payable upon the death of an individual are generally tax-free upon receipt [§101(a)]. Therefore, Mell would not recognize any of the proceeds as taxable income.

Answer 147

Smith realized a loss of $2,000 under Sec. 1001(a) on the sale of the 100 shares bought on December 15, [$13,000 - $15,000 = ($2,000)]. However, none of this loss is recognized in the first year because no loss was realized in in that first year. The loss is not recognized in the second year either under the wash sale provisions of Sec. 1091(a). Smith bought 100 identical shares on December 30, which is within 30 days either side of the date of sale. The loss not recognized adds to the basis of the 100 shares bought on December 30, as provided by Sec. 1091(d). Thus, the basis of the 100 shares bought on December 30, is $15,000 ($13,000 + $2,000).

Answer 148

An agent will not usually be liable under a contract made with a third party if the principal is disclosed and if the agent acts within the scope of the agency. Agents for undisclosed principals always have contract liability.

Answer 149

The correct answer is (D)Under the cash method of accounting, income is recognized on actual or constructive receipt, whichever is earlier. A dividend is not income until it is actually received by the taxpayer although it is declared earlier.Dividends declared payable on December 30 of the current year is not recognized until received by Chris on January 4. Therefore, it is not included in the determination of gross income in the current year.Option (A) is incorrect because the bonus payment is authorized on December 15 of the current year and may be drawn anytime. As such, it is income which is available and therefore included in current year’s gross income.Option (B) is incorrect because, under cash basis, income is recognized earlier of actual or constructive receipt. Since the check received by Chris was available for deposit in the current year, it must be reported as income in the current year.Option (C) is incorrect because notification of availability of check as of December 27 for encashment is constructive receipt. Therefore, it must be included in the current year gross income. It does not matter when Chris picks up the check.

Answer 150

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. To be successful in a civil action under Section 11 of the Securities Act of 1933, the plaintiff does not have the burden of proving that the party being sued had any knowledge of the misstatement or the plaintiff's reliance on the registration statement or any fraud or negligence on the part of the defendant.

Answer 151

As this is a liquidating distribution, Fern's adjusted basis in the automobile is Fern's basis in the partnership interest after deducting the cash. Neither the property's fair market value nor its basis to the partnership are used in this calculation. $60,000 - $30,000 = $30,000

Answer 152

An on-site inspection of a workplace by an investigator from the Occupational Safety and Health Administration (OSHA) is permissible after a request by employees. Employee requests provide OSHA with the probable cause necessary to obtain a warrant. Since OSHA may conduct an on-site inspection without a warrant if the owner consents, it is not true that OSHA can only inspect the premises with a search warrant. It is not necessary that an on-site inspection be conducted after working hours, nor that the employer be given any prior notice of the inspection.

Answer 153

Capital assets are defined by §1221 as assets OTHER THAN the following five categories: (1) inventory; (2) depreciable property or real property used in a trade or business of the taxpayer; (3) trade accounts or notes receivable; (4) copyrights or compositions held by the person whose efforts created the copyright or composition, and similar items; or (5) U.S. Government publications acquired for free or less than the purchase price at which the publications are sold to the general public. Under Section 1221, capital assets include a personal residence and stocks held for investment. Thus, all three assets are capital assets.

Answer 154

if the taxpayer is able to take a deduction in an open year that the taxpayer deducted previously in a year that is now closed as provided in §1312(2).

Answer 155

If life insurance proceeds are left on deposit with the insurance company and paid over a period of time, part of cash received is a tax-free payment of insurance proceeds and the remainder is gross income to the beneficiary. Mary's taxable portion of the annuity received from the death of her father is determined as follows.Cash received $12,000Portion representing cost of annuity ($150,000 / 15) (10,000)Interest income $2,000

Answer 156

Under §1031, no gain or loss is recognized on like-kind exchanges of property. To qualify as a like-kind exchange, the properties must be of "a similar nature or character," the grade or quality of the properties is not important in this determination. Since both properties involved realty that was held for investment, the exchange would come within §1031, and Patty would report no gain.

Answer 157

Dividend Received Deduction (DRD) is a special deduction available to certain corporations on the amount of dividend income received. The amount of deduction varies with the % of ownership in the investee and is calculated on the lower of actual dividends received or taxable income (updated for TCJA):<20% interest – 50% deduction20% to 80% - 65% deduction>80% interest - 100% deduction via consolidation.An exception to the above calculation is when a corporation is in NOL situation, where the % of deduction is applied only to the dividend income received. Best Corps' % of ownership in the investee is <20% because it is given that they are unrelated. The 50% deduction is calculated on the lower of taxable income $90,000 or the actual dividends received $100,000; therefore, the dividend received deduction for Year 1 is $90,000 x 50% = $45,000. It must be observed that even though Best Corp. had a negative operating income of $10,000, it had a total taxable income of $90,000 before DRD and a deduction on the actual number of dividends received of $50,000 ($100,000 x 50%) does not create NOL. Therefore, the deduction is taken on the lower taxable income of $90,000.Options (A), (B) and (C) are incorrect based on the above explanation.

Answer 158

In general, under §732(a)(1) a partner's basis in property distributed to her or him by the partnership as a nonliquidating distribution is the same basis that the partnership had in the property. However, §732(a)(2) limits the partner's basis in the distributed property to her or his adjusted basis in the partnership reduced by any money distributed in the same transaction. Because the partnership's $6,000 basis in the land exceeds Curry's $5,000 adjusted basis in Vantage Partnership, Curry's basis in the land is limited to $5,000. Curry's adjusted basis in his partnership interest is reduced to zero under §733.

Answer 159

Under the Securities Act of 1933, securities need to be registered with SEC so that there is adequate and accurate disclosure of financial and other information upon which investors may determine the merits of securities.

Answer 160

An individual can avoid an underpayment penalty for the current year if:(1) Estimated payments and withholdings in total are at least equal to 100% of prior year tax liability (110% if prior year AGI is > $150,000) or(2) 90% of the current year tax liability, whichever is less.

Answer 161

Up to $25,000 of passive losses from rental real estate can be offset by individuals against active and portfolio income in any one year. The $25,000 maximum is reduced by 50% of the difference between the taxpayers modified adjusted gross income (adjusted gross income before any IRA deduction, taxable social security benefits, or passive activity losses) and $100,000. When the taxpayers modified AGI reaches $150,000, the offset is eliminated. Since Cobbs modified AGI for the current year exceeds $150,000 ($200,000 > $150,000), no amount of the loss attributable to the rental real estate can be used as an offset against income from nonpassive sources. (The rental loss could be used against nonpassive sources if Cobb was a qualified real estate professional.)

Answer 162

A shareholder's basis in a C corporation stock is equal to: Cash + Carryover basis of Property contributed - Mortgage assumed by Corporation + Gain recognized. Accordingly, Feld's basis in Maki Corp stock can be computed as: Cash $50,000 + Carryover basis of Land $10,000 = $60,000.Assuming this is a Sec 351 transaction, i.e., taxpayer receives 80% or more control in exchange for cash and property, there is no gain to recognize.

Answer 163

The 5-year class includes automobiles, light trucks, and computers. The 7-year class includes office furniture and office equipment

Answer 164

The assignment of the right to be insured under a liability insurance policy results in an increase in the liability of the insurance company issuing the policy, thus materially altering its responsibilities and therefore cannot be assigned.

Answer 165

Under the Securities Act of 1933, an investor is required only to prove the existence of a false statement or material omission and that the securities purchased were offered through the inaccurate registration statement; reliance on the inaccurate statement doesn’t need to be demonstrated. Under the Securities Exchange Act of 1934, an investor’s burden of proof includes reliance on the inaccurate statement. In a common law action, a plaintiff must show that losses were caused by the accountant’s fraud, negligence, or breach of contract--in other words, that the investor relied on the inaccurate statement.

Answer 166

In general, current administration expenses incurred to keep the trust property productive, such as annual property tax, should be paid out of trust income. Extraordinary expenses and expenses incurred in the improvement of trust principal, such as mortgage principal payments, should be allocated to trust principal.

Answer 167

Gifts to a spouse, charitable institutions and political parties are excluded from the taxable gifts. Gifts involving transfers of cash and property, sale of property at bargain price to a family member, loan to a family member at a lower than fair rate of interest [including tax free loans] , waiver of loans to family members, are some of the examples of amounts included in gross gifts of a taxpayer [and are subject to the annual exclusion amounts].

Answer 168

In a common law fraud suit, any party can sue, i.e., the plaintiff need not be a party in privity or an intended third-party beneficiary. The plaintiff must prove:Material misstatement or omission in the financial statementsA loss has been suffered as a result of the aboveInformation was relied upon by the PlaintiffError or Scienter (Reckless misconduct or intent to deceive)

Answer 169

The LLC members or organizers must file what commonly is referred to as articles of organization, including the name of the company, the character of the business, the location of the business, the term for which the company is to exist, and the name and address of each member. The articles or certificate normally is filed with the Secretary of State and clerk of the court in the county of the principal place of business.

Answer 170

(i) Description of the types of collateral. (ii) Name and address of the debtor. (ii) Name and address of the creditor.

Answer 171

Transfers to a qualified educational or medical care provider for tuition or medical care, respectively, are exempt from gift tax. As the $5,000 cash gift is well under the annual exclusion, Mann had no taxable gifts in the current year

Answer 172

Partnership is an entity whose income and losses passes through and gets taxed at the individual partner level. The income and expenses retain their original character when passed on. Don Wolf does not materially participate in the Gata Associates partnership. Therefore, his share of partnership income is passive and is subject to the passive activity loss rules. Also, note the passive activity loss rules apply to ordinary business income and not portfolio income.On this basis, Don’s proportionate share in Gata’s operating loss amounting to $5,000 (5% of $100,000) from ordinary business activity is subject to passive activity loss rules on Don’s individual income tax return. His proportionate share in interest earned from temporary investment $1,000 (5% of $20,000) is portfolio income that is reported separately on the individual income tax return, not subject to passive activity loss rules.Note, if this interest income were arising from ordinary business activity such as lending or accounts receivable, then it would also be subject to the passive loss rules.

Answer 173

As the $40,000 payment for the cousin's room and board is well over the annual exclusion amount, the donor must file a gift tax return. In 2014, the annual exclusion amount is $14,000. Transfers made directly to qualified educational or medical care providers for tuition (not room and board) or medical care, respectively, are exempt from gift tax. Also, there is an unlimited marital deduction from taxable gifts.

Answer 174

just ignore it man

Answer 175

A partnership agreement may be either expressed or implied depending on the activities and conduct of the parties. A partnership agreement can be oral unless the agreement falls within the Statute of Frauds, e.g., a partnership purpose that cannot be completed within one year.

Answer 176

IRS cannot obtain client information from CPA without specific client consent or subpoena.

Answer 177

Credits for federal unemployment tax are allowed to employers for certain state unemployment taxes paid by the employer. The tax is paid by the employer, not the employee, and so is not withheld from the employee’s wages. The amount is determined as a percentage of compensation paid to employee under a cap. Employers might be able to credit their state employment tax payments against their federal employment tax for up to 90% of the tax liability.

Answer 178

when the alternate valuation date (AVD) is elected, the basis of property inherited by the decedent generally is equal to the value of the property six months after death. When the property is distributed less than six months after the date of death and the AVD is elected, the property’s basis is equal to the FMV on the date of distribution. Thus, Lois’ basis in the stock is $9,000 (e.g., the stock’s FMV on the date of distribution).

Answer 179

Offering under Regulation A is exempt from registration under the 1933 Act. One of the requirements under Regulation A is that the issuer files an offering circular with the SEC. The other requirements under Regulation A are:Issuers can raise up to $50 million within a 12-month time periodOfferings can be freely advertised and there is no restriction on resale or type of investorsSEC must be notified within 15 days of the first sale

Answer 180

When an S-Corp. status terminates due to the induction of a C-Corp. as a shareholder, it necessitates the preparation of two tax returns - an S Corporation short year and C Corporation short year. Allocation of income may be made by:(1) A special election to the extent of the net income may be “cut-off” at the exact date of conversion or(2) If special election is not made, the income must be allocated on a daily basis between the two based on 365 day year.Given that, Zinco’s S status terminated on April 1, Year 1, the S-Corp was effective for 90 day period. As no election was made, the non-separately stated income of $310,250 is allocated to S Corp. for Year 1 as follows: $310,250/365 = $850 per day x 90 days = $76,500

Answer 181

state and local income taxes withheld : deductiblestate estimated income taxes paid Dec year 1: deductible cuzz its a cash basis tax payerfederal income tax withheld: disallow

Answer 182

Personal Holding Companies (PHCs) are corporations that satisfy both conditions: (i) 5 or fewer individuals own more than 50% stock (either directly or indirectly) at any time during the last half of the year and (ii) 60% or more revenue from passive sources (taxable interest, dividends, rents and royalty income) Therefore, Edge Corp. must consider only dividends received from unrelated domestic corporation to determine if income requirements for a personal holding company have been met. Interest earned on tax exempt obligations is ignored.

