reg taxes 01

Question 1

What % is the Adjusted Current Earnings (ACE) adjustment equal to?

Answer 1

75% of the difference between ACE and pre-ACE AMTI.

Question 2

Can the ACE adjustment be pos and/or neg?

Answer 2

Yes. ACE adjustment may be either = or - but a neg. ACE adjustment is limited in amt to prior year’s pos. ACE adjustments.

Question 3

What is starting point in calc of AMT?

Answer 3

The regular taxable income.

Question 4

What increases or decreases reg. taxable income when calculating AMT?

Answer 4

Increase by tax preferences and increased or decreased by specified adjustments.

Question 5

What is represented by an excess of tentative min tax over a Corp’s regular tax?

Answer 5

Represents a corp’s AMT and is payable in addition to reg tax.

Question 6

What is a corp’s allowable exemption in computing AMTI?

Answer 6

$40,000. This amt is reduced by 25% of the corp’s AMTI in excess of $150,000.

Question 7

In what instances will a corp. not be subject to AMT?

Answer 7

A corp is exempt from AMT for it’s first tax year. After the first year, it is exempt from AMT for each year it passes a gross receipts test. A corp. is exempt for second year if G.R for first year did not exceed $5 Million. For all subsequent years a corp. will be exempt if its avg. annual GR for the testing period (all prior 3 year pds.) do not exceed $7.5 Million

Question 8

What is the amt of div reportable by corp distributee on a property distribution?

Answer 8

The FMV of the property less any liability assumed.

Question 9

Explain the deductions for organizational expenditures

Answer 9

May deduct up to $5,000 in tax yr corp begins business. The $5,000 must be reduced by the amt org. exps. exceed $50,000. Remaining exps are deducted ratably over 180 mo. period beginning with the mo. in which corp. begins bus.

Question 10

What limits a corp’s charitable contrib. deduction?

Answer 10

Corp char. contrib. deduction is limited to 10% of taxable income computed before the deduction for cc, the DRD, the deduction for a NOL carryback and cap loss carryback and DPAD. Although limitation is computed before deducting NOL and CL carrybacks, NOL and CL carryforwards are deducted in arriving at the contribution base amount.

Question 11

How are a corps char contribs calculated?

Answer 11

Char Contribs limited to 10% of corp taxable income before the deduction for cc, the drd, the deductions for a NOL carryBACK, cap loss carryBack, and the domestic productivity activites deduction (DPAD).

Although limitation is computed before deduction, NOL and Cap Loss carryBACKS, NOL and Cap Loss carryForwards are deducted in arriving at the contribution base amount.

Question 12

May a corp make a charitable contribution in yr 1 and take a deduction in yr 1 but not make he actual contribution until yr 2?

Answer 12

An accrual method corp. may deduct actual contributions made for during reporting tax year plus may elect to deduct any contrib. auth. by board during reporting tax yr as long as the contribution is subsequently made no later than 2 1/2 months after the end of the tax yr.

Question 13

DRD for less than 20% owned urelated domestic corp.

Answer 13

generally eligible for 70% DRD but if taxable income before the DRD is less than the amt of the dividend, the DRD lis limtied to 70% of taxable income, unless the full DRD creates or increases a NOL.

Question 14

What is defined as a corps taxable income before special deductions?

Answer 14

Gernerally includes all income and all deductions except for the DRD.

Question 15

What are qualifications for a DRD?

Answer 15

Investor corp must own the investee’s stock for more than 45 days (90 days for preferred stk if the divs rec’d are in arrears for more than one year).

Question 16

What are the percentages for corps to claim DRD?

Answer 16

70% DRD from less than 20% owned.

80% DRD from at least 20% owned.

100% at least 80% owned when a consolidated return is not filed.

Question 17

Determining a NOL in current year re: NOL carry over and DRD.

Answer 17

A NOL carry over would not be allowed in computing a NOL in current year. A DRD is allowed in computing a NOL since a corp’s DRD is not subject to limitation if it creates or increases a NOL.

Question 18

What is proper treatment of a C corp’s NCL?

Answer 18

Can only be used to offset NCG. May carryBACK 3 yrs, carryForward 5 yrs.

Question 19

NOL Carryback and Carryforward periods

Answer 19

CarryBACK2 years, carryFORWARD 20 yrs. to offset taxable income.

Question 20

What is proper treatment for qualifying research and experientation exps?

Answer 20

Taxpayer may elect to deduct qualifying rresearch and experimentation exps as a current exp if the taxpayer so elects for the first year in which the exps are incurred. Then, if the capitalized costs are not subject to depreciation (becasue there is no determinable life), the taxpayer can amortize them over a pd of 60 months or longer.

Question 21

What are quidelines to deduct org. exps?

Answer 21

Deduct up to $5,000 of org. exp. during tax year in which corp begins business. The $5,000 must be reduced by the amt the org. exps. exceed $50,000. Remaining exps. are deducted ratably over 180 mo pd beginning with the month in which corp begins business.

Question 22

What is amt of gain recognized when selling property rec’d as a gift?

Answer 22

A donee;s basis for appreciated property rec’s as a gift is generally the same as the donor’s basis.

