Flashcards in REG Deck (519):
What remedy can surety seek before paying a debt?
Exoneration ( Indemnification, subrogation, and contribution are all remedies available to the surety after he has paid the creditor.)
Which account must be capitalized in order to convert AMTI to ACE
Amortization of organizational expenditures.
Which exception allows C corporation to use cash method of accounting?
If the C corporation is a qualified personal service corporation, or if the C corporation for every year has average gross receipts of $5 million or less for any prior three-year period and does not have inventories.
What is sec 1245 recapture
1245 recapture = depreciation
1231 gain (Long term)= Gain -depreciation
Office furniture is Sec. 1245 property and gain from its sale is subject to Sec. 1245 recapture, which recaptures gain as ordinary income to the extent of all depreciation previously deducted. Any gain not recaptured would be a Sec. 1231 gain because the office furniture was property that was used in a trade or business and held for more than one year.
Four years ago, a self-employed taxpayer purchased office furniture for $30,000. During the current tax year, the taxpayer sold the furniture for $37,000. At the time of the sale, the taxpayer’s depreciation deductions totaled $20,700.
Selling price $37,000
Depreciation − 20,700
Adjusted basis − 9,300
Recognized gain $27,700
Sec. 1245 recapture − 20,700
Sec.. 1231 gain / LTCG $ 7,000
What is an insurance deed
An insurable deed is one where an insurance company, usually a title company, assumes the risk of any defects in title.
What is the charitable contribution base for a corporation?
Taxable income computed before the charitable contributions deduction, the dividends-received deduction, a NOL carryback (but after carryover), and a capital loss carryback (but after carryover)
What are the necessary requirements for a valid deed
(1) the names of the buyer (grantee) and the seller (grantor), (2) words evidencing an intent to convey, (3) a legally sufficient description of the land, (4) the grantor’s (and usually the spouse’s) signature, and (5) delivery of the deed.
Is the firm offer rule applicable to sale of property?
When can a creditor resort to pledged collateral?
Immediately upon default
When is a liquidated damage close unenforceable?
If either at the time of contract formation, damages would not be difficult to estimate, or the amount set as damages is considered as a penalty
What are the conditions to be a creditor beneficiary
one party to a contract in question owed the creditor money, and the contract in question was made specifically to satisfy that debt.
What is the depreciable basis of equipment?
The basis includes all of the costs incurred to prepare the asset to be placed in service/
Purchase price. $55,000
Delivery charges. $725
Installation fees, $300
Sales tax. $3,400
Depreciable basis = 59’425
What is the donee basis in property acquired by gift?
The donor's basis in the property plus the gift tax paid. However, if the fair market value of the gifted property at the time of the gift is less than the donor's basis in the property, the donee assumes the fair market value of the property at the time of the gift as its basis for computing losses. The donee still uses the donor's basis in the property plus the gift tax paid in computing gains.
Are corporation capital losse’s deductible?
Deductible only to the extent of capital gains (since it is netted)
Unused capital losses maybe carried back for 3 years and carried forward for 5 years
What is the maximum deduction for a given year for a Section 1244 loss?
50’000 ($100,000 if married filing jointly) (ordinary loss). Remaining is treated whather in capital loss or ordinary loss (depending on the nature of asset)
Example : In the current year, Fitz, a single taxpayer, sustained a $48,000 loss on Code Sec. 1244 stock in JJJ Corp., a qualifying small business corporation, and a $20,000 loss on Code Sec. 1244 stock in MMM Corp., another qualifying small business corporation. What is the maximum amount of loss that Fitz can deduct for the current year?
=>$50,000 ordinary loss and $18,000 capital loss (since it is investment = capital asset).
Which of long-term or short-term capital gains are eligible to be taxed at preferential rates?
Long-term capital gains
What are the conditions to qualify for ordinary treatment?
1244 stock must be issued to the taxpayer for money or other property transferred by the taxpayer to the corporation.
Example : Jackson, a single individual, inherits Bean Corp. common stock from his parents. Bean is a qualified small business corporation under Code Section 1244.
The stock costs Jackson's parents $20,000 and has a fair market value of $25,000 at the parents' date of death. During the year, Bean declares bankruptcy and Jackson is informed that the stock is worthless. What amount may Jackson deduct as an ordinary loss in the current year? =>0
How is treated carryover (5 years) and carry back (3 years)?
It is treated as a short-term capital loss, whether or not it was short-term when sustained.
How are gain on the sale of a realty taxed?
Taxed at a 25% rate to the extent of the straight-line depreciation claimed on the asset. (Note that there is no Section 1250 recapture if straight-line depreciation is used for the asset.)
The remaining gain is taxed as section 1231 gain.
What does the lookback provision state?
It states that the net Section 1231 gains must be offset by net Section 1231 losses from the five preceding tax years that have not previously been recaptured. To the extent of these losses, the net Section 1231 gain is treated as ordinary income.
Year Results of Operations.
1 Section 1231 losses of $50,000.
2 Section 1231 losses of $30,000.
3 Section 1231 gains of $75,000
4 Section 1231 losses of $20,000
5 Section 1231 losses of $30,000
6 Section 1231 gain of $80,000
=> $55,000 ordinary income; $25,000 Sec. 1231 gain.
How are treated Section 1245 property’s recapture gains?
Treated as ordinary income to the extent of depreciation or amortization taken on the property.
BPC owns equipment with the following tax characteristics :
Original cost $40,000 /Depreciation Claimed $15,000 /Straight-Line Depreciation $10,000 /Current Fair Market Value $60,000 /Holding Period 3 years
Total Gain/ Ordinary Income/ Capital Gain/Section 1231 Gain?
Amount realized $ 60,000
Depreciation claimed (15,000)
Adjusted basis (25,000)
Realized and recognized gain 35,000
Recaptured as ordinary income (15,000)
Section 1231 Gain 20,000
None of the gain is capital since the asset is a Section 1231 asset.
Video Productions owns a factory with the following tax characteristics:
Original cost $300,000 / Depreciation Claimed $40,000 /Straight-Line Depreciation $40,000 /Current Fair Market Value $360,000 /Holding Period 4 years
Total Gain : 100’000 (For Section 1250 property, only the excess of actual depreciation over straight-line depreciation is subject to recapture as ordinary income. 360’000-300’000+40’000)
Ordinary Income : 0 (Recapture applies only to Section 1231 property)
Gain taxed at 25% rate : 40’000 (Depreciation Claimed)
Capital Gain : 0
Section 1231 Gain : 60’000 (The amount not recaptured in ordinary income is categorized as a Section 1231 gain. )
What is Section 1245 recapture?
It recharacterizes gains on personalty as ordinary income to the extent of accumulated depreciation.
What is Section 1250 recapture?
Recapture of accumulated accelerated depreciation on buildings in excess of straight-line depreciation as ordinary income.
For buildings owned by individuals "unrecaptured Section 1250 gains" recharacterizes gains on realty as eligible for a special (25%) tax rate to the extent of accumulated straight-line depreciation.
What are the requirement to qualify for MACRS accelerated depreciation?
For listed property only if the business use of the asset exceeds 50% of the total use.
If not, must use straight-line depreciation
Is Goodwill amortizable?
Does Covenants not to compete qualify for amortization?
Yes if acquired in connection with the acquisition of a trade or business.
How long is the statutory amortization period for a covenant not to compete that is related to a business acquisition?
Under MACRS what is the use of the property depreciable basis as determined by code section 162?
It is used to compute the depreciation deductions, except that salvage values are considered to be zero.
What is the limit of Code section 179 deduction?
Deduction limited to the amount of taxable income originating from the trade or business in which the property is used and is reduced dollar-for-dollar when the taxpayer places qualifying tangible personal property in service that exceeds $20,000.
What is the requirement to be eligible to Code section 179?
Property purchased for use in active trade or business
To what Code Section 179’s deduction is applying?
Limited to the net income from the business, $15,000
The accountant may be liable in preparation of unaudited financial statements, including compiled and reviewed financial statements for nonissuers (nonpublic companies) if?
(1) Failure to mark each page, “unaudited,” or “See Accountant’s Compilation Report,” or “See Accountant’s Review Report.”
(2) Failure to issue a disclaimer of opinion, or an appropriately worded compilation or review report.
(3) Failure to follow appropriate AICPA Statements on Standards for Accounting and Review Services.
(4) Failure to inform client of any discovery of indications of major issues. For example, circumstances indicating presence of fraud.
List the priorities for the satisfaction of claims against the debtor in a bankruptcy proceeding under The Bankruptcy Reform Act
(1) Domestic support obligations (e.g., child support, alimony)
(2) Administration costs (Includes fees to accountants, attorneys, trustees,...)
(3) Claims arising in ordinary course of debtor’s business after involuntary bankruptcy petition is filed but before order for relief is entered
(4) Wages, salaries, and commissions, including vacation, severance, and sick leave owing to bankrupt’s employees up to $11,725 per employee earned within 180 days before the petition in bankruptcy was filed (or cessation of business, whichever occurred first)
(5) Contributions to employee benefit plans within the prior 180 days, limited to $11,725 per employee, reduced by amount received as wage preference
(6) Claims on storage of grain or fish up to $5,775 for each individual
(7) Consumer deposits for undelivered goods or services limited to $2,600 per individual
(8) Taxes (federal, state, and local)
(9) Obligations to an insured bank
(10) Debts arising from motor vehicle accidents while under the influence of drugs or alcohol
(11) General (unsecured) creditors that filed timely proofs of claims
What is a corporation estimated tax?
It is its expected tax liability (including alternative minimum tax) less its allowable tax credits.
Who must incurred expenses related to child dependent care credit?
Expenses must be incurred on behalf of a qualifying individual. A qualifying individual includes a taxpayer’s child (e.g., taxpayer’s child, stepchild, sibling, stepsibling, or descendant of any of these) under age 13, as well as a dependent or spouse who is physically or mentally incapable of self-care.
Claims and Expenses
Claim by Dart Corp. (one of Knox's suppliers) for computers ordered on April 6, and delivered on credit to Knox on April 10. $20,000
Fee earned by the bankruptcy trustee. $15,000
Claim by Boyd for a deposit given to Knox on April 1, for a computer Boyd purchased for personal use but that had not yet been received by Boyd. $ 1,500
Claim by Noll Co. for the delivery of stereos to Knox on credit. The stereos were delivered on April 4, and a financing statement was properly filed on April 5. These stereos were sold by the trustee with Noll's consent for $7,500, their fair market value. $ 5,000
Fees earned by the attorneys for the bankruptcy estate. $10,000
Claims by unsecured general creditors $ 1,000
The cash available for distribution includes the proceeds from the sale of the stereos.
What amount will be distributed to Boyd if the cash available for distribution is $50,800?
When distributing the assets of the debtor’s estate, the trustee must follow priorities prescribed by bankruptcy law. In this case the first $5,000 of the remaining assets would be paid to Noll Co. since secured creditors have first priority concerning the property acting as their collateral. The next $25,000 would be paid to the trustee ($15,000) and attorneys ($10,000) because administrative costs are first priority among unsecured creditors. Next, $20,000 of the remaining $20,800 ($50,800 − $5,000 − $25,000) would be distributed to claims arising in the ordinary course of the debtor’s business after the involuntary bankruptcy petition is filed but before the order for relief is entered, a gap creditor. Since Dart Corp. is the only remaining creditor which falls into this category, it will be paid the full $20,000 owed it, leaving $800 ($20,800 − $20,000). Of the remaining creditors, Boyd is given a higher priority since consumers’ deposits for undelivered goods or services (subject to a limit per individual) is given a higher priority than general, unsecured creditors. Thus, Boyd will receive the remaining $800.
To what is limited the distributed property’s basis of a the partner?
Although a partner’s basis for distributed property is generally the same as the partnership’s former basis for the property (a transferred basis), the distributed property’s basis will be limited to the partner’s basis for the partnership interest reduced by any money received in the same distribution
Example : Hart’s adjusted basis for his interest in a partnership was $30,000. He received a nonliquidating distribution of $24,000 cash plus a parcel of land with a fair market value and partnership basis of $9,000. Hart’s basis for the land is 6,000 (30'000-24'000)
Is gain or loss recognized if stock is exchanged solely for stock in a corporation that is a party to the reorganization?
No gain or loss is recognized
When is income generally reported under accrual method?
Under the accrual method, income generally is reported in the year earned. If an amount is included in gross income on the basis of a reasonable estimate, and it is later determined that the exact amount is more, then the additional amount is included in income in the tax year in which the determination of the exact amount is made.
To what is the basis of shareholder’s original stock allocated if nontaxable stock is received?
If nontaxable when received, the basis of shareholder’s original stock is allocated between the dividend stock and the original stock in proportion to their relative FMVs
On January 5, 2015, Norman Harris purchased for $6,000, 100 shares of Campbell Corporation common stock. On July 8, 2015, he received a nontaxable stock dividend of 10 shares of Campbell Corporation $100 par value preferred stock. On that date, the market values per share of the common and preferred stock were $75 and $150, respectively. Harris’ tax basis for the common stock after the receipt of the nontaxable preferred stock dividend is 5'000
Harris’ original common stock basis must be allocated between the preferred and common stock according to relative market values:
Market value = $75 × 100 shares = $7,500
Market value $150 × 10 shares = 1,500
Total value $9,000
The ratio of the common stock to total value is 7,500/ 9,000 or 5/6. This ratio multiplied by the original common stock basis of $6,000, results in a basis for the common stock of $5,000. Note that the basis of the preferred stock is $1,000 (1/6 × $6,000).
How may a corporation reduce its income tax?
By taking a tax credit for foreign income taxes.
What is included in the support of a dependent?
Food, FMV of lodging, medical, recreational, educational, and certain capital expenditures made on behalf of a dependent.
What is excluded in the support of a dependent?
Life insurance premiums, funeral expenses, nontaxable scholarships, and income and social security taxes paid from a dependent’s own income.
What is the only defense available to a seller under strict liability?
The only defenses available to a seller are misuse and assumption of risk. A buyer misuses a product when he uses it for some purpose other than the purpose for which the product was originally intended. Assumption of risk exists when an individual uses the product without regard to an inherent danger associated with the product.
What is "retained earnings- unappropriated?
"it is a ""per books"" figure found on Schedules L and M-2 of the corporate tax return Form 1120. The beginning balance is increased by the net income per books and decreased by the dividends paid and the debit adjustment.
Are interest expense on a qualified education loan is deductible in the computation of an individual’s adjusted gross income?
Yes. The maximum annual deduction is limited to $2,500 and is reduced by modified adjusted gross income in excess of $60,000 if single, head of household, or a qualifying widow(er); $120,000 if married filing jointly.
To which extent is the realized gain from involuntary conversion recognized?
"Only to the extent that the insurance proceeds are not reinvested in similar property.
David Price owned machinery which he had acquired in 2013 at a cost of $100,000. During 2015, the machinery was destroyed by fire. At that time it had an adjusted basis of $86,000. The insurance proceeds awarded to Price amounted to $125,000, and he immediately acquired a similar machine for $110,000. What should Price report as ordinary income resulting from the involuntary conversion for 2015?
The realized gain from involuntary conversion of $39,000 ($125,000 insurance proceeds ? $86,000 adjusted basis) is recognized only to the extent that the insurance proceeds are not reinvested in similar property. This results in a recognized gain of $15,000 ($125,000 ? $110,000). Because the machinery was Sec. 1245 property, this recognized gain of $15,000 is recaptured as ordinary income to the extent of the $14,000 of depreciation previously deducted, while the remaining $1,000 is classified as Sec. 1231 gain."
What is required for an investor corporation to qualify for dividends-received deduction (DRD)?
To qualify for a DRD, the investor corporation must own the investee’s stock for more than 45 days (more than 90 days for preferred stock if the dividends received are in arrears for more than 1 year).
In which case a principal has not power to terminate an agency relationship?
Where the agency is an agency coupled with an interest (i.e., where the agent owns part of the subject matter, the principal does not have the power to terminate the relationship).
Is receipt of a common stock distribution on common stock excluded from gross income?
"Yes. As a result, the cost of the original shares is divided by the total shares owned (including the dividend shares) to determine the basis for each share.
Taylor owns 1,000 shares of Media Corporation common stock with a basis of $22,000 and a fair market value of $33,000. Media paid a nontaxable 10% common stock dividend. What is the basis for each share of Media common stock owned by Taylor after receipt of the dividend? 20 (22'000/(1000+10%*1'000))"
Which types of entities qualify for net operating loss (NOL) deductions?
Trusts and estates may have an NOL that can be carried back and carried forward and used as a deduction. Furthermore, for the year in which a trust or estate terminates, any remaining unused NOL passes through to the beneficiaries who succeed to the assets of the trust or estate.
To which extent must ordinary income be reported regarding the sale of partnership interests?