Answer 183

Generally, passive-activity losses (PAL) may be used to offset only passive-activity income, not ordinary or portfolio income. The limited partnership loss is a PAL. Generally, losses from rental real estate are PAL and, hence, not deductible against ordinary or portfolio income. Under TCJA, up to $25,000 of losses from rental activity may be deducted against ordinary and portfolio income, if the taxpayer actively participates in the rental activity. This exception is phased out for taxpayers with AGI greater than $100,000 by 50% of AGI greater than $100,000; this phase-out is inapplicable to Bearing. As Bearing actively participated in the rental activity, $25,000 of the $35,000 is deductible against ordinary and portfolio income. Wages, taxable interest, qualifying dividends, and Schedule C net income all are includible in gross income. $18k + $4k + $32k – $25k = $29k.

Answer 184

in order to qualify for nonrecognition of gain, a taxpayer, in the case of an involuntary conversion into money, has to acquire qualified replacement property within two years after the close of the first taxable year in which any part of the gain upon conversion is realizedin case of condemnation of real property held for productive use in a trade or busisness for investment , the taxpayer has 3 year from the close of year 1 to replace the condemned office building

Answer 185

Distribution from a C corporation to a shareholder can never be classified as a capital loss. Distributions from C corporations are considered taxable dividend income (ordinary income) to the extent of the C corporation's earnings & profits. Any excess distribution is treated as a non-taxable return of capital to the extent of a shareholder's basis. Any distribution in excess of both earnings & profits and a shareholder's basis in the stock of the corporation is treated as a capital gain. Therefore, no portion of the distribution can be treated as a capital loss.

Answer 186

Generally, passive activity losses (PAL) may be used only to offset passive activity income. Any PAL that cannot be used in the current year are suspended and carried forward indefinitely until there is sufficient income from passive activities to absorb them. Any PAL that remain suspended when the activity is sold in a taxable transaction may be deducted against both ordinary and portfolio income. In other words, 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). There is a limited exception to the general rule for a taxpayer who materially participates in the activity.Salary $50,000Partnership A income 20,000Current PAL, disposal (40,000)PAL Carryover, disposal (10,000)Gross Income $20,000

Answer 187

No part of the value of a gift of future interest may be excluded in determining the total amount of taxable gifts. However, no part of a transfer for the benefit of a minor will be considered a gift of future interest if (1) the property and its income may be expended by or for the benefit of the minor before s/he reaches age 21; and (2) any portion of the property and its income not so expended will pass to the minor upon reaching age 21, or will go either to her/his estate or as s/he may appoint under the general powers of appointment. Because the property (the bond) is to be distributed to the donor or successor-in-interest instead of the minor upon her/his reaching the age of 21, the transfer to the trust is considered a gift of future interest. Therefore, a gift tax exclusion is not permitted.

Answer 188

The correct answer is (B)Company X and Company Y are consolidated companies, and therefore, X will not include the dividend received from Y. The $10,000 dividend is eliminated. This increases Company X's net loss from $120,000 to $130,000.Company Y receives a 50% Dividends-Received Deduction (DRD) because the dividends come from less than 20% owned stock. Therefore, Company Y has taxable income of $125,000 {$140,000 - (50% * $30,000)}.The group’s consolidated tax loss for the year is $125,000 +($130,000) = ($5,000).

Answer 189

The taxpayers AGI is computed as follows:ItemAmountIncome from Partnership A$70,000Rental Income$7,000Loss from Partnership B (limited to passive activity income)($7,000)Short term capital gain$4,000Adjusted Gross Income (AGI)$74,000Notes: - Generally deduction for passive activity losses is limited to passive activity income. Therefore, the net loss of $9,000 from Partnership B, a passive activity, is allowed as a deduction only to the extent of passive activity rental income from building of $7,000. The remaining $2,000 of suspended losses are carried forward indefinitely until fully utilized or complete disposal of passive activity interest. Options (a), (b) and (d) are incorrect because AGI includes income from partnership A of $70,000, short-term capital gains of $4,000, rental income of $7,000 and losses from Partnership B to the extent of passive activity income of $(7,000)

Answer 190

IRC §482 allows the IRS to reallocate part of the income to Nasby. Nasby’s foreign tax credit is limited to $1,700,000 × ($500,000 / $5,000,000) = $170,000. This exceeds the amount paid, $50,000; thus, the full amount paid is deductible for the foreign tax credit.

Answer 191

trust is required to use calendar year

Answer 192

House of Representatives, US Senate, Joint Conference Committee

Answer 193

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.

Answer 194

Under TCJA, SALT deductions are allowed up to $10,000.Since the taxpayer paid $12,000 in state income taxes in 2018, $10,000 of it will be deductible on Schedule A.The information from the previous years is not relevant since the taxpayer didn't itemize.

Answer 195

A partner may assign his or her partnership interest and thus the partnership distributions. Each partner has a right to possess and use the partnership property for partnership purposes, but this right is not assignable except in connection with the assignment of rights of all the partners in the same property. Therefore, only the partnership distributions can be assigned by a partner.

Answer 196

In order to qualify for the Section 179 expense deduction, the property must be purchased for use in the taxpayer's active trade or business and it must be purchased from an unrelated party.

Answer 197

As the taxpayer did not buy the shares, the loss cannot be greater than the $50,000 spent to purchase the option. The option was held for less than one year; clearly, the loss is short term.

Answer 198

child unearned income 3000less 1050less 1050 , this come from lesser of 1050 or earned income plus 350net unearned income equal 900

Answer 199

Section 163(d)(1) limits the deduction of an individuals investment interest to the individuals net investment income for the taxable year.

Answer 200

In a like-kind exchange under §1031, the taxpayer is required to recognize gain in an amount equal to the lesser of (1) the realized gain or (2) the net amount of money and/or other property (e.g., boot) received in the exchange. Liabilities assumed by the other party are treated as boot received by the taxpayer. Therefore, the net reduction in the taxpayer’s mortgage indebtedness is boot [Reg. §1.1031(d)-2]. Tatum realized a gain of $150,000 ($350,000 FMV of property received + $120,000 reduction in indebtedness – $250,000 adjusted basis of property exchanged – $70,000 debt assumed). However, only $50,000 of gain is recognized because of the receipt of boot ($120,000 debt relief – $70,000 debt assumed = $50,000 net debt relief).

Answer 201

The value of services received is reported as income by the recipient, using the fair market value of the service. in this question, the fair market value of the painting services received by the accountant is $550.The painter provides services valued at $550, and the accountant provides services worth $500. The accountant is receiving services with a FMV of $550 and should report income of $550.

Answer 202

A like-kind exchange is an exchange of property of the same nature or character (real property for real property). Like-kind exchange rules defer recognition of gain on the exchange for tax purposes but do not apply to assets held as personal property, inventory, investment securities (partnership interest or common stock), or assets held for personal use.Note: personal property for personal property is no longer allowed under TCJA.

Answer 203

Capital assets are non-business assets that are held for investment and/or personal use. The sale of a capital asset results in a capital gain or loss. Among the answer choices given, only land held for personal use qualifies as a capital asset.(A) and (C) are incorrect because real and personal property used in trade or business is considered Section 1231 property.(B) is incorrect because the definition of capital assets specifically excludes trade accounts receivable.

Answer 204

If the debtor refuses to satisfactorily explain a loss of assets, it is considered a bankruptcy offense and the bankruptcy court will not grant a bankruptcy discharge. Failure to list a creditor results in an exception to discharge for the debt owed to that creditor, but does not cause the entire petition to be denied discharge. Alimony and support payment debts are not discharged in bankruptcy, but do not prevent a debtor from being given a bankruptcy discharge. Administrative expenses are paid after secured creditors and before most other priorities, but any deficiencies may be discharged.

Answer 205

Corporations only use capital losses to offset capital gains. A corporation’s carryback and carryforward capital losses always are treated as short-term capital losses in the year to which they are carried. Excess capital losses of a corporation can be carried back three years and forward five. (The $3,000 limit for offsetting capital losses against ordinary income applies only to individuals.

Answer 206

A married taxpayer can deduct up to $100,000 of losses for Section 1244 stock. Also, any loss in excess of the $100,000 limit is eligible for a max $3,000 deduction because they are filing jointly. Hence a total of $103,000 ($100,000 + $3,000) is deductible in Year 7. The remaining $54,000 loss is a long-term capital loss carried over to next year.(A), (B) and (D) are incorrect as per above explanation.

Answer 207

Distributions made by corporations to shareholders are treated as dividend income to the extent of higher of (1) Current Earnings & Profit (CEP) or (2) sum of Current Earnings & Profit (CEP) and Accumulated Earnings and Profit (AEP). In case distributions exceed CEP, distributions first come out of total CEP on a pro-rata basis. Distributions are then made out of AEP in chronological order beginning with earliest distribution. Bridge Corp’s distributions for the current year total $40,000 ($20,000 each for the months of March and July). The maximum amount of distribution that is treated as dividend income is $25,000 (Higher of $10,000 CEP or sum of AEP and CEP $25,000). Since Bridge Corp’s actual distribution of $40,000 exceeds the CEP of $10,000, distributions are allocated to dividend income in the following order: First from CEP on a prorate basis (no. of distributions) - $10,000/2 = $5,000 of each distribution is treated as being paid out from CEP for the months of March and July. Second from AEP on a chronological basis starting with the earliest distribution - $15,000 for the month of March as Dividend income and none for the month of July since the total allocation of $25,000 dividend income is exhausted with this allocation. Remaining distributions of $15,000 will either be treated as return of capital to the extent of shareholder’s basis or as capital gain income. Based on the above, dividend income to Bridge’s shareholders for the month of July is $5,000.

Answer 208

Fay realized a loss of $4,000 ($11,000 - $15,000) on the sale of the shares to her son Martin. However, none of this loss is recognized because Sec. 267(a)(1) provides that no loss may be recognized on the sale of property to a related party. Sec. 267(b)(1) states that a related party includes members of a family as defined in Sec. 267(c)(4). Sec. 267(c)(4) includes lineal descendants in the definition of family members. Martin has a cost basis of $11,000 in the shares under Sec. 1012. When Martin sells the shares to an unrelated party for $16,000, he realizes a gain of $5,000 ($16,000 - $11,000) under Sec. 1001(a). However, Sec. 267(d) provides that the gain recognized is reduced by the previously disallowed loss. Thus, Martin's recognized gain is $1,000 ($5,000 - $4,000).

Answer 209

1933: material misstatement and loss1934: reckless, scienter, reliance

Answer 210

yes, it can claimed as itemized deduction

Answer 211

A corporation can deduct premiums paid for group term life insurance for its employees as long as it is not the beneficiary. Premiums on key-person life insurance policies are not deductible by the corporation because the proceeds from these policies are not included in taxable corporate income.

Answer 212

no, they do not have to wait for the actual distributionthe partner can just recognize the taxable portion of his or her share of the partnership's income

Answer 213

can be carried forward indefinitely. Also net operating losses utilized in one year is limited to 80% of taxable income. Option (a), (b) and (c) are incorrect as per above explanation.

Answer 214

A like-kind exchange is an exchange of property of the same nature or character (real property for real property or personal property for personal property). Like-kind exchange rules defer recognition of gain on the exchange for tax purposes, but do not apply to assets held as inventory, investment securities, or assets held for personal use.

Answer 215

The essential elements of a de facto corporation are: (1) a valid statute under which the business could have been incorporated legally; (2) existence of a corporate charter; (3) a good faith effort to incorporate; and, (4) some good faith business dealings in the corporate name. If a third party entered into a contract believing s/he was dealing with a corporation, the courts will not allow the third party to hold shareholders liable on the contract; this is called corporation by estoppel. Under current common law, any corporation that substantially complies with the mandatory statutory requirements of incorporation is deemed a de jure corporation; it is indeterminate whether Elsie Components meets the “substantial compliance” requirement.

Answer 216

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. The deduction for loss is calculated as the drop in FMV less any insurance reimbursements less $100 per event, subject to an overall 10% AGI limitation. The casualty loss deduction for Pat’s car due to damages caused by a hurricane can be computed as below:Drop in FMV for car ($11,000 - $6,900)$4,100Lower of decline in FMV or asset basis ($4,100 or $20,000)$4,100Less: Insurance reimbursement$0Less: $100 per event($100)Casualty loss before 10% AGI limitation$4,00010% AGI limitation ($40,000 x 10%)($4,000)Casualty deduction on Schedule A$0Options (a), (b) and (c) are incorrect because they result from improper calculations.

