REG Archives

Question 1

What are the requirements of the AICPA Uniform Accountancy Act (UAA)?

Answer 1

• UAA requires accountants who perform attest services or compilations of F/S to be licensed.
• Contains a substantial equivalency provision to allow for movement between states.
• Contains provisions for continuing education.

They do not contain requirements for the issuance of CPA certificates.

Question 2

What does the AICPA do if a state board of accountancy revokes a CPA’s license?

Answer 2

The CPA will be automatically expulsed from the AICPA.

Question 3

Does a conviction for a felony or a misdemeanor result in automatic expulsion from the AICPA?

Answer 3

No, a conviction for a misdemeanor would not result in automatic expulsion from the AICPA, but a felony would.

Question 4

A CPA who prepares the tax returns of the president of a corporation the CPA audits, without charging the president. Is this scenario applicable to the IRC provision dealing with TRP, and if so, how?

Answer 4

Yes, because a TRP is defined as an individual or firm who prepares returns for compensation, implied or explicit, and this is a example of implied compensation.

Question 5

Will a CPA be liable to tax client for damages resulting from refusing to sign a client’s request for a filing an extension?

Answer 5

No, not for an extension.

Question 6

Is an appeal allowed if a taxpayer challenges a proposed deficiency in the Small Cases Division of the U.S. Tax Court?

Answer 6

No appeal is allowed in the Small Cases Division of the U.S. Tax Court.

Question 7

Can proposed regulations be cited as authority to support a tax position?

Answer 7

No, proposed regulations do not have the effect of law, but they do provide an indication of the IRS’s view on a tax issue.

Question 8

What are the three courts of original jurisdiction, or trial courts, for tax matters?

Answer 8

1) U.S. Court of Federal Claims
2) U.S. Tax Court (do not have to pay penalty to be heard)
3) U.S. District Court

The U.S. Court of Appeals hears appeals from Tax Court and District Court.

Question 9

What are the administrative sources of the tax law and who administers them?

Answer 9

The IRS administers:
- Private letter rulings (only usable to addressed taxpayer)
- Technical advice memoranda
- Revenue rulings

Question 10

What type of tax law authority is committee reports?

Answer 10

Legislative sources of authority that provide insight from:
- House Ways & Means Committee,
- Senate Finance Committee (considers new tax legislation), and
- Joint Conference Committee.

Question 11

How does a C Corporation avoid an underpayment penalty, and how does it determine the lowest amount that must have been paid as estimated taxes for the current year?

Answer 11

The C corporation can pay the lower of 100% of the prior year’s tax liability or 100% of the current year’s tax liability.

Question 12

How does an individual determine the minimum amount of estimated tax payments in order to avoid penalty?

Answer 12

The required annual amount is the lower of 90% of the current year’s AGI, or 100% of last year’s AGI. However, if the taxpayer’s AGI was > $150k last year, then the required estimated payment would shift from 100% to 110%.

Question 13

What is the difference between annualization method and season method when making estimated tax payments?

Answer 13

Seasonal method is not available for individuals. Corporations use seasonal method installments based on previous year patterns.

Whereas annualization method makes all estimated quarterly tax payments equal based on the total annual AGI.

Question 14

What does a corporation take into account when computing CIT expense for estimated tax purposes?

Answer 14

Unless its tax liability is less reasonably estimated to be under $500, a corporation must make estimated tax payments.

Corp. estimated tax = expected tax liability - allowable tax credits

Question 15

When it comes to common law and liabilities, what is the Restatement Rule (i.e., the most common rule - the Restatement “limited class”)? Ex: CPA audits a client’s F/S in order for the client to apply for a bank loan.

Answer 15

The CPA owes a duty of care to both. Auditors always owe a duty of care to their clients. Under the Restatement approach, auditors are also liable to one (the bank, in this case) or a limited class of nonclients where the CPA knows (a) the information was supplied to the client for the benefit of this limited class (here, the client was going to give the audited statements to the bank), and (b) the information will influence third parties in a specific transaction of type of transaction (here, it induced the bank to make the loan).

Question 16

What are the elements needed by a plaintiff to prove negligence against a defendant (CPA)?

Answer 16

1) Proof of the standard of due care
2) Breach of that standard of due care
3) Injury
4) Cause: cause-in-fact and proximate cause

Question 17

When it comes to negligence, what is the difference between “Ultramares” rule and “Restatement rule?

Answer 17

Based on a case in 1931, the “Ultramares” rule requires privity in order for a CPA to be liable.
The “Restatement” rule is broader in that it allows foreseen users who relied on negligently false statements to sue.

Question 18

What is the preceding year method and the causes that prevent a corporation from using it?

Answer 18

1) Corp did not file a retrun showing a tax liability for that preceding (e.g., corp had NOL)
2) Preceding year was less than 12 months
3) Corp taxable income was greater than $1M

Question 19

What is the burden of proof for fraud claims in civil cases?

Answer 19

Clear and convincing evidence.

Question 20

Are harvested and/or growing crops governed by UCC or common law?

Answer 20

Crops are always governed by UCC.