"A partnership interest is a capital asset and a sale generally results in capital gain or loss, except that ordinary income must be reported to the extent of the selling partner’s share of unrealized receivables and appreciated inventory.
On December 31, after receipt of his share of partnership income, Clark sold his interest in a limited partnership for $30,000 cash and relief of all liabilities. On that date, the adjusted basis of Clark’s partnership interest was $40,000, consisting of his capital account of $15,000 and his share of the partnership liabilities of $25,000. The partnership has no unrealized receivables or substantially appreciated inventory. What is Clark’s gain or loss on the sale of his partnership interest?
Clark realized $55,000 from the sale of his partnership interest ($30,000 cash + relief from his $25,000 share of partnership liabilities). Since the partnership had no unrealized receivables nor appreciated inventory and the basis of Clark’s interest was $40,000, Clark realized a capital gain of $55,000 ? $40,000 = $15,000 from the sale."
What is unlawful under Rule 10b-5 of the Securities Exchange Act of 1934?
it is unlawful to use any manipulative or deceptive devices in the purchase or sale of securities if the mail, interstate commerce, or a national stock exchange is used.
When can an accrual tax-basis payer accrue an expense?
if the transaction meets both an all-events test (existence of liability established and amount can be determined with reasonable accuracy) and an economic performance test (property or service are actually provided)
What is the purpose of Schedule M-2 of Form 1120?
"Analyzes changes in a corporation’s Unappropriated Retained Earnings per books between the beginning and end of the year.
Balance at beginning of year
Add: Net income per books
Less: Dividends to shareholders
Other decreases (e.g., addition to reserve for contingencies)
Balance at end of year
Which items do not qualify under the like-kind exchange rule?
Exchanges involving property held primarily for sale; stocks, bonds, notes and other securities; partnership interests; certificates trusts or beneficial interest; and evidences of indebtedness are not considered "like-kind" exchanges
Hogan exchanged a business-use machine having an original cost of $100,000 and accumulated depreciation of $30,000 for business-use equipment owned by Baker having a fair market value of $80,000 plus $1,000 cash. Baker assumed a $2,000 outstanding debt on the machine. What taxable gain should Hogan recognize?
"This is a qualified like-kind exchange because a machine was exchanged for equipment and Hogan's use for each is for business purposes.
Equipment received $80,000
Debt relief 2,000
Total $ 83,000
Realized Gain $13,000
Debt relief and the cash received are both considered to be boot received, which is a total of $3,000. The recognized gain is the lower of the realized gain, $13,000, or boot received, $3,000.
How is recognized deferred gain under intallment sales?
"A ""gross profit percentage"" is multiplied by the cash received to determine the gain recognized
Gross profit percentage : The ratio of gain to be recognized to contract price (the total cash to be received).
In the current year, Essex sold land with a basis of $80,000 to Yarrow for $100,000. Yarrow paid $25,000 down and agreed to pay $15,000 per year, plus interest, for the next five years, beginning in the second year. Under the installment method, what gain should Essex include in gross income for the year of sale?
The total gain from the sale is $20,000 ($100,000 - $80,000). Under the installment method, 25% ($25,000 paid first year/$100,000) is of the gain is recognized in the year of sale. 25% x $20,000 = $5,000. "
What is the gross profit on sales for a transactino qualifyinig for installement sale treatment?
The gross profit on the sale is the amount realized less the property's adjusted basis.
Who are not considered related parties?
A taxpayer's in-laws
What is the shareholder's basis for stock
"Adjusted basis of property transferred
+ Gain recognized
? Boot received (assumption of liability always treated as boot for purposes of determining stock basis)
What is the Corporation’s basis for property?
Transferor’s adjusted basis + Gain recognized to transferor.
When must issuers of securities which are traded over-the-counter report?
Must report only when they have in excess of $10 million in total assets and more than 500 holders of record (stockholders) as of the last day of the issuer’s fiscal year.
When is client's permission needed to transfer working paper?
Working papers may not be transferred to another accountant without the client's permission.
What is a constructive eviction?
"Allowing conditions which make property unusable if lessor is liable for condition of premises.
Example : The landlord refuses to provide utilities to the tenant."
Who must sign a secrutiy agreement?
When is the creation of joint ownership is treated as a gift?
The creation of joint ownership in property is treated as a gift to the extent the donor’s contribution exceeds the donor’s retained interest.
When can a minor disaffirm a contract?
A minor may disaffirm a contract at any time until the minor reaches the age of majority or a reasonable time thereafter.
How are expenses incurred for printing and selling stock certificates treated?
"These expenses of issuing stock are treated as a reduction of paid-in capital.
Expenses incurred for printing and selling stock certificates are neither deductible, nor amortizable as organization expenditures. "
When is the rate of 35% applied for a credit to child care equal
"The credit is 35% if AGI is $15,000 or less, but is reduced by 1 percentage point for each $2,000 (or portion thereof) of AGI in excess of $15,000 (but not reduced below 20%).
What happens if a negligence of a CPA cannot be proved?
A CPA will not be held liable
How are treated recognized gains of property subject to Sec. 1245?
"Any recognized gain will be ordinary income to the extent of all depreciation or post-1980 cost recovery deductions. Any remaining gain after recapture will be Sec. 1231 gain if property held more than one year.
On May 31, 2015, Day Corporation sold machinery for $41,000. The machinery which had been purchased on January 2, 2013, for $40,000 had an adjusted basis of $21,000 on the date of sale. For 2015 Day should report?
Section 1231 gain of $1,000 and ordinary income of $19,000 (gain = 41'000-21'000 = 20'000 and amortization is 40'000-21'000=19'000)
The CSU partnership distributed to each partner cash of $4,000, inventory with a basis of $4,000 and a fair market value (FMV) of $6,000, and land with an adjusted basis of $5,000 and an FMV of $3,000 in a liquidating distribution. Partner Chang had an outside basis in Chang’s partnership interest of $12,000. In the second year after receiving the liquidating distribution, Chang sold the inventory for $5,000 and the land for $3,000. What income must Chang report upon the sale of these assets?
No gain or loss would be recognized by Chang upon the receipt of the cash, inventory, and land in complete liquidation of his partnership interest. The $12,000 basis for Chang’s partnership interest would first be reduced by the $4,000 of cash received, then reduced by the $4,000 basis of the inventory received, with the remaining $4,000 of partnership basis becoming the basis of the land to Chang. The subsequent sale of the inventory with a basis of $4,000 for a selling price of $5,000 results in $1,000 of ordinary income. Chang must recognize the gain from the sale of inventory as ordinary income because the inventory was sold within 5 years of its receipt. Finally, assuming that Chang held the land as a capital asset, the sale of the land with a basis of $4,000 for a selling price of $3,000 results in a $1,000 capital loss.
What is required to employee if the recovers from the third party and accepted workers’ compensation?
if the employee recovers from the third party, he is required to reimburse his employer to the extent that the recovery duplicates the benefits already received from workers’ compensation.
What the statutes of fraud requiring for contract for sales of goods?
"The Statute of Frauds generally requires contracts for a sale of goods of $500 or more to be in writing and signed by the person refusing performance. However, there are several exceptions, and this scenario illustrates one of them. If between merchants a confirmatory memorandum is sent and is not objected to in writing within 10 days by the merchant receiving it, then the Statute of Frauds is satisfied. Webstar must, therefore, honor this valid oral contract.
The Statute of Frauds generally requires contracts for a sale of goods of $500 or more to be in writing and signed by the person refusing performance. However, there are several exceptions : if between merchants a confirmatory memorandum is sent and is not objected to in writing within 10 days by the merchant receiving it, then the Statute of Frauds is satisfied.
When is the risk of losses passing from seller to buyer if seller is a nonmerchant?
In absence of agreement, where the buyer takes possession of the goods without a contractual obligation to ship or deliver by the seller, and the goods are not represented by a document of title, if the seller is a nonmerchant, risk of loss passes from seller to buyer at the time the seller tenders delivery.
If the shipment terms require the seller to deliver goods under an F.O.B. destination contract, ahat are seller's requirement?
If the shipment terms require the seller to deliver goods under an F.O.B. destination contract, the seller is required to properly "tender" the goods to the buyer at the specific destination stated in the contract (not a destination specified by the buyer). This place can be other than the buyer's place of business
What is the liability of seller for injuries caused by products they sell being used in their intended fashion?
Strict liability : it means that they are responsible to pay damages no matter how much fault they share. Contributory negligence on buyer's part will not bar recovery. Buyer does not have to show that any of the defendants acted negligently or unreasonably.
By what is implied warranty of merchantability?
The implied warranty of merchantability is implied by law. It arises automatically upon a sale by a merchant.
What must plaintiff show to win a case under a breach of the implied warranty of merchantability?
the plaintiff must show that a merchant sold the goods and that a breach of this warranty was the cause of an injury suffered
What are the 3 types of expressed warranty under the sales articles of UCC?
"1. Affirmations of fact or promises
2. Description of the goods
3 Sample or model - Bulk will conform exactly to the sample."
Which are the warranty automatically attached upon the formation of a sales contract?
Implied warranty of merchantability and title
Are punitive damaged awarded based on breach of contract?
When is inspection allowed for A C.O.D. (cash on delivery) contract?
After payment is made
What is the right of Replevin?
The right of replevin has to do with recovering identified property that is being improperly held by the seller when the buyer cannot find another seller.
Where the seller justifiably withholds delivery of goods and the buyer has made a deposit or payment and there is no liquidated damage clause how much can keep the seller?
Where the seller justifiably withholds delivery of goods and the buyer has made a deposit or payment and there is no liquidated damage clause, the seller may keep $500 or 20% of the purchase price, whichever is less.
What is the code section for personalty?
Section 1245 =>Section 1245 property is any property that is not realty. Realty is land and buildings. All depreciation taken on Section 1245 property is subject to being recaptured as ordinary income.
What is the code section for realty?
Section 1250 =>Realty is land and buildings. For Section 1250 property, only the excess of actual depreciation over straight-line depreciation is subject to recapture as ordinary income. The portion of the gain that would be recaptured if all depreciation taken was subject to recapture under Section 1245 over the regular Section 1250 recapture is taxed at 25%, rather than as a Section 1231 gain. The amount subject to the 25% rate is usually the straight-line depreciation on the asset.
How is debt relieved considered in a like-kind exchanged?
As a boot (shall be added to cash received while comapring with realized gain to determine debt relief)
When should a cash-basis tax payer report gross income?
A cash-basis taxpayer should report gross income for the year in which income is either actually or constructively received, whether in cash or in property.
What is the condition to exlude Federal and state income tax refunds from a taxpayer's taxable income?
Federal and state income tax refunds are excluded from a taxpayer's taxable income to the extent that the refund did not reduce the amount of tax for the earlier year. However, any interest earned on these refunds is considered taxable income.
How are amortized taxable bonds purchased at a premium?
Taxpayers may elect to amortize taxable bonds purchased at a premium. Non-taxable bonds purchased at a premium generally are required to be amortized. The amortized bond premium is based on the constant yield to maturity. The amount amortized usually reduces the taxpayer's basis in the bonds and, for taxable bonds, results in an offsetting deduction for interest received from the bond.
How are return on donated samples treated in gross income?
A corporation may deduct the fair market value of the contributed property but must add the same amount to its gross income for the receipt of the gift.
Is interest on state government obligations is non tax-exempt or tax-exempt income?
Interest on state government obligations is tax-exempt income
Is Interest income received on U.S. Treasury certificates exempt or not from federal income tax?
Interest income received on U.S. Treasury certificates is not exempt from federal income tax.
How is calculated the amount of income realized by a taxpayer from a sale or disposition of property?
The amount of income realized by a taxpayer from a sale or disposition of property equals the sum of the amount of cash received and the fair market value of any property received.
Example : Perle, a dentist, billed Wood $600 for dental services. Wood paid Perle $200 cash and built a bookcase for Perle's office in full settlement of the bill. Wood sells comparable bookcases for $350.
What amount should Perle include in taxable income as a result of this transaction? ->200+350 = 550
What are the conditions that must be met for tax exemption of accumulated interest on qualified U.S. Series EE Bonds?
The conditions that must be met for tax exemption of accumulated interest on these bonds is that the purchaser of the bond must have made the purchase after reaching the age of 24 and be the sole owner of the bonds (or joint owner with his or her spouse).
Under the tax benefit rule, How should be reported the recoveries of taxes previously deducted by a taxpayer that were overpaid?
Under the tax benefit rule, recoveries of taxes previously deducted by a taxpayer that were overpaid should be reported as income by the taxpayer in the year of recovery. The taxes subject to the tax benefit rule are: state income taxes; personal property taxes; real property taxes; state sales and use taxes; state corporation franchise taxes; stamp taxes; federal excise taxes; customs duties; and farmland preservation credits.
Taxpayers redeeming qualified U.S. Series EE Bonds in the same year that qualified higher education expenses are paid?
Qualified higher education expenses are tuition and fees required to enroll and attend a eligible educational institution.
Which expenses cannot be excluded in case of Taxpayers redeeming qualified U.S. Series EE Bonds in the same year that qualified higher education expenses are paid?
The exclusion applies only to education expenses incurred by the taxpayer, the taxpayer's spouse, or any person whom the taxpayer may claim as a dependent for the year. Otherwise qualified higher education expenses are decreased by:
qualified scholarships that are not includible in gross income;
payment of educational expenses to an institution that is an exempt organization;
reimbursement, payment, or waiver of qualified educational expenses through a state tuition program; and
any educational allowance allowable under U.S. Tax Code.
This response correctly indicates that both statements in this question
Pursuant to a divorce decree what amount should be included in the individual's gross income?
Alimony is included in the recipient's income, but child support payments and property settlements are not.
What is included in the gross income of an unemployed person?
Wages are included in gross income for the year in which they are received. Unemployment compensation is also included in gross income since it replaces income that would have been received if working.
Are alimony paid under a divorce or a separation agreement included or not included as taxable income by the payee spouse and deductible or not deductibe by the payor spouse?
Alimony paid under a divorce or a separation agreement is included as taxable income by the payee spouse and deductible by the payor spouse. Payments that are fixed as child support are not treated as alimony.
Thus, these payments are not included as taxable income by the payee spouse nor deductible by the payor spouse. If the payor spouse pays less than the amount specified as child support payments, the entire amount is treated as child support payments.
A divorce agreement, executed in 2012, provides for Hall to receive $3,000 per month, of which $600 is designated as child support. After the child reaches 18, the monthly payments are to be reduced to $2,400 and are to be continued until remarriage or death. However, for the year 2014, Hall received a total of only $5,000 from her former husband. Hall paid an attorney $2,000 in 2014 in a suit to collect the alimony owed.
Hall's divorce agreement provides for $3,000 per month, of which $600 is designated as child support. Hence, Hall should have received $28,800 in alimony and $7,200 in child support. However, she only received $5,000, which is less than the $7,200 she should have received in child support. Therefore, the entire $5,000 would be considered child support and Hall would not report any alimony.
What can an employee do if If an employer requires jury pay to be remitted in exchange for regular compensation for the period the employee was performing jury duty?
The employee may deduct the jury duty pay from her gross income as an adjustment arriving at adjusted gross income.
What are the requirement to exclude a gift from income?
Are excluded if the purpose of the transfer was detached generosity (no quid pro quo or consideration was expected in return for the transfer). If there is acceptance of the award and payment is received payment, FMV is included in income.
Fuller was the owner and beneficiary of a $200,000 life insurance policy on a parent. Fuller sold the policy to Decker, for $25,000. Decker paid a total of $40,000 in premiums.
Upon the death of the parent, what amount must Decker include in gross income?
Decker's cost basis is the $25,000 he paid for the policy plus the $40,000 he paid in premiums. $200,000 less $65,000 = $135,000.
Blake, a single individual age 67, had a 2014 adjusted gross income of $60,000 exclusive of social security benefits. Blake received social security benefits of $8,400 and interest of $1,000 on tax-exempt obligations during 2014. What amount of social security benefits is excludable from Blake's 2014 taxable income?
Provisional income (PI) = AGI + tax-exempt interest + 50% (SSB)
PI = $60,000 + $1,000 + 50% (8,400) = $65,200.
Since PI ($65,200) exceeds Base Amount 2 ($34,000), then the taxable amount of SSB is the lesser of:
.85 x SSB ($8,400) = $7,140, or
.85 x [PI - BA2; $65,200 - $34,000) = $26,520, plus the lesser of
amount included based on the 50% formula (50% x $8,400) = $4,200, or
$4,500 (unless married filing joint, then $6,000), which provides $26,520 + $4,200 = $30,720 for part b of the formula.
Thus, the amount included in income is the lower of $7,140 or $30,720, so the amount excluded is $1,260 ($8,400 - $7,140)
Note : if BA1 : only 50% formula is used
What are the base amounts?