Answer 217

Personal losses such as loss on sale of a personal residence is not deductible. In this case, the net capital gain/loss is computed as follows:Loss on sale of personal residence (non-deductible) $0LT gain on sale of securities $5,000ST loss on sale of municipal bonds $(9,000)LT loss on sale of painting held as an investment $(4,000)Net ST capital loss $(8,000)Since the maximum amount of capital loss that is allowed against other categories of income is $3,000, excess loss of $5,000 must be carried forward

Answer 218

personal service

Answer 219

S-Corporations are incorporated in the same manner as C-corporations, but are not taxed like C corporations. S corporations are pass-thru entities where the income is passed on to the shareholders who pay taxes at their individual level. Additionally, unlike C Corp. shareholders who pay tax on distributed income, S Corp. shareholders pay tax when income is earned by the S corporation. Accordingly, if the given corporation is an S Corporation, then Carson would report income of $160,000 ($400,000 x 40%), proportionate to his 40% interest.Option (A) is incorrect because $28,000 is calculated as 40% of the distributed income. S corp. shareholders report income when earned and not when distributed.Options (B) and (D) are incorrect due to improper calculations.

Answer 220

Free use of condominium received by Jensen [$1,400] and cash found in the desk purchased [$400] are included in the gross income. An inheritance received is not included as it is nontaxable to the receiver. Fringe benefits provided by the employer are taxable unless they are specifically excluded by law. Free use of employer's condominium as recognition for outstanding achievement does not qualify as a tax-free fringe benefit, because the lodging provided was not on the business premises for employer's convenience

Answer 221

Distributions made by corporations to shareholders are treated as dividend income to the extent of higher of (1) Current Earnings & Profit (CEP) or (2) sum of Current Earnings & Profit (CEP) and Accumulated Earnings and Profit (AEP). Remaining distributions in excess of Earnings & Profits (E&P) are either non-taxable return of capital to the extent of shareholder basis or taxable capital gain distributions. Distribution made by Simon Corp is dividend income to the sole shareholder up to a maximum of $10,000 (Higher of CEP $10,000 or sum of AEP and CEP of $(40,000)). The remaining $5,000 is return of capital.Option (A), (B) and (D) are incorrect because the maximum amount of dividend income taxable to shareholder is $10,000.

Answer 222

Certain itemized deductions that are allowed for regular tax purposes must be added back for AMT purposes, thus increasing the Alternative Minimum Taxable Income. With the introduction of the Tax Cut and Jobs Act (TCJA) in 2017, there are several changes to AMT calculations which either eliminate the itemized deduction or limit them:(1) $4,500 - The limit for regular taxes reverts to 7.5% of AGI until 2018 and therefore, Medical Expense deduction allowed is ($12,000 –7.5% of $100,000).(2) $0 - State and local income taxes and real estate taxes are never deductible for AMT purposes. TCJA update: There is a $10,000 overall limit for the deduction of state and local income taxes, state and local property taxes and personal taxes for regular tax purposes. (3) $10,000 - Home mortgage interest on acquisition indebtedness is an itemized deduction for both regular and AMT purposes. (4) $0 -. TCJA update: Interest on a home equity loan is deductible for regular tax purposes only if the loan is considered acquisition debt. Proceeds from a home equity loan are considered acquisition indebtedness if they are used to buy, build or substantially improve the taxpayer's home. Accordingly, any home equity interest paid on loans used for other purposes is not deductible for regular tax purposes and would not be added back to calculate AMT.(5) $5,000 - Charitable contribution deduction is allowed for both regular and AMT purposes. TCJA Update: The overall limitation on the deduction of qualified charitable expenses has increased from 50% to 60% of AGI.Accordingly, only the following itemized deductions are allowed for Robert:DescriptionAmountMedical expenses > 7.5% of AGI $12,000 - ($100,000 x 7.5%)$4,500Qualified mortgage interest10,000Charitable contributions5,000Itemized deductions for AMT$19,500

Answer 223

corporation capital loss carry back 3 and carry forward 5 year

Answer 224

7 year property are office furniture, office equipment (computer desk)5 year include automobile, light trucks, and computers

Answer 225

A promise by an executor to answer for the obligations of the decedent's estate is a contract that is covered by the Statute of Frauds; it must be in writing and signed to be enforceable. Contracts of $500 or more that involve the sale of goods fall under the Statute of Frauds and must be in writing; contracts not involving the sale of goods need not be in writing merely because they are for more than $500. Only the signature of the party against whom enforcement is sought is required. If the performance could occur within a one-year period, the contract is not within the Statute of Frauds and need not be written.

Answer 226

accumulated earning tax can be imposed on corporation and not partnershipregardless of the number of stockholder in a corporation

Answer 227

adjusted gross income

Answer 228

Taxes paid under the Federal Unemployment Tax Act (FUTA) are deductible by the employer as a business expense for federal income tax purposes. The tax rate is 6.2% for the first $7,000 in wages paid to each covered employee. Employers must pay the FUTA tax if they pay $1,500 or more in wages in any calendar quarter or employ more than one person at least one day a week for 20 weeks during a calendar year. FUTA taxes are paid by the employer and are not withheld from employees.

Answer 229

Keogh plan is a qualified retirement plan for self-employed individuals. Maximum contribution allowed for 2018 is the lesser of $55,000 or 100% of Keogh net earnings. For this purpose, net earnings or earned income is: Net business income Less One half of Self-employment tax Less Keogh deduction. Options (a), (b) and (c) are incorrect based on the above explanation.

Answer 230

Net earnings (reported on Schedule C) include the gross business receipts less cost of goods sold, rent expense, and business liability insurance. Self-employment tax and health employment insurance premiums are adjustments to gross income and are not involved in the calculation of net earnings.

Answer 231

Generally, stock dividends are tax free to the shareholder; however, tax-free distributions reduce the shareholder's per-share basis in the stock, as the basis is spread over more shares. $22,000 / (1,000 shares + 100 shares) = $20

Answer 232

While a partner may engage in a transaction with her partnership in a capacity other than as a member of such partnership [§707(a)], if the partner owns, directly or indirectly, more than 50% of the capital or profits interests in such partnership, then the gain upon the sale or exchange of property between them which, in the hands of the transferee, is not a capital asset as defined in §1221, shall be considered as ordinary income [§707(b)]. Since Kaye owned 85% of the capital and profits interest of the partnership, her $4,000 gain ($6,000 - $2,000) is characterized as ordinary income.

Answer 233

A contingent fee for preparing a client’s income tax return generally is not permitted under the ethical standards of the profession.However, a contingent fee for representing a client in tax court would be permitted under the ethical standards, because the tax authority initiated the proceedings. A member who accepts or pays a referral fee in relation to a client must disclose such acceptance or payment to the client. Interpretation 302-1 permits contingent fees in some tax matters, including when filing an amended return based on a tax issue on which a taxing authority is developing a position

Answer 234

Termination of S status may occur if an S corporation has passive income exceeding 25% of its gross receipts for each of three consecutive years, and during these three years the corporation had accumulated earnings and profits attributable to C corporation status. If an S corporation was never a C corporation, it cannot be terminated due to excess passive income. So, a corporation that has been an S corporation from its inception may have both passive and nonpassive income, it's just that it will never be threatened by termination due to excess passive income. A bankruptcy estate is an eligible shareh`older of an S corporation.

Answer 235

noA beneficiary acquired property from a decedent for $130,000. The fair market value of the property at the date of the decedent's death was $100,000. The beneficiary sold the property two years after receipt from the estate. The basis in the property for the beneficiary will be $100,000 i.e. the FMV at the valuation date and not the $130,000 paid for the property.

Answer 236

A resulting trust may arise where an express trust has been created gratuitously and it fails (I) because it is impossible to carry out. Also, the fulfillment of a trust purpose (III) could result in the creation of a resulting trust if trust property still remained. The application of the cy pres doctrine would not cause a resulting trust to be created. It is applied in those situations in which a gift to a charitable trust cannot be carried out in the manner specified by the donor. In that case, the doctrine would allow that the trust be carried out as closely as possible to the intent of the donor.

Answer 237

A dealer in real estate or a merchant selling personal property can no longer use the installment sales method for tax purposes. Woode is a merchant selling personal property; therefore, he must report the full amount of gross profit, $100,000.

Answer 238

Married individuals may elect to file separate returns. Legally separated spouses who are living apart use the single filing status, unless they qualify for the head of household filing status. Married taxpayers must file jointly to be eligible for the earned income credit. If the Mercers file jointly, they get a $1,060 refund of federal income taxes ($3,000 – $1,940) and pay $1,000 in state income taxes, for a net refund of $60. If the Mercers file separately, they pay an aggregate of $1,640 in federal income taxes and $500 in state income taxes, for a total tax liability of $2,140.

Answer 239

Distributions over the current and accumulated earnings and profits are a return of capital. A return of capital is not taxable. $1,500,000 distribution – $825,000 E&P = $675,000 return of capital.

Answer 240

Like-kind exchange rules defer recognition of gain on the exchange for tax purposes, but do not apply to assets held as inventory, investment securities, or assets held for personal use.

Answer 241

Proceeds of insurance on the life of the decedent, payable to the executor as the estate’s representative are always includible in the gross estate

Answer 242

The seller's statement that it is selling only such right or title that it has

Answer 243

n 2018 taxpayers can contribute and deduct upto $5,500 per year to an IRA and alimony paid pursuant to divorce or separation agreements executed before 12/31/2018 is considered earned income. For couples filing a joint return where at least one spouse is an active participant in a retirement plan, the deductible portion of the contribution is phased out. For a spouse who is an active participant in a retirement plan, the deductible portion of the contribution is phased out. For a spouse who is an active participant, the phase out range in 2018 begins at AGI of $101,000 and is complete at $121,000. For a spouse who is not an active participant, but is married to someone who is, the phase-out range begins at $189,000 and is complete at $199,000. The earned income for IRA purposes here is $40,000 ($35,000 + $5,000), which is below both phase – out ranges, so each spouse receives a deduction of the $5,000 contribution actually made.

Answer 244

Distributions received from a traditional IRA are taxable as ordinary income. Since contributions to Traditional IRA are deductible as above the line deduction to AGI. Distributions after 59 ½ years of age are taxable as ordinary income. This distribution at age 60 of $150,000 will be taxed as ordinary income. Withdrawals from a traditional IRA are fully taxable as ordinary income. Of course, a traditional IRA builds up tax-free until retirement and appreciates in value based on the market. It is taxed only when distributed.

Answer 245

IRS publications

Answer 246

Under the accrual basis of accounting, expenses are recognized when 2 tests are met :(1) All events test, where the existence of liability is established and can be determined with reasonable amount of accuracy and (2) Economic performance test, which is satisfied when the property or service is actually provided by another person to the taxpayer. In calculating U's accrual purchases for the year, the following formula can be used: Ending A/P = Beginning A/P + payment for purchases $50,000 = $64,000 + X - $455,000 X = $50,000 - $64,000 + $455,000 X or Accrual purchases for the year = $441,000

Answer 247

For federal income tax purposes, taxable income from long-term contracts is determined under the percentage-of-completion method.However, there’s an exception for smaller companies with average annual gross receipts of $25 million or less who won’t be required to use the percentage-of-completion method for contracts expected to be completed within two years.

Answer 248

deduct up to 3000 of capital loss in excess of capital gain to arrive at AGI

Answer 249

Child support payments are not deductible.Alimony from a 2018 divorce settlement or earlier is a deduction to arrive at adjusted gross income (AGI).Trade and business expenses and up to $3,000 of capital losses in excess of capital gains are excluded from gross income.Note: Alimony deductions are disallowed under TCJA for divorce settlements occurring after 2018.

Answer 250

either orders are approved or rejected within the stateorders are filled from within the state

Answer 251

due in 9 months after the date of deathform 1041, US income tax return for Estate and Trust is due on 15th day of the fourth month following the close of the tax year

Answer 252

A solicitation made on behalf of management, relating to an annual meeting at which directors are to be elected, must contain an annual report with certified financial statements for the last two fiscal years. A copy of the registration statement and bylaws is not required to be furnished to the corporation's shareholders in connection with a proxy solicitation. Before a proxy may be solicited, Rey must furnish the SEC with a proxy statement at least 10 days before it is sent to its security holders.

Answer 253

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.

Answer 254

(i) 3 years after original due date including extensions or(ii) 2 years after actual tax payment.

Answer 255

Corporate taxpayers may deduct capital losses only to the extent of capital gains. Corporations may carry capital losses back three years and forward five years.

