Final REG Review Flashcards

Question

# Individual Taxation What are the income thresholds to determine taxable income on social security benefits?

Answer 1

Taxable Income for Single Filers * Less than or equal to $25,000: No Tax * More than $25,000 but less than $34,000: 50% Tax * More than $34,000: 85% Tax Taxable Income for MFJ Filers * Less than or equal to $32,000: No Tax * More than $32,000 but less than $44,000: 50% Tax * More than $44,000: 85% Tax

Answer 2

**Married, Filing Jointly: Income is between $32,000 and $44,000** Lesser of: * 50% of Social Security Benefits * 50% of the excess of provisional income over $32,000 **Single, Head of Household or Qualifiying Widower: Income is between $25,000 and $34,000** Lesser of: * 50% of Social Security Benefits * 50% of the excess of provisional income over $25,000

Answer 3

**Single, Head of Household, Qualifying Widow** Lesser of: * 85% of the excess of provisional income over $34,000 + $4,500 * 85% of benefits **Married, Filing Jointly** Lesser of: * 85% of the excess of provisional income over $44,000 + $6,000 * 85% of benefits

Answer 4

Base Amount (Social Security Benefits) (50% of AGI of $10,000) Balance Credit is lesser of: * Current tax liability * 15% of balance

Answer 5

* Tax exempt bonds * Banks certificates of deposit * US Savings Bonds

Answer 6

* The limit is $2,500 * Deduction starts to phase out when AGI is $70,000 (Single)/$140,000 (MFJ) * The phase-out range is $15,000 Example: AGI: $80,000 Interest: $3,000 Phase-out: [(80,000 - 75,000)/15,000] x 2,500 Disallowed: $833 Allowable = $2,500 - $833 = $1,667

Answer 7

* Maximum deduction is $3,600 (Single) /$7,200 (MFJ) * Must have a deductible of $1,400 (Single) /$2,800 (MFJ)

Answer 8

Lesser of: * 25% of net income reported on Scheldule C * Maximum amount of about $69,000

Answer 9

Lesser of: * $7,000 (Single) / $14,000 (MFJ) * Earned Income **Earned income does not include pension plan distributions or interest income**

Answer 10

**Applies to both Traditional and Roth IRAs** * Before Age 50: $7,000/$14,000 * After Age 50: $8,000/$16,000 * If the earned income is less than the maximum deduction, then the deduction contribution would be the earned income. Example * Earned income for a 50 year old is $5,200, then the IRA deduction contribution reported would be $5,200.

Answer 11

If the AGI is below $220,000: * A married spouse who is non-working , or earns very little, is entitled to contribute and deduct the same amount that the working spouse contributed

Answer 12

**AGI Below $95,000 (S) / $190,000 (MFJ)** * Maximum Education IRA contribution is $2,000/year * A distribution of $10,000 is allowed for private K-12 education **Phase out** * Single: Between $95,000 / $110,000 * MFJ: $190,000 / $220,000

Answer 13

Greater of: * $1,300 * Dependents earned income + $450

Answer 14

Child Tax Credit * The tax credit is $2,000 per child under the age of 17, as of 12/31 of the taxable year * $1,600 per child is **partially refundable** Family Credit * $500 **non-refundable** credit for each qualifying dependent, other than qualifying children * Example of qualifying dependent is a child over the age of 17 or an older or elderly parent

Answer 15

* No AGI limitation * The calculation is limited to the lowest earned income of the spouse or the expense cap * If AGI is less or equal to $15,000: 35% is covered * if AGI is more than $15,000: 20% is covered * Expenses are capped at $3,000 for one child, $6,000 for more than one child * **If the spouse has no income, then credit cannot be taken**

Answer 16

Examples * For two children, one spouse earned $6,000 and the other spouse earned $10,000. Total child care costs of $15,000. Since $6,000 is less the lowest income earned, then the dependent care credit would be $1,200 ($6,000 x 20%) * For two children, one spouse earned $73,000 and the other spouse earned $2,000. Since $2,000 is less then the maximum amount of $6,000, the dependent care credit would be $400 ($2,000 x 20%)

Answer 17

* Credit limitation of $2,500 per student * Up to 40% of $1,000 of tax liablity is partially refundable * AGI phase out begins at $80,000/$160,000 * No credit after $90,000/$180,000 * Taxpayer must be enrolled as a student for at least a half-time basis * The taxpayer must be a candidate for a degree * Qualifying expenses must be for the current year and for the first three months of the following year * Qualifying expenses are for tuition and all related supplies required for courses, **except room and board**

Answer 18

* The spend amount to maximize the credit is $4,000 * 100% of the first $2,000 of qualifying expenses * 25% of the following $2,000 of qualifying expenses * If the spend amount is equal to the tax liability, then the calculation is based on $1,000

Answer 19

Total tax before credit is $2,000 American Opportunity Credit = $2,500 Tax Liability = ($500) ($2,000 - $2,500) Amount refunded would be ($500) x 40% = $200 Total tax before credit is $2,500 American Opportunity Credit = $2,500 Tax Liability is zero since $2,500 - 2,500 = 0 Amount refunded would be $1,000 x 40% = $400 Total tax before credit is $800 American Opportunity Credit = $2,500 Tax Liability = ($1,700) ($800 - $2,500) Amount refunded would be ($1,700) x 40% = $680

Answer 20

* Phase out of AGI starting at $80,000/$160,000 * No credit at all at $90,000/$180,000 * **Credit is non-refundable** * Can be taken for courses in graduate, undergraduate or for learning a new job skill

Answer 21

* 20% of the amount spent on the first $10,000 of tuition and expenses per year * Maximum credit is $2,000 per family per year

Answer 22

Step 1: Calculate investment income Step 2: Calculate Net Investment Income * Investment Income - Investment Interest Expense - Advisory/brokerage fees - Rental and Royalty Expenses Step 3: Calculate MAGI * AGI + IRA Contributions + Non-Taxable SSI + Tax Exempt Interest Step 4: Calculate NIIT 3.8% x lesser of: * NII * MAGI over threshold ($200,000 (S)/$250,000 (MFJ)/ $125,000 (MFS))