Married filing joint : BA1 = 32,000, BA2 = 44,000
Single : 25,000/34,000
Who is not ins scope of the Uniform Capitalization Rules ?
It do not apply to small personal property dealers (Small personal property dealers are defined as those with $10 million or less in gross receipts during the preceding three years)
When are made the accounting methods for a new corporation?
Accounting methods for a new corporation are made on the initial tax return
Which capitalization rules are required to be used by Manufacturers and certain retailers and wholesalers to capitalize direct and indirect costs allocable to property they produce and for property they purchase for resale?
Manufacturers and certain retailers and wholesalers are required to use the uniform capitalization rules to capitalize direct and indirect costs allocable to property they produce and for property they purchase for resale.
Marketing, selling, advertising, and distribution expenses is required or not required to be capitalized?
Marketing, selling, advertising, and distribution expenses are not required to be capitalized.
Must storage expenses be capitalized?
Storage costs are required to be capitalized to the extent that they can be traced to an off-site storage or warehouse facility. Those storage costs attributed to an on-site facility are not required to be capitalized.
How is calculated tax If a corporation filed a short-year return for 3 month
If a corporation filed a short-year return for 3 month, the income for that period is first multiplied by 4 (12 months/3 months) to annualize the income for 12 months. The corporate tax liability is then computed on this amount for the full 12 months. That amount is the multiplied by 3/12 to prorate for the short tax year.
Which costs are not included in inventory under the Uniform Capitalization rules for goods manufactured by the taxpayer?
Taxpayers subject to the uniform capitalization rules must capitalize all direct costs and certain indirect costs properly allocable to real property and tangible personal property produced by the taxpayer, except for research and experimental expenditures.
Ace Rentals Inc., an accrual-basis taxpayer, reported rent receivable of $35,000 and $25,000 in its 2014 and 2013 balance sheets, respectively. During 2014, Ace received $50,000 in rent payments and $5,000 in nonrefundable rent deposits.
In Ace's 2014 corporate income tax return, what amount should Ace include as rent revenue?
Ace Corp. would report rent revenue of $65,000. Of this amount, $55,000 (the sum of $50,000 in rental payments and $5,000 in nonrefundable rent deposits) would be cash receipts. Ace Corp. is an accrual based taxpayer. Therefore, for tax purposes, income is earned when 1) all the events have occurred to attach the taxpayer's right to receive the income and 2) the amount of income can be determined with reasonable accuracy. With respect to rent receivable, the income must have been earned to record it as a receivable.
Hence, in calculating rent revenue, the $10,000 increase in rent receivable from 2013 to 2014 would have to be added to the corporation's cash receipts.
If inventories are used, which method should be used by tax payer for purchases and sales?
Unless the IRS consents to a change of method, taxpayers are to use the accrual method of accounting for purchases and sales if inventories are used.
Who cannot use cash method of accounting?
Regular C corporations;
Partnerships that have regular C corporations as partners;
Tax shelters. Note that the exceptions listed below do not apply to tax shelters.
Does the payment of federal income tax result in a deduction?
No. Since the payment of federal income tax does not result in a deduction, a subsequent refund of federal income tax will be nontaxable.
Is interest included in gross income?
Interest is generally fully included in gross income, including the interest on an overpayment of federal taxes.
When a mutual fund that invests in tax-exempt municipal bonds is permitted to pass the tax exemption on the bond interest on to its shareholders?
A mutual fund that invests in tax-exempt municipal bonds is permitted to pass the tax exemption on the bond interest on to its shareholders when the tax-exempt interest is distributed in the form of dividends. To qualify, the mutual fund has to have at least 50% of the value of its total assets invested in tax-exempt municipal bonds at the close of each quarter of its taxable year.
When must a lessor recognize income as a result of the capital improvements made by a lessee that revert to the lessor at the expiration of the lease?
Generally, a lessor will not recognize any income as a result of the capital improvements made by a lessee that revert to the lessor at the expiration of the lease. However, if the parties intend the improvements to be, in whole or in part, a substitute for rental payments, then the lessor must recognize the improvements as rental income equal in amount to the reduction in rental payments.
To which extent are insurnce proceeds tax-free if insurance proceeds are received as payment on a debt, rather than as life insurance proceeds paid "by reason of death of the insured."
Insurance proceeds are tax-free only to the extent of the amount of unpaid debt, and any proceeds in excess of the debt repayment must be included in receiver's gross income.
What are the requirement for a firm offer made by a merchant to hold an offer open for a stated period of time without consideration?
Must be in writing and signed by the merchant
What is required for an oral agreement which waives a non-breaching party’s rights arising out of a breach of contract
It requires consideration to be enforceable
What is the title insurance covering?
Title insurance insures against all defects of record and defects the grantee may be aware of (i.e Unrecorded assessments are not covered).
It also doesn't cover zoning violations and closing costs
What is the extent of individual's deduction for charitable contributions?
Since an individual's deduction for charitable contributions cannot exceed an overall limitation of 50% of adjusted gross income
What are guaranteed payment made to a partner?
Guaranteed payments are payments made to a partner for services or for the use of capital if the payments are determined without regard to the amount of partnership income. Guaranteed payments are deductible by a partnership in computing its ordinary income or loss from trade or business activities and must be reported as self-employment income by the partner receiving payment.
Example : A payment that represents a 10% interest in partnership profits could not be classified as a guaranteed payment because the payment is conditioned on the partnership having profits.
Does a mortgage on real estate give the mortgagee the right to possess the real estate?
A mortgage provides the mortgagee with a nonpossessory interest in real property.
What kind of lien on the property is creating a mortgage?
A mortgage is a security interest in real property usually used to secure a debt. The mortgage creates a nonpossessory lien on the property in favor of the mortgagee.
To who may be made a promisory note?
To a bearer
How is the basis on net asset received in a like-kind exchanged computed?
Basis of asset given up - boot received + gain recognized
What happens if doubt exists on whether an instrument is a draft or a note?
the holder may treat the instrument as either. This doesn't affect negociability
What is a quasi-contract?
A quasi contract is an implied-in-law rather than express agreement which results when one of the parties has been unjustly enriched at the expense of the other. The law creates such a contract when there is no binding agreement present to keep the unjust enrichment from occurring.
If an action has its origin in a personal physical injury, how are all resulting damages treated in gross income?
If an action has its origin in a personal physical injury, then all resulting damages (other than punitive damages) can be excluded from gross income.
Under the Securities Exchange Act of 1934, whith what must be furnised any person requested to sign a proxy?
Any person requested to sign a proxy must be furnished with a proxy statement disclosing material financial information as well as other material information.
When will a claim not be discharged in a bankrupcy proceeding?
Even when a general discharge is granted, there are certain debts that are not dischargeable by bankruptcy. Included in these are liabilities that arose from intentionally obtaining property or money by false representations or fraud.
Must bearer paper be endorsed to be negociated?
Unlike order paper, bearer paper need not be endorsed to be negotiated.
Which gain is subject to the 35% tax rate in a S corporation in the framework of an assets' sale?
A C corporation that makes an S election is subject to a corporate level tax of 35% on its net recognized built-in gain if the gain is attributable to its net unrealized built-in gain as of the first day of its S status and the gain is recognized within 10 years after the effective day of its S election.
Magic Corp., a regular C corporation, elected S corporation status at the beginning of the current calendar year. It had an asset with a basis of $40,000 and a fair market value (FMV) of $85,000 on January 1. The asset was sold during the year for $95,000. Magic’s corporate tax rate was 35%. What was Magic’s tax liability as a result of the sale?
Magic’s net unrealized built-in gain on January 1 was $85,000 ? $40,000 = $45,000. When Magic subsequently sold the asset for a $55,000 gain, $45,000 of the gain is a recognized built-in gain subject to tax at a rate of 35%, resulting in a built-in gains tax of $45,000 × 35% = $15,750.
What is the effect of an oral stop payment order received by a bank? (for a check)
An oral stop payment order effectively keeps the bank from paying the check for a 14-day period
What are the porivions of the Gramm-Leach Bliley (Financial Modernization) Act of 1999
(1) Accountants are prohibited from disclosing to a nonaffiliated third party any nonpublic personal information about their clients.
(2) Related FTC regulations require accountants to develop, implement, and maintain a comprehensive information security program that outlines the ways in which they protect client information.
(3) Accountants are responsible for maintaining the confidentiality of information that is outsourced for processing, e.g., outsourced tax return preparation to a firm in a foreign country.
Jon Stenger, a cash-basis taxpayer and age 28, had adjusted gross income of $35,000 for 2014. During the year he incurred and paid the following medical expenses:
Drugs and medicines prescribed by doctors $ 300
Health insurance premiums 1,500
Doctors’ fees 2,250
Stenger received $500 in 2014 as reimbursement for a portion of the doctors’ fees. If Stenger were to itemize his deductions, what would be his allowable net medical expense deduction?
This answer is correct. It would be computed as follows:
Drugs and medicines prescribed by doctors $ 300
Medical insurance premiums 1,500
Doctors’ fees ($2,250 ? $500 reimbursement) 1,750
Total $ 3,625
Less 10% of AGI ($35,000) (3,500)
Medical expense deduction for 2014 $ 125
Which of acts of the debtor will result in a bar to a general discharge of a bankrupt debtor?
Failing to explain satisfactorily a loss of assets that should have ended up in the estate.
Making false claims against the estate.
Taking out bankruptcy 3 years earlier (the rule bars a general discharge if the debtor took out bankruptcy within the previous 8 years)
On March 10, 2015, James Rogers sold 300 shares of Red Company common stock for $4,200. Rogers acquired the stock in 2013 at a cost of $5,000. On April 4, 2015, he repurchased 300 shares of Red Company common stock for $3,600 and held them until July 18, 2015, when he sold them for $6,000. How should Rogers report the above transactions for 2015?
The purchase of substantially identical stock within 30 days of the sale of stock at a loss is known as a wash sale. The $800 loss incurred in the wash sale ($5,000 basis less $4,200 amount realized) is disallowed. The basis of the replacement (substantially identical) stock is its cost ($3,600) plus the disallowed wash sale loss ($800). The holding period of the replacement stock includes the holding period of the wash sale stock. The amount realized ($6,000) less the basis ($4,400) yields a long-term gain of $1,600.
When is a principal generally liable for his or her agent’s torts against third parties? if committed within the scope of the agency relationship.
If committed within the scope of the agency relationship.
What are expenses' requirement to be deductible in computing AMT for individuals?
Used to buy, build, or substantially improve the home
Give characteristics of warranty of infrigement
Warranty against infringement is granted along with the warranty of title and thus, does not need to be expressly stated in the contract to be enforceable.
Like warranty of title, a warranty against infringement can be disclaimed by specific language or circumstances that indicate that this warranty is not extended.
Protects the seller if the buyer furnishes specifications which result in an infringement.
When does an agreement to form a partnership need to be in writing?
The expressed agreement may be oral or in writing with, in general, one exception. A partnership agreement that cannot be completed within 1 year from the date on which it is entered into must be in writing.
Explain Privileged communications between accountant and client
a.Do not exist at common law so must be created by statute
(1) Only a few states have privileged communications
(2) Federal law does not recognize privileged communications
(3) If accountant acting as agent for (hired by) one who has privileged communication such as an attorney, then accountant’s communications are privileged
b. To be considered privileged, accountant-client communication must
(1)Be located in a jurisdiction where recognized
(2) Have been intended to be confidential at time of communication
(3) Not be waived by client
c.If considered privileged, valid grounds exist for accountant to refuse to testify in court concerning these matters
(1) This privilege is, in general, for benefit of client
(2) Can be waived by client
(3) If part of privileged communication is allowed, all of privilege is lost
d. Code of Professional Conduct prohibits disclosure of confidential client data unless
(a) Note that if client is a partnership, each partner is actually a client and therefore each must give consent
(2)To comply with GAAS and GAAP
(3)To comply with enforceable subpoena (e.g., courts where privilege not recognized)
(4) Quality review under AICPA authorization
(5)Responding to AICPA or state trial board
e. US Supreme Court has held that tax accrual files are not protected by accountant-client privilege
What happens if an agenrt acts without authority?
If an agent acts without authority, neither the principal nor the third party is bound to perform the contract.
Wallace, an agent for Lux, made a contract with Doolittle which exceeded Wallace’s authority. If Lux wishes to hold Doolittle to the contract, Lux must prove that Lux ratified the contract before withdrawal from the contract by Doolittle.
If Lux ratified Wallace’s unauthorized act before Doolittle withdrew from the contract, Doolittle would be bound by the agreement.
When will a gain be recognized by a distributee partner in a nonliquidating distribution?
Gain will be recognized by a distributee partner in a nonliquidating distribution if the amount of money received exceeds the partner’s basis for the partnership interest.
Gain or loss may be recognized by a distributee partner if a nonliquidating distribution is disproportionate with respect to the partner’s interest in partnership property.
When is a distribution disproportionate in a nonliquidating distribution?
A distribution is disproportionate if the partner receives more than the partner’s share of unrealized receivables and substantially appreciated inventory, and in return relinquishes a share in other assets, or receives more than the partner’s share in capital and Sec. 1231 assets, and in return, relinquishes an interest in the partnership’s unrealized receivables and substantially appreciated inventory.
What happens when returning to work after retirement? (social security)
Returning to work after retirement can reduce an individual’s Social Security benefits.
What is the limitation of the deduction for interest expense on investment indebtedness?
The deduction for interest expense on investment indebtedness is limited to the taxpayer’s net investment income. Net investment income includes such income as interest, dividends, and short-term capital gains, less any related expenses.
How is the basis of a partner decreasing or increasing?
A partner’s beginning basis is increased by the partner’s distributive share of all income items (including tax-exempt income) and is decreased by all loss and deduction items, as well as distributions received from the partnership. Additionally, a partner’s basis is increased by a net increase in partnership liabilities during the year, or decreased if there is a net decrease in partnership liabilities.
Dale was a 50% partner in D&P Partnership. Dale contributed $10,000 in cash upon the formation of the partnership. D&P borrowed $10,000 to purchase equipment. During the first year of operations, D&P had $15,000 ordinary income, $2,000 tax-exempt interest income, a $3,000 distribution to each partner, and a $4,000 reduction of debt. At the end of the first year of operation, what amount would be Dale’s basis?
Since Dale is a 50% partner, his beginning basis of $10,000 is increased by his 50% share of ordinary income ($7,500), 50% share of tax-exempt income ($1,000), 50% share of the net increase in partnership liabilities ($3,000), and decreased by the $3,000 distribution that Dale received, resulting in a basis of $18,500.
When may a tenent evicted from an appartment?
A tenant may be evicted from an apartment if s/he uses it for illegal purposes.
What are the contents requirements of a financing statement
The financing statement only needs the names of the debtor and secured party; it must also contain a description of the collateral. Note that addresses are sometimes used to confirm the identity of the debtor
What is an innocent misrepresentation?
An innocent misrepresentation is a misstatement of fact made with an honest and justifiable belief (in good faith), without intent of defraud (i.e., scienter). Therefore, a plaintiff is not required to prove that the misrepresentation amounted to gross negligence to prevail in an action for innocent misrepresentation.
Any benefits received by the parties must be returned in order to restore each party to his/her precontractual position.
What is the scope of application of Age Discrimination in Employment Act?
The Age Discrimination in Employment Act generally applies to the employment of individuals at least 40 years old by businesses employing at least 20 people.
What kind of tax are not discharged by bankrupcy proceedings?
Any unpaid amount of taxes due to the United States or to any state or subdivision thereof from within 3 years preceding bankruptcy is not discharged by the bankruptcy proceeding.
Under a Chapter 11 reorganization is a debtor is allowed to remain in possession of its assets?
Under a Chapter 11 reorganization normally a debtor is allowed to remain in possession of its assets. The purpose of a Chapter 11 reorganization is to keep the financially troubled firm in business.
Which securities issuances are exempt from the registration requirements of the 1933 Act. (2 examples)?
Securities issued by a common carrier regulated by the Interstate Commerce Commission are exempt from the registration requirements of the 1933 Act.
Securities of savings and loans supervised by federal authorities are exempt from the registration requirements of the 1933 Act.
Who provides funding of a noncontributory pension plan?
Funding of a noncontributory pension plan is provided entirely by the employer.
Pope, a C corporation, owns 15% of Arden Corporation. Arden paid a $3,000 cash dividend to Pope. What is the amount of Pope’s dividend-received deduction?
The requirement is to determine Pope’s dividend-received deduction for the $3,000 dividend received from a 15%-owned corporation. Dividends received from a less than 20%-owned taxable domestic corporation are generally eligible for a 70% DRD. Here, Pope’s DRD would be $3,000 × 70% = $2,100
Whart is a power of attorney?
A power of attorney is written authority conferred to an agent. It is conferred in a formal writing. A power of attorney can be general or it can grant the agent only restricted authority.
