Filling late penalty
5% of unpaid tax each mth. No more that 25% of unpaid tax.
How do we response to a 30 days letter from IRS
May ignore the letter and take no action.
The taxpayer is not required to respond to a 30-day letter, although if there is no response the IRS will follow with a 90-day letter.
Failure to paid penalty
.5% of unpaid tax each mth. No more that 25% of unpaid tax.
Interest on unpaid tax
1% of unpaid tax each mth. No more that 25% of unpaid tax.
Goodwill: tax vs book
Tax: 15 yrs amortization
GAAP: impairment test
Liquidation of property - c crop shareholder gain
Gain is recognized to the extent of FMV not NBV
C crop - charitable contribution limit
10% of taxi or income after adding back DRD
Crop contribution carry forward allowed?
Yes. Forward 5 yrs and no back
Estate and trust both required to use calendar year?
Estates may use either the calendar year or a fiscal year for its tax year. Trusts, except those that are tax-exempt, are required to use the calendar year for its tax year.
Domestic holding co. Determining u distributed personal holding common income prior to DRD
Taxable income reduce federal income tax and net long term capital gain(net tax)
Life insurance of an officer. Tax on premium paid and proceeds received by the company?
Proceeds are not taxable.
Premium paid by the company is not tax deductible too.
MACRS depreciation method and percentage.
Half year or mid-quarter(if over 40%)
200% declining bal method - 3,5,7,10 yrs property
150% - 20 yr property
SL and mid-month. - 27.5 yr rental property and 39 yr office building property
Is land a capital asset?
No. Depreciable properties and real estate properties are 1231 asset.
Dif btw. Rule of
Crop NOL, Crop NCL
Personal NCL
Bus. Credit
Crop NOL: 2back 20forward
Crop NCL: 3back 5forward, always treated as short term loss
Individual NCL: 3000 per yr unlimited future yrs, but no back
Bus. Credit: 1yr back, 20yr forward
AMT rate, accumulated earning tax rate, holding company tax rate
20%
After 250,000 net taxable income 15%
15%
Which one doesn’t need to use Calendar Year as tax period?
C crop, S crop, Partnership and personal service co.
C crop only
IRC sec.1202-tax payer invested in small business
Non-corporation taxpayer can exclude from gross income 50% of any gain from sale of qualified small business stock held for more than 5 yrs.
Avantage of partnership and LLC over S crop in property distribution
LLC and partnership can distribute appreciated property without gain If it is not liquidating.
Passive activity limits are applied to the following entities:
Passive activity limits are applied to the following entities: individuals, estates, trust, personal service corporations and closely-held personal service corporations.
Limited liability or unlimited.
Owners of LLC, S crop, C crop
All owners of an S corporation and LLC have limited liability but general partners in a partnership have unlimited liability.
How to compute AMTI?
When computing alternative minimum taxable income, corporations may take an exemption of $40,000 minus 25 percent of alternative minimum taxable income exceeding $150,000.
IRC sec1202
Non-corporate taxpayer can exclude ____?___. Of any gain from the sale of qualified small business stock held for more than 5yrs
50%
Contribution properties (cash, property ) into a crop, no gain/loss recognized, only If the contributing shareholders together hold at least ___?_ of voting and non-voting shares.
80% - it means they have controlling power over the company.
When does a partnership terminate?
A partnership terminates for income tax purpose when 50% or more of its interests change hands within 12 mths.
A 25% interest in partnership profits is a guaranteed payment by a partnership to a partner?
No. Since the25% int. is calculated with respect to partnership profits.
Partnership general use calendar year end. But under section 444 IRC. A fiscal year might allowed
A tax year end which can not be deferred more than 3 mths. (Oct, Nov and Dec)
Holding period of partner contribution:
Capital asset or 1231–?
Ordinary income asset(inventory)–?
If the property was previously a capital asset or 1231 asset in the hands of the partner, the partner’s holding period for his partnership includes the period of the property contributed.
Ordinary income asset (hot assets)–the holding period begins on the day property is contributed to the partnership
Estate income tax return and estate tax return filling date?
Estate income tax 1041form: file by 15th of the 4th month of the next yr of the calendar yr end (4/15)
Estate tax filing -706 form: file by 9 mths after decedents dead
Burden of proof:
Civil Issue–?
Criminal Issue–?
Burden of proof:
Civil Issue– on taxpayer
Criminal Issue– on IRS
Circular 230 prohibits?
A partitioner from endorsing or negotiating refund checks issued to client.
Circular 230, for tax return:
A practitioner must ?
Circular 230, for tax return:
A practitioner must return all client records at the request of the client.
A tax return position is: ?
1) a position reflected on a tax return on which a preparer has specifically advised a taxpayer
OR
2) a position about which a preparer has concluded whether the position is appropriate.
Mandatory retirement and unintentional age discrimination are prohibited?
Mandatory retirement of most employees is prohibited under the ADEA, but there is an exception for corporate executives.
Unintentional age discrimination is prohibit for all business.
Estimate Tax-
A.individual
B. Crop
1. Small
2. LargeA. Individual - 100% last yr, if AGI over $150,000, 110%. Or. 90% this yr
B. Corporation -
Small crop: 100% this yr or 100% last yr
Large crop: taxable income over 1M— must pay 100% this yr
Are the following 3 penalties imposed conjunctionally?
- Negligence penalty w respect to an understatement of tax. (Not substantial) - accuracy related
- Penalty for substantial understatement tax - accuracy related
- Penalty for a substantial valuation misstatement
No. These 3 penalties are not imposed conjunctionally. One applies, the other two cannot also be imposed.
When the U.S. Tax Supreme Court denies a writ of certiorari, it confirms/does not confirm the lower court’s decision?