Question 23

What is donee’s basis in gifted property when a gift tax has been paid?

Answer 23

Donee’s basis is same as donor’s basis, increased by any gift tax paid that is attributable to the property’s net appreciation in value. The amt of gift tax that can be added is limited to the amt that bears the same ratio as the property’s net apprec. bears to the amt of taxable gift.

basis + [gt x fmv-basis/fmv-exclusion] =new basis.

Question 24

What is the basis for gain of property acquired by gift?

Answer 24

The basis of the donor (transferred basis) increased by any gift tax paid attributable to the net appreciation in the value of the gift.

Question 25

What is basis for loss on property acquired by gift?

Answer 25

The lesser of gain basis or FMV on date of gift.

Question 26

What is the basis of stock rec'd as dividend?

Answer 26

Depends on whether it was included in income when rec'd. 1. If included in income, basis is FMV at date of distribution. 2. If nontaxable when rec'd, basis of orig. stock is allocated between the div stk and orig stk in proportion to their relative FMVs.

Question 27

What is the basis of stk rights?

Answer 27

1. If stk rights were allowed to expire, deemed to have no basis and no loss can be declared. 2. If rights were nontaxable and exercised or sold: (a) Basis is zero if less than 15% of FMV of stk, unless taxpayer elects to allocate basis (b) if FMV of rights at date of rec. is at least 15% of FMV of stk, or if taxpayer elects, basis is: FMV of rights/ [FMV of rights + FMV stk] x Basis in stk 3. If rights were taxable and included in income, basisi ts their FMV @ date of distribution.

Question 28

How do you calc G or L in a taxable exchange of property?

Answer 28

It is the diff between the AB of prop. exchanged and the FMV of the property rec'd.

Question 29

What is the basis of property rec'd in a taxable exchange?

Answer 29

The FMV

Question 30

What type of property does not get Like-Kind exchange treatment?

Answer 30

Property held for personal use, inventory, stocks, bonds, notes, intangible evidences of ownership, and interests in a partnership.

Question 31

What is time limit to complete like-kind exchange?

Answer 31

1. Prop. to be rec'd must be identified w/in 45 days after date on which old prop. is relinquished. 2. xchng must be completed w/in 180 days after date on which old prop. is relinquished, but not later than the due date of the tax return (incl. extensions) for the yr that the old prop is relinquished.

Question 32

In like-kind exchange what is basis of unlike property rec'd?

Answer 32

Called "boot", basis is FMV on date of exchg

Question 33

Basis of like-kind property rec's

Answer 33

If property xchged soley for like-kind, no gain or loss is recognized. Basis for property rec'd is basis of property xferred.

Question 34

Is gain or loss recognized in like-kind xchng if boot is given?

Answer 34

No gain or loss is generally recognized. However, g or l is recognized if the boot given consists of property witha FMV different from it's basis. example:

Question 35

In a like-kind xchng how is gain realized if boot is rec'd?

Answer 35

Any realized gains recognized to the extent of the lesser of (1) the realized gain, or (2) the FMV of boot rec'd.

Question 36

In a like-kind exchng where boot is rec'd, would you recognize loss due to the receipt of boot?

Answer 36

No loss is recognized due to the receipt of boot.

Question 37

How are liabilities assumed in a like-kind exchng treated

Answer 37

Liabilities assumed in a l-k xchng are treated as boot. Boot given in form of assumption of a liab. does NOT offset boot given in cash. Boot given in cash or unlike property DOES offset liab. assumed by other party.

Question 38

In an invol. convers. what gain is recognized?

Answer 38

Gain recognized only to extent that the amt realized exceeds the cost of replacement.

Question 39

What is invol. convers. replacement pd?

Answer 39

Replacement must be purchased within a pd beg. with the earlier of the date of disposition or the date of threat of condemnation, and ending 2 yrs after the close of taxable year in which gains first realized (3 yrs for condemned bus or investment real property, other than inventory or property held primarily for resale).

Question 40

In invol convers. what is the basis of replacement property?

Answer 40

The cost of the replacement decreased by any gain not recognized.

Question 41

How do you treat recognition of gain if property in an invol convers. is converted directly into similar or related service or use property?

Answer 41

Complete nonrecognition of gain is MANDATORY. The basis of replacement property is the same as the property converted.

Question 42

How do you treat an invol convers. gain where the property is not replaced within the time limit?

Answer 42

An amended return is filed to recognize the gain in the year realized.

Question 43

How do you treat losses on invol. convers?

Answer 43

Losses on invol. convers. are recognized whether the property is replaced or not. Remember that losses on condemnation of property held for personal use such as a residence are not deductible.

Question 44

In the case of sale or exchg of a principal res. as it relates to divorced taxpayers, what are the rules re: period of ownership?

Answer 44

If res xferred to taxpayer incident to divorce, the time during which the taxpayer's spouse or former spouse owned the res is added to the taxpayer's pd of ownership. and a taxpayer who owns a res id deemed to use it as a principal res while the taxpayer's spouse or former spouse is given use of the res under terms of a divorce or separation.

Question 45