The power of attorney must be signed only by the person granting such authority. Anyone with the legal capacity to enter into an agency relationship may be granted the power of attorney
What is inducing the death of a principal in an agency relationship?
The death of the principal constitutes the termination of an agency relationship by operation of law.
How will generally a corporation recognize gain or loss on the distribution of its property in liquidation?
Generally, a corporation will recognize gain or loss on the distribution of its property in liquidation just as if the property were sold to the distributee at its fair market value.
Example : During the current year, Aca Corp. adopted a plan of complete liquidation. Distributions to stockholders during the current year, under this plan of complete liquidation, included marketable securities purchased in 2012 with a basis of $100,000 and a fair market value of $120,000 at the date of distribution. In Aca’s current year return, what amount should be reported as long-term capital gain?
Since the marketable securities were held more than 12 months, their distribution results in a long-term capital gain of $120,000 ? $100,000 = $20,000.
On June 3, Muni Finance loaned Page Corp. $20,000 to purchase four computers for use in Page’s trucking business. Page contemporaneously executed a promissory note and security agreement. On June 7, Page purchased the computers with the $20,000, obtaining possession that same day. On June 10, Mort, a judgment creditor of Page, levied on the computers.
Which of the following statements is correct?
attachment of a security interest in personal property occurs when the following three requirements have been fulfilled; the secured party gives value, the debtor has rights in the collateral, and a record of the security agreement must exist. The secured party gave value and the security agreement existed on June 3, but the debtor did not acquire any rights in the collateral until June 7, the day of the purchase.
What is novation?
A novation is an agreement between three parties whereby a previous agreement is discharged by the creation of a new agreement.
What is required in order for an employee to recover under a compulsory state workers’ compensation statute?
Under the various states’ compulsory worker’s compensation acts, any employee injured within the scope of employment is entitled to receive medical or disability benefits. There is no need, as there is under the common law, to prove negligence on the part of the employer. Therefore, the employer’s common law defenses, such as contributory negligence on the part of the employee and negligence of a fellow employee, are destroyed
What is the difference between complex and simple trust?
A complex trust is one in which the trustee (1) has discretion whether to distribute or accumulate its income, (2) may make charitable contributions, and (3) may distribute trust principal. A simple trust is one that (1) is required to distribute all of its income each year, (2) cannot make charitable contributions, and (3) cannot make distributions of trust principal.
What happen when no power over the trust is retained?
When no powers over the trust, the trust cannot be a grantor trust nor can it be a revocable trust.
Which rates are applied to life and death transfers by the unified transfer tax rate schedule?
The unified transfer tax rate schedule applies the same tax rates on a cumulative basis to both life and death transfers. For example, during a person’s lifetime, a tax is first computed on cumulative lifetime taxable gifts, then is reduced by the tax on taxable gifts made in prior years in order to tax the current year’s gifts at applicable marginal rates.
How are taxed the unified transfer at death?
At death, a unified transfer tax is computed on total life and death transfers, then is reduced by the tax already paid on post-1976 gifts, the unified tax credit, foreign death taxes, and prior transfer taxes.
What are the requirements to be considered head of household?
Applies to unmarried person not qualifying for surviving spouse status but who maintains a household for more than one-half of the taxable year for
a. A qualifying child of the taxpayer (e.g., taxpayer’s children, siblings, step-siblings, and their descendants under age 19, or under age 24 and a student), but not if such qualifying child is married at the end of the taxable year and is not a dependent of the taxpayer because of filing a joint return, or was not a citizen, resident, or national of the US, nor a resident of Canada or Mexico.
b.Relative (closer than cousin) for whom the taxpayer is entitled to a dependency exemption for the taxable year.
c.Parents need not live with head of household, but parents’ household must be maintained by taxpayer (e.g., nursing home).
d.Cannot qualify for head of household status through use of multiple support agreement, or if taxpayer was a nonresident alien at any time during taxable year.
e.Unmarried requirement is satisfied if legally separated from spouse under a decree of separate maintenance, or if spouse was a nonresident alien at any time during taxable year.
Give example of criteria to qualify as dependent
Tax payer provides more than half of the dependent's support, and dependent's gross income (which excludes nontaxable Social Security) is less than $3,950.
How is treated contribution to the capital of a corporation by a shareholder?
When a shareholder makes a contribution to the capital of a corporation, no gain or loss is recognized to the shareholder, the corporation has a transferred (carryover) basis for the property, and the shareholder’s original stock basis is increased by the adjusted basis of the additional property contributed
Ed, the sole stockholder of Looney Corp., paid $70,000 for Looney’s stock in 2010. During 2015, Ed contributed a parcel of land to Looney but was not given any additional stock for this contribution. Ed’s basis for the land was $5,000, and its fair market value was $15,000 on the date of the transfer of title. What is Ed’s adjusted basis for his Looney stock following the contribution of the parcel of land?
Ed’s beginning stock basis of $70,000 is increased by the $5,000 basis for the contributed land, resulting in a stock basis of $75,000.
What are the liabilities of professionnals in a professionnal corporation?
State laws allow professionals to receive most of the benefits of incorporating by allowing them to form professional corporations. The professionals have limited liability for corporate debts but retain liability for their professional acts such as negligence in the audit.
What is the standard that must be established to prove a violation of the antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934?
it must be proven that a false statement or omission of material fact was made, and the individual knew it was false or acted with reckless disregard for the truth. This is equivalent to intentional misconduct.
What are including in the MACRS 5 year property classification?
The MACRS five-year property classification includes autos and taxis, light and heavy general-purpose trucks, calculators, copiers, computers, and peripheral equipment.
What are including in the MACRS 7 year property classification?
The MACRS seven-year property classification includes office furniture, fixtures, and equipment, as well as agricultural machinery and equipment.
What is the ACE adjustment?
The ACE adjustment is equal to 75% of the difference between adjusted current earnings (ACE) and pre-ACE alternative minimum taxable income. The ACE adjustment can be positive or negative, but a negative ACE adjustment is limited in amount to prior years’ net positive ACE adjustments.
Klaus Corporation, which is not exempt from the alternative minimum tax, reported adjusted current earnings (ACE) and alternative minimum taxable income (AMTI) prior to the alternative minimum tax NOL deduction and ACE adjustments for 2012 through 2014 as follows:
What is the amount of Klaus Corporation’s alternative minimum tax ACE adjustment for 2014?
For 2014 Klaus’ ACE is less than its pre-ACE AMTI leading to a tentative negative ACE adjustment of [($200,000 ? $350,000) × 75%] = $112,500. However, this negative ACE adjustment is allowed only to the extent of $45,000, the amount of Klaus’ net positive adjustment for prior years (i.e., $75,000 for 2012 reduced by a negative $30,000 ACE adjustment for 2013).
When does attachment is obtained for the purchase of a consummer goods
Perfection occurs at the time of attachment whenever a creditor obtains a purchase money security interest in consumer goods.
Can contract on real estate be completed over internet?
The issue of allowing signatures over the Internet has been addressed at both the federal and state levels. A majority of states have now passed laws to allow electronic signatures and invite technology to determine how to determine their validity.
Does a partner has apparent authority to convey a real property held in the partnership name?
if the sale of real estate is within the regular course of a partnership’s business, a partner has apparent authority to convey real property held in the partnership name.
The last endorsement on a negotiable instrument is a special endorsement : is instrument bearer or order?
If the last endorsement on a negotiable instrument is a special endorsement, the instrument is order paper. A special endorsement specifies the person to whom or to whose order it makes the instrument payable.
A check endorsed in blank : bearer or order paper?
A check endorsed in blank is bearer paper.
A check made payable to the order of cash : bearer or order paper?
A check made payable to the order of cash is bearer paper?
Are Trust with an independent trustee that was established for a minor included or excluded in a grantor’s gross estate?.
Trust with an independent trustee that was established for a minor would be excluded from a grantor’s gross estate.
When alternate valuation is elected and distribution occur before alternate valuation date, what is the basis of the stock?
The $240,000 FMV of the stock on date of distribution
Why is a partnership restricted in choosing a tax year?
A partnership generally is restricted in choosing a tax year in order to prevent the deferral of income to partners that could otherwise occur. Thus, a newly formed partnership is required to adopt the same taxable year as is used by its one or more partners owning a more than 50% interest in profits and capital. This insures that there will be no deferral of reporting of income for more than 50% of the partnership's income.
The following note was executed by Elizabeth Quinton on April 17, year 1, and delivered to Ian Wolf:
(Face) April 17, year 1
On demand, the undersigned promises to pay to the order of Ian Wolf
Seven Thousand and 00/100 Dollars
Elizabeth Quinton signed :Elizabeth Quinton
Ian Wolf Signed :Ian Wolf
Samuel Thorn signed :Samuel Thorn
Signed : George Vernon
signed : Alan Yule
In sequence, beginning with Wolf’s receipt of the note, this note is properly characterized as what type of commercial paper?
This note was originally order paper because it was payable to the order of Ian Wolf. It next became bearer paper when Ian Wolf endorsed it on the back in blank, that is, without specifying any endorsee. When Samuel Thorn endorsed it and wrote "Pay: George Vernon," it became order paper. Next, when George Vernon endorsed it, it remained as order paper since he designated "Pay: Alan Yule." The last endorsement by Alan Yule was a blank endorsement which converted it to bearer paper. ->Order, bearer, order, order, bearer.
When does apparent authority exists?
Apparent authority exists when the principal represents the agent to third parties to be his/her agent. In this case, the principal wished to be undisclosed.
What is the result of he filing of the bankruptcy petition?
The filing of the bankruptcy petition acts as an automatic stay of lawsuits by the debtor’s creditors.
To which prohibting infectinos are subject Tax preparers who aid and abet federal tax evasion?
Tax preparers who aid and abet federal tax evasion are subject to both injunction prohibiting them from acting as tax preparers and general federal criminal prosecution
Under the Securities Exchange Act of 1934, in which timeframe is a corporation’s officers (and all other insiders) required to report any changes in ownership of the corporation’s stock?
Under the Securities Exchange Act of 1934, a corporation’s officers (and all other insiders) are required to report any changes in ownership of the corporation’s stock within 15 days.
Under the 1934 Act, the proxy statement, when must the proxy itself, and any proxy soliciting material concerning securities required to be registered under the 1934 Act be filed with and approved by the SEC?
Under the 1934 Act, the proxy statement, the proxy itself, and any proxy soliciting material concerning securities required to be registered under the 1934 Act must be filed with and approved by the SEC before it can be sent to shareholders.
What are the ficuciary duty of an agent?
The fiduciary duties of a gratuitous agent are the same as the duties of an agent who is compensated. Under a gratuitous agent's duty to account, s/he must account to the principal for profits and everything that rightfully belongs to the principal including the principal's property. However the agent has a duty not to commingle funds.
When must The federal estate tax return (Form 706) be filed and the tax paid in case of decedent’s death?
The federal estate tax return (Form 706) must be filed and the tax paid within nine months of the decedent’s death, unless an extension of time has been granted.
To what kind of sales is the firm offer rules applying?
The firm offer rule does not apply because this contract does not involve the sale of goods.
What is the condition for te presence of an option in a contract?
An option is present if consideration is given for the opportunity to purchase
Who wins under a notice-type statut
Under a notice-type statute, a subsequent bona fide (good-faith) purchaser, whether s/he records or not, wins over previous purchaser who did not record before that subsequent
Who wins under a race-notice type (notice-race) statute
Under a race-notice type (notice-race) statute, the subsequent bona fide purchaser wins over a previous purchaser only if s/he also records first (i.e., a “race” to file first)
Who wins under a race statute
Under a race statute, the first to record deed wins
What nature must havee the acts of a creditor for the surety's relase from liability?
The general rule is that a surety is released from liability for acts of the creditor which materially increase the surety’s risk. In this case the failure of the creditor to give notice of the prior embezzlement materially increased the surety’s risk.
What must be proven by plaintiff under the Securities Exchange Act of 1934, Section 10(b) and Rule 10b-5
The plaintiff must prove that damages were incurred as a result of the act, that there was a material misstatement or omission, that s/he relied upon the financial information, and that scienter exists. Scienter is generally defined as the knowledge of or the intent to deceive, defraud, or manipulate.
What is the effect of Anticipatory repudiation?
Anticipatory repudiation discharges the nonrepudiating party (Kemp) from the contract and gives this party two options: (1) sue immediately for breach of contract or (2) for a commercially reasonable time, ignore the breaching party’s repudiation and wait for the repudiating party to perform at the appointed time.
In case of Anticipatory repudiation, what may happen if the repudiating party does not subsequently perform at the appointed time?
If the repudiating party does not subsequently perform, the nonrepudiating party may then sue for breach.
In case of Anticipatory repudiation, what is used in computing the buyer's damage?
The market value to be used in computing the buyer’s damages would be the market value at the time the buyer learned of the breach.
How can an executor treat medical expenses paid by the decedent’s estate for the decedent’s medical care?
The executor may elect to treat medical expenses paid by the decedent’s estate for the decedent’s medical care as paid by the decedent at the time the medical services were provided.
What are the requirement to be eligible to treat medical expenses paid by the decedent’s estate for the decedent’s medical care as paid by the decedent at the time the medical services were provided?
To qualify for this election, the medical expenses must be paid within the 1-year period after the decedent’s death, and the executor must attach a waiver to the decedent’s Form 1040 indicating that the expenses will not be claimed as a deduction on the decedent’s estate tax return.
To which defense is subject a HDC?
HDC takes a negotiable instrument free of personal defenses, but not real defenses.
Give types of personal defenses
Defenses assertable against any party including a HDC
Breach of contract, Lack or failure of consideration, Prior payment, Unauthorized completion, Fraud in the inducement, Nondelivery, Ordinary duress or undue influence, Mental incapacity, Illegality
Which bonds are an obligation of a surety?
Official bonds. This is a secondary obligation: Basically a party is guaranteeing that a public official will discharge duties in compliance with laws and regulations.
When an executor may elect The alternate valuation?
The alternate valuation can be elected only if its use decreases both the value of the gross estate and the estate tax liability.
Is valuation election revocable or irrevocable?
The alternate valuation election is irrevocable
To what kind of property in the estate does the alternate valuation apply?
Applies to all property in the estate; it cannot be made on an individual property basis.
What is the meaning of gross income?
The term gross income means income from whatever source derived and specifically includes alimony and separate maintenance payments.
Give examples of elements excluded from gross income
Compensation for injuries and sickness, the rental value of parsonages furnished to ministers of the gospel, and tuition scholarships are generally excluded from gross income as well as adjusted gross income.
What is the earned income credit?
The earned income credit is a refundable tax credit for eligible low-income taxpayers.
What are the requirement to be eligible for the earned income credit?
To be eligible, an individual must have earned income and generally must maintain a household for more than half the year for a qualifying child.
What is "qualifying child" included in the earned income credit eligibility requirement?
A qualifying child includes the taxpayer's child or grandchild who lives with the taxpayer for more than half of the taxable year, and is under age 19, or a full-time student under age 24, or permanently or totally disabled. The earned income credit is not available to married taxpayers filing separately.
Who bears the risk of loss and title to goods being purchased on a sale on approval basis until the sale is completed?
Provided there is no agreement to the contrary and neither party is in breach, both risk of loss and title to goods being purchased on a sale on approval basis remain with the seller until the sale is completed
Need a hint?
Which remedies is(are) allowed when a company is found to have violated the Age Discrimination in Employment Act when firing an employee covered under the Act?
Remedies for violation of this Act include reinstatement of the employee to his or her job. The employee can also receive monetary damages for any wages or salary lost until reinstatement.
How are the increase in value of property due to improvements made by lessee treated?
Lease improvements. The increase in value of property due to improvements made by lessee are excluded from lessor’s income unless improvements are made in lieu of fair value rent.
Aent and principal have agreed that agency was irrevocable : can the principal elect to terminate the agency relationship?
principal can elect to terminate the agency relationship and be liable for breach of contract even though he has agreed that the agency is irrevocable.
How are treated lossed on worthless securities?
Worthless securities generally receive capital loss treatment. However, if the loss is incurred by a corporation on its investment in an affiliated subsidiary corporation (80% or more ownership), the loss is generally treated as an ordinary loss.
For deposit only, without recourse, (signed) Jan Brake : what kind of endorsement is it?
restrictive, qualified, and blank.
Pay to Jenny Eaton if she completes the contract dated August 2, (signed) Jan Brake. what kind of endorsement is it?
special and restrictive.
Without recourse, (signed) Jan Brake. what kind of endorsement is it?
blank and qualified
upon foreclosure, which mortgagee has priority and must be paid in full?
Upon foreclosure, the first mortgagee has priority and must be paid in full before any payment is made to a subsequent mortgagee (second or third mortgagees).
What is the use of the doctrine of marshalling of assets?