Answer 23

Single Filing Status Combined Salary: $150,000 Investment Income: $100,000 Total Taxable Income: $250,000 Net Investment Income: $100,000 Tax Liability = $74,600 Net Investment Income = $100,000 MAGI = Wages + NII = 150,000 + 100,000 = 250,000 MAGI - Filer Threshold = $250,000 - $200,000 = $50,000 NIIT = 3.8% x Lesser of NII or MAGI MAGI Over Threshold = 3.8% x $50,000 = $1,900 NII = 3.8% x $100,000 = $3,800 Step 3: Determine Lesser Amount MAGI over Threshold: $1,900 Step 4: Calculate Total Liability $74,600 + $1,900 = $76,500

Answer 24

* A loss will be treated as if it occurred on the last day of the year * If the time frame was within one year, it would be classified as S/T **Example** 2/1/x2: Option to purchase 1,000 of $200 Value stock for $50 8/1/x2: Option to purchase lapsed Loss: $50 x 1,000 = $50,000 12/31/x2: S/T Loss = 50,000

Answer 25

* The base amount is $3,750 (Single) / $7,500 (MFJ) * Credit is either lesser of prior tax credit or 15% of eligible income * Must be age 65 or disabled to qualify * The credit is non-refundable * AGI limits and social security count against the credit

Answer 26

AGI: $16,000 (MFJ) Taxes Owed: $95 Social Security: $2,000 Base: $7,500 Social Security Benefits: (2,000) 50% of AGI Over $10,000: (3,000) Total: $2,500 Balance = 15% x $2,500 = 375 Credit: Lesser of Current Tax Liability or Balance

Answer 27

* AGI limitation of $37,000/$74,000 * If the AGI is less than $37,000: 50% of the contribution * Maximum of $1,000 non-refundable credit based on IRA contributions * The credit is non-refundable * The credit is available to younger people starting in the workforce

Answer 28

* IRA Contribution x 50% * Credit cannot be greater than $1,000

Answer 29

**This is sometimes known as the SALT deduction** * $10,000 for Single, Head of Household, Married, Filing Jointly * $5,000 for Married, Filing Separately * Real Estate Tax is included with this limitation since it based on the residence's state

Answer 30

* $750,000 for Single, Head of Household, Married, Filing Jointly * $325,000 for Married, Filing Separately

Answer 31

* Cash: 60% of the AGI * Long-Term Property: 30% of AGI * Short-Term Property: Up to the asset's adjusted basis

Answer 32

* Asset was held for more than a year: The fair market value at the date of the donation * Asset was held for less than a year: The adjusted basis is used * If the asset is donated for the same genre (i.e. artwork for a museum, then the value is the FMV is used * If the asset is sold, the value is the lesser lower of the tax basis or the fair market value at the date of the donation

Answer 33

* Dependent care assistance is part of the employer's cafeteria plan * Programs are availabe to the employee * If the employee chooses this plan, they can exclude up to $5,000

Answer 34

* Payments are made by the employer on behalf of the student * A maximum of $5,250 is excluded from the employee's gross income

Answer 35

* When the loss is declared a disaster by the president * Each loss is the lesser of the adjusted FMV or the tax basis of the property * Each loss must be reduced by the insurance reimbursement and $100 * The deduction is the amount of the total loss in excess of 10% AGI

Answer 36

AGI = $70,000 Less of Adjusted Basis or FMV = $130,000 Reimbursement = $120,000 Total Loss = ($130,000 - 120,000) - $100 = $9,900 10% of AGI = $70,000 x 10% = $7,000 Deductible = $9,900 - $7,000 = $2,900

Answer 37

Lesser of: * 20% X (Self-Employed Earnings - Self Employment Taxes) * 25% x Self-employed earned income

Answer 38

* Business casualty losses are reported on Form 4684 * The loss is the lesser of the property's basis vs. the decline in FMV * If the property is completly destroyed or stolen, the adjusted basis is used to compute the loss **(the FMV is completely disregarded)** * If inventory is stolen, the loss is the adjusted basis

Answer 39

Step 1: Calculate Casualty Loss * Determine the lesser of the property basis vs the decline in fair value * Lesser of: (FMV before less - FMV after loss) or Adjusted Basis Step 2: Calculate Loss Deductible Casualty Loss (Step 1) - Insurance Deductible

Answer 40

* Resarch and Development Credit * Investment Credit * Work Opportunity Tax Credit * Low Income Housing Credit

Answer 41

* The maximum credit is 40% of the first $6,000 wages paid * Companies get credit for hiring from a certain target group * The credit reduces the wages paid deduction * The credit is based on the employee's first-year wages

Answer 42

* Employees must receive at least two weeks of annual paid leave * If the employer pays 50% of the wages during the employee's leave, the credit is 12.5% * If the employer pays 100% of the wages during the employee's leave, the credit is 25%

Answer 43

* If the award plan is in place, the deductible is $1,600 per employee * If the award plan is not in place, the deductible is $400 per employee

Answer 44

Step 1: Calculate the Net Tax Liability: * Company's Tax Liabilitity - $25,000 Step 2: Calculate the current year's business credit: * Company's Tax Liability - (Net Tax Liability x 25%) Step 3: Determine Carryforward: * Company's current liability - Current Year's Business Credit

Answer 45

Taxable Income: $500,000 Regular Tax Liabilty: $100,000 TMT: $20,000 Eligible Credits: R&D Credit: $15,000 Work Opportunity Tax Credit: $10,000 Investment Credit: $5,000 Total General Business Credits = $30,000 **Limitation Calculation** Regular Tax Liability less TMT = $100,000 - $20,000 =$80,000 25% of Net Regular Tax Liability of $25,000 = 25% x (100,000 - 25,000) = 25% x 75,000 = $18,750 Limitation is greater of 25% of Net Regular Tax Liability of TMT = $18,750 or $20,000 Limit = $20,000 **Credit Application** Lesser of: * Total General Business Credits = $30,000 * Limitation Calculation = $20,000 $20,000 is used against the tax liability