Answer 256

Acme's contention that the agreement to change the delivery date was not binding is incorrect because an oral agreement that modifies an existing contract for the sale of goods does not need new consideration to be binding. Since the contract is for the sale of goods for a price less than $500, the Statute of Frauds does not apply, and the oral modification is enforceable.

Answer 257

An original public offering of stock is governed by the Securities Act of 1933. Under Section 11 of this Act, a CPA can be liable for fraud if the registration statement contains material misstatements. It is not necessary that the CPA have scienter or that the client relied on the registration materials. Liability under the 1934 Act requires proof of intent to deceive (i.e., scienter).

Answer 258

This is an IRC Section 1033 exchange question (i.e., involuntary conversion). This is the case with involuntary conversions (due to destruction or theft, government condemnation or federal disaster area), where the gains from the converted property can be deferred if a replacement property is purchased within the statutory time limit established by law. In cases where the proceeds of involuntary conversion are not fully reinvested, the gain is taxed/recognized to the extent of the un-reinvested amount and the deferred/unrecognized gain reduces the basis of the new replacement property.Dawson has a total gain of $120,000 ($195,000 proceeds - $75,000 old warehouse basis), but since only $167,000 is reinvested in the replacement property, only $92,000 ($167,000 reinvested proceeds - $75,000 old warehouse basis) of the gain can be deferred. Unused proceeds of $28,000 ($195,000 total insurance proceeds - $167,000 reinvestment) must be recognized as a gain in the current year.The basis of the replacement property in an IRC Section 1033 involuntary conversion will equal its replacement cost of $167,000 minus the deferred gain of $92,000 = $75,000.

Answer 259

When appreciated property is distributed as dividend to shareholders, the property is considered to be distributed at FMV and the corporation would treat it as a sale and recognize a gain to the extent of the difference between the FMV and adjusted basis. And like a regular cash distribution, shareholders would treat as taxable dividend income amount up to the extent of higher of:Current earnings and profit ORSum of current earnings and profit (CEP) and accumulated earnings and profit (AEP) before the distributionThe remaining distribution is treated as non-taxable return of capital to the extent of the shareholder's basis and excess distributions are treated as taxable capital gain distributions.In this case, the total amount of distribution at FMV is $200,000. It is assumed that that gain on the distributed property of $50,000 (FMV$200,000 - Adjusted basis $150,000) is included in CEP.Therefore, taxable dividend income to Reed is $185,00 computed as the higher of CEP of $60,000 and Sum of CEP & AEP of $185,000The remaining $15,000 (Total distribution $200,000 - Dividend income $185,000) would be treated as non-taxable return of capital to the extent of Reed's basis in Kent Corp. (Beginning Basis $500,000 - $15,000 non-taxable return of capital = $485,000 Ending Basis).Option (A) is incorrect because $60,000 is the CEP, which is lower than the sum of CEP and AEP. Taxable dividend income is up to the extent of higher of CEP or sum of CEP and AEP.Option (B) is incorrect because $150,000 is the adjusted basis of the property.Option (D) is incorrect because $200,000 is the FMV of the property which is the total amount of the distribution; only a portion of it is taxable dividend income for Reed.

Answer 260

Contract rights generally are assignable unless the right is personal to the promisee or the duty of the obligor or the obligor's burden or risk is materially increased. If neither of these are present, option contract rights are clearly assignable. Malpractice insurance policy rights normally are not assignable since the assignee might subject the insurance company to a greater risk, and thus, the insurance company would not agree to such an assignment. It is first necessary to determine who possesses the policy rights. If the right is viewed as being owed by the insurer to the insured, the insured could not assign their rights to another without violating the rules as to assignment. If however, the right is viewed as being owed by the insurer to a claimant injured by the insured's malpractice, the claimant's right to receive compensation should be assignable by the claimant.

Answer 261

Personal losses such as loss on sale of a personal residence is not deductible. In this case, the net capital gain/loss is computed as follows:Loss on sale of personal residence (non-deductible) $0LT gain on sale of securities $5,000ST loss on sale of municipal bonds $(9,000)LT loss on sale of painting held as an investment $(4,000)Net ST capital loss $(8,000)Since the maximum amount of capital loss that is allowed against other categories of income is $3,000, excess loss of $5,000 must be carried forward.

Answer 262

Under the Sales Article of the UCC, an oral contract for the sale of artwork valued at more than $500 is most likely to be unenforceable.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.

Answer 263

For year 2, the taxpayer changes its accounting method from accrual to cash basis method of accounting. At December 31, year 1, the taxpayer had $1,100,000 of accounts receivable and $750,000 of accounts payable and accrued expenses. Since accounts receivable which represents income that is earned, however not received in cash has already been taxed in Year 1. The same shouldn’t be included when received in Year 2, thus to counter the effect a negative adjustment of $1,100,000. Similarly, accounts payable and accrued expenses of $750,000 represents expenses which haven’t been paid in cash but has been allowed as a deduction in Year 1 and hence the same shouldn’t be allowed as a deduction when paid in year 2, so to counter the effect of the same a positive adjustment of $750,000 .The adjustment (- $1,100,000 + $750,000) results in a reduction to taxable income of $350,000, and all of it will be recognized in the year of change.

Answer 264

In a nontaxable stock dividend, pursuant to §307, the basis of the shares upon which the distribution is made is allocated between the old and new shares based on the relative number of shares. Thus, Lila Perl will allocate 50/500 of the $90,000 basis, or $9,000, to the new shares distributed in the year 2, nontaxable stock dividend. After holding these shares, Lila sells them for $11,000, thereby realizing and recognizing a capital gain of $2,000. As Lila held the shares for longer than a year, the gain is long-term.

Answer 265

Long is merely an incidental beneficiary and has no right to enforce the contract.In this case, the purpose of the contract was not to directly benefit Long. An incidental beneficiary of a contract has no right to enforce the contract.The assignment of the contract would have no bearing on Long’s being able to sue.

Answer 266

Under the anti-fraud provisions of Section 10(b) and Rule 10b-5 of the Securities Act of 1934, the injured party does not have to prove that s/he was the intended user of the false registration statement. In other words, privity of contract is not a requirement under the Acts anti-fraud provisions. It is only necessary that 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.

Answer 267

A trust income beneficiary would receive the ordinary receipts, or income, of the trust. Royalties (I) and cash dividends (III) are considered income; stock received in a stock split (II) and settlements of claims for damages to trust property (IV) are considered extraordinary receipts, or allocation of principal.

Answer 268

Manufacturers of tangible personal propertyUNICAP 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 $25 million.

Answer 269

For purposes of determining the deductibility of the medical expenses paid for Gail's mother and the son under §213, they must come within the definition of medical dependents as provided in §152. Section 152 provides a general definition of dependent that includes a son or daughter of the taxpayer and a mother-in-law or mother. Reg. §1.213-1(a)(2) also 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 (i.e., the amount earned by Gail's mother). Also, a medical dependent must meet neither the joint return nor the citizenship/resident tests. The mother and son both come within the definition of a medical dependent under §152, and the entire $1,200 may Gail's as qualifying medical expenses.

Answer 270

Amended tax returns may be filed 3 years after the original due date including extensions or 2 years after actual tax payment, whichever is later. In the case of a calendar year individual who filed the original tax return in April, the amended tax return must be filed no later than April 15 of the third year, i.e., three years, three months and 15 days after end of the calendar year or 2 years after actual tax payment, whichever is later.

Answer 271

Under TCJA, S Corporations that were previously C corporations are subject to a built-in-gains tax @ 21% if they sell or distribute assets within 10 years of election of S-Corp. status (Note: The recognition period has been reduced to 5 years starting from 2011). The tax is imposed on the unrealized gain calculated as the difference between the FMV of asset and its basis at the time of S-election. In this scenario we have to assume that Commerce Corp was a C corporation before it made the S election in the year 2

Answer 272

Premiums paid on a disability insurance policy is also excluded from qualifying expenses

Answer 273

Preferential, because the mortgage was given to secure an antecedent debt Hall gave the mortgage to National Bank 75 days before he filed his petition, so he was presumably insolvent at the time.

Answer 274

Kemp sold the stock within a period of less than six months.

Answer 275

Generally, an adoption credit of up to $13,810 is available to the extent of qualified adoption expenses ($9,000 + $6,000 = $15,000).The medical expenses would be an itemized deduction, not part of an adoption credit.

Answer 276

The transaction represents the sale of property between a parent and a subsidiary filing a consolidated tax return, and, thus, it is referred to as a deferred intercompany transaction and receives special treatment. Stem realizes a gain of $60,000 ($150,000 – $90,000) on the sale of the land to Plant. The gain realized is deferred in a suspense account until the restoration event, the sale of the land by Plant to Dubin. In Year 2, Stem recognizes the $60,000 gain realized in Year 1. Plant recognizes a gain of $30,000 ($180,000 – $150,000) as its basis in the land includes the deferred gain of Stem ($90,000 + $60,000 = $150,000).

Answer 277

Based on the following facts given in the question it can be concluded that the entity formed by Dove and Eagle is an S Corporation:C Corporation: the income would not be passed through to Eagle and his basis would remain at $40,000 at year-end. Tax on the income would have been paid at the corporate level.S Corporation: The shareholders received pass-through income via the entity, proportionate to their interest. Therefore Eagle’s basis which was $40,000 at the beginning of the year increased to $70,000 due to the allocation of pass-through income of $30,000 ($60,000 x 50%).Partnership: If this was a Partnership Eagle’s basis at year-end would be $75,000 instead of $70,000 due to his 50% basis in the recourse liability of $10,000.LLC: If this were an LLC, it could choose to be treated either as a corporation or partnership. In either case, Eagle’s basis at year end would not be $70,000.So this is clearly an S-Corporation.

Answer 278

Capital assets are defined by §1221 as assets other than the following five categories: (1) inventory; (2) depreciable property or real property used in a trade or business of the taxpayer; (3) trade accounts or notes receivable; (4) copyrights or compositions held by the person whose efforts created the copyright or composition, and similar items; or (5) U.S. Government publications acquired for free or less than the purchase price at which the publications are sold to the general public. Under Section 1221, capital assets include a personal residence and stocks held for investment. Thus, all three assets are capital assets.

Answer 279

A corporation’s deduction for charitable contributions generally is limited to 10% of taxable income without regard to (1) the deduction for charitable contributions, (2) the dividends-received deduction, (3) any net operating loss carryback to that year, and (4) any capital loss carryback to that year. Robin’s taxable income without regard to the dividends-received deduction is $145,000 ($200,000 revenues – $75,000 expenses + $20,000 dividend). $145,000 × 0.10 = $14,500.

Answer 280

Cases tried in the Federal District Courtv

Answer 281

The marital deduction is comprised of anything transferred to the decedent's surviving spouse from the gross estate of the decedent. The decedent transferred $40,000,000 to the surviving spouse from his gross estate. The $20,000,000 in assets that were not included in the gross estate would not be included in the marital deduction.

Answer 282

1) Statutory lien 2) PMSI (Purchase Money Security Interest) when attached and perfected simultaneously - automatic perfection for consumer goods and for both consumer goods and equipment protection against subsequent good faith purchaser if perfected within 20 days. 3) Perfection by filing or possession - in case of multiple creditors, go by the order of filing or perfection 4) Other perfected interests or judicial lien 5) Order of attachment, if not perfected from the given scenarios, Purchase money security interest perfected on June 24, Year 2, within 20 days of possession of collateral by debtor, has priority over the others

Answer 283

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.

Answer 284

Corporations whose securities are traded on a national security exchange or whose assets are in excess of $10 million and have a class of equity security held on record by 2,000 or more persons or 500 persons who are not accredited investors must register under the 1934 Act.

Answer 285

No gain or loss is recognized if property is transferred to a corporation solely in exchange for stock if, immediately after the transfer, the transferors are in control of the corporation. There is no indication that anyone other than Ames and Roth are in control of the corporation. The corporation’s basis in the property is the transferor’s adjusted basis in the property plus any gain recognized by the transferor on the transfer. $500 + $5,000 = $5,500

Answer 286

Generally, no gain or loss is recognized by the contributors of cash or property in exchange for stock, if the contributors receive 80% or more of the control of the corporation in the exchange (IRC Sec 381). One exception to this rule is when cash or other property (boot) is received by the shareholder in addition to the corporation's stock. In such an event, the shareholder would recognize gain up to the amount of boot (cash or FMV of other property) received. The basis for shareholder and corporation are calculated as follows: Shareholder Basis in Stock = Carryover basis - Mortgage debt + Gain recognized - Boot received Corporation’s Basis in Property Received = Carryover Basis + Gain Recognized by Shareholder Since, A and B received more than 80% of the control upon exchange of cash and property, no gain or loss should be recognized by A and B. However, B also received cash/boot ($20,000) in addition to 50% stock in exchange for the land. Therefore, B would recognize a gain to the extent of the "boot" received of $20,000. X Corp's basis in the land received from B would be calculated as follows:DescriptionAmountCarryover Basis (B’s Adjusted Basis)$40,000Add: Gain Recognized by Shareholder$20,000X Corp's Basis in Land Received$60,000Option (A) is incorrect because $40,000 is the carryover basis of the land but since B received cash/boot in the exchange, the corporation’s basis in property received should also include the gain recognized by B i.e. $20,000.Option (B) is incorrect because $50,000 is the amount of cash that A had contributed.Option (D) is incorrect because $70,000 is the FMV of the land contributed by B; but a corporation's basis in property received is the carryover basis of the shareholder plus any gain recognized by the shareholder.