A second mortgagee remains a secured creditor in the bankruptcy proceedings although his interest is inferior to a first mortgagee.The doctrine of marshalling of assets may help a second mortgagee since it allows him to compel a first mortgagee to foreclose on other property available to the first mortgagee as security before foreclosing on property which a second mortgagee has a claim on.
What is an estate DNI's
An estate’s DNI represents the maximum amount of available distribution deduction, and the maximum amount on which beneficiaries can be taxed.
Which is the maximum credit amount for adoption expenses?
The credit for adoption expenses is a nonrefundable credit of up to $13,190 (for 2014) for qualified adoption expenses incurred for each eligible child.
Morris Corporation’s income tax return for 2014 shows deductions exceeding gross income by $75,000. Included in the tax return are the following items:
Net operating loss deduction (carryover from 2013) $13,400
Dividends received deduction 6,600
What is Morris’ net operating loss for 2014?
The requirement is to determine the NOL for 2014 given that deductions in the tax return exceed gross income by $75,000. In computing the NOL for 2014, the DRD of $6,600 would be fully allowed, but the $13,400 NOL deduction (carryover from 2013) would not be allowed. $75,000 ? $13,400 = $61,600.
What is required to an individual whose tax liability is not sufficiently covered by withholding?
An individual whose tax liability is not sufficiently covered by withholding must pay estimated tax in quarterly installments or be subject to penalty.
When is there no underpayment penalty in case an individual whose tax liability is not sufficiently covered by withholding?
Generally, there will be no underpayment penalty if amounts withheld plus estimated payments are at least equal to the lesser of 90% of the individual’s current year’s tax (determined on the basis of actual income or annualized income), or 100% of the preceding year’s tax.
What are the conditions to be able to base one current year’s estimated tax payments on the preceding year’s tax liability?
An individual whose AGI for the preceding year exceeds $150,000 must use 110% (instead of 100%) if s/he wishes to base his or her current year’s estimated tax payments on the preceding year’s tax liability.
Who can apply the use of the adjusted seasonal installment method?
The use of the adjusted seasonal installment method is available to corporations, but is not available for individuals.
Who can a A subsequent bona fide purchaser defeat?
A subsequent bona fide purchaser will not defeat a prior perfected secured interest in consumer goods for which a financing statement has been filed. Such a purchaser will only defeat a prior perfected security interest that was perfected through automatic perfection by attachment.
What does a Trustee have priority over?
trustee in bankruptcy does not have priority over a prior perfected security interest. A trustee would only have priority over unperfected security interests and security interests perfected subsequent to the filing of the bankruptcy petition
to who has a Lien creditor priority over?
Lien creditor would only have priority over an unperfected security interest or a security interest perfected after the attachment of the lien.
What is bylaws?
Bylaws are requirements adopted by the board of directors to guide management in performing its duties.
What is a certificate of authority
Certificate of authority is a certificate that must be obtained for the corporation to do business in another state.
What is a shareholder agreement?
shareholders’ agreement sets forth the rights and obligations of shareholders
What is required for a mortgage to be effective against subsequent third parties who acquire an interest in property with no knowledge of the prior mortgage.
A mortgage must be recorded to be effective against subsequent third parties who acquire an interest in property with no knowledge of the prior mortgage.
What is the timeframe to file a claim for refund?
A taxpayer must file a claim for refund within 3 years from the date a return was filed, or 2 years from the date of payment of tax, whichever is later. If a return is filed before its due date, it is treated as filed on its due date.
What is the liability status of the drawer of an instrument?
Also, a drawer is secondarily liable on the instrument. This means the holder must first present the instrument to the drawee, the instrument must be dishonored and notice of dishonor must be given to the drawer before his secondary liability comes into effect.
What is the liability status of the drawee of an instrument?
A the drawee has no liability on the instrument until he accepted the draft and then he has primary liability.
What is the accumulated earnings tax?
The accumulated earnings tax is a penalty tax that can be imposed on a corporation if it accumulates earnings in excess of reasonable business needs, regardless of the number of shareholders that the corporation has.
Can personal holding tax be imposed accumulated earnings tax?
Since the personal holding company tax takes precedence, the accumulated earnings tax cannot be imposed on personal holding companies.
Can a corporation that distributes all of its accumulated earnings be imposed accumulated earnings tax?
Since the accumulated earnings tax is imposed on an unreasonable retention of corporate earnings, it cannot be imposed on a corporation that distributes all of its accumulated earnings.
Whih entity can be imposed accumulated earnings tax?
The accumulated earnings tax can only be imposed on corporations.
What are the conditions for a corporation to be exempt of corporate AMT for its first year?
A Corporation is exempt from the corporate AMT for its first tax year.
What are the conditions for a corporation to be exempt of corporate AMT for its 2nd year?
It is exempt for its second year if its first year’s gross receipts were $5 million or less.
What are the conditions for a corporation to be exempt of corporate AMT for its 3rd year?
To be exempt for its third year, the corporation’s average gross receipts for the first two years must be $7.5 million or less.
What are the conditions for a corporation to be exempt of corporate AMT for its 4th year?
To be exempt for the fourth year (and subsequent years), the corporation’s average gross receipts for all prior three-year periods also must be $7.5 million or less.
What is the difference of treatment of appreciated property distributed by LLC and S corporation?
LLC follows partnership rules so it may distribute appreciated property tax-free. S-Corporation must recognize the gain on the appreciated property distributed to a shareholder.
How must a tax payer treat capital interest in partnership received as compensation for services rendered?
A taxpayer must recognize income when a capital interest in a partnership is received as compensation for services rendered. The amount of income to be reported is the fair market value of the partnership interest received
When muusy a gift tax return be filed?
Generally, a gift tax return must be filed by a donor if the donor makes a taxable gift (e.g., a gift of a future interest, or a gift of a present interest that exceeds the amount of annual exclusion [$14,000 for 2014]).
When unlimited exclusion to file a gift tax return is available for amounts paid on behalf of a donee?
In determining the amount of taxable gifts, there is an unlimited exclusion that is available for amounts paid on behalf of a donee to an educational organization for tuition, as well as for amounts paid on behalf of a donee to medical care providers for medical services.
Are gain or loss recognized by a parent corporation on the receipt of property in complete liquidation of an 80% or more owned subsidiary?
No gain or loss will be recognized by a parent corporation on the receipt of property in complete liquidation of an 80% or more owned subsidiary
Does issuance of stocks increase or decrease stockholders' equity?
issuance of stock increases stockholders’ equity.
When is a loss incurred in sales transactions between a partnership and its partners disallowed?
Although gains and losses incurred in sales transactions between a partnership and its partners are generally recognized, a loss is disallowed if incurred in a transaction between a partnership and a partner owning (directly or constructively) more than a 50% capital or profits interest.
Can a debtor in possession be compensated in the same manner of a trustee under the Reorganization Chapter of the Bankruptcy Code if the debtor remains in possession of its business?
The Bankruptcy Code states that although the debtor in possession does have many of the same rights as a trustee, it does not have the right to be compensated in the same manner.
Is a person disqualified for employment by a debtor because of such person’s employment by the debtor before the commencement of the Reorganization proceedings under Under the Reorganization Chapter of the Bankruptcy Code?
Under the Reorganization Chapter of the Bankruptcy Code, a person is not disqualified for employment by a debtor because of such person’s employment by the debtor before the commencement of the Reorganization proceedings.
When does UCC rules concerning risk of loss apply?
UCC rules concerning risk of loss only apply if the parties have not allocated risk of loss in their contract.
Under tenancy in common, when will a deceased tenant’s interest in real property pass to the individual named in a will?
Under tenancy in common, a deceased tenant’s interest in real property will pass to the individual named in a will if the deceased died testate (with a valid will), or to her legal heir(s) if she died intestate (without a valid will).
Does the right of survivorship (dead tenants' interests pass to the survivor) applies to tenancy in common or joint tenancy?
Tenancy in common, unlike joint tenancy, does not have the right of survivorship.
What is a writ of garnishment?
writ of garnishment allows a creditor to collect money from a debtor’s wages. Garnishment is a statutory proceeding in which money or property belonging to the debtor but under the control of a third party is applied to payment of the amount owed to the creditor.
What is the limit of the distributed property’s basis to the partner on proportionate distributions in complete liquidation of a partnership
Since a distribution cannot reduce the basis for a partner’s partnership interest below zero, the distributed property’s basis to the partner is limited to the partner’s basis for the partnership interest before the distribution.
The adjusted basis of Smith’s interest in EVA partnership was $230,000 immediately before receiving the following distribution in complete liquidation of EVA:
Basis to EVA /Fair market value
Cash $150,000 /$150,000
Real estate 120,000/146,000
What is Smith’s basis in real estate?
Here, Smith’s partnership basis of $230,000 is first reduced by the $150,000 of cash received, to $80,000, which then becomes the basis of the real estate to Smith.
Are accountants required to notify their clients that the accountants are providing their confidential information to outsourcing firms for processing?
No, this is not required by the law
Accountants are prohibited from disclosing to a nonaffiliated third party any nonpublic personal information about their clients : which act is requiring this?
the Gramm-Leach Bliley (Financial Modernization) Act of 1999.
Accountants are required to develop, implement, and maintain a comprehensive information security program that outlines the ways in which they protect client information : which regulations require this?
Accountants are responsible for maintaining the confidentiality of information that is outsourced for processing: which act requires this?
the Gramm-Leach Bliley (Financial Modernization) Act of 1999
What is a negotiable certificate of deposit?
A negotiable certificate of deposit is an instrument that complies with the requirements of a negotiable instrument and contains an acknowledgment of receipt of money by a bank with an agreement to repay it.
What is a banker’s acceptance?
A banker’s acceptance is a draft drawn on and accepted by a bank.
What is a banker’s draft?
A check drawn by one bank against funds deposited in its account in another bank.
How are Amounts received for noncompetition agreements taxed?
Amounts received for noncompetition agreements are taxed as ordinary income in the year received.
Which kind of principals may normally ratify an unauthorized contract made by an agent?
Both partially disclosed and fully disclosed principals can ratify an unauthorized contact.
under the Federal Unemployment Tax Act, is an employer entitled to a credit against his/her federal unemployment tax for contributions paid under state employment compensation laws?
under the Federal Unemployment Tax Act, an employer is entitled to a credit against his/her federal unemployment tax for contributions paid under state employment compensation laws.
Describe Rule 506
Rule 506 permits the sale of an unlimited amount of securities to an unlimited number of accredited investors and to no more than 35 nonaccredited investors within 12 months that are also defined as sophisticated. No general offering or solicitation is permitted.
With respect to an involuntary bankruptcy proceeding under the liquidation provisions of the Bankruptcy Code, what happens if debtor files the bond requested by the court?
The debtor may regain possession of property in the possession of an interim trustee if the debtor files the bond requested by the court.
On which schedule Income taxes paid on business income are deducted>
Income taxes paid on business income are deducted as an itemized deduction on Schedule A
On what can be a deduction applied when carryinig on any trade or business if such trade or business consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted?
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted. However, a deduction is allowed for the cost of merchandise purchased.
When may a taxpayer not deduct life insurance premium?
A taxpayer may not deduct life insurance premiums in which the taxpayer is directly or indirectly the beneficiary
When can taxpayer deduct group term life insurance premiums?
A taxpayer may deduct the group term life insurance premiums if the insured employee or his/her beneficiaries would get the insurance proceeds
Are The ordinary, necessary, and reasonable expenses of operating illegal businesses deductible?
The ordinary, necessary, and reasonable expenses of operating illegal businesses (other than illegal drug activity) are permitted (as long as the expense itself is not against public policy). Therefore, all of these expenses are deductible against the revenue earned from the activities.
When do Cash basis taxpayers report income?
Cash basis taxpayers report income when cash or property is actually or constructively received.
Is there constructive receipt for deductions (For cashbasis taxpayers)?
For cashbasis taxpayers There is no constructive receipt for deductions.
When are deductions for cash basis tax payers taken?
Deductions for cash basis taxpayers generally are taken when actually paid. However, for expenses covering 12 months or more, the deduction must be spread over the period for which the expenses apply.
Are fines and penalties deductibe?
Fines and penalties generally may not be deducted as a business expense, including those paid to the federal government.
In which case and how an employee may deduct the jury duty pay from her gross income as an adjustment arriving at adjusted gross income.
If an employer requires jury pay to be remitted in exchange for regular compensation for the period the employee was performing jury duty. He may deduct the jury duty pay from her gross income as an adjustment arriving at adjusted gross income.
Which are the requirement making Alimony payments make under a divorce or separation instrument, such as a divorce decree or a written agreement incident thereto deductible?
Alimony payments you make under a divorce or separation instrument, such as a divorce decree or a written agreement incident thereto, are deductible if all of the following requirements are met:
?You and your spouse or former spouse do not file a joint return with each other,
?You pay in cash (including checks or money orders),
?The divorce or separation instrument does not say that the payment is not alimony,
?If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment,
?You have no liability to make any payment (in cash or property) after the death of your spouse or former spouse; and
?Your payment is not treated as child support.
Do unreimbursed employee business expenses and charitable contribution affect the computaion of adjusted gross income?
The unreimbursed employee business expenses and charitable contribution are itemized deductions, so these do not affect the computation of adjusted gross income.
How much of group-term life insurance provided by an employer is a tax-free fringe benefit?
The first $50,000 of group-term life insurance provided by an employer is a tax-free fringe benefit.
What are the requirement of cafeteria plans?
The requirements of cafeteria plans are:
1) all participants must be employees;
2) participants may choose between two or more benefits composed of cash or qualified benefits;
3) participants are required to make elections among the benefits;
4) the plan must be in writing and have certain specified information;
5) the plan may not provide participants with deferred income, except for under 401(k) plans.
What does Cafeteria plans allow employee to do?
Cafeteria plans allow employees to select from a menu of fringe benefits and cash and not include the value of the nontaxable benefits in their gross income.
How are treated reimbursement of employee's business expenses under a non-accountable plan?
If not an accountable plan, all reimbursements are included in the employee's income and all employee deductions will be 2% miscellaneous itemized deductions.
How is considered Employer-provided medical insurance coverage?
Employer-provided medical insurance coverage is a non-taxable employee fringe benefit.
How is considered inherited land?
Land inherited is not included in taxable income of the recipient.
Which rule provide that if an item deducted in a previous year is recovered in the current year, the recovery is included in income only to the extent that the deduction provided a tax benefit in the year of deduction.
The tax benefit rule
Which doctrine provides that if income is made available without substantial restrictions or limitations, it is deemed received to a cash basis taxpayer and taxed currently.
The constructive receipt doctrine provides that if income is made available without substantial restrictions or limitations, it is deemed received to a cash basis taxpayer and taxed currently.
When are prepaid income excluded from income?
Prepaid rental income is included in income when received unless it is potentially refundable.
Where are Interest income accrued to the date of sale is included?
Interest income accrued to the date of sale is included in income. The remaining proceeds are applied against the adjusted basis in the bond (capital recovery) to determine the gain or loss on sale.
Where are increases in wealth are included?
All increases in wealth are included in gross income unless a specific exclusion exists.
Under which rule Jogging cash are Included in income?
Jogging cash are Included in income under the treasure trove rule.
Where is an age discrmination award included?
Discrimination award: Age-discrimination is considered a non-physical injury so the payment is included in income. Damages received due to non-physical injuries are included in income.
How is treated a security deposit when it is required be returned the tenant?
The security deposit is not treated as rent and only will be included in gross income when not returned to the tenant.
Is unemployment compensation taxable?
Unemployment compensation is generally taxable
When will a stock dividend will be taxable?
Although generally nontaxable, a stock dividend will be taxable if any shareholder can elect to receive the distribution in either stock or in property
How are distribution from the traditional IRA taxable?
Distribution from the traditional IRA is taxable at the taxpayer's marginal tax rate for federal income tax purposes.
What happen if IRA distribution is an early distribution?
If IRA distribution is an early distribution (before age 59 and 1/2) and none of the exceptions for early distributions are met, the distribution is subject to a 10% penalty tax.
What is the difference between contributions to Roth IRAs and traditional IRAs?
Contributions to Roth IRAs are never deductible whereas contributions to traditional IRAs are deductible if certain requirements are met.
Mr. Kitten purchased an annuity contract for $50,000 from the XYZ Company on March 31, 2014. He is to receive $1,000 per month starting April 1, 2014 and continuing for life. He has a life expectancy of 10 years as of March 31, 2014. Mr. Kitten's reportable annuity income for 2014 is?
Mr. Kitten's expected return is 120 months × $1,000, or $120,000. His basis in the annuity is $50,000, so his exclusion ratio is 41.67% ($50,000/$120,000). He received nine payments totaling $9,000 in 2014, and $3,750 is excluded from income. Therefore, $5,250 is included in income ($9,000 ? $3,750).