Answer 46

* Step 1: FMV Before Loss - FMV After Loss = Decrease in FMV * Step 2: Choose the lesser of the adjusted basis or the decrease in FMV * Step 3: (Lesser of the adjusted basis or the decrease in FMV) - Insurance Reimbursement = Business Casualty Loss

Answer 47

* Form 1065 is the Partnership Tax Return * It is not used to pay income tax for the partners * It is used to calculate Ordinary income and deductions

Answer 48

Lesser of: * The adjusted basis of the partnership's basis in the asset * The partner's remaining basis in the partnership before the distribution **Example** Partner's Basis before Distribution: $55,000 Adjusted Basis of Asset: $75,000 Amount of Asset Distribution: $55,000 Partner's new basis after distribution: 0 No gain or loss is recorded

Answer 49

* Unrealized receivables * Appreciated inventory * Any gain or loss as a result in a hot asset will be reported as ordinary income for the outgoing partner based on their share

Answer 50

Only cash has been distributed: * A gain is recognized when the cash distributed is more than the partner's basis * A loss is recognized when the cash distributed is less than the partner's basis **Losses can only be reported when it is a cash-only distribution**

Answer 51

Since the asset came into the partnership at basis, the asset will be valued at the adjusted basis **FMV is not used in determining the partner's basis** **Example** Partner Basis: $160,000 Securities Basis: $34,000 Securities FMV: $220,000 Basis after Distribution: $126,000 ($160,000 - 34,000)

Answer 52

The adjusted basis of the non-cash property is the difference between the unadjusted basis and the amount of cash received **Example** Partner A has a basis of $50,000 Cash Distribution of $20,000 Distributions are a car with a FMV of $40,000 and cash of $35,000 Partner’s Basis after distribution: $30,000 Gain Reported: $0, since cash distribution is less than the basis

Answer 53

Damages were incurred * Intent to Induce Reliance to persuade the innocent party to believe the misrepresentation * Intent to Deceive (Scienter) the innocent party * Misrepresentation of Material Fact * User Relied on Misreprenstation

Answer 54

Any person who suffered a loss as a result of the fraud

Answer 55

Damages were incurred * Intent to Induce Reliance * Misrepresentation of Material Fact * User Relied on Misreprenstation

Answer 56

* Accountant owed the client a duty * Accountant breach the duty (tort) * Breach of duty caused injury to the client * Client suffered damages

Answer 57

* Primary Users (aka the client) * Foreseen users that the practitioner knew would be relying on the practitioner's report

Answer 58

Traditional Common Law Doctrine: * The CPA's liability is limited to the parties in are privity and primary beneficiaries Current Majority Rule: * The CPA's liability also includes foreseen third party users.

Answer 59

Tort: * The accountant's liability. * It is the wrong that results in a breach of duty that is imposed by society Contract Law: * The accountant is bound by the contract to perform the engagement with due care and in compliance with professional standards

Answer 60

The test to determine substantial or unsubstantial is whether a portion of any return or claim for refund is either * Less than $10,000 or * Less than $400,000 **and** less than 20% of the gross income on the return or claim

Answer 61

* Failing to furnish a copy of a tax return or refund claim to a taxpayer * Does not sign a tax return or refund claim * Omits the PTIN on a tax return or claim * Fail to retain a copy or list of a tax return or claim they prepared * Does not file the correct information on the tax return

Answer 62

* Greater of $1,000 or * 50% of the income derived

Answer 63

* Greater of $5,000 or * 75% of the income to be derived

Answer 64

* $600 for each occurrence * This penalty also applies to any tax return preparer who operates a check cashing company

Answer 65

$600 for each failure to determine eligibility

Answer 66

Greater of: * $250,000 for an individual client * $500,000 for a corporate client * Imprisonment of not more than 3 years, or both

Answer 67

* $250 per disclosure/per year ($10,000 Maximum) * $1,000 for misappropriation of identity/per year ($50,000 Maximum) * $1,000 and up to a year in prison if the preparer pleads guilty of a misdemeanor

Answer 68

* Internal Revenue Code * Treasury Regulations * Revenue Rulings and Procedures * Private Letter Rulings * U.S. Supreme Court Decisions * Lower Federal Court Decisions * IRS Publications, Notices and Forms Publications such as treatises, articles and tax journal are not used when presenting the tax case

Answer 69

* Committee reports determines in the intent that Congress has behind certain tax laws * The committee reports help examiners properly apply the law * Can show that the taxpayer's application of the tax law was in accordance with what is established * Committee reports are highly authoritative

Answer 70

* A revenue ruling is the official interpretation of the tax law * It provides guidance on how the tax law is applied to a set of facts * Revenue rulings are published to provide guidance * Revenue rulings do not have the force and effect of treasury regulations

Answer 71

* A revenue procedure is an official statement that affects the taxpayers * Revenue procedures do not have force of law, but they can be cited in arguements

Answer 72

* The Tax Court: The taxpayer has not yet settled a tax payment * U.S. District Court: The taxpayer had settled on any payments first, or they have ruled on similar cases * U.S. Circuit Court of Appeals: Hears cases from U.S. Tax Court and U.S. District Court * U.S. Court of Federal Claims: Cases are appealed to the U.S. Court of Appeals for the Federal Circuit

Answer 73

* Publications are not binding * They explain the law in plain language for taxpayers and their advisors

Answer 74

* It is requested by the IRS after a return has been filed * It is binding to the taxpayer who is subject to the ruling * Other taxpayers who are not involved in this ruling should not use the TAM when defending a tax position

Answer 75

* Married, filing jointly in the first year * Single all subsequent years

Answer 76

* Taxpayer files a separate return * Taxpayer does not file as qualifying surviving spouse * Taxpayer paid for more than half of the costs of maintaining a home * Spouse did not live in the home during the last 6 months of the year * For more than a year, the home was the main home to the taxpayer, their children, step children, adopted children or where the taxpayer is a noncustodial parent

