R5

Question 1

What is the order that Stock basis is adjusted?

Answer 1

Adjusted annually as of 12/31 in the following order:

1. Increased for income and expense depletion
2. Decreased for distributions
3. Decreased for nondeductions, noncapital expenses, and depletion
4. Decreased for items of loss and deduction

Question 2

T/F: Both tax-exempt & taxable int income increase basis

Answer 2

True

Question 3

How is a Unrealized Built in gain determined?

Answer 3

1. C Corp elects S corp AND

2. FMV Corp assets > adj basis on election date

Question 4

What effects the Accumulated Adjustment Account?

Answer 4

The AAA is increased by separately sated and nonseparatley income and gains (except tax-exempt income& insurance proceeds)

Question 5

What is the tax rate for Built In Gains?

Answer 5

21% (highest corp income tax rate)

Question 6

What decreases S Corp shareholders basis?

Answer 6

distributions to shareholders and loss or expense items

Question 7

How is a partnership tax year elected?

Answer 7

A partnership may elect to have a tax year other than generally required tax yr if the deferral pd for tax year elected does not exceed 3 months.

Question 8

When does a partnership recognize income on a nonliquidating pship distribution?

Answer 8

Partnership does not generally recognize income on nonliquidating partnership other than money

Question 9

What is the partners basis in a nonliquidating distribution?

Answer 9

In nonliquidating liquidation, partner takes partnership basis for assets distributed

Question 10

Define guaranteed payments.

Answer 10

Payments to partners for services rendered or the use of capital w/o regard to partnership income. Increases ordinary income but not tax basis

Question 11

What happens if a partner is a material participant?

Answer 11

Partners share of losses are deductible to the extent of partners basis in partnership , basis include share of debt @ y/e

Question 12

What is the G/L on the sale of partnership interest?

Answer 12

Partner who sells int in partnership has rec G/L, measured by the difference in amount realized - adj basis. IF any partnership liability allocated to the interest and transferred to buyer, then gain on hot assets (unrealized receivables, appreciated inv = ord income)

Question 13

What is the amount realized by a partner on sale of partnership int?

Answer 13

amount realized = proportionate share of liabilities assumed by purchaser

Question 14

When do transfer pricing issues occur?

Answer 14

Transfer pricing issues occur when a taxpayer shares costs with an affiliate that :

1. is not subject to US income tax OR
2. does not file a consolidated income tax return w/ US based taxpayer

Question 15

What is the advanced pricing agreement program?

Answer 15

A binding agreement between IRS & the taxpayer by which IRS agrees not to seek a transfer pricing adjustment for a covered transaction if taxpayer files returned for covered year consistent with transfer pricing method

Question 16

What are the categories FTC limitations?

Answer 16

General category income, passive category income, Foreign branch income, global intangible income
NOT a category: Foreign derived intangible income

Question 17

How do you calculate the increase in US property?

Answer 17

Average adjusted basis of the CFC US prop for tax year compared with adjusted basis @ end of PY

Question 18

What form is income earned by a foreign branch reported on?

Answer 18

Form 1120-F (U.S income tax return of foreign corp)

Question 19

How do you calculate a partners initial basis in their partnership interest?

Answer 19

Determined on the adjusted basis of appreciated property reduced by the liabilities assumed
- IF liabilities are more than the basis then basis = 0.

Question 20

What increases S stock?

Answer 20

Tax-exempt & taxable interest income

Question 21

What is the formula to determine shareholders basis in S corporation stock:

Answer 21

Initial basis (BOY)
+ Income items (separately and non-separately stated items)
+ additional shareholder investments in corporation stock
- distribution to shareholders
- Loss or expense items(wages don’t count as an expense)
___________________________
Ending basis

Question 22

What is the treatment of fringe benefits from S corporations?

Answer 22

Fringe benefits paid by an S corporation are deductible by the S corporation only for non-shareholder and those employee -shareholders owning 2% or less of the S corporation.
Fringe benefits paid are deducted by S corp if included in individual receiving benefits

Question 23

When a BIG asset is sold during the year, how do you calc the gain on tax liability?

Answer 23

Excess FMV of the asset at the BOY LESS the adjusted basis

Question 24

If a company terminates its S election, how many years does it take to reelct S status?

Answer 24

5th year from the current tax year

Question 25

What is the built in gains tax?

Answer 25

when a corporation disposes of assets that were appreciated in value at the time the company converted from a C to S corporation

Question 26

What will cause a partnership to be terminated?

Answer 26

when partnerships business and financial operations are discontinued

Question 27

Is there a gain or loss recognized in the contribution of property?

Answer 27

NO STOOPID, no g/l is recognized on a contribution of property to a partnership in return for a partnership interest,

Question 28

How does an increase in partnership liabilities effect the partners basis?

Answer 28

The partners basis is increased by the portion of liabilities assumed by the partners

Question 29

What is the benefit of a LLC for taxation purposes?

Answer 29

A LLC can select whether to be taxed as a partnership, corporation, or sole proprietorship.

Question 30

Define a Foreign Derived intangible income transaction?

Answer 30

Sales to a non-Us persons of property for use outside the US increase a corporations FDII

Question 31

How is the increase in earnings in US property calculated for a CFC?

Answer 31

Averaged per quarter

1. amount of investments to current period
2. add the purchase for the rest of the quarter applied
3. divide by 4
4. subtract original of invest in the current period

Question 32

Who does the base erosion and anti-abuse tax apply to?

Answer 32

corporations with average annual gross receipts of $500mill or more for the 3 preceding tax years

Question 33

Define an instance in which transfer pricing occurs?

Answer 33

US taxpayer shares costs with an affiliate tha tis not subject to US income tax and does not file a consolidated income tax return with the US based taxpayer

Question 34

What are foreign taxes paid classified as?

Answer 34

can be classified as a deduction or as a credit, option is up to the corporation

Question 35

What is the definition of nexus?

Answer 35

min level of contact a taxpayer may have with a jurisdiction to be subject to its tax

Question 36

What are some factors the trigger nexus?

Answer 36

Owning/leasing tangible or personal property, sending employees into the state for training or work, Soliciting sales in a state, providing installation, maintenance, etc to customers within a state, accepting/rejecting sales orders within the state, or accepting reuturns

Question 37

What types of entities make a nonliquidating distribution in a partnership nontaxable?

Answer 37

General partnership or LLP

Question 38

If there is no election of an accounting period, how is the tax year established?

Answer 38

Tax year of one or more partners with a more than 50% interest in profits and captial

Question 39

How do you calculate the apportionment factor?

Answer 39

Payroll/total payroll + 
avg property / total property + 
Sales/ total sales 
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
X / 3 = Factor

Question 40

When is a nonliquidating cash distribution taxable?

Answer 40

nonliquidating cash distribution is not taxable to partner unless greater than the partners basis in partnership interest

Question 41

What is a tax advantage of choosing an S corporation instead of a C corp?

Answer 41

Corporation’s capital losses and all other items of income and loss flow through to the tax returns of the shareholders

Question 42

What is an example in which a payment to foreign person is not subject to withholding tax?

Answer 42

a payment for the sale of inventory within the US

Question 43

Which 2 business entities can make a distribution of appreciated property that would not be taxable to business/owners?

Answer 43

General partnership and LLP

Question 44

Who does the aiding and abetting penalty apply to?

Answer 44

any person who knows about the actions of a subordinate to understate