How much may deduct Individual taxpayers not active in certain employer-sponsored retirement plans
Individual taxpayers not active in certain employer-sponsored retirement plans may deduct cash contributions to individual retirement accounts to the extent of the lesser of $5,500 or 100 percent of the taxpayer's gross income in 2014.
May Taxpayers who are active participants in qualified plans may take individual retirement account deductions?
Taxpayers who are active participants in qualified plans may take individual retirement account deductions subject to a phase-out based on their adjusted gross income
When are taxes paid on the interest income earned on individual retirement accounts?
No taxes are paid on the interest income earned on individual retirement accounts until the retirement savings are distributed.
Which adjustment is the individual retirement account deduction?
The individual retirement account deduction is an adjustment to income in arriving at adjusted gross income.
How is defined eanred income for determining the amount of income that a self-employed individual may contribute to a Keogh profit-sharing plan?
For determining the amount of income that a self-employed individual may contribute to a Keogh profit-sharing plan, earned income is defined as net self-employed earnings less the deductible Keogh contribution and one-half of the self-employment tax.
When must be made IRA contributions?
IRA contributions must be made by the original due date of the return even if the return is extended.
How much is the maximum deduction for contributions to a traditional IRA by an individual at least age 50
The maximum deduction for contributions to a traditional IRA by an individual at least age 50 is the lesser of $6,500, or 100% of compensation
Can a refund of federal income taxes be included in gross income?
Since federal income taxes are not deductible in computing a taxpayer's federal income tax liability, a refund of federal income taxes is excluded from gross income.
How is treated guaranteed payment in a partnership?
A guaranteed payment is deductible by the partnership, and the receipt of a guaranteed payment must be included in the partner's gross income, and is reported as self-employment income in the computation of the partner's self-employment tax.
How are treated the proceeds of life insurance policies paid by reason of death of the insured?
The proceeds of life insurance policies paid by reason of death of the insured are generally excluded from the beneficiary's gross income.
How are gambling winnings treated?
Gambling winnings must be included in gross income.
How are gambling losses treated?
Gambling losses cannot be offset against gambling winnings, but instead are deducted from AGI as a miscellaneous itemized deduction limited in amount to the gambling winnings included in gross income.
How are interest on federal income tax refund treated?
Although a federal income tax refund can be excluded from gross income, interest on the refund must be included in gross income.
Which basis is applied to life and death transfers by unified transfer tax schedule?
The unified transfer tax schedule applies on a cumulative basis to both life and death transfers.
How is unified transfer tax computed at death?
At death, a unified transfer tax is computed on total life and death transfers, then is reduced by the tax already paid on post-1976 gifts, the unified tax credit, foreign death taxes, and prior transfer taxes.
Can databases be copyrighted?
Databases are considered derivative work and therefore can be copyrighted.
Is it an infrigement of software copyright if purchaser makes copies that will be used if the purchased copy becomes unusable?
It is not an infringement of a software copyright if the purchaser makes copies that will be used if the purchased copy becomes unusable.
When is an agent or employee liable for his own torts?
An agent or employee is always liable for his own torts, even if committed in the course of discharging his duties.
When is the right to regain possession and collect money damages granted?
for the tortious act of conversion committed upon the buyer.
To who can recover a third person injured by the agent’s or employee’s tortious act, when committed within the course of employment
Any third person injured by the agent’s or employee’s tortious act, when committed within the course of employment, can proceed against either the employee or employer
When the employee is held liable for a tortious act which was committed upon direct instructions from the employer, what right does he have for indemnification?
When the employee is held liable for a tortious act which was committed upon direct instructions from the employer, he has a right of indemnification against the employer for any damages he must pay a third person.
Who elects method used to depreciate partnership property in a partnership?
The method used to depreciate partnership property is an election made by the partnership and may be any method approved by the IRS.
Must all the partners of a partnership apply the same depreciation method for property?
The partnership is not restricted to using the same method as used by its "principal partner."
Are partners bound by the depreciation method that the partnership elects to use?
Since the election is made at the partnership level, and not by each individual partner, partners are bound by whatever depreciation method that the partnership elects to use.
No gain or loss is recognized if property is transferred to a corporation solely in exchange for stock if the transferors of property, in the aggregate, own at least 80% of the stock of the corporation after the exchange : what is including the term "property"?
The term property includes cash, but it does not include services.
Quigley, Roberk, and Storm form a corporation. Quigley exchanges $25,000 of legal services for 30 shares of stock. Roberk exchanges land with a basis of $10,000 and a fair market value of $100,000 for 60 shares of stock. Storm exchanges $10,000 cash for 10 shares of stock. What amount of income should each shareholder recognize?
Here, although Roberk and Storm transfer property, they own only 70 of the corporation's 100 outstanding shares after the exchange and fail the 80% control test. As a result, the formation of the corporation is taxable and Roberk must recognize a gain of $100,000 ? $10,000 = $90,000 on the transfer of land. Of course Storm doesn't recognize any gain on the transfer of cash, and Quigley must recognize compensation income of $25,000 on the receipt of stock in exchange for services.
Who are the oonly person able to accept a contract?
Offers to contract may only be accepted by the person to whom they were made. Offers are not assignable to others unless the offeror consents to such assignment.
When are claims for services rendered by insiders allowed?
Claims for services rendered by insiders (a director is an insider) are only allowed to the extent the court decides the claims are reasonable. Even if the court decides the claim is reasonable, the priority given to wage claims in a bankruptcy proceeding does not include salary claims by officers of the corporation.
What is the effect of perfection of a security interest?
Perfection by filing a financing statement will not defeat all other parties who acquire an interest in the same collateral; rather, perfection by filing gives the secured party his best possible rights in the collateral. For example, purchasers from a merchant in the ordinary course of business take the collateral free from any prior perfected security interest. The only time a purchaser would take the collateral subject to a prior perfected security interest would be when the purchaser knew that the merchant was selling the goods in violation of a financing statement.
When a partner’s share of partnership liabilities increases, what is the effect on that partner’s basis in the partnership
Since partners are individually liable for their share of partnership liabilities, a change in the amount of partnership liabilities affects a partner’s basis for a partnership interest. An increase in partnership liabilities increases each partner’s basis in the partnership by each partner’s share of the increase
What is the title insurance not covering?
Title insurance insures against all defects of record; however, it does not insure against those defects which would be disclosed by physical inspection of the property or those defects listed as exceptions on the face of the policy.
Can a title insurance be transferred to a purchaser?
Even though the property may be transferred to a subsequent owner, the title insurance does not run with the property and cannot be transferred to the purchaser.
How must be treated a director's profit derived at the corporation’s expense?
If a directo's profit is derived at the corporation’s expense, the director must account for the profit made.
Is Mortgagee required to acknowledge a mortgage?
The mortgagee is not required to acknowledge the mortgage although the mortgage must be in writing and signed by the mortgagor, the party to be charged.
Must a mortgage in real property indicate the amount of indebtedness and the rate of interest payable thereon?
No. However, these are included in most mortgages.
Is consideration for mortgage reuqired to be stated?
It is not required that the mortgage state the consideration given for the mortgage.
Must a mortgage be delivered to the mortgagee?
A mortgage is an interest in real property used to secure payment for a loan. A mortgage must be delivered to the mortgagee to secure the obligation due to the mortgagee.
Jane, a 25% partner in Excel Partnership, received a $30,000 guaranteed payment in 2014 for services rendered to the partnership. Guaranteed payments to other partners for services rendered totaled $50,000. Excel’s 2014 partnership income consisted of
Net business income before guaranteed payments $160,000
Net long-term capital gains 50,000
What amount of income from Excel should Jane report from Excel Partnership on her 2014 tax return?
A partnership is a pass-through entity and its items of income and deduction pass through to be reported on partners’ returns even though not distributed. The amount to be reported by Jane consists of her guaranteed payment, plus her 25% share of the partnership’s business income and capital gains. Since Jane’s $30,000 guaranteed payment and the $50,000 of guaranteed payments to other partners are for deductible services rendered to the partnership, they must be subtracted from the partnership’s net business income before guaranteed payments of $160,000 to determine the amount of net business income to be allocated among partners. Jane’s reportable income from the partnership includes
Guaranteed payment $30,000
Business income [($160,000 ? $80,000) × 25%] 20,000
Net long-term capital gain ($50,000 × 25%) 12,500
How are stock redemption treated?
A stock redemption qualifies for exchange treatment generally resulting in capital gain or loss if the redemption is a partial liquidation, or reduces the shareholder’s interest in the corporation and after the redemption the shareholder owns (directly and constructively) less than 50% of the corporation’s stock.
The partnership of Bond and Felton has a fiscal year ending September 30. John Bond files his tax return on a calendar-year basis. The partnership paid Bond a guaranteed salary of $1,000 per month during the calendar year 2013 and $1,500 a month during the calendar year 2014. After deducting this salary the partnership realized ordinary income of $80,000 for the year ended September 30, 2014, and $90,000 for the year ended September 30, 2015. Bond's share of the profits is the salary paid him plus 40% of the ordinary income after deducting this salary. For 2014, Bond should report taxable income from the partnership of how much?
Both distributable shares of income and guaranteed payments are reported by partners for the year in which the end of the partnership fiscal year occurs. Thus, Bond would calculate his income as follows:
Guaranteed payments (10/1/13 to 9/30/14):
$1,000 × 3 months =$ 3,000
$1,500 × 9 months= 13,500
Share of ordinary income
$80,000 × 40% = 32,000
Total = $48,500
What is he requirement to be liable on an instrument
No person is liable on an instrument unless his signature appears thereon.
Does a bank has obligation to certify a check if adequate funds are on the account?
No. Bank is under no obligation to certify a check.
What is impliying signature of a check?
Certification of a check constitutes acceptance; therefore, signator becomes primarily liable as an acceptor and engages that it will pay the instrument according to its tenor at the time of its acceptance.
What are the requirements of the uniform capitalization rules regarding cost in acquiring property for resale?
The uniform capitalization rules generally require that all costs incurred in acquiring property for resale must be capitalized as part of the cost of inventory. The costs that must be capitalized include the costs of purchasing, handling, processing, repackaging and assembly, as well as the costs of off-site storage. An off-site storage facility is one that is not physically attached to, nor an integral part of, a retail sales facility.
What is the treatement of unreimbursed employee business expenses?
Unreimbursed employee business expenses are deductible as a miscellaneous itemized deduction subject to the 2% of AGI floor.
What is the treatement of real estate taxes?
Real estate taxes are fully deductible as an itemized deduction
What is the treatement of gambling winnings/losses?
Gambling losses up to the amount of gambling winnings are deductible as a miscellaneous itemized deduction not subject to the 2% of AGI floor.
What is the treatement of unreimbursed medical expenses?
Unreimbursed medical expenses are deductible as an itemized deduction subject to a 10% AGI floor.
Which credit may reduce federal estate tax?
The federal estate tax may be reduced by a credit for foreign death taxes.
Which credits do not reduce federal estate tax?
No federal estate tax credit is available for foreign gift taxes, foreign income taxes, or foreign intangible property taxes.
What is required for the proxy statement of a reporting comaopny solliciting proxies Under the Securities Exchange Act of 1934?
Under the Securities Exchange Act of 1934, a reporting company that is soliciting proxies must file its proxy statement with the SEC. There is no exemption if the company has only one class of stock.
if a person entrusts possession of goods to a merchant, or to his/her agent, who deals in those goods,what is the condition to obtains title to those goods?
if a person entrusts possession of goods to a merchant, or to his/her agent, who deals in those goods, a good-faith purchaser for value obtains title to those goods unless s/he knew the merchant or agent did not own the goods.
What is a trade acceptance?
A trade acceptance is a special type of draft in which a seller of goods extends credit to the buyer by drawing a draft on that buyer directing the buyer to pay the seller a sum of money on a specified date. The seller is therefore both the drawer and payee in a trade acceptance.
When may a trustee in bankruptcy may set aside statutory liens?
a trustee in bankruptcy may set aside statutory liens that become effective when the bankruptcy petition is filed but may not set aside those that were effective before the bankruptcy petition was filed. Therefore, this answer is correct.
What are the requirement for an instrument to be negociable?
For an instrument to be negotiable, it must be written and signed by the maker or drawer and contain an unconditional promise or order to pay a fixed amount in money. It must also be payable at a definite time or on demand. It must be payable to order or to bearer, except in the case of a check. The instrument in the question satisfies all of these requirements and is a negotiable note.
Whart does a decedent’s gross estate generally include?
A decedent’s gross estate generally includes all property in which the decedent had an ownership interest at time of death, including the value of revocable transfers, as well as all transfers over which the decedent had, at the time of death, the power to change the enjoyment of what was transferred by altering, amending, revoking, or terminating an interest
A trust with an independent trustee that was established for a minor : included or excluded from grantor's gross estate?
a trust with an independent trustee that was established for a minor would be excluded from a grantor’s gross estate.
An income beneficiary disclaims trust property, which then passes to the remainderman who happens to be the grantor’s friend : is property to be included oor not in the grantor’s gross estate?
the fact that an income beneficiary disclaims trust property, which then passes to the remainderman who happens to be the grantor’s friend would not cause the property to be included in the grantor’s gross estate.
If business property is completely destroyed, what is the amount of casualty loss deduction if business property is completely destroyed?
If business property is completely destroyed, the amount of casualty loss deduction is the property’s adjusted basis immediately before the casualty, less any insurance reimbursement.
To who are applying "$100 floor" and "10% of adjusted gross income" limitations
the "$100 floor" and "10% of adjusted gross income" limitations that apply to nonbusiness casualty losses of individuals do not apply to business casualty losses.
Whart is the effect on dividends received from affiliated group if a consolidated return is filed?
An affiliated group of corporations (i.e., corporations connected through 80% or more stock ownership) can elect to file a consolidated tax return, instead of filing separate tax returns. If a consolidated return is filed, dividends received from affiliated group members are eliminated in the consolidation process, and are not reported on the consolidated tax return.
For destroyed, damaged, or stolen property, when does the replacement period ends?
For destroyed, damaged, or stolen property, the replacement period ends 2 years after the close of the taxable year in which the gain is first realized.
What is a composition of creditors?
A composition of creditors occurs when creditors make an agreement with each other to accept less than the full debts as full satisfaction of those debts. Once the debtor performs under the agreement, the debts are discharged, so this generally causes a release of the debtor from its debts.
What is an assignment for the benefit of creditors?
An assignment for the benefit of creditors does not generally cause the release of the debtor from it debts. In this case the creditors do not have to agree to the assignment. The debtor assigns its assets to a trustee who sells the assets for cash. The cash is then paid out to creditors who agree to accept a stipulated amount to release their claims. The assignment itself, however, does not cause the claims to be released because at that point the creditors have not agreed to do so.
How are treated distribution as dividends in a S corporation since inception?
A S corporation since inception does not have any earnings and profits and its distributions will not be taxed as dividends : distributions will be treated as a nontaxable return of stock basis for each shareholder until the shareholder's stock basis is fully recovered. Thereafter, distributions in excess of stock basis will be taxed as capital gain, just as if the shareholder had sold the stock.
In 2015, Dave Burr acquired a 20% interest in a partnership by contributing a parcel of land. At the time of Burr’s contribution, the land had a fair market value of $35,000, an adjusted basis to Burr of $8,000, and was subject to a mortgage of $12,000. Payment of the mortgage was assumed by the partnership. Burr’s basis for his interest in the partnership is?
Burr’s basis is the $8,000 adjusted basis of the land contributed reduced (but not below zero) by the net decrease in his individual liabilities resulting from the assumption by the partnership of his liabilities (80% × $12,000 = $9,600). Thus, Burr’s basis for the partnership interest is zero. Note that Burr would have to recognize a gain of $9,600 ? $8,000 = $1,600.
Are general offering or solicitation permitted under Rule 505 of Regulation D?
No general offering or solicitation is permitted under Rule 505 of Regulation D.
Gibson purchased stock with a fair market value of $14,000 from Gibson’s adult child for $12,000. The child’s cost basis in the stock at the date of sale was $16,000. Gibson sold the same stock to an unrelated party for $18,000. What is Gibson’s recognized gain from the sale?
The adult child sold the stock to Gibson for $12,000 when the stock was worth $14,000. As a result, the transfer of property to Gibson is treated as part sale and part gift. As such, the adult child (transferor) is not allowed to recognize a loss, and is treated as having made a gift to Gibson equal to the difference between the stock’s FMV of $14,000 and the selling price of $12,000, or $2,000. Where a transfer of property is in part a sale and in part a gift, the basis of the property in the hands of the transferee (Gibson) is generally the greater of (1) the amount paid by the transferee for the property ($12,000), or (2) the transferor’s basis for the property at the time of the transfer ($16,000). As a result, Gibson’s basis for the stock is $16,000, and the subsequent sale of the stock to an unrelated party for $18,000 results in Gibson recognizing a gain of $2,000.