Answer 77

The person cannot have gross income more than $4,700 * Children, including step children, adopted, foster child * Parent * Sibling, including step siblings, half siblings, adopted siblings * Grandparents * Grandchildren * Aunt and Uncles * Nephews and Nieces

Answer 78

The filing for the deceased spouse will be Married, filing separately

Answer 79

Lesser of: * 90% of the current year's tax liability * 100% of the prior year's tax liability if AGI is less than $150,000 * 110% of the prior tax liability if AGI is equal or more than $150,000 * Quarterly installments of 25% of the previous year's tax liability

Answer 80

* 0.5% of the tax amount due for each month unpaid * The maximum penalty is 25% of unpaid taxes

Answer 81

The return is filed within 60 days of the due date: * 5% of the tax amount due for each month unpaid * The maximum penalty is 25% of unpaid taxes The return is filed more than 60 days late: The penalty is the lesser of: 1. $485, or 2. 100% of the tax due

Answer 82

* The penalty is 20% of the underpayment If there is a substantial understatement of income, the tax penalty is the greater of * 10% of tax required to be shown on the return, or * $5,000 for individuals / $10,000,000 for corporations

Answer 83

* Returns for S corp are due on March 15th * The statute of limitations will begin the day after the last day of filing, which is March 16th

Answer 84

* 15th day of 4th month after the closing of the tax year * An extension may be filed for an automatic 6-month extension

Answer 85

* Taxpayer's address is in the U.S.: 90 days * Taxpayer's address is outside of the US: 150 days

Answer 86

The greater of: * 5% of the tax to be shown on the tax return, or * $5,000

Answer 87

**Paying taxes** * 3 years from the date the return was filed * If omission is 25% or more, then 6 years * Use the date due if the date was filed was before the due date **Claim a refund** * The later of 3 years from the return due date or two years from when the tax was paid * If a return was not filed, 2 years from when the tax was paid

Answer 88

Lesser of: * 15% of the unpaid taxes per month * 75% of the tax owed

Answer 89

The gain recognized equals Money received in the current year x Gross Percentage Profit

Answer 90

A 25% excise tax will be incurred based on the overspent amount

Answer 91

* Creditors (including all partner-creditors) * Partners of unpaid distributions * Partners for the return of their contributions * Partners for the remaining assets based on the same allocation that distributions are shared

Answer 92

* Revised Model Business Corporation Act * Applies to closely public held and closely held corpoorations * Subscribers, or future investors, are bound to the subscriptions for 6 months * Many state statutes require the subscription to be written

Answer 93

* Subscribers, or future investors, are bound to the pre-incorporation subscriptions for 6 months * Many state statutes require the subscription to be written

Answer 94

* Adoption of a contract is the assignment of rights that a promoter has on behalf of the corporation * Adoption of a contract is a legal substitution for ratification of the pre-incorporation contract * Adoption of a contract may be implied when accepting the benefits of the contract * It is not retroactive * The promoter is liable

Answer 95

* A corporation may not act beyond its implied or express powers * The Ultra Vires Doctrine is no longer used as a defense by either party in a lawsuit involving the corporation * A shareholder can seek an injunction * Corporations can proceed against directors and officers * The state attorney can proceed against the corporation

Answer 96

**Implied in fact contract** * May be formed without an express terms of the agreement * The facts of the situation imply an intent of both parties in the contract **Implied-in-law** * Also known as quasi contract * Prevents unjust enrichment of one party when the facts show that there was no intent by both parties to form a contract * Imposed mutually dependant and concurrent conditions to reach a result even though nothing is stated in the contract **Express Contract** * A contract where terms (i.e. money) are specifically agreed on

Answer 97

* Under ULLCA: Profits and losses are share equally * Not Under ULLCA: Profit and losses are allocated based on the member's contribution

Answer 98

**Void** * The contracts are not in effect and are not recognized under law **Voidable** * The contract is not valid due to an issue (i.e. fraud) * The contract may be enforced if the innocent party enters into a contract * **A contract cannot be voided by either party if its valid**

Answer 99

* What is being given up to get something? * Something of legal value being exchanged * The offeree has a legal detriment (i.e. services performed) * The offerer has a legal benefit (i.e. cash received) * The offeree is not legally obligated to perform such act (i.e. policeman in the line of duty)

Answer 100

* A threat, in either words or actions, in order for a person to enter a contract that they did not intend to enter * Taking advantage of the other party's financial difficult **does not** constitute duress

Answer 101

* A person is induced to enter into a contract by another person * One party can take advantage of the other party because there is close relationship with the parties

Answer 102

* The consideration is misrepresented * Makes a contract **voidable** * A material fact that is intentionally misstated by the seller to a buyer

Answer 103

* Physical coercion * Fraud in the execution * Making a contract in a person who is incompetent * Death of one of the parties * Duress through physical compulsion

Answer 104

* Undue influence * Duress through improper threats * Mutual mistakes of facts * Fraud in the inducement

Answer 105

* Due Care * The CPA must perform the work with a degree of knowledge and expected skill * The CPA has followed the standards (i.e. GAAP, PCAOB, GAAS, etc.)