Answer 287

b ; 5000Section 117(a) excludes from gross income amounts received as qualified scholarships by individuals who are degree candidates at a qualified educational organization. Section 117(b) defines qualified scholarships as payments for tuition, fees, books, supplies, and equipment related to the courses of instruction. The payments received for teaching are compensation for services.

Answer 288

If life insurance proceeds are left on deposit with the insurance company and paid over a period of time, part of cash received is a tax-free payment of insurance proceeds and the remainder is gross income to the beneficiary. Mary's taxable portion of the annuity received from the death of her father is determined as follows.Cash received $12,000Portion representing cost of annuity ($150,000 / 15) (10,000)Interest income $2,000

Answer 289

Investment interest expense is deductible only to the extent of investment interest income.Therefore, $1,000 investment interest expense deduction is limited to the investment interest income of $100, which is U.S Treasury bond income.Municipal bond income is tax-exempt and therefore not considered as investment income in the computation of limitation for an investment interest deduction.Also, rental income is considered a passive activity and excluded from investment income in the computation of limitation of investment interest deduction.

Answer 290

Works 500 hours or more in the activity during the year;Does all, or nearly all, of the work in the activity;Works more than 100 hours in the activity during the year, and no one else works more than you do;Materially participated in the activity in any 5 of the previous 10 years.The activity is a significant participation activity (SPA), and the sum of the SPAs in which the taxpayer works 100–500 hours exceeds 500 hours for the year;The activity is a personal service activity and the taxpayer materially participated in that activity in any three prior years.

Answer 291

In order to qualify for the Head of Household filing status, the taxpayer:Must be single at the end of the year or not remarried after the demise of the spouse. Must support a qualifying relative or a qualifying child for more than half the year. Must incur more than 50% of the expenses related to running the household.

Answer 292

Premiums paid on key person’s life insurance policy are not deductible for tax purposes

Answer 293

Dodsen effectively negotiated the note for value to Mellon by delivery alone and without endorsement. Therefore, he has a warranty liability to Mellon, but not to Bloom. When a person does not endorse an instrument, but negotiates it by delivery alone, her or his warranty extends only to the person to whom it was given. Thus, Dodsen's warranty extends only to Mellon and not to Bloom. Mellon endorsed the note and thus has contractual liability. Under contractual liability, the endorser guarantees payment of the instrument if the appropriate party for payment dishonors the note.

Answer 294

30k cuzz this is coporation

Answer 295

Home mortgage interest on the first or second home is deductible as itemized deduction on schedule A of Form 1040. To be deductible the interest must be (i) Paid and related to the current period, i.e., pre-paid interest must be deducted ratably to the period to which it belongs (ii) From home acquisition debt that does not exceed $750,000 or (iii) From home acquisition debt that was acquired to buy build or substantially improve home can be deducted on the 1st or 2nd home. Accordingly, $5,000 of mortgage interest is deductible. Utilities and insurance expense are personal expenses that are not deductible. Options (a), (b) and (d) are incorrect because of the above explanation

Answer 296

Generally, under §219, an employee and her/his nonworking spouse may each contribute (and deduct) up to $5,500 of earnings to an IRA in 2018. If one spouse is covered by an employer pension plan, and their AGI is greater than the active participant phase-out limit, then the participating spouse’s deduction is disallowed. Mike is covered by his employer’s plan and the couple’s AGI is $153,000, so Mike’s contribution is not deductible. Because the couple’s AGI is less than the married non-participant threshold, Julia’s contribution is fully deductible. Contributions to an IRA may be made up to April 15 of the year after the taxable year. Thus, a contribution may be made in January of the next year.

Answer 297

The AICPA Code of Professional Conduct has very strict rules around acceptance of contingent fees, commissions and referrals fees. From the given choices, only fees such as commission or referral fees paid to CPA for recommending a product or service such as computer system is allowed, provided the CPA does not provide audit or attest services. Option (a) is incorrect because CPA providing audit services must be independent in fact and appearance and therefore provide investment advisory services to audit client and accept fees for the same. Option (c) is incorrect because contingent fees cannot be charged for the preparation of initial or amended tax return. Option (d) is incorrect because contingent fees are specifically prohibited for review of financial statements.

Answer 298

Sexual discrimination among employees is prohibited under both the Equal Pay Act and Title VII of the Civil Rights Act.

Answer 299

Keen has no personal holding company tax liability as it does not meet both tests for a personal holding company [§542(a)]. A substantial portion (60% or more) of corporate income (adjusted ordinary gross income) must be comprised of passive types of income such as dividends, interest, rents, royalties, or certain personal service income. This test is met as all of Keen's income is passive income. However, more than 50% of the value of the outstanding stock must be owned by five or fewer individuals at any time during the last half of the taxable year. This test is not met as Keen has 80 equal stockholders.

Answer 300

Investment interest expense is deductible as an itemized deduction to the extent of net investment income. In this case, the net investment income is computed as investment interest income of $10,000. The taxpayer is allowed to deduct investment interest expense only to the extent of net investment income. Since the investment income is $10,000 all of the $5,000 investment interest expense is deductible.Note: Interest expense to purchase tax-free bonds not deductible since interest earned on the bonds is non-taxable.

Answer 301

Generally, an accountant in the performance of an engagement must exercise due professional care expected of an ordinary prudent CPA. According to the 2nd Restatement of Torts followed by the majority of states, an accountant who negligently prepares a client’s financial report will be liable to anyone in privity (client) and intended third party beneficiary. Option (a) is incorrect because anyone known and foreseen by CPA and not only third parties in privity of contract with the accountant can sue for negligence. Option (b) is incorrect because not all third parties but only foreseen third parties who relied on the report and sustained injury can sue for negligence. Foreseeable and unforeseen third party do not have privity to sue for negligence. Option (d) is incorrect because majority of states permits a user that is known or foreseen (not reasonably foreseeable) by the accountant to be relying on the financial statements to sue for negligence.

Answer 302

The financing statement includes: (i) Description of the types of collateral. (ii) Name and address of debtor. (ii) Name and address of creditor. The amount of the obligation secured is not required to be included in the financing statement.

Answer 303

However, as per TCJA, the deduction for NOL is limited to the lesser of:The aggregate of net operating loss carryovers to such year, plus the net operating loss carryback to such year, or80% of taxable income computed without regard to deduction allowable.Here, Taylor Corp has an NOL of $50,000 in Year 2 which it must carry forward.The amount of deduction of loss in Year 3, is limited to the lesser of NOL carried forward to that year ($50,000) or 80% of the taxable income of Year 3 of $48,000 ($60,000 x 80%).Accordingly, the NOL deduction for Year 3 is $48,000 and the NOL carry forward to Year 4 is $2,000 ($50,000 Year 2 NOL - $48,000 NOL Utilized in Year 3)

Answer 304

Gains from the sale of partnership interests generally are characterized as capital gains, unless attributable to unrealized receivables or inventory items.

Answer 305

Penalty for late filing is due when a taxpayer fails to file a tax return by the due date (generally April 15) and does not apply for an extension to file tax return. Penalty for late payment is due when a taxpayer has a balance due of > $1,000 on the due date or the total withholding is the lesser of(i) 90% of current year tax liability or(ii) 100% of prior year tax liability (110% if AGI is > $150,000)In this case, the taxpayer filed the tax return late without any extensions and had a balance due of $5,000 ($50,000 tax liability - $45,000 withholding). Therefore, he is subject to both the late filing and late payment penalties. Both penalties will be computed from the due date of the return at 5% per month for late filing and 0.5% per month for late payment. The maximum amount of penalty is 25% of the underpayment and cannot exceed 5% of the balance due for any month when both penalties apply.

Answer 306

The forfeited interest penalty for premature withdrawal of time deposits is a deduction from gross income in arriving at adjusted gross income. Option (a) is incorrect because of savings penalty is not a deduction from Interest income in the previous year.

Answer 307

The correct answer is (C).The refund of state income tax is included in both book and taxable income, as it was previously expensed. No adjustment is required. Generally, only 50% of meals are deductible.50% of meal expenses would be added back giving us taxable income of $400,000 + (50% x $10,000) = $405,000.For Corporations, business meals incurred directly or reimbursed to employees are 50% tax deductible. However, full tax deduction allowed if treated as a fringe benefit and included on the employee’s gross income.

Answer 308

UCC 2-513(1) provides that a buyer has a right to inspect goods before payment or acceptance occurs. UCC 2-513(3) states that where there is a C.O.D. term, the buyer is not entitled to inspect the goods before payment; however, the buyer still retains the right to inspect before acceptance. A C.O.D. term requires the buyer to pay for the goods immediately upon delivery and before obtaining possession.

Answer 309

S corporation shareholders pay tax on S Corp. income when earned. Therefore, generally distributions up to basis are tax free. In general, distributions from S Corporations are non-taxable and are made in the following order: (1) Non-taxable distributions to the extent of AAA (Accumulated Adjustment Account),(2) Taxable dividend income, to the extent of C Corporation AEP (Accumulated Earnings & Profits from C Corporation years), (3) Non-taxable distributions to the extent of OAA (Other Adjustments Account), (4) Non-taxable return of capital to the extent of S Corp. shareholder basis and (3) as taxable capital gain distributions in excess of shareholder basis. Since Stone Corp. has been an S Corp. since inception and distribution in all 3 years has been in excess of shareholder basis, ; there is no dividend income to recognize, but the shareholders must recognize capital gain income for all 3 years.

Answer 310

Distributions over the current and accumulated earnings and profits are a return of capital. A return of capital is not taxable. $1,500,000 distribution – $825,000 E&P = $675,000 return of capital.

Answer 311

Interest, taxes, and research and experimental costs are not eligible start-up costs, even if incurred before business begins.

Answer 312

Generally, the gain on sale of partnership interest is a capital gain, since it is sale of an investment asset. However, of the total gain, ordinary income must be recognized to the extent of partner’s share of inventory and receivables in the partnership. The remaining is capital gain. This is because had the partner not sold his interest, these “hot assets”, it would have yielded regular business income, which would have been treated as ordinary income by the partner. In this case, unrealized accounts receivable to the partnership is $420,000. Carr’s one third interest in this would be $140,000 (1/3 of $420,000). Therefore, when Carr sells his partnership interest, gain to the extent of $140,000 would be reported as ordinary income and the remaining would be capital gain.

Answer 313

When a corporation makes a distribution to its shareholders, the distribution is treated as taxable dividend income to the extent of higher of: Current Earnings and Profit (CEP) or Sum of CEP and Accumulated Earnings and Profit (AEP) before the distribution, in this case, the calculation for taxable dividend would be as follows:Description AmountCurrent E&P $10,000Accumulated E&P + Current E&P [$(100,000) + $10,000] $(90,000)Taxable Dividend ($10,000 or negative $90,000) $10,000Since CEP is higher than the sum of CEP & AEP, the taxable dividend portion of the distribution is limited to the available CEP. The remaining distribution of $20,000 is treated as a non-taxable return of capital to the extent of shareholder's basis and any excess distribution is treated as a taxable capital gain distribution.

Answer 314

A corporation can deduct charitable contributions upto 10% of total income less ordinary deductions, before deductions for charitable contribution, Capital loss and Dividend Received Deduction (DRD). Any excess contribution over this limit may be carried forward to a maximum of five succeeding years.

Answer 315

Must be single at the end of the year or not remarried after the demise of the spouse. Must support a qualifying relative or a qualifying child for more than half the year. Must incur more than 50% of the expenses related to running the household.