When is a partnership terminated for tax purposes?
A partnership is terminated for tax purposes when there is a sale or exchange of 50% or more of the total interests in partnership capital and profits within any 12-month period.
Concerning breach of an implied warranty when does the statute of limitations begins to run?
when a warranty explicitly extends to the future performance of the goods, a cause of action for breach of that warranty must be brought within the statute of limitations period as measured from the time the breach was discovered or should have been discovered. If the warranty does not explicitly extend to future performance, a cause of action for breach accrues at tender of delivery.
How much can be reduce the UCC statutory period if agreed in original contract?
in original contract, can be agreed to reduce the UCC statutory period of 4 years to a period of not less than 1 year. Under no circumstances, however, may the parties extend the statute of limitations.
Can a plaintiff claim that that the running of the statute of limitations has been tolled?
A plaintiff may, in proper circumstances (i.e., disability of plaintiff to sue or defendant’s absence from the jurisdiction), claim that the running of the statute of limitations has been tolled (stopped).
Is automatic stay valid against collection of alimony?
An automatic stay is valid against the garnishment of the debtor’s wages. However, the automatic stay is not effective to prevent the collection of alimony, child support, or other matters related to domestic disputes.
Is The NOL carryover deductible in computing the current years’ NOL?
The NOL carryover is not deductible in computing the current years’ NOL.
Is The DRD allowed in computing NOL?
The DRD is allowed in computing NOL
What is the treatment of advertising costs?
Advertising costs are deductible as an ordinary and necessary business expense if they are reasonable in amount and bear a reasonable relation to the business. Deductible expenses may be for the purpose of gaining immediate sales or developing goodwill. Advertising costs are deductible even though the advertising program is expected to result in benefits extending over a period of years.
What is EPA objective?
The Environmental Protection Agency (EPA) is set up to insure compliance with environmental protection laws.
Can private citizen bring suits against EPA to enforce compliance with the law?
The EPA generally uses civil suits more than criminal prosecutions. Private citizens may also bring suits against the EPA to enforce compliance with the laws. Citizens or the state may also bring their own suits against the violators under the environmental statutes. Furthermore, the EPA may refer both civil and criminal actions to the Department of Justice.
What I the realized gain recognized on a like-kind exchange of investment property?
in a like-kind exchange of investment property, a realized gain is recognized to the extent of un-like (boot) property received.
How is considered an item if removal of such? item would cause material harm to real property.
It is generally held that an item has become a fixture
How long last the filing of a financing statement?
Filing a financing statement lasts for five years and can be continued with a continuation statement if filed within six months of expiration. Financing statements can be refiled for each new five-year period.
What does retention of the benefits of a contract constitute when the agent’s act was outside the scope of his authority?
Although the agent’s act was outside the scope of his authority, the principal may, nevertheless, ratify the contract. Retention of the benefits of the contract constitutes implied ratification.
How is distribution of appreciated property treated?
If a corporation distributes appreciated property, it must recognize gain to the extent that the property’s fair market value exceeds its basis.
How is The amount of distribution to a shareholder measured?
The amount of distribution to a shareholder is measured by the amount of cash and fair market value of noncash property received.
When does A 6-year statute of limitations applies?
A 6-year statute of limitations applies if gross income omitted from the return exceeds 25% of the gross income reported on the return. For this purpose, gross income of a business includes total gross receipts before subtracting cost of goods sold and deductions.
Which state and local taxes are deductible as an itemized expense?
Certain state and local taxes are deductible as an itemized expense during the year in which the taxes were actually paid. Deductible taxes include income and real property. State and local fees are not deductible. Federal income taxes also are not deductible.
Which medical expenses are allowable for deduction?
Only medical expenses in excess of 10% of AGI are allowable as a deduction( the adjusted gross income percentage threshold).
Are assessments for public improvements, that tend to increase the value of the taxpayer's property deductible?
Assessments for public improvements, that tend to increase the value of the taxpayer's property (whether or not the value actually increases), generally, are not deductible. However, assessments may be deducted to the extent that the taxpayer can prove the assessment is allocable to maintenance.
Which are the items subject to the 2 percent of adjusted income floor.
Job expenses and other miscellaneous deductions are items subject to the 2 percent of adjusted income floor.
Which state and local taxes are allowed with the realty taxes as an itemized deduction for taxes?
Deductible state and local taxes are: personal property, real property, income taxes, war profits, excess profits, and generation skipping transfer taxes.
What is the only tax deductible in arriving at adjusted gross income?
The only tax deductible in arriving at adjusted gross income is one-half of the taxpayer's self employment tax.
To which extent is investment interest expense is deductible?
Investment interest expense is deductible to the extent of net investment income. Net investment income is defined as investment income less noninterest investment expenses
When is deduction taken on qualified medical expenses paid with borrowed funds?
Taxpayers may deduct the qualified medical expenses incurred for both their treatment and the treatment of spouses and dependents. These medical expenses only may be claimed in the year the expenses were paid. If the medical expenses were paid with borrowed funds, as credit cards are considered, the deduction still is taken the year the medical expenses were paid, not in the year the borrowed funds were repaid.
What is the limit of a noncorporate taxpayer's deduction for interest on investment indebtedness?
A noncorporate taxpayer's deduction for interest on investment indebtedness is limited to the taxpayer's net investment income.
What is Interest on investment indebtedness?
Interest on investment indebtedness is interest paid or accrued that is allocable to property held for investment.
When are medical expenses deductible?
Medical expenses paid by an individual are deductible in the year paid.
Are Medicare insurance premiums deductible expenses?
Medicare insurance premiums are a deductible expense.
When does casualty losses occur?
Casualty losses occur when property is completely or partially destroyed due to an identifiable event that was sudden, unexpected, or unusual in nature.
Is decline of value of a property considered casualty loss?
The property must be damaged, not just decline in value to be considered casualty loss.
How are treated casualty losses?
The amount of the casualty loss that is deductible is reduced by any insurance proceeds received by the taxpayer. While casualty losses are deductible, any insurance premiums to cover casualty losses are nondeductible.
When can miscellaneous itemized deductions be deducted?
Miscellaneous itemized deductions only may be deducted if they exceed two percent of the taxpayer's adjusted gross income.
Give example of miscellaneous itemzed deductions
Miscellaneous itemized deductions include: an individual's tax return preparation fee; investment expenses deductible under Code Section 212, including custodial fees for a brokerage account; job related educational expenses, including subscription to professional journals; and unreimbursed employee expenses. Job related educational expenses only may be deducted if incurred to improve or maintain skills required in the taxpayer's business or employment.
How much can be deduct when individual taxpayers make charitable contributions in connection with admission to an entertainment event?
When individual taxpayers make charitable contributions in connection with admission to an entertainment event, the individual taxpayer only may deduct the difference between amount paid for admission and the fair value of admission. As the taxpayer is viewed as receiving services equal to the fair value of admission, only the portion exceeding the fair value of admission is viewed as a gift.
What can be deductible on ordinary income? (FMV or cost?)
A donated artwork contribution is considered ordinary income property if held less than 1 year and amount of deduction is lower of cost or market value
What can be deductible on capital gain property? (FMV or cost?)
A donated artwork contribution is considered capital gain property if held more than 1 year and deduction is market value
To which level of AGI are Long term capital gain charitable contribution deductible?
the deduction is limited to 30% of his AGI (non public)
To which level of AGI are charitable contribution to public charities deductible?
An individual's charitable contribution to public charities may not exceed 50 percent of the individual's adjusted gross income. The 50 percent deduction ceiling applies to contributions made to: 1. churches;
2.educational institutions that maintain a regular faculty and curriculum;
3.hospitals and medical schools;
4.organizations supported by the government that hold property and/or investments for the benefit of a college or university;
5.federal, state or local governmental units; and
6.organizations normally receiving most of its support from the public or a governmental unit. The amount that exceeds the 50 percent deduction ceiling may be carried forward for 5 years.
Are The taxpayer's gambling losses itemized deduction not subject to the 2 percent adjusted gross income floor?
The taxpayer's gambling losses may be deducted, but only to the extent of the taxpayer's gambling winnings and only as an itemized deduction not subject to the 2 percent adjusted gross income floor.
Are dues considered as deductible expenses?
How much can meal and entertainment expenses be deducted?
What is the limit applied on ticket to entertainment activity?
Face value of the ticket
To which amount is the deduction for business gifts limited?
The deduction for business gifts is limited to $25 per donee per year
Is inheritance included in AGI?
Are contract between agent and principal required?
The agent’s duties are by necessity based on contract law.
What is the remedy in case of innocent misstatement?
Under innocent misrepresentation a contract is voidable by one party if the other party has misrepresented a material fact. Since the misrepresentation is an innocent misstatement made in good faith (i.e., no scienter), the only remedy available to the party voiding the contract is rescission.
How can a debtor regain property in case of voluntary bankruptcy
The court appoints an interim trustee and then the debtor may regain the property in possession of the interim trustee by filing a court-approved bond.
When can a payment of less than the originally agreed-upon price serve as complete discharge of an obligation under a contract?
A payment of less than the originally agreed-upon price will serve as complete discharge of an obligation under a contract only if there is a bona fide dispute as to the amount owed, and both parties agree to the lesser sum
What does the value requirement of the holder in due course concept demand?
The value requirement of the holder in due course concept demands the holder give executed value.
What does Section 3-302 (d) of the UCC provides in situations where the holder provides partial value?
Section 3-302 (d) of the UCC provides in situations where the holder provides partial value that the holder is entitled to the percentage of the value provided, rather than just the actual value provided.
What is inducing the concept of "joint and several liability" of partners?
Under the Revised Uniform Partnership Act, the partners have joint and several liability for breaches of contract as well as for torts. This allows third parties to sue them together or separately.
What is the basis for computing a gain if property is acquired by gift?
If property is acquired by gift, its basis for computing a gain is the same as the donor’s adjusted basis, increased by any gift tax paid attributable to the net appreciation in value of the gift.
Are gain or loss is recognized upon the complete liquidation of a partner’s partnership interest?
Generally no gain or loss is recognized upon the complete liquidation of a partner’s partnership interest, although a loss can be recognized if the liquidating distribution consists of only cash, receivables, and inventory.
In a partnership when is Recognition of loss is disallowed on a sale or exchange?
Recognition of loss is disallowed on a sale or exchange between a partnership and a person who owns (directly or constructively) more than a 50% partnership interest
How must a S Corporation items be divided?
As a pass-through entity, an S corporation’s items must be divided into (1) nonseparately stated income or loss from trade or business activities, and (2) items of income, loss, deduction, and credit, the separate treatment of which could affect the tax liability of any shareholder.
To what The "$100 floor" and "10% of adjusted gross income" limitations is applying?
The "$100 floor" and "10% of adjusted gross income" limitations that apply to nonbusiness casualty losses of individuals do not apply to business casualty losses.
What are the condition for attachment of interests?
In order for a security interest to attach, there must be a security agreement. It may be oral if the secured party obtains possession or control of the collateral. In either case, the debtor must have agreed to the security interest. The secured party must also give value and the debtor must have rights in the collateral.
How may a seller who discovers that an insolvent buyer has received goods on credit reclaim the goods?
A seller who discovers that an insolvent buyer has received goods on credit may reclaim the goods by making a demand for their return within 10 days after receipt of the goods by the buyer. This 10-day limitation, however, does not apply if the buyer made a written misrepresentation of its solvency within 3 months prior to its receipt of the goods
When is perfection accomplished
Perfection is accomplished by completing one of the following steps: filing, the secured party taking possession of the collateral, or in the case of a purchase money security interest in consumer goods, by attachment alone
Explain rules of Rule 506 D regarding resell of securities
Pursuant to Rule 506 under Regulation D of the Securities Act of 1933, the issuer must restrict the initial purchasers’ right to resell the securities. In general, the securities must be held for 2 years to avoid losing the exemption from the full registration requirements of the 1933 Act.
Is fair value of equipment a factor of rejection by a trustee?
The trustee may elect to reject the equipment lease regardless of the fair market value of the equipment.
What are the options available to trustee regarding unexpired leases?
the trustee in bankruptcy is given the option, subject to court approval, to (1) assume and perform the unexpired lease, (2) assume and assign the unexpired lease to a third party, or (3) reject the unexpired lease. In a liquidation case, the trustee must act to assume within 60 days after the order for relief is entered. If not assumed within this time, the lease is deemed rejected.
When is the remedy for specific performance is used?
The remedy of specific performance is used when money damages will not sufficiently compensate the afflicted party due to the unique nature of the subject matter of the contract. In a contract for the sale of land, the buyer has the right to enforce the agreement by seeking the remedy of specific performance because real property is considered unique. Another remedy for this breach of contract would be for the buyer to seek compensatory damages. If the buyer desires, s/he may seek this remedy instead of specific performance.
Are injured party allowed to seek punitive damages?
An injured party is generally not allowed to seek punitive damages. Punitive damages are awarded only when the court is seeking to punish a party for their improper actions and are not usually granted in breach of contract actions.
When can secired antecedents debt be set aside by the trustee?
Security interests given by debtors to secure antecedent debts may be set aside by the trustee in bankruptcy when given within the previous ninety days.
What does preferential transfer include?
Preferential transfers include those made within the previous ninety days while insolvent and include those made for antecedent debts including a security interest given by a debtor to secure antecedent debts.
How is Amt computed?
The alternative minimum tax for noncorporate taxpayers is computed by applying a two-tiered rate schedule to a taxpayer’s alternative minimum tax base. A 26% rate applies to the first $182,500 of a taxpayer’s alternative minimum taxable income (AMTI) in excess of the exemption amount. A 28% rate applies to AMTI greater than $182,500 ($91,250 for married taxpayers filing separately) above the exemption amount. This tax applies to the extent that a taxpayer’s AMT exceeds the amount of regular tax.
Explain the doctrine osf substantial performance
under the doctrine of substantial performance, a contract obligation may be discharged even though the performance tendered was not in complete conformity with the terms of the agreement. Under this doctrine, if it can be shown that the defect in performance was only minor in nature, a good-faith effort was made to conform completely with the terms of the agreement, and if the performing party is willing to accept a decrease in compensation equivalent to the amount of the minor defect in performance, the contractual obligation will be discharged.
Are charitable contribution includes in computing ordinary income?
Since charitable contributions are subject to percentage limitations, they must be separately passed through to partners and cannot be included in computing ordinary income
How are A dividend distribution from one member to another member of an affiliated group during a consolidated return year treated?
A dividend distribution from one member to another member of an affiliated group during a consolidated return year is eliminated in determining consolidated taxable income. Note, that if a consolidated return is not filed, dividends received from an affiliated corporation (80% or more ownership) are eligible for a 100% dividends-received deduction.
How much is the deduction allowed per donee for gifts of present interests?
Annual exclusion?of up to $14,000 per donee is allowed for gifts of present interests (not future interests). A present interest is an unrestricted right to the immediate use, possession, or enjoyment of property or the income from property. A future interest includes reversions, remainders, and other interests that are limited to commence in use, possession, or enjoyment at some future date or time.
What must be done to let the buyer know that he is receiving less than warranty of title?
Under the UCC, every seller warrants that the goods sold are free from any security interest or lien of which the buyer has no actual knowledge. This warranty of title may only be disclaimed by specific language or circumstances which give the buyer reason to know that s/he is receiving less than full title. A seller’s statement that s/he is selling only such right or title that s/he has will exclude the warranty of title.
Thayer Corporation purchased an apartment building on January 10, 2009 for $200,000. The building was depreciated using the straight-line method. On February 20, 2015, the building was sold for $220,000, when the asset balance net of accumulated depreciation was $170,000. On its 2015 tax return, Thayer Corporation should report
Since the building qualifies as Sec. 1250 property and was sold by a corporation, it is subject to the recapture provisions of both Sec. 1250 and Sec. 291. Under Sec. 1250, the gain recognized on the sale must be recaptured as ordinary income to the extent of "excess" depreciation (i.e., depreciation deducted in excess of straight-line). Because the building was depreciated using the straight-line method, there is no Sec. 1250 recapture. However, Sec. 291 recaptures 20% of the difference between the ordinary income that would have been recognized had the building been Sec. 1245 property ($30,000) and the ordinary income recognized under Sec. 1250. Thus, ordinary income is $6,000 ($30,000 × 20%) and the remaining gain of $44,000 ($50,000 ? $6,000) is treated as Sec. 1231 gain.
What is the character of marital deduction?
In computing the gift tax, there is an unlimited marital deduction that applies to gifts to a taxpayer’s spouse after first subtracting the annual exclusion
What does an endorser of a negotiable instrument agree if the instrument is not paid?
An endorser of a negotiable instrument agrees to pay if the instrument is not paid.
What is NOL?