Answer 106

* When one of the items for consideration in the contract cannot occur * Example: Contract to purchase a room overlooking a parade route, but then the parade is cancelled

Answer 107

Impossibility : * Performance is excused if unforseeable circumstances occur that would result in the contract not being fulfilled Impracticability: * Ordinary business risks (i.e. change in weather condition) cannot be considered when using these doctrines as a defense

Answer 108

* A contract is cancelled due to unforeseen and unjust hardship * It is less rigid than the impossiblity and impracticability doctrine

Answer 109

**Novation** * Substitutes a new party for the original party **Substituted Contract** * A new contract that involves all original parties * Discharges the original duties and impose new duties

Answer 110

* Compensatory * Foreseeability of damages * Mitigation of damages * Specific peformance **Punitive damages cannot be recovered for a breach of contract**

Answer 111

Is the contract for land or other unique property (i.e. patent, commissioned artwork)? * Yes: Specific performance remedy * No: Monetary damages

Answer 112

Has standing to enforce a contract where they are the third party **Example** * Person A owes Person B * Person C is in contract with Person A to purchase goods * Instead of Person C paying Person A, they pay Person B to satisfy the obligation owed * Person B is the creditor beneficiary

Answer 113

* A contract is entered into by the primary parties that directly benefits a third party * A doneed beneficiary occurs when the gift is promised to a third party * The third-party beneficiary is not considered party to the contract because they are not required to perform a part of the contract * An example of a third-party donee beneficiary is a beneficiary that is name on a life insurance policy

Answer 114

* The assignor will do nothing to impair the value of the assignment * The right actually exists and is not subject to limitation * The right is genuine

Answer 115

* Contracts that prohibits the rights to be assignable * Increases the other party's risk * Personal services * Malpractice insurance policy rights

Answer 116

* The percentage of coverage that will be paid is based on an actuarial value * The minimum value allowed for an eligible employer plan is 60% * The minimum actuarial value is set by the ACA and **will not reduce employer contributions**

Answer 117

* The annual penalty is paid when there are at least 50 full-time employees * The penalty is based on $2,970 Annual Penalty = 2,970 x (Total EFTs - First 30 EFTs)

Answer 118

Full-Time Equivalent * 40 hours per week worked = 1 FTE * 20 hours per week worked (part-time) = 0.5 FTE

Answer 119

When an employee fails to notify the employer of a dangerous condition that results in an injury to the third party

Answer 120

* Terminate the agency * Require the agent to hold resources for the benefit of the principal even though the agent does not hold legal title (aka Constructive Trust)

Answer 121

* An agency is an express or implied consensual relationship where the principal and agent agrees that the agent will act on behalf of the agent * An example of an agency is an attorney retained to handle the sale of a family home

Answer 122

* Apparent authority occurs from words or conduct from the principal directed to a third party * The third party is under the impression that the agent has actual authority

Answer 123

The agent receives the right and power to bind the principal to third parties

Answer 124

* The employer is liable for the torts committed by the employee within the scope and during their employment * The principals liability to the third party is for acts of the agent within the scope of the agent's actual or apparent authority **Does not apply to crimes committed by employees**

Answer 125

* The principal approves or directs the crime * The principal participates in the crime * Violation of regulatory statute caused the crime

Answer 126

* Recovery of future damages * Recovery of past damages * Withholding future performance **Specific performance is not a remedy**

Answer 127

* The agent may terminate at any time without liability if there isn't a specific period that has been established * The principal cannot terminate

Answer 128

* Consumer goods * Equipment * Personal property and fixtures created by contract that secures payment or performance obligation * Farm and Agricultural products * Consignments * Inventory **Does not apply to ** * Corporate debentures or corporate bonds * Sale of accounts when part of a sale of the business * Assignment of promissory notes for collection

Answer 129

Security interests (instruments, certified securities or negotiable documents) * For the first 20 days after attachment, perfection is automatic * After 20 days, the security is unperfected unless the party perfects in other ways * If the secured party gives up the security to the debtor for certain purposes, then the perfected security will continue for 20 days

Answer 130

* The secured party becomes the holder, or * The securities intermediary agree to comply with the orders that originated by the secured party

Answer 131

Taking possession of the instrument

Answer 132

* Investment property, including securities (Certified and Non-Certified) * Electronic chattel paper * Letter-of-credit rights * Deposit accounts

Answer 133

Chapter 7: Liquidation Chapter 9: Municipalities Chapter 11: Reorganization for Companies Chapter 12: Farmers Chapter 13: Reorganizations for Individuals Chapter 15: Cross-border insolvencies

Answer 134

* Insurance companies * Banks * Municipalities * Railroads * Credit Unions * Savings and Loan Associations

Answer 135

* Shareholders * Commodities and Stock Brokers * Insurers * Banks * Credit Unions * Savings and Loan Associations

Answer 136

* Farmers * Banks * Insurers * Non-profit organizations * Railroads * Persons owing less than $18,600

Answer 137

* Secured Claims * Priority Claims * General Creditors/Unsecured claims

Answer 138

Priority #1: Consumer purchased the collateral (i.e. inventory) from a merchant in the ordinary course of business (PMSI) Priority #2: Properly perfected PMSI Priority #3: Judicial and artisan liens that have become attached to the secured property Priority #4: Non-PMSI parties (unperfected security by attachment) Priority #5: General Creditors

Answer 139

* Alimony/Child Support * Administrative Expenses * Claims from the ordinary course of business after the filing but before the relief was granted * Wages up to $15,150/employee within 180 days before filing * Employee benefit plan claims * Claims of grain farmers or fisherman up to $7,475 * Claims of undelivered goods up to $3,350 each * Tax claims * Death and injury claims

Answer 140

* The creditor will benefit from the payment before the petition is filed * A pre-existing debt has been paid * During the debtor's insolvency * Within 90 days prior of filing the petition * A creditor is paid a large amount before the petition is filed

Answer 141

Tools of the Trade: $2,800 Household Goods (Furniture, instruments, etc): $14,875 of aggregate value or $700 per item Jewelry: $1,874 Motor vehicle: $4,450 If the asset is less than the maximum amount, the lesser amount is used to determine the calculation

Answer 142

The surety has the right to recover their share of the additional money paid to the credtior from the other cosureties

Answer 143

* The creditor knew about the fraudulent information: the surety does not need to repay the loan * The creditor did not know about the fraudulent information: The surety must repay the loan

Answer 144

* Subrogation is the best method of collection from the debtor when the surety pays the entire obligation * If the debtor defaults, the surety succeeds to the legal rights of the creditor against the principal, debtor, cosureties or any collateral

Answer 145

Is the FMV received is greater than the adjusted basis? Yes: Donor's Adjusted Basis No: FMV at the time of giving