Answer 316

state income taxes reduces taxable income; they are not tax credits

Answer 317

If a single-member limited liability company (LLC) admits a new member, it is taxed as a partnership. A single-member LLC is disregarded as a separate entity by the IRS. Accordingly, if the single member is an individual, the LLC is taxed as a proprietorship. If the single member is a corporation, the LLC is taxed as a division of a corporation. An LLC with multiple members is taxed as a partnership. Thus, if one member of a two-member LLC dies and the remaining member is an individual, the LLC is taxed as a proprietorship

Answer 318

Net Operating Loss (NOL) is the excess of a taxpayer's deductions over income (Salaries & Wages, Schedule C income, Rental income and Farm income) including personal casualty losses. The most common reason for an NOL is the operation of a business. Net operating losses arising after December 31, 2017 are deductible only to the extent of 80% of the taxpayer’s taxable income, and can be carried forward indefinitely but generally cannot be carried back. Net operating losses that arose before January 1, 2018 will not be subject to the 80% limitation.The following items cannot be included in the computation of NOL: NOL carry back or carry forward from other years, excess capital loss ($3,000), Exemptions, Standard Deduction, Itemized deductions except casualty losses, contributions to a self-employed retirement plan and interest and dividends. From the given items of income and deductions, NOL can be computed as the sum of:Net business loss $(16,000)Wages $5,000Net Rental Income $4,000Total $7,000

Answer 319

Net Operating Loss (NOL) is the excess of a taxpayer's deductions over income (Salaries & Wages, Schedule C income, Rental income and Farm income) including personal casualty losses. The most common reason for an NOL is the operation of a business. Net operating losses arising after December 31, 2017 are deductible only to the extent of 80% of the taxpayer’s taxable income, and can be carried forward indefinitely but generally cannot be carried back. Net operating losses that arose before January 1, 2018 will not be subject to the 80% limitation.The following items cannot be included in the computation of NOL: NOL carry back or carry forward from other years, excess capital loss ($3,000), Exemptions, Standard Deduction, Itemized deductions except casualty losses, contributions to a self-employed retirement plan and interest and dividends. From the given items of income and deductions, NOL can be computed as the sum of:Net business loss $(16,000)Wages $5,000Net Rental Income $4,000Total $7,000Options (B), (C) and (D) are incorrect based on the above explanation.

Answer 320

The correct answer is (B).The amount of an S corporation’s loss that can be deducted on a shareholder’s tax return is limited to his/her at risk amount in respect of S corporation, which is calculated as a net basis + direct loan by the shareholder to the S Corporation. In other words, the adjusted basis of the shareholder taxpayer cannot be reduced below zero.The taxpayer’s at risk amount = $25,000 [adjusted basis]+ $13,000 [original loan]-$3,000 [loan repaid] =$35,000. The taxpayer’s share of loss in S corporation is $40,000; however, only $35,000 of it can be deducted on the taxpayer’s return which shall reduce the taxpayer basis at the end of the year to $0. The remaining loss amount of $5,000 is carried forward to future years.(A), (C) and (D) are incorrect as per the above explanation.

Answer 321

Hot Assets are those that are used in the ordinary course of business and the sale of such assets would result in ordinary income to the business. From the given choices, unrealized receivable is an example of hot asset which when sold would result in realization of ordinary income to the partnership. Another example of hot asset is inventory. All other given choices (cash, section 1231 assets & capital assets) are part of investment asset or capital asset to the partner and partnership.

Answer 322

Restaurant employees who receive over $20 in cash as tips in any one month must report this tip income on a written statement to their employers in the first ten days of the month following the month of actual receipt.This requirement, per §3401(a), is so employers can withhold income taxes on the tip income.The employee is considered to have received tip income in the month s/he furnishes the written statement to her/his employer [Reg.§31.3401(f)-1(b)].Thus, Pierre will recognize $2,000 in tip income in January 2018 when he furnishes a written statement to his employer reporting tips he actually received in December 2017.

Answer 323

S Corporation is a pass-thru entity which passes income to shareholders proportionate to their holdings and tax is paid at the individual shareholder level. Each Shareholder’s basis in S Corp. is computed as follows:Page is a 25% shareholder in an S corporation. Page’s basis in stock at year-end is:Increase (ordinary income): 25% * 200,000 = $50,000Decrease (distribution): $30,000Wages do not affect basis. Therefore, basis is $30,000 ($10,000 + $50,000 - $30,000 = $30,000).

Answer 324

apple's basis in the machine is 5000

Answer 325

Gain which is incurred by a noncorporate shareholder on the redemption of stock that qualifies as a partial liquidation of the distributing company is treated as a capital gain under §302.

Answer 326

MSA/HSA ContributionsEducator Expenses: Up to $250 of qualified expenses.Deductible part of Self-Employment TaxSelf-Employed SEP, SIMPLE, and Qualified PlansSelf-Employed Health Insurance PremiumsInvestment penalties for early withdrawalAlimony Paid (Divorce Prior to December 31, 2018)Traditional IRA DeductionStudent Loan Interest up to $2,500 (Can't be another taxpayer's dependent)Qualified Tuition and Fees

Answer 327

A derivative suit occurs when stockholders sue for the benefit of the corporation; any recovery is paid to the corporation. In a derivative action, proof must be shown that the corporation suffered harm, such as in the case of recovering damages from a third party. Suits to compel payment of properly declared dividends, enforce access to corporate records, and protect preemptive rights are for the benefit of shareholders, not the corporation.

Answer 328

A corporate liquidation is a taxable event for both the shareholders and the corporation. In a complete liquidation, if the corporation distributes assets to the shareholders, it is treated as having sold the assets to the shareholders at its fair market value. The amount of gain/loss to be recognized by the liquidating corporation can be calculated as FMV of the property distributed less Property basis, and the character of gain/loss depends on the underlying nature of the asset.In the given case, C Corp distributed capital assets (investment land and marketable securities) with FMV of $560,000 and basis $570,000 to an unrelated individual in complete liquidation. Therefore, it will recognize a net capital loss of $10,000 ($560,000 - $570,000) on the liquidation distribution.Note: But inventory being an ordinary business property, cannot be included in the computation of the capital gain or loss. The sale of inventory results in the recognition of a gain or loss.

Answer 329

The property of the estate consists of the debtor's assets administered in bankruptcy. On commencement of bankruptcy, an estate is created of (in part): property interests acquired by the debtor within 180 days after commencement by bequest, devise, or inheritance; as a result of a property settlement agreement with a spouse; or as a beneficiary of a life insurance policy or health benefit plan. Child support payments, social security payments, and wages earned after the filing of the petition are excluded from the bankruptcy estate.

Answer 330

Distributions made by corporations to its shareholders are treated as taxable dividend income to the extent of higher of :(1) Current Earnings & Profits (CEP) or(2) Sum of Current Earnings & Profits (CEP) and Accumulated Earnings & Profits (AEP)Any distributions in excess of this, is treated as (1) Return of capital to the extent of shareholder basis and (2) Taxable capital gain distribution in excess of shareholder basis. On December 31, Year 5 Dhal had AEP of $9,000 before any distributions. Land with a basis of $5,000 and FMV of $40,000 was distributed to Green. Since appreciated property was distributed to Green, Dhal Corp. must recognize a gain of $35,000 (FMV $40,000 - Basis $5,000) which increases the AEP at December 31, Year 5 to $44,000 (AEP $9,000 + CEP $35,000). Additionally, Green received cash of $9,000, which makes the total distribution $49,000. From the total distribution of $49,000, taxable dividend income to Green is $44,000 because the sum of AEP & CEP of $44,000 is greater than CEP of $35,000. The remaining distribution of $5,000 is treated as return of capital to the extent of Green's basis in Dhal stock and excess if any, is treated as capital gain distributions.Options (A), (B) and (D) are incorrect because as explained above treatment of distributions as taxable dividend depends on the availability of AEP and CEP. Additionally, for distribution of appreciated property, the corporation must recognize gain which is included in the taxable dividend income of the shareholder. Note the shareholder's basis in the property will be its FMV

Answer 331

Both a faxed and a mailed acceptance would be valid means of acceptance, and in each case acceptance occurred upon dispatch.

Answer 332

Distributions that are from current and accumulated earnings and profits are taxable as dividend income. The distribution taxable as a dividend is $60,000 + $80,000 = $140,000.

Answer 333

the distributions from the S corporation are tax-free to the extent of the Starr’s basis in the stock of the S corporation. Any excess distributions are treated as gain from the sale of stock.

Answer 334

An S corporation’s Accumulated Adjustment Account (AAA) represents the cumulative total of undistributed non-separately stated and separately stated income (+) and expense (-) items. Further it is reduced for any distributions made to the shareholder. From the given choices, interest and dividend are separately stated income items that increase the balance in the AAA account.Option (A) is incorrect because capital contributions by shareholder affects only the shareholder’s basis and not the AAA account.Option (B) is incorrect because distributions decrease the balance in AAA account.Option (D) is incorrect because charitable contribution is a separately stated expense item that reduces the balance in AAA account.

Answer 335

Attachment occurs when (1) value is given by the secured party, (2) the debtor attains rights in the collateral,and (3) the debtor and creditor acknowledge the creation of a security interest by a signed security agreement or by collateral in the possession of the secured party.In this situation, attachment occurred on March 10 because the following occurred on or before that date: (1) Green picked up the car,(2) the car had been identified to the contract,therefore,Green had a right in the property, and (3) Green signed a security agreement.The scenario states that Green signed a security agreement on March 5, not that Easy made any commitment to extend credit.On March 5, Easy has given value neither in the form of the car nor a binding commitment to extend credit.

Answer 336

In general, S corporations pass items of income, loss, deductions, and credits through to their shareholders; however, an S corporation pays taxes at the corporate level for built-in gains (the excess of the fair market value of assets over their bases at the beginning of the first year in which the S corporation status is effective). ($85,000 - $40,000) x 21% = $9,450

Answer 337

Distributable Net Income (DNI) is the maximum amount of distribution that is taxable to the beneficiary. Any distribution in excess of DNI is tax free return of principal to the beneficiary. DNI is computed as the sum of Adjusted Total Income (ATI) and tax-exempt interest. It does not include capital gain which is allocated to the Corpus. Also a trust is not taxable for DNI. Instead it gets a deduction called Income Distribution Deduction (IDD), that is the lower of DNI or actual distribution which reduces the Adjusted Total Income. Based on the above, the beneficiary is taxed on the DNI of $14,000 and the trust pays no tax

Answer 338

Any exempt organization must file a business income tax return and pay income taxes on unrelated business income (UBI) in excess of $1,000. Option (a) is incorrect because existence of UBI does not cause an organization to lose its exempt status as long as it is insubstantial to the organization. Option (c) is incorrect because tax is imposed on UBI that is obtained from regularly operated business activities which are not related to the organization's tax exempt purpose. Option (d) is incorrect because UBI is obtained from regularly operated business activities and it is not true that losses from unrelated trade or business is excluded.

Answer 339

The shareholder reports a $3,000 capital gain.In a liquidating distribution, when a corporation distributes property instead of cash, the shareholder receives the property at its FMV and must recognize a gain or loss, which is computed as the difference between shareholder basis and FMV of property received. In this case, a gain or loss to the shareholder would be computed as follows:FMV of Machinery on Date of Transfer $5,000Less: Shareholder's Basis in Corporation's Stock $(2,000)Total Capital Gain on Sale of Stock $3,000(B), (C) and (D) are incorrect based on the above explanation.

Answer 340

Guaranteed payments are deducted before calculating each partner's distributive share. Flagg is a 50% partner. ($45,000 - $7,500) x 0.50 = $18,750

Answer 341

to the extent of higher of 1) current earning and profit2) sum of current earnings and profit and accumulated earnings and profitsremaining distribution in excess of earning and profits are either non taxable return of capital to the extent of shareholder basis or taxable capital gain distribution.

Answer 342

Guaranteed payments from a partnership for services rendered are income from self-employment. Ordinary income received from an S corporation was earned by the S corporation, not the shareholder, and retains its character as it passes through to the shareholder.

Answer 343

If a partner enters into a sale of an asset with such partnership and if the partner owns more than 50% of the partnership, no loss is recognized. Since Lisa owns only 50% of the partnership, the entire $5,000 loss ($8,000 - $3,000) on the sale of the stock is recognized by Lisa as a long-term capital loss.

Answer 344

The correct answer is (B).Assignment is where a party transfers the rights they possess in a contract to a person or organization not originally part of the deal. For an assignment of rights to be valid, the assignor must manifest an intent to immediately and completely transfer his/her rights. (A) and (D) are incorrect because an assignment of rights can be made without the permission of the other.(C) is incorrect because there is no requirement for an evidentiary document for assignment of rights to be valid.