Does not confirm
Judges/hearing for the following courts:
Supreme Court: Court of appeals: Court of federal claims: U.S. District Courts: U.S. Tax Court:
Judges/hearing for the following courts:
Supreme Court: Panel of 9 judges (no jury)
Court of appeals: panel of 3 (no jury)
Court of federal claims: panel of judges up to 16 (no jury )
U.S. District Courts: one judge, not panel of judges (jury or trial –optional)
U.S. Tax Court: panel of judges (no jury)
A revenue agent and appeals division can both settle an unresolved tax issue based on the probability of winning the case in court?
Wrong. Only the appeals division can settle an unresolved tax issue based on the probability of winning the case in court, not a revenue agent (IRS)
Capital gains/losses allocated to principal are part of DNI?
No.
The foreign tax credit is the lower of?
The foreign tax credit is the lower of:
1) foreign tax paid or
2) U.S. Tax before credits x foreign source taxable income / worldwide source taxable income
Estimate Tax Requirement:
Before gross income limit?
After excess gross income limit?
Before gross income limit:
90% current yr
100% prior yr
After excess gross income limit: ($150,000 gross income)
90% current yr
110% prior yr
Ur income lvl is not required to file, but u have withholding. When is the deadline you can claim refund for you withholding?
Usually 3 yrs from the 4/15, since u didn’t file. It is 2 yrs from the date that tax was paid.
Donation of short term capital gain property is deductible at what value?
Adjusted base. Not FMV
Under non accountable plan, how to report employer paid automobile expense?
Whole amount reported as gross income as part of the employee’s wage on W2.
Employee must report as gross income and only deductible as 2% mist on schedule A
Charitable contribution subject to 50% limit that are not fully deductible in the year made may be?
Carried forward 5 yrs
Deductible or not?
Personal auto loan interest and
Personal auto ad valorem tax(property tax)
Personal auto loan interest. — No
Personal auto ad valorem tax(property tax) —- Yes
How many years may the student loan interest deducted?
No limit of number of yrs. but Max of $2,500 per yr
Home equity indebtedness is limited to?
Joint
Single
Filing separately
Joint: 100,000
Single: 100,000
Filing separately: 50,000
1244 sec. Loss should be treated as______? Maximum deduction per year is_____?
Ordinary loss. $50,000 for individual. $100,000 for joint
Partnership can use the cash method regardless of $ of gross receipts as long as non of the partners are _______.
C Crop.
Who can NOT use cash basic?
Tax shelter
Sole Proprietorship over $1 M gross receipt
Service Business-Crop over 5M gross receipt
Is Early withdrawal of Saving deductible?
Yes. Deductible arrived at AGI.
If no previous non-recaptured 1231 losses, 1231 gain of current year is treated as _______?
LTCG
1231 net loss is ________ loss
1231 net gain is ________ income up to the Amount of your nonrecaptured 1231 losses from previous years. The Rest, if any, is ___________ gain.
Ordinary, ordinary, long term capital
Why and who will be need to pay AMT?
The alternative minimum tax is a tax designed to ensure that taxpayers who take a large number of tax-preferenced deductions pay a minimum amount of tax on their income.
Who?
Individual: Tentative tax over regular tax liability
Cooperation: same as above, but if testing previous year end annual gross receipt not excess 5M, tax free, otherwise failing any year, future years all subject to AMT.
Alternative minimum tax credit may be carried forward for ______ years?
Infinite
Adjustment for AMT corporation, for nonresidential real property before which date need to make adjustments on AMT?
1/1/1999
Is investment interest deductible?
Yes. Itemized deduction, to the extent of investment income
Gambling loss is deducted in?
Itemize - NOT subject to 2%, but to the extent of winning.
If the number of rental days is less than ______then the property is treated as if it was used 100% for personal use. No rental income or loss should be recognized.
14
A crop can’t claim DRD if the investment is less than ______ days?
46
Sending nonconforming good w/o notice to a buyer is_______? And sending nonconforming good with notice to a buyer is_______?
- Acceptance and breach of contract
2. Counter offer
Gain is recognized in a partnership distribution ONLY if the ____________ exceeds the basis in the partnership interest.
Cash distributed
An S crop can be subject to tax if the corporation sells property contained a ___________ at the time of the __________.
Build-in Gain, S election
Build-in gain is taxed at_______?
35%
The Build-in Gain tax can only be imposed for a period of __________ after S election is made.
10 yrs
The statue of limitations on asserting a notice of deficiency lasts for _________ and begins on the date the return is ________. If the amount omitted is greater than _________ of the income reported on the taxpayer’s income tax return the statue of limitations is extended to 6 years.
3 years, filed, 25%
Tax return preparer fault PENALTY?
- Take Position of reasonable basis, act in good faith, disclosed
- Unreasonable position, not willfully
- Unreasonable position, willfully (intentionally or recklessly disregard regulations) to deceive
- No penalty
- Greater of $1,000 or 50% income derived from the return preparation
- Greater of $5,000 or 50% income derived from the return preparation
For income that is underreported due to negligence, the statutory penalty is _________ of the underpaid tax.
25%
For income that is underreported due to Civil fraud, the statutory penalty is ________ of the underpaid tax.
75%
American opportunity credit calculation ?
The credit is 100% of the first $2000 of qualify expenses and 25% of the next $2,000
So Max $2,500 per person
Uniform Capitalization Rules apply to retailers whose average gross receipts for the preceding years exceed what amount?
$10,000,000
Employee death benefit is taxable or not?
Taxable.
The 1933 act applies to sales of securities (bonds, stocks and notes) that are issued for period over ___________.
Nine months