Answer 146

* The annual exclusion for the gift tax is $18,000 per person * The calculation [(FMV - Adjusted Basis)/(FMV - Annual Exclusion)] x Gift Tax Paid

Answer 147

FMV = $60,000 Adjusted Basis = $20,000 Gift Tax Paid = $8,600 [(60,000 - 20,000)/(60,000 - 18,000)] x $8,600 = (40,000/42,000) x 8,600 = 8,190 Adjusted Basis + Adjusted Gift Tax $20,000 + $8,190 = $28,190

Answer 148

**Basis on Inherited Property** * No alternative Valuation Date: Basis is the FMV at the Time of Death * Alternative Valuation Date Elected: Basis is the FMV of property 6 months after the date of death

Answer 149

Uniform Capitalizaton Rules apply to companies that have an average gross income of $29,000,000 for the past three years * Large Manufacturers * Retailers * Wholesalers of Inventory

Answer 150

The purchase price is allocated based on the FMV of all assets * Cash and Cash Equivalents * Near-Cash Items (i.e. U.S securities, marketable securities, CD, foreign currencies) * Accounts Receivable, Mortgages, Credit Card Receivables * Inventory * Property held for sale in the ordinary course of business * Other assets * Sec. 197 Intangibles (Except Goodwill and Going Concern Value) * Goodwill and going concern value

Answer 151

The depreciation is lesser than the * FMV of the property at conversion date, or * Adjusted basis of conversion

Answer 152

Beginning Basis + Permanent Improvements - Casualty Loss Deduction **Any casualty claims will be allowed only if they are in a federally declared disaster area**

Answer 153

* Property acquired before January 1, 2024, the bonus is 80% * Property acquired after January 1, 2024, the bonus is 60% * The bonus depreciation applies to the taxpayer's first use * Property used for utility companies or real property trade or business does not qualify * Certain properties with longer production periods will have 100% bonus depreciation if placed between 9/28/17 - 12/31/23

Answer 154

* Property Placed Between 12/31/23 - 1/1/25: 60% 12/31/24 - 1/1/26: 40% 12/31/25 - 1/1/27: 20% * If the properties have longer production periods, the dates are increased by 1 year (i.e. 12/31/24 - 1/1/26)

Answer 155

* The dates are increased by 1 year * Property Placed Between 12/31/24 - 1/1/26: 60% 12/31/25 - 1/1/27: 40% 12/31/28 - 1/1/29: 20%

Answer 156

The Sec. 179 Deduction is lesser than the taxable income or the Calculated Sec. 179 Deduction Maximum Deduction: $1,220,000 Phase-Out Threshold: $3,050,000 No deduction if purchase cost is $4.05 million Maximum deduction - (Purchase Price - Phase Out) **The basis does not include any asset that was previously held by the taxpayer (i.e. money received for a trade-in)**

Answer 157

* Sec. 1245 is the maximum of the accumulated depreciation * A Sec. 1245 gain is the lesser of the total gain or the accumulated depreciation * A Sec. 1245 gain is reported by multiplying the Sec. 1245 gain by the tax rate is 40% * A Sec. 1245 loss is reported at full loss

Answer 158

The amortization period of intangible assets is 180 months or 15 years Assets included as intangible * Convenants not to compete * Customer lists * Trademarks * Trade names * Goodwill

Answer 159

* Straight Line Depreciation is used * Salvage Value is ignored * Land is not included in the basis of depreciation * Residential: 27 1/2 Years, mid-month convention * Non-Residential: 39 Years, mid-month convention * Mid-month convention is used is used in the 1st and final years

Answer 160

* Mid-year convention is used for personal property * Asset is treated as if it was placed into service at the midpoint of the year instead of when it was actually placed into service

Answer 161

* The mid-month convention is used for real property * Asset is treated as if it was placed into service at the midpoint of the month instead of the month when it was actually placed into service

Answer 162

* The mid-quarter convention must be used when more than 40% of tangible property is placed into service during the last 3 months of the tax year * The 1st year depreciation is calculated by multiplying the full amount by the percentages when it was placed into service 1st Quarter: (3.5/4) = 87.5% 2nd Quarter: (2.5/4) =62.5% 3rd Quarter: (1.5/4) = 37.5% 4th Quarter: (.5/4) = 12.5%

Answer 163

*(200%/Life) x Quarter Example: Life = 7 Years 1st Quarter: (200%/7) x (3.5/4) 2nd Quarter: (200%/7) x (2.5/4) 3rd Quarter: (200%/7) x (1.5/4) 4th Quarter: (200%/7) x (.5/4)

Answer 164

* Straight-line depreciation method * No salvage Value * Life of the asset is 12 years

Answer 165

The assets are combined

Answer 166

Using 200% Declining Balance Depreciation * Special Tools: 3 years * Computers, office machinery, cars, trucks, equipment: 5 years * Most machinery, office furniture and equipment and other property: 7 years * Water Vessels: 10 years Using 150% Declining Balance Depreciation * Data Communication Plants: 15 years * Utilities (i.e. municipal sewers): 20 years

Answer 167

Original Cost (Sec. 179 Deduction)

Answer 168

The amount is the FMV of the gift over the tax exclusion Example * The gift = 24,000 * The exclusion = 18,000 * Amount subject to tax is $6,000 (24,000 - 18,000)

Answer 169

It is the FMV less the adjusted basis of the asset

Answer 170

* A gain equal to or greater than $250,000 will be recognized * Any gain below $250,000 is excluded

Answer 171

When the cumulative dividend does not exceed the premium

Answer 172

* $25 per person * Business gifts that are tickets to event are considered entertainment and are not deductible **Exceptions** * The cost to the taxpayer does not exceed $4 * The name of the taxpayer is imprinted * Signs and display racks to be used on the business premises * Achievement awards are not subject to the $25/person limitation

Answer 173

* The specific write-off method must be used when reporting bad debts * The trade receivable is deductible to the extent of its worthlessness, or what was actually written off * The allowance method is not allowed * A partial bad debt it not deductible