Answer 345

The requirement is to determine the distribution deduction on the estate income tax return. Income Distribution Deduction (IDD) is allowed for distributions of income to beneficiaries, that are taxed on the beneficiary's income tax return (pass-thru via Schedule K-1). The actual amount of deduction is the lower of (a) Distributable Net Income (DNI) or (b) Actual distribution to beneficiaries less tax-exempt income (a) Distributable Net Income (DNI) identifies the amount of income that is available for distribution to the income beneficiaries of trust each year. It is computed as Adjusted Total Income - Capital gains allocated to corpus + Tax-exempt income. In this case it is given that DNI is $15,000. (b) Actual distribution to the beneficiary is $9,000.As the Income Distribution Deduction (IDD) is the lower of DNI or actual distribution, the deduction on the 2010 fiduciary income tax return is $9,000. No allocation is made to tax-exempt income as none of the income were exempt from taxes. Options (a), (b) and (d) are incorrect based on the above explanation.

Answer 346

As a cash basis taxpayer, Rose would not recognize the $10,000 fee until she actually or constructively received it. Because this receipt occurs after Rose’s death, the $10,000 is called “income in respect of the decedent” (IRD). IRD must be reported on both the estate’s fiduciary income tax return under §691(a) and the estate tax return under §2033.

Answer 347

A shareholder's basis in a C corporation stock is equal to: Cash + Carryover basis of Property contributed - Mortgage assumed by Corporation + Gain recognized. Accordingly, Feld's basis in Maki Corp stock can be computed as: Cash $50,000 + Carryover basis of Land $10,000 = $60,000.Assuming this is a Sec 351 transaction, i.e., taxpayer receives 80% or more control in exchange for cash and property, there is no gain to recognize.

Answer 348

Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors. Rule 504 and 506 applies. The securities cannot be the subject of an immediate unregistered re offering to the public. Under rule 506, we cannot resell for 1 year (or 6 months if the issuer is a reporting company under the 1934 Act).Option(A) is incorrect because under Rule 504 - Offerings up to $5 MM to be completed within 12 months and under Rule 506 there is an unlimited amount of time for issuance.Options (C) and (D) are incorrect because under Rule 504 securities can be sold to an unlimited number of investors (accredited and non-accredited) and under Rule 506, the securities can be sold to an unlimited number of accredited investors but limited to 35 or fewer non-accredited investors

Answer 349

When an S-Corp. status terminates due to the induction of a C-Corp. as a shareholder, it necessitates the preparation of two tax returns - an S Corporation short year and C Corporation short year. Allocation of income may be made by:(1) A special election to the extent of the net income may be “cut-off” at the exact date of conversion or(2) If special election is not made, the income must be allocated on a daily basis between the two based on 365 day year.Given that, Zinco’s S status terminated on April 1, Year 1, the S-Corp was effective for 90 day period. As no election was made, the non-separately stated income of $310,250 is allocated to S Corp. for Year 1 as follows: $310,250/365 = $850 per day x 90 days = $76,500

Answer 350

Duress means threats used to force someone to do something. Here, Maco, Inc. and Kent contracted for Kent to provide Maco certain consulting services at an hourly rate of $20. Even though, Kent's normal rate is higher than $20, he has agreed on the lower value due to his financial condition and the contract was formed with hisconsent. Therefore, this is a valid contract as it has all the elements of a contract - offer, acceptance and consideration. Maco Inc. did not force Kent to enter in this contract. Therefore, Kent will lose in a lawsuit against Maco, Inc. Options (a) and (b) are incorrect because both Kent and Maco mutually agreed on the $20 per hour compensation, irrespective of the FMV of Kent's services or his financial condition. There was no duress. Option(d) is incorrect because defenses in a contract can be used by parties seeking to escape a contract by claiming that the contract is invalid because it may either be void or voidable . A contract is voidable only when there is Duress, undue influence, misrepresentation, mistake, incompetent parties or lack of capacity. Existence or non-existence of other consulting commitments for Kent, is not a valid defense.

Answer 351

Distribution of property to the owners is not taxable if the distributing entity is a partnership. This is irrespective of whether the partnership is a general partnership or a limited liability partnership. Partners, who receive appreciated property will, (i) receive the property at the inside basis of the partnership (i.e., FMV of property is ignored) and (ii) in case, the partner's basis is insufficient to receive the appreciated property, the distributing property's basis is adjusted such that, the partner/partnership recognizes no gain or loss. This means that the individuals may be advised to form a general partnership or a limited liability partnership to defer recognition of gain on the appreciated property.(A), (B) and (C) are incorrect because C corporations, S corporations and Limited Liability Companies (LLC) must recognize gain on distribution of appreciated property to the shareholders (members in case of an LLC). The shareholders will receive the property at the appreciated basis and must recognize dividend income for the portion of the appreciation.

Answer 352

Regardless of the financial status, a private foundation must file a Form 990-PF. It may be subject to excise taxes on various investment income and transactions that occur with the person who funded the organization.(A) and (B) are incorrect because filing requirement does not apply to religious organizations (e.g. churches, religious orders, internal support auxiliaries of religious organizations, missionary-related societies) due to the constitutional prohibition on government regulation of religious activities.(D) is incorrect because regardless of the financial status or gross receipts a private foundation must file form 990-PF.

Answer 353

Under the uniform capitalization (UNICAP) rules, the costs to purchase, assemble, produce, and store inventory are included among the costs to capitalize. Marketing, distribution, and office maintenance costs are period costs.

Answer 354

Charitable contributions are generally deducted by complex trusts. An estate can deduct a charitable contribution if it is provided for in the decedent's will and the payment is made to qualified charities from amounts included in the estate gross income. Option (a) is incorrect because here deductions include administrative expenses of $14,000 and distribution made to Astor’s heir $12,000. Actual distributions are relevant only at the final calculation, to compute income distribution deduction and not in the calculation of DNI. Option (c) is incorrect because $58,000 is arrived at by deducting actual distribution of $12,000 from the taxable income of $70,000. This is incorrect because deductions from taxable income comprise of expenses incurred to earn the income, capital gains allocable to corpus as well as any charity contribution made as per will. Actual distributions are relevant only at the final calculation, to compute income distribution deduction and not in the calculation of DNI. Option (d) is incorrect because $65,000 is the taxable interest earned by the estate. While this is part of DNI, deductions for administrative expenses $14,000 and charity contribution of $9,000 need to be adjusted to arrive at DNI of $42,000.

Answer 355

The various ways by which a party to a contract may be discharged are (1) By performance (2) By agreement (3) By operation of law or (4) By breach. Performance or prevention of performance can result in discharge of a party to a contract. Accord and satisfaction is a means of an agreement wherein performance of the substituted duty, results in satisfaction that discharges the original duty. Options (a), (b) and (d) are incorrect because both prevention of performance and accord and satisfaction can result in discharge of a party to a contract.

Answer 356

foreign tax credit for the current year is $36,600 ($9,600 + $27,000), computed as follows:the lesser of foreign taxes paid on nonbusiness related interest ($12,000) or the portion of U.S tax allocable to that interest [$96,000 x ($30,000/$300,000) = $9,600],plus the lesser of foreign taxes paid on all other foreign-source taxable income ($27,000) or the portion of U.S. tax allocable to that income [$96,000 x ($90,000/$300,000) = $28,800].

Answer 357

all three items given: the provision for state taxes, interest from US treasury bonds and interest expense to purchase the bonds, are neither permanent nor temporary adjustments. Both the provision for state taxes $1,000 and interest expense incurred to purchase US Treasury bonds of $2,000 are deductible for tax and GAAP purposes. Likewise, interest earned on US Treasury bonds of $6,000 is income for both tax and GAAP purposes. Therefore, Maple's taxable income for Year 1 is the same as book income of $100,000.

Answer 358

The accumulated earnings tax is designed to encourage corporate distributions. Otherwise, corporations might not distribute earnings, increasing the stock price, so shareholders could sell the shares and have capital gains (taxed at a favorable rate for individuals) instead of ordinary income. Starting with its federal taxable income of $400,000, Kari is allowed a deduction for the federal income tax of $100,000. The minimum credit is $250,000. Therefore, the maximum amount that may be subject to the accumulated earnings tax is $400,000 - $100,000 - $250,000 = $50,000.

Answer 359

In order for a corporation to claim the Dividends Received Deduction (DRD), the corporation must own the investee stock for more than 46 days during the 91-day period beginning on the date 45 days before the ex-dividend date.

Answer 360

When corporations make distributions of appreciated property to shareholders, gain is recognized as if the property were sold at its fair market value (FMV) to the shareholder. Shareholders on the other hand recognize the FMV of property received as dividend income (capital gain in the event of liquidating distribution) less any liabilities assumed. Fox’s dividend income is equal to $35,000 ($38,000 FMV - $3,000 liabilities assumed). Fox’s basis in land received is $38,000, the FMV of land received.

Answer 361

In a sale-or-return contract, risk of loss is borne by the buyer while the goods are in the buyer’s possession and during the return of the goods to the seller.

Answer 362

Section. 170(a) allows a deduction for charitable contributions. However, §170(b)(2) limits a corporation's deduction for charitable contributions to 10% of taxable income determined without regard to the charitable contributions deduction, without regard to Part VIII except §248, net operating loss carrybacks, and capital loss carrybacks. Part VIII includes §243 that authorizes the dividend-received deduction (DRD) for corporations. Section 170(d)(2)(A) provides that a corporation's charitable contributions in excess of the 10% limit of §170(b)(2) shall be carried over for up to 5 years. However, charitable contributions made in the current year are to be deducted first. Cable Corp.'s tentative charitable contributions deduction for the current year includes the carryover of $10,000 from the prior year. The DRD must be added back to taxable income before the charitable contributions deduction to determine the limit imposed by §170(b)(2).Charitable contributions made in the current year $80,000Charitable contributions carryover from the prior year 10,000Tentative charitable contributions deduction $90,000Taxable income before charitable contributions $820,000Add: Dividends received deduction 40,000Taxable income for purposes of the limit $860,000Limit percentage x 10%Limit on Charitable Contributions Deductions $86,000

Answer 363

This event is a tax-free liquidation of a subsidiary.

Answer 364

Each is created under a statute and must file a copy of its certificate with the proper state authorities.

Answer 365

Under the Revised Uniform Partnership Act, a partnership has neither unlimited duration nor an obligation for the payment of federal income tax (FIT). A partnership, unlike a corporation, may dissolve every time its ownership changes, limiting its duration. For FIT purposes, a partnership is considered a conduit in that the individual owners are obligated for the payment of federal taxes.

Answer 366

An express warranty may be created by any sample or model that is made part of the basis of the bargain. Fitness for a particular purpose and merchantability are implied warranties under the UCC. Usage of trade also would be an implied warranty when both parties have knowledge of a trade custom.

Answer 367

under 1933, plantiff must NOT prove defendant's intent to deceive, must NOT prove plaintiff's reliance on the registration statement

Answer 368

The percentage-of-completion method

Answer 369

a deduction for federal income taxes in computing undistributed personal holding company (PHC) incomea deduction for net capital gains less the taxes thereon in computing personal holding company income.

Answer 370

Purchase money security interest (PMSI) is a special type of security interest which arises when either a creditor sells collateral to the debtor on credit retaining a security interest for the purchase price or the creditor advances funds used by the debtor to purchase the collateral. The purchase money security interest in the consumer goods is automatically perfected without filing a financing statement. However, in the case of inventory, the PMSI can be perfected only by filing a financing statement in the appropriate public office. Options (a) and (b) are incorrect because the PMSI in the case of stock certificates and negotiable instruments like promissory notes is perfected by the creditor on gaining possession of the collateral. Option (c) is incorrect because the PMSI in personal jewelry is treated as a consumer good and is automatically perfected without filing a financial statement.

Answer 371

beginning earning and profitadd taxable incomeadd charitable contribution carry forwardadd capital loss carry forwardless federal income tax paidequal accumulated earning and profit

Answer 372

Accrual basis taxpayers can accrue an expense if the transaction meets both an all events test and an economic performance test. This implies the existence of a liability is established; the amount of liability can be determined with reasonable accuracy and the services are actually provided by another person to the taxpayer. Although compensation expenses are deducted in the period that they are accrued for, there is an exception for bonuses and vacation pay. Bonus may be deducted so long as they are paid within 2 and a half months of the close of the corporation's tax year

Answer 373

Corporations must make quarterly estimated tax payments if the liability is $500 or more in any year. The estimates are calculated on the least of (1) 100% of current year tax liability or (2) 100% of previous year tax liability.

Answer 374

Expenses and losses reported on the books but not deducted on the tax return (and therefore included on Schedule M-1) include expenses incurred in connection with tax exempt income. However, income from a U.S. obligation is not tax exempt. Therefore, interest incurred on a loan to carry U.S.obligations is deducted on the tax return as well as on the books of the corporation, and no entry on Schedule M-1 is needed. State income taxes are also deducted for both book and tax purposes; thus, no M-1 reconciliation for state income taxes is required.