Question 21

What are the requirements for a Ch. 7 voluntary and nonvoluntary bankruptcy?

Answer 21

-Voluntary bankruptcy: the debtor must have debts. Insurance companies are an exception and may not voluntarily file Ch. 7 relief.

-Involuntary bankruptcy petition: the aggregate unsecured claims of the petitioners equals or exceeds $18,600.

Question 22

What is the maximum KERP (key employee retention plan) payment?

Answer 22

The payment to management cannot be more the 10 times the average of reunion payments made to nonmanagement employees.

Question 23

What is the exception to the general rule of preferential payment (antecedent debt/ 90 day) of filing bankruptcy?

Answer 23

Consumer debts of up to $7,575 may be made without showing a preference, as can alimony and child support payments.

Question 24

How do you calculate the Medicare surtax? Ex: MFJ active income of $220K and net investment income of $200K

Answer 24

Medicare surtax is 3.8% of the lessor of net investment income, or the excess of AGI over the AGI threshold.

Ex: NII = $200K > excess AGI of $170K ($420K - $250K). Thus, $170K x 3.8% = $6,460 Medicare surtax obligation

Question 25

Indemnity contract

Answer 25

An indemnity contract is not a suretyship contract. Instead it is a contract involving two parties in which the first party agrees to indemnify and reimburse the second party for covered debts or losses should they take place.

Question 26

Subrogation

Answer 26

When the surety pays the creditor, it “steps into the shoes of the creditor” and obtains the same rights against the debtor that the creditor had. Think of the surety subbing in as the creditor against the debtor.

Question 27

Exoneration

Answer 27

If the debtor is able to pay, the surety may require the debtor to pay before the surety pays.

Question 28

What is a company’s civil liability if the IRS determines that, because it unreasonably failed to treat its workers as employees, it failed to provide 1,000 W-2s that it should have provided to workers? (Provide a dollar figure.)

Answer 28

$50,000. The civil fine is $50 per W-2 that is less than a month late.

Question 29

What is the maximum an individual can deduct for a given tax year for a Section 1244 stock loss?

Answer 29

$50,000 ordinary loss for a single individual, and $100,000 ordinary loss if MFJ.

Ordinary loss treatment is not available if the shareholder sustaining the loss was not the original holder of the stock.

Question 30

How do you recognize a gain on a like-kind exchange?

Answer 30

Recognize the lower of the realized gain or boot received (liability given up + cash received).

Question 31

What is the penalty for a tax return preparer who prepares a return or refund claim which includes an “unreasonable position” VS willfully attempts (recklessly/ intentionally disregards)?

Answer 31

Unreasonable position: TRP must pay a penalty of the greater of $1,000 or 50% of the income derived by the TRP for preparing the return.

Willfully attempts:
TRP must pay the greater of $5,000 or 75% of the income earned.

Question 32

Which types of principals may ratify a contract that was agreed to by his/her agent without authority from the principal?

Answer 32

Fully disclosed principal - Yes

Partially disclosed principal - Yes

Undisclosed principal - No

Question 33

When is the accrual method required for a taxpayer for inventory or AR?

Answer 33

Never unless the average gross receipts for the previous three tax years exceeds $29 million.

Question 34

What is the ultra vires doctrine?

Answer 34

An ultra vires doctrine applies when a corporation enters a contract outside the scope of its express or implied authority granted by its Articles of Incorporation. Since the state or shareholder has the right to object to an ultra vires act, a competitor could not object. A shareholder can institute a derivative action against directors and officers to recover damages for such acts.

Question 35

What is the maximum amount of business losses that a single individual can deduct in 2023?

Answer 35

$289,000

Question 37

When it comes to profit sharing for partners, what is the main difference between Revised Uniform Limited Partnership Act (RULPA) and Revised Uniform Partnership Act (RUPA)?

Answer 37

If no agreed upon profit-sharing plan exists, then profit splitting is made in proportion the each partner’s capital contributions for RULPA.

In contrary, under RUPA, profit splitting is equal absent to an agreed sharing profit plan.

Question 38

How much dividend received deduction can a corporation claim for interest owned in foreign corporations?

Answer 38

100% DRD can be claimed for a dividend received from foreign corp if ownership is greater than 10% and stock was owned for more than 365 days.

Question 39

What right is granted to a stockholders preemptive rights under the Revised Model Business Corporation Act?

Answer 39

Right to a proportionate share of corporate assets remaining on corporate assets remaining on corporate dissolution.

No right to purchase proportionate shares for new stock issued.

Question 40

What is a wash sale and why does it disallow losses in the year of sale?

Answer 40

Wash sale happens when you sell stock at a loss and invest in the same stock within 30 days before or after the date of sale.

Question 41

What is Base Erosion and Anti Tax (BEAT) for corporations?

Answer 41

BEAT applies to corps with avg annual gross receipts of $500 M or more for the three preceding tax years.

Question 42

What are the five methods of perfection?

Answer 42

1) Filing a financing statement (not a written security agreement)
2) taking possession of the collateral
3) automatic perfection
4) Control
5) Temporary

Question 43

How long must a debtor wait before receiving another discharge?

Answer 43

8 years