Answer 174

* The business income is adjusted based on the cost of merchandise * All other business expenses related to the sale of the illegal product is not deductible

Answer 175

**Personal Residence Test** * Residence rented out less than 14 Days? Yes * The rental activity may not result in a loss **Rental Use Property Test** * Residence rented out more than 14 days? Yes * Personal use of residence is used either more than the greater of 14 days or 10% of the days it is treated as a rental property? No **Hybrid Use Property Test** * Residence rented out more than 14 days? Yes * Personal use of residence is used either more than the greater of 14 days or 10% of the days it is treated as a rental property? Yes * The rental activity may not result in a loss

Answer 176

* $5,000 of start-up costs are deductible in the year the business started * The $5,000 amount is offset by the total start-up costs less a maximum amount of $50,000 * The remaining amount is amortized over a 15 year period **Example** * Start-up Costs in 12/1/x1: $52,300 * Amount deducted in x1: $2,700 ($5,000 - ($52,300 - 50,000) * Amortized Amount: $276 [($52,300 - $2,700)/(1/12)]

Answer 177

* Adds value to the property * Extends the life of the asset * Adapted to be used for a different use * Freight paid on new equipment * Rewiring a building * Adds value of the business (i.e. eliminating competition)

Answer 178

**Tier 1:** * Wages from $0-$168,600 * Social Security: Wages x 6.2% * Medicare: Wages x 1.45% **Tier 2:** * Wages from $168,600 - $200,000 * Medicare: Employee's wages x 1.45% **Tier 3:** * Above $200,000 to earned income * Medicare: Employee's wages x 1.45% * Additional Medicare: Employee's wages x 0.9%

Answer 179

* Single: $14,600 * Married, Filing Jointly: $29,200 * Head of Household: $21,900 * Over the age of 65: Add $1,900 for each taxpayer

Answer 180

* **A net operating loss is limited to 80% of taxable income** * It is carry forward indefinitely * It is not carried back

Answer 181

* If there is more than one rental activity: Net all activities. If there is still loss, calculate for the allowable loss * The dollar threshold is $100,000 * If the taxpayer actively participates in rental real estate activity: Loss limit of $25,000 Calculation to determine Allowable Loss * MAGI - Threshold = Excess * Excess x 50% = Reduction * Loss Limit - Reduction = Allowable Loss

Answer 182

* More than 50% of the taxpayer's earned income is from services performed at the property * The taxpayer performs more than 750 hours of service at the property

Answer 183

* Individuals * Closely held C Corporations * Estates * Trusts * Personal Service Corporations

Answer 184

The $25,000 maximum is not used if: * The taxpayer actively participates in the activity that is not rental activity * Owns 10% or more of the activity, by value, for the entire year * MAGI is less than 150,000

Answer 185

Net income from Self Employment (Employer's Portion of Self-Employment Tax) (Social Security Tax) (Medicare Tax)

Answer 186

**Employer and Employee Deductions** SSI * 6.2% of the first $168,600 for employer * 6.2% of the first $168,600 for employee Medicare * 1.45% for Employer * 1.45% for employee **Employer Deductions** **FUTA** * 6% of the first $7,000 for each employee **Employment Tax** * (Sales - COGS - Business Expenses) x 7.65%

Answer 187

* Keogh contributions * Gains * Net Operating Loss

Answer 188

**Tier 1** * From 0 - $168,600 * Tax rate is 15.3% **Tier 2** * From $168,600 - $200,000 * Net earnings from self employment x 2.95 **Tier 3** * Above $200,000 ($250,000 MFJ / $125,000 MFS) * Net earnings from self employment x 3.8% (2.9% for Medicare and and .9% for additional medicare)

Answer 189

The value is the FMV of the asset

Answer 190

The DRD is the lesser of * % Allocation applied to Dividend income * % Allocation applied to taxable income with the dividend deduction % Allocation to determine DRD: * < 20%: 50% of the dividend * Dividends from Unrelated Corporation: 50% of the dividend * >20% < 80% ownership: 65% of the dividend * > 80% and Affiliiated: 100% **If the % of ownership is not provided, assume it to be less than 20%** **If the total expenses are more than the gross revenues, then the DRD is the % of the dividend**

Answer 191

The loss may be offset by active rental real estate income, as well as portfolio income **Example** Active Rental Income: $250,000 Portfolio Income: $150,000 Passive Loss: ($300,000) Income will be offset by $250,000 of rental income and $50,000 of portfolio income

Answer 192

Taxable income needs to be computed before calculating any deductions that are going to be taken

Answer 193

* Yes * The DRD is computed without regard to the taxable limitation * The DRD is calculated based on the dividends received

Answer 194

* 10% of the taxable income * The charitable deduction is calculated before any dividend received deduction

Answer 195

The Foreign Tax Credit is the lesser of: * Foreign Tax Limitation: [(Foreign Source Income / Worldwide Income) x US Tax on Worldwide Income] * Actual foreign taxes paid

Answer 196

* At least 60% of its adjusted ordinary income, or Passive Income, for the year is Personal Holding Company Income * More than 50% of the value of the outstanding stock is owned by 5 or less individuals * Personal holding company income includes income received from stock and securities

Answer 197

* The tax rate is 20% of the undistributed personal holding company income * A company cannot have a PHC tax and an Accumulated Earnings Tax in the same year

Answer 198

* S corporations * Tax-exempt organizations * Banks * Domestic building and loan associations * Certain lending or finance companies * Life insurance and surety companies * Businesses operating under the Small Business Act * Corporations under Chapter 11 protection * Foreign corporations

Answer 199

All passive investments ("RAIRD") * Rents * Annuities * Interest (**do not include tax-exempt**) * Royalties * Dividends

Answer 200

Non-Personal Service Corporations: $250,000 Certain Personal Services Corporations: $150,000

Answer 201

[Current E&P (Dividends Paid) (Accumulated Earnings Credit)] x 20% **Net operating losses deductions and capital loss carrybacks/carryfowards are not allowed**

Answer 202

**The greater of:** * $250,000 - (Current Year Ending Accumulated E&P) * Current earnings and profits retained for the reasonable needs of the business - Current Year Long-term capital gain adjustments ** When undistributed E&P does not exceed $150,000, then the ATI will be zero**

Answer 203

It is the greater of: * Base amount of $250,000 - Prior year's accumulated earnings and profit * Current earnings and profits - Dividends Paid - Long-term capital gain adjustments for the current year

Answer 204

Taxable Income +/- Adjustments -Federal Income Tax -Dividends Paid -$250,000 minimum Accumulated Earnings Credit (if not calculated) or Maximum of AEC

Answer 205

(Property Factor + Payroll Factor + Sales Factor)/3

Answer 206

**(Average Acquisition Cost + Rental Value) / Average value of all property** * Property rented by the taxpayer is valued at eight times the net annual rent expense * Property owned by the taxpayer is based on the original cost, so no depreciation is included

Answer 207

**In-State Compensation Paid / Total Compensation Paid** The calculation does not include * Payroll for management * Maintenance are otherwise allocable to nonbusiness property

Answer 208

**In-State Sales / Total Sales** * Sales is based on net sales * Capital gains and nonbusiness income are allocated, but are not apportioned

Answer 209

100% of Current Year

Answer 210

25% of the Lesser of: * 100% of the previous year's tax * 100% of the current year's tax

Answer 211

**1st Quarter: 25% of the Lesser of:** * 100% of the previous year's tax * 100% of the current year's tax **2nd - 4th Quarters:** * 25% of the current year's tax

Answer 212

* A large corporation has $1,000,000 or more in taxable income * The estimated tax is 100% of the current year's tax liability **Estimating based on previous year's taxes are not used**

Answer 213

There are no limits to passive investment income The S Corporation will terminate if: * The C corp has earnings and profits for three consecutive years after filing S Corp status * During the 3 years, over 25% of gross receipts of the S corp is due to passive income

Answer 214

They can reapply 5 years after the tax year in which the termination was made **Example:** * Status was revoked on 12/31/23 * Eligible for reelection is 1/1/29

Answer 215

* Form 2553 must be filed either within the preceding tax year or within 2 1/2 months of the current tax year * The IRS may allow late filing if a reasonable cause existed * All shareholders must provide written consent at the time the election is made * Anyone who was a shareholder at any time during the election year, including former shareholders, must consent.

Answer 216

Items related to the business: * Gross income * COGS * Sales expense * Interest Expense on business loans * Corporation Organizational Costs * Guaranteed Payments are subtracted * Bad Debt Expenses * Compensation paid to the shareholder * Section 1245 Gain or Loss

Answer 217

Any distribution that is not more than the shareholder's basis will be treated as tax-exempt return of capital

Answer 218

* Payments are made to the shareholder * Guaranteed loan payments increases the shareholder's basis **No payments on a guaranteed loan will not be reported**

Answer 219

Loans are not included as income to the partner since they will be repaid in future years

Answer 220

Future earnings will be applied to debt basis first, and then to stock basis

Answer 221

* The day after the exchange of the capital asset began * It includes the period that the property was held by the contributing partner * No gain or loss is recognized when property is contributed

Answer 222

Step 1: Calcuate Pre-Contribution Gain/(Loss) FMV of Asset before Contribution - Basis of Asset before Contribution Step 2: Calculate Gain/(Loss) after asset has been contributed Sale Price - FMV of Asset Step 3: Calculate Partner's Basis Pre-Contribution Gain/(Loss) +(% Owned x Post-Contribution gain/(Loss))

Answer 223

* The basis is the Cash Contributed + FMV of Contributed Services + Share of Partnership Liability * The basis would be classified as ordinary income * Compensation income is the FMV of the partnership interest * If there was an additional contribution made with the services, then the basis would be the (FMV of the Interest - FMV of the services rendered)

Answer 224

* The basis is increased by the amount of gain recognized by the partner * Gain of Stock + Basis of Stock **Example** FMV of Stock: $10,000 Basis of Stock: $5,000 Gain of Stock: $5,000 ($10,000 - $5,000) Partnership Basis: $10,000 ($5,000 + $5,000)

Answer 225

Step 1: Calculate the current guranteed payment * Minimum Payment - (% Ownership x Partnership Income) Step 2: Calculate the Other Distributive Share * % of Ownership x Partnership Income Step 3: Calculate Total Distributive Share * Current Guaranteed Payment + Other Distributive Share

Answer 226

Step 1: Calculate the reportable Partnership Income for the Partnership * Business Income - Guaranteed Payments Step 2: Determine Reportable income for the partner * (% of Interest x Partnership Income for the Partnership) + Guaranteed Payment + (% of Interest x Separately Stated Items)

Answer 227

* Guaranteed Payments * Payments for Services * Distributions * Loans

Answer 228

* Guaranteed payments are deductible in the partnership * They are deducted from the basis of the partner who is receiving the payment * Compensation for services provided is treated as a guaranteed payment

Answer 229

Net the beginning liability with the ending liability * Net liability > 0: Decrease the net amount * Net liability < 0: Increase the amount

Answer 230

Ordinary Income + Capital Gains + Dividend Income - Maximum Capital Loss **Tax-exempt income is not included since it's tax-exempt**

Answer 231

S Corp: Reportable on the W-2 Partnership: Reportable on the K-1

Answer 232

An adjustment is not needed, as long as the deduction in the prior year created a tax benefit

Answer 233

* The allowance method is not allowed * If additional debt estimated accounts were added to the allowance, then the difference between what was actually written off and the additional allowance will either be added or subtracted to determine taxable income * More accrued debt than what was written off: Increase * Less accrued debt than what was written off: Decrease

Answer 234

Part 1 * Financial information and Net Income (Loss) Reconciliation * Asks certain questions about the financial statements and reconciles book net income to net income for tax purposes Part 3 * Recording expenses and deduction items

Answer 235

State bond interest, including other tax-exempt interest, is considered a permanent difference

Final REG Review Flashcards

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