Answer 375

While a partner may engage in a transaction with her partnership in a capacity other than as a member of such partnership [§707(a)], if the partner owns, directly or indirectly, more than 50% of the capital or profits interests in such partnership, then the gain upon the sale or exchange of property between them which, in the hands of the transferee, is not a capital asset as defined in §1221, shall be considered as ordinary income [§707(b)]. Since Kaye owned 85% of the capital and profits interest of the partnership, her $4,000 gain ($6,000 - $2,000) is characterized as ordinary income.

Answer 376

Here the Corporation's net capital loss of $20,000 ($30,000 long term capital gain – $50,000 short term capital loss) is not included in the computation of taxable income. This is because corporations cannot deduct a net capital loss in the year incurred and must carry it back three years or forward five years to offset against the capital gains in the carryback/forward years.

Answer 377

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. $30,000 cash plus $25,000 liability relief equals $55,000 amount realized. $55,000 amount realized less $40,000 basis equals $15,000 gain. Gains from the sale of partnership interests generally are characterized as capital gains, unless attributable to unrealized receivables or inventory items.

Answer 378

A corporate liquidation is a taxable event for both the shareholders and the corporation. In a complete liquidation, if the corporation distributes assets to the shareholders, it is treated as having sold the assets to the shareholders at its fair market value. The amount of gain/loss to be recognized by the liquidating corporation can be calculated as FMV of the property distributed less Property basis, and the character of gain/loss depends on the underlying nature of the asset.In the given case, C Corp distributed capital assets (investment land and marketable securities) with FMV of $560,000 and basis $570,000 to an unrelated individual in complete liquidation. Therefore, it will recognize a net capital loss of $10,000 ($560,000 - $570,000) on the liquidation distribution.Note: But inventory being an ordinary business property, cannot be included in the computation of the capital gain or loss. The sale of inventory results in the recognition of a gain or loss.

Answer 379

The filing of a petition of bankruptcy, either voluntary or involuntary, stops the enforcement of judgment liens against property in the bankruptcy estate, and it, in general, stops all other legal actions against the debtor except for legal actions involving alimony, child support, and criminal actions. Bankruptcy proceedings act to protect the assets of the debtor until an equitable distribution of those assets among all creditors can be achieved. A discharge of debt under the Federal Bankruptcy Code has no effect on exempt property. The Federal Bankruptcy Code considers security interests in property in the bankruptcy estate when it assigns priority to creditors for the distribution of assets. The Federal Bankruptcy Code has no power to limit the debtor's actions regarding new debt.

Answer 380

Stockbrokers and commodities brokers are restricted to Chapter 7. While railroads are ineligible for Chapter 7 proceedings, they are eligible for Chapter 11 proceedings. Individuals and airlines are eligible for both Chapter 7 and Chapter 11 proceedings.

Answer 381

UCC 2-513(1) provides that a buyer has a right to inspect goods before payment or acceptance occurs. UCC 2-513(3) states that where there is a C.O.D. term, the buyer is not entitled to inspect the goods before payment; however, the buyer still retains the right to inspect before acceptance. A C.O.D. term requires the buyer to pay for the goods immediately upon delivery and before obtaining possession.

Answer 382

Distributable Net Income (DNI) is the maximum amount that can be taxed to beneficiaries as income. DNI is calculated for a simple trust as follows:Total Income(-) DeductionsAdjusted Total Income(-) Capital gains(+) Tax Exempt IncomeDistributable Net IncomeTax-exempt interest is distributable but not taxable. A personal exemption is not allowed for DNI. However, as it is given that the trust agreement provides for the current distributions of the capital gain income, it must be included in the calculation of DNI. Fiduciary Fees are included as a deductionDNI: $25,000 Capital gains + $10,000 Municipal interest + $5,000 Corporate bond interest - $2,000 Accounting and Trustee fees = $38,000.

Answer 383

The distributions are a nontaxable return of capital to the extent of the shareholder’s basis in the stock. Any excess distributions are treated as gain from the sale of stock. Shareholder basis is increased by non-separately and separately stated income and reduced by losses, deductions, and distributions. Baker’s basis is increased by ordinary income and reduced by the long-term capital loss.Baker’s basis at beginning of the year $ 25,000Add: Ordinary income 1,000Adjusted basis $ 26,000Less: Cash distribution ($ 30,000)Excess Distribution ($,4000)Taxable Gain $ 4,000Net Basis $ 0Based on the above, Baker received $4,000 ($25,000 + $1,000 - $30,000) in excess of his basis and that amount would be considered as taxable capital gain.Stock Basis is adjusted annually on the last day of the S-Corporation year in the following order:1. Increased For Income and Excess Depletion2. Decreased for Distributions3. Decreased for Non-Deductible, Non-Capital Expenses and Depletion4. Decreased for items of Loss and Deductions.In this case, Basis = $25,000 + Income $1,000 - Distribution $ 30,000 = $4,000 taxable.Since there is no basis to deduct $3,000 capital loss it is carried forward next year.Option (A) is incorrect because Baker received excess distributions that would be considered taxable.Option (C) is incorrect because $7,000 is derived from the sum of $4,000 excess distribution and the capital loss of $3,000. The long term loss is a deduction which is not allowed to Baker due to lack of basis, and therefore not taxable income. Option (D) is incorrect because $30,000 is the cash distribution to Baker. The full amount of cash distribution is not taxable because a portion of it to the extent of shareholder basis is considered a non-taxable return of principal. Only distribution in excess of basis is taxable to the shareholder.

Answer 384

The correct answer is (A).A corporate liquidation is a taxable event for both the shareholders and the corporation. In a complete liquidation, if the corporation distributes assets to the shareholders, it is treated as having sold the assets to the shareholders at its fair market value. The amount of gain/loss to be recognized by the liquidating corporation can be calculated as FMV of the property distributed less Property basis, and the character of gain/loss depends on the underlying nature of the asset.In the given case, C Corp distributed capital assets (investment land and marketable securities) with FMV of $560,000 and basis $570,000 to an unrelated individual in complete liquidation. Therefore, it will recognize a net capital loss of $10,000 ($560,000 - $570,000) on the liquidation distribution.Note: But inventory being an ordinary business property, cannot be included in the computation of the capital gain or loss. The sale of inventory results in the recognition of a gain or loss.

Answer 385

When title is to be transferred by negotiable warehouse receipt without movement of the goods, risk of loss passes to the transferee along with title to the goods at the time of receipt of the document. The risk of loss was transferred at the time Bell negotiated the warehouse receipt to Spark.

Answer 386

A partner with unlimited liability, but who is undisclosed and does not participate in the management of the partnership

Answer 387

Under a nonnegotiable bill of lading, a carrier who accepts goods for shipment must deliver the goods to the consignee of the bill of lading. The other three answers are applicable to a negotiable bill of lading.

Answer 388

Dunne and Cook signed a contract requiring Cook to rebind 500 of Dunne's books at 80¢ per book. Later, Dunne requested, in good faith, that the price be reduced to 70¢ per book. Cook agreed orally to reduce the price to 70¢. Under the circumstances, the oral agreement isA. Enforceable, but proof of it is inadmissible into evidenceB. Enforceable, and proof of it is admissible into evidenceC. Unenforceable, because Dunne failed to give consideration, but proof of it is otherwise admissible into evidenceD. Unenforceable, due to the Statute of Frauds, and proof of it is inadmissible into evidenceContracts for services are governed by common law which specifies that modifications to an agreement must be supported with consideration to be enforceable. The oral agreement is not enforceable. The Statute of Frauds not apply in this case; this contract is for services, not the sale of goods.

Answer 389

The Statute of Frauds applies to the sale of goods worth $500 or more, real estate contracts, contracts impossible to perform within one year from the date the contract is made, promises to answer for the debt of another, promise of an executor to be personally liable for a debt of the estate, and a promise in consideration of marriage. A contract that can be performed within one year from the date the contract is made is not covered by the Statute of Frauds.Options (a), (b) and (c) are incorrect because all these contracts are required to be in writing under the Statute of Frauds.

Answer 390

Risk of loss passes upon tender of delivery when the seller is not a merchant. If the seller was a merchant, risk of loss would pass upon the buyer's receipt of the goods. In this problem, the facts clearly specify that Wool is not a merchant in the goods being sold, so we can determine that risk of loss passed to Bond upon tender of delivery.

Answer 391

Dodsen effectively negotiated the note for value to Mellon by delivery alone and without endorsement. Therefore, he has a warranty liability to Mellon, but not to Bloom. When a person does not endorse an instrument, but negotiates it by delivery alone, her or his warranty extends only to the person to whom it was given. Thus, Dodsen's warranty extends only to Mellon and not to Bloom. Mellon endorsed the note and thus has contractual liability. Under contractual liability, the endorser guarantees payment of the instrument if the appropriate party for payment dishonors the note.

Answer 392

After payments to secured creditors (Fracon. $70,000; Decoy. $2,000), $28,000 remains in the bankruptcy estate. Of Dart's creditors, the IRS has the next highest priority after payment of administration expenses; its $12,000 claim will be satisfied in full

Answer 393

Unemployment compensation insurance is financed through payments made by employers under federal and state unemployment insurance laws. Workers' compensation insurance also is financed by payments made by employers under state workers' compensation laws. No payments are deducted from an employee's salary for either type of insurance.

Answer 394

It is generally not necessary for an agent to have a written agency agreement. An exception to the general rule exists if the agent’s duties will involve the buying and selling of real property.

Answer 395

subrogation

Answer 396

Ral must file a FUTA return because it had at least one employee during at least 20 weeks.The Federal Unemployment Tax Act (FUTA) requires an employer to file a federal unemployment tax return if the employer pays wages of $1,500 or more in any calendar quarter or employs one or more persons at least one day per week for 20 weeks during a calendar year. Ral Supermarket clearly meets the latter requirement and must file.

Answer 397

Payments made or promised for services and expenses must be disclosed to the court; the preconfirmation payments must be reasonable and any payments after confirmation are subject to the approval of the court as reasonable. The court may confirm the plan even if all classes of claimants do not accept the plan. There is no need for the preparation of a contingent plan of liquidation. A trustee is required in Chapters 7 and 13 proceedings but not in Chapters 9 and 11 proceedings.

Answer 398

Punitive damages are never available in breach of contract actions.

Answer 399

The correct answer is (D).IRC §267(a)(2) allows the accrual-basis corporation to recognize rent expense only to the extent that it has been recognized as rent income by the cash-basis greater than a 50% shareholder.Because the shareholder has recognized one-half of the total income, one-half of the total expense, or $2,250, may be recognized by Stone.This provision in the tax code is intended to require related parties to match related expenses and income. Otherwise, as a tax avoidance scheme, one related-party could possibly defer recognizing income while the other related party could claim the full expense.

Answer 400

A contract to purchase real property is assignable. In general, a contract may be assigned unless it involves personal services or a confidential relationship or the duties of the obligor would be materially increased. In this fact situation, there is no evidence given as to why this contract could not be assigned

Answer 401

Assignment is the transfer of a right under a contract by one person to another. The right to receive a sum of money is an assignable right. Option (a) is incorrect because contracts involving personal services cannot be assigned or delegated unless parties consent to it otherwise. Option (c) is incorrect because the assignment of the right of an insured to coverage under a fire insurance policy would materially alter the rights and responsibilities of the insurer under the fire insurance policy. Option (d) is incorrect because the right whose assignment is prohibited by the statute cannot be assigned as it is prohibited.

Answer 402

Unless otherwise agreed, the creditor may proceed immediately against the surety upon default by the debtor. The surety is immediately liable, and there is no duty on the creditor to go after the debtor or collateral first. Once the surety pays the debtor's obligation, the surety is subrogated to the creditor's rights against the debtor and has a right to the collateral.

Answer 403

Chapter 9 provides a procedure so that a municipality that has encountered financial difficulty may work with its creditors to adjust its debts. Chapter 9 is reserved for municipalities; individuals may file under Chapters 7, 11, and 13. Chapter 12 (not an option in this question) is reserved for family farmers and fishers.

Answer 404

Under the 1933 Act, there is no requirement that a plaintiff must prove the defendant's intent to deceive or the plaintiff's reliance on the registration statement (the plaintiff may need to prove these items under the 1934 Act but not the 1933 Act).

Answer 405

The Statute of Frauds applies to the sale of goods worth $500 or more, real estate contracts, contracts impossible to perform within one year from the date the contract is made, promises to answer for the debt of another, promise of an executor to be personally liable for a debt of the estate, and a promise in consideration of marriage. A contract that can be performed within one year from the date the contract is made is not covered by the Statute of Frauds.Options (a), (b) and (c) are incorrect because all these contracts are required to be in writing under the Statute of Frauds.

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