A NOL generally represents a loss from the conduct of a trade or business and can be carried back 2 years and forward 20 years to offset income in the carryback and carryforward years. Since a NOL generally represents a business loss, an individual taxpayer’s personal exemptions and an excess of nonbusiness deductions over nonbusiness income cannot be subtracted in computing the NOL. Nonbusiness deductions generally include itemized deductions as well as the standard deduction if the taxpayer does not itemize.
Which of temporary differences (e.g., accelerated depreciation on tax return and straight-line on books) and permanent differences (e.g., tax-exempt interest) must be considered to convert book income to taxable income?
The reconciliation of income per books with income per return is accomplished on Schedule M-1 of Form 1120. Both temporary differences (e.g., accelerated depreciation on tax return and straight-line on books) and permanent differences (e.g., tax-exempt interest) must be considered to convert book income to taxable income.
What kind of principal may not ratify unauthorized contracts?
undisclosed principal may not ratify unauthorized contracts
The personal holding company (PHC) tax is self-assessed by a corporation filing a Schedule PH along with its regular Form 1120 tax return. The PHC tax may be imposed if more than 50% of a corporation’s stock is owned by 5 or fewer individuals, and 60% or more of the corporation’s adjusted ordinary gross income is PHC income. The penalty tax is assessed against undistributed PHC income, which may be reduced by dividend distributions.
Do the lost-income policy does not qualify as medical insurance, and the nonprescription drugs qualify as deductible medical expenses?
The lost-income policy does not qualify as medical insurance, and the nonprescription drugs do not qualify as deductible medical expenses.
What is the general business credit?
The general business credit is a combination of several credits that provide uniform rules for current and carryback-carryover years. The general business credit is composed of numerous credits including the investment credit, work opportunity credit, alcohol fuels credit, research credit, low-income housing credit, enhanced oil recovery credit, disabled access credit, renewable electricity production credit, empowerment zone employment credit, Indian employment credit, employer social security credit, orphan drug credit, the new markets credit, the small employer pension plan start-up costs credit, and the employer-provided child care credit. A general business credit in excess of the limitation amount is carried back 1 year and forward 20 years to offset tax liability in those years.
in a jurisdiction having an accountant-client privilege statute, when can the CPA turn over workpapers without the client’s permission?
in a jurisdiction having an accountant-client privilege statute, the CPA generally may not turn over workpapers without the client’s permission. It is allowable to do so, however, for use in a quality review under AICPA authorization or to be given to the state CPA society quality control panel.
What happens if an issuer fails to meet the disclosure requirements of the Securities Act of 1933?
If an issuer fails to meet the disclosure requirements of the Securities Act of 1933, the buyer may ask for rescission of the sale.
From which amount of decendent's must an executor file a federal estate tax return (Form 706)?
For 2014, an executor must file a federal estate tax return (Form 706) if the gross estate of a decedent exceeds $5.34 million. If a decedent made lifetime taxable gifts such that the decedent’s tax credit was used to offset gift tax, the $5.34 million exemption amount must be reduced by the exemption equivalent of the unified credit that was used. Since neither Smith nor Jones made any lifetime taxable gifts, the filing requirement that applies to their estates is $5.34 million.
What is the required procedure for issuance of common stock to the public in interstate commerce?
Anyone planning to issue common stock must make a filing in those states that have laws governing such offerings and obtain their approval in addition to meeting the registration requirements.
How are recorded the transfer of a property to a partnership in exchange for a partnership interest?
No gain or loss is recognized on the transfer of a property to a partnership in exchange for a partnership interest.
What is the difference between tenancy in common and joint tenancy regarding right of survivorship?
Tenancy in common, unlike joint tenancy, does not have the right of survivorship. Under tenancy in common, a deceased tenant’s interest in real property will pass to the individual named in a will if the deceased died testate (with a valid will), or to her legal heir(s) if she died intestate (without a valid will).
What happens in case an holder obtain a certification of a check?
When a holder obtains certification of a check, the drawer and all prior endorsers are discharged from secondary liability and the bank alone becomes primarily liable.
Under the Bankruptcy Act, give one of the elements which must be established in proving that a preferential transfer was made
Under the Bankruptcy Act, one of the elements which must be established in proving that a preferential transfer was made is that the debtor was insolvent at the time of the transfer The Bankruptcy Act presumes that the debtor is insolvent during the 90 days prior to the date the petition was filed.
Another one is the transfer involved an antecedent debt.
What is the effect once an agreement is reduced to a writing intended as the complete contract under the parol evidence rule?
the parol evidence rule states that once an agreement is reduced to a writing intended as the complete contract, the parties may not introduce oral or written evidence in an attempt to alter or contradict the terms of the agreement.
when a capital interest in a partnership is received as compensation for services rendered, must a taxpayer recognize income?
A taxpayer must recognize income when a capital interest in a partnership is received as compensation for services rendered. The amount of income to be reported is the fair market value of the partnership interest received
Is gain or loss is recognized upon the complete liquidation of a partner’s partnership interest?
Generally no gain or loss is recognized upon the complete liquidation of a partner’s partnership interest, although a loss can be recognized if the liquidating distribution consists of only cash, receivables, and inventory.
Up to which amount can be tuition and medical expenses paid on behalf of a donee excluded
There is an unlimited exclusion for tuition or medical expenses paid on behalf of a donee.
What is the keogh plan?
A self-employed individual may contribute to a qualified retirement plan called a Keogh plan. The maximum contribution to a Keogh profit-sharing plan is the lesser of $52,000 (for 2014) or 100% of earned income. For this purpose, "earned income" is defined as net earnings from self-employment (i.e., business gross income minus allowable business deductions) reduced by the deduction for one-half of the self-employment tax, and the deductible Keogh contribution itself.
Jon Moseley, who retired on October 31, 2014, receives a monthly pension benefit of $900 payable for life. His life expectancy at the date of retirement is 20 years. The first payment was received on November 15, 2014. During his years of employment, Moseley contributed $24,000 to the cost of his company_s pension plan. How much of the pension amounts received may Moseley exclude from taxable income for the years 2014, 2015, and 2016?
This answer is correct. Annuities and pensions are excluded from taxable income to the extent that they represent a return of capital. Moseley’s contribution of $24,000 will be recovered pro rata over the life of the annuity. Under this rule, $100 per month ($24,000/240 months) is excluded from income.
What is the common rule to Rules 504, 505, and 506?
Under all of Rules 504, 505, and 506, the SEC must be notified within 15 days of the first sale of securities.
No general offerings or solicitation is permitted within a 12-month period : which rules is applied?
The issuer must restrict the purchasers’ right to resell the securities : which rules is applied?
Rules 505 and 506 D
What is the amount of contribution for appreciated property?
The amount of contribution for appreciated property is generally the property’s FMV if the property would result in a long-term capital gain if sold. If not, the amount of contribution for appreciated property is generally limited to the property’s basis.
How is computed a corporation’s tentative minimum tax?
Alternative minimum taxable income (after exemption) *20% ((?) AMT foreign tax credit and (?) Regular income tax (less regular tax foreign tax credit) = Alternative minimum tax (if positive))
Exaplin the contributions to an Individual Retirement Account (IRA)
Contributions to an Individual Retirement Account (IRA)
a. If neither the taxpayer nor the taxpayer’s spouse is an active participant in an employer-sponsored retirement plan or a Keogh plan, there is no phase out of IRA deductions.
(1) For 2014, the maximum deduction for an individual’s contributions to an IRA is the lesser of
(a) $5,500, or
(b) 100% of compensation (including alimony)
(2) For married taxpayers filing a joint return, up to $5,500 can be deducted for contributions to the IRA of each spouse (even if one spouse is not working), provided that the combined earned income of both spouses is at least equal to the amounts contributed to the IRAs.\
When can a seller stop the delivery of goods in the hands of a carrier?
A seller is entitled to stop the delivery of goods in the hands of a carrier if an insolvent buyer who is not in possession of the document of title refuses to pay cash.
Are Tax-exempt interest, dividends, and net rental income included in the computation of ordinary income?
Tax-exempt interest, dividends, and net rental income must be separately stated and allocated to the partners and are thus excluded from the computation of ordinary income.
How is the basis of stock received as dividend treated?
The basis of stock received as a dividend depends upon whether it was included in income when received.
(1) If included in income, basis is its FMV at date of distribution.
(2) If nontaxable when received, the basis of shareholder’s original stock is allocated between the dividend stock and the original stock in proportion to their relative FMVs.
The holding period of the dividend stock includes the holding period of the original stock.
What are the holdings requirement to be an affiliated group is a parent-subsidiary chain of corporations?
An affiliated group is a parent-subsidiary chain of corporations in which at least 80% of the combined voting power and total value of all stock (except nonvoting preferred) are owned by includible corporations.
Of what is A partner’s basis for a partnership interest consisting?
A partner’s basis for a partnership interest consists of the partner’s capital account plus the partner’s share of partnership liabilities. A decrease in the partner’s share of partnership liabilities is considered to be a deemed distribution of money and reduces a partner’s basis for the partnership interest.
Explain partnership distribution
Partnership distributions are categorized as either liquidating distributions or current (nonliquidating) distributions. A liquidating distribution completely terminates a partner's entire interest. All other distributions are current (nonliquidating) distributions. When a partnership makes a current distribution, the distribution is generally nontaxable to the partners because it generally represents the distribution of earnings that have already been taxed to partners and have already increased the basis for the partners' partnership interests.
What is the maximum amount that is taxable to trust beneficiaries?
The maximum amount that is taxable to trust beneficiaries is limited to a trust’s distributable net income (DNI). When distributions to multiple beneficiaries exceed DNI, the trust’s DNI must be prorated to the distributions to determine the portion of each distribution that must be included in gross income
What is the proper treatment for qualifying research and experimentation expenditures?
A taxpayer can elect to deduct qualifying research and experimentation expenditures as a current expense if the taxpayer so elects for the first taxable year in which the expenditures are incurred. Otherwise, the taxpayer must capitalize the expenditures. Then, if the capitalized costs are not subject to depreciation (because there is no determinable life), the taxpayer can amortize them over a period of 60 months or longer beginning with the month in which benefits from the expenditures are first realized.
How are life insurance proceeds treated?
Life insurance proceeds paid by reason of death are excluded from income if paid in a lump sum or in installments. If the payments are received in installments, the principal amount of the policy divided by the number of payments is excluded each year.
Is gain recognized when appreciated property is transferred to a partnership in exchange for a partnership interest?
Gain will be recognized if the transferred property is encumbered by a mortgage, and the partnership’s assumption of the mortgage results in a net decrease in the transferor’s individual liabilities that exceeds the basis of the property transferred.
Under Regulation D, does an issuer of up to $5 million in securities issued within a 12-month period need not provide any specified information if the issuance is offered solely to accredited investors?
Under Regulation D, an issuer of up to $5 million in securities issued within a 12-month period need not provide any specified information if the issuance is offered solely to accredited investors. If any unaccredited investors purchase the securities (up to 35 are allowed) the issuer must provide audited financial statements.
When is compensation (ordinary) income recognized?
Compensation (ordinary) income is recognized if services are transferred in exchange for an interest in partnership capital. The amount recognized %of interests * the FMV of partnership net assets.
What does happen if an issuer fails to meet the disclosure requirements of the Securities Act of 1933?
If an issuer fails to meet the disclosure requirements of the Securities Act of 1933, the buyer may ask for rescission of the sale.
To who can a donee beneficiary bring ation against?
the donee beneficiary can bring an action against the promisor
What is the process to avoid a penalty for the underpayment of estimated tax?
Generally, to avoid a penalty for the underpayment of estimated taxes, a corporation’s quarterly estimated payments must be at least equal to the least of (1) 100% of the tax shown on the current year’s tax return, (2) 100% of the tax that would be due by placing income for specified monthly periods on an annualized basis, or (3) 100% of the tax shown on the corporation’s return for the preceding year, provided the preceding year showed a positive tax liability and consisted of 12 months
under a Chapter 11 reorganization, when is a debtor allowed to remain in possession of its business?
under a Chapter 11 reorganization, a debtor is allowed to remain in possession of its business unless the court upon request by a party in interest appoints a trustee to take over management of the debtor’s business. The court will approve such a request when it appears gross mismanagement of the business has occurred, or that the takeover by a trustee would be in the best interest of the debtor’s estate.
if a corporate officer makes a judgment in good faith, is he or she liable for a mistake?
if a corporate officer makes a judgment in good faith, he or she is not liable for a mistake
What are Form S-2 and S-3 advantage over form S-1?
The SEC adopted Forms S-2 and S-3 to reduce the burden of disclosure over Form S-1 which is the standard long form.
Who The Securities Act of 1933 specifically exempts from registration?
There is a broad specific exemption for securities offered by any person other than an issuer, underwriter, or dealer. Thus under the Act, public offerings of securities are regulated, but private offerings are exempted. This exemption permits most investors to sell their own securities without registration, prospectus, or other regulations except the antifraud provisions
How is a partner's share of a partnership's ordinary income that is reported to the partner on Form 1065, Schedule K-1treated?
A partner's share of a partnership's ordinary income that is reported to the partner on Form 1065, Schedule K-1 must be included in the partner's gross income and is reported in Schedule E?Supplemental Income and Loss.
What are the criteria for a mutual fund to pay tax-exempt interest dividends to its shareholders?
An investor in a mutual fund may receive several different kinds of distributions including ordinary dividends, capital gain distributions, tax-exempt interest dividends, and return of capital distributions. A mutual fund may pay tax-exempt interest dividends to its shareholders if it meets certain requirements. These dividends are paid from the tax-exempt state and local obligation interest earned by the fund and retain their tax-exempt character when reported by the shareholder. Thus, Green's dividends received from mutual funds that invest in tax-free government obligations are not taxable.
How are Lodging expenses while out of town on business treated?
Lodging expenses while out of town on business are an ordinary and necessary business expense and are fully deductible by a self-employed individual in Schedule C?Profit or Loss from Business.
How are the cost of qualifying depreciable personal business property treated?
For 2013, Sec. 179 permits a taxpayer to elect to treat up to $500,000 of the cost of qualifying depreciable personal business property as an expense rather than as a capital expenditure. In this case, Green's election to expense business equipment would be computed on Form 4562?Depreciation and Amortization, and then would be deductible in Schedule C?Profit or Loss from Business.
How are The costs of subscriptions for investment publications treated?
The costs of subscriptions for investment publications are not related to Green's trade or business, but instead are considered expenses incurred in the production of portfolio income and are reported as miscellaneous itemized deductions in Schedule A?Itemized Deductions. These investment expenses are deductible to the extent that the aggregate of expenses in this category exceed 2% of adjusted gross income.
How to compute amount of net operating loss will be available taking into account NOL?
Take NOL - sum of taxable income (sum within NOL amount). Example NOL = 10 and Taxable income is 8 (2010), 5 (2011), 4 (2012), you take 2012 and 2011 (9) so Amount of net income for 2013 is 1
How are an individual's losses on transactions entered into for personal purposes treated?
An individual's losses on transactions entered into for personal purposes are only deductible if the losses qualify as casualty or theft losses. If the losses originated due to a trade or business, individuals also may deduct losses originating from transactions entered into for profit.
How is net operating loss available for carry forward or carry back computed?
TAXABLE LOSS (Income -deductions) +Personal exemption+ Adjustment for deductions that are not connected to a trade or business or employment + Short term capital loss as adjusted by business capital gains and losses
Corporations other than certain financial institutions are required to use the direct charge-off method in accounting for bad debts. Certain financial institutions are allowed to use the reserve method.
Under the direct charge-off method, corporations may claim a deduction once a specific business debt becomes partially or wholly worthless and a specific nonbusiness debt becomes wholly worthless
Smith has an adjusted gross income (AGI) of $120,000 without taking into consideration $40,000 of losses from rental real estate activities. Smith actively participates in the rental real estate activities. What amount of the rental losses may Smith deduct in determining taxable income?
1-identified amount above 100'000 and compute half of the excess.
2- Make difference between 25'000 and computed amount
Since Smith actively participates in the rental real estate activity he can deduct up to $25,000 of rental losses. However, this deduction is reduced once modified AGI exceeds $100,000. Smith has $20,000 of excess AGI ($120,000 ? $100,000) so he loses $10,000 ($20,000 × 50%) of the deduction. Of the $40,000 of losses, he can deduct $15,000 ($25,000 ? $10,000). The remaining $25,000 of losses is suspended.
How are the suspended passive losses treated In the year that a passive activity is sold?
In the year that a passive activity is sold the suspended passive losses are released and can offset all types of income
1- Take the income and deduct passive loss as well as loss carry over
Can Suspended passive losses be carried back?
Suspended passive losses can be carried forward indefinitely, but they cannot be carried back.
How is income from a hobby reported?
Income from a hobby is reported as other income on the front page of Form 1040. Deductions such as travel expenses are 2% miscellaneous itemized deductions, and expenses can be deducted only to the extent of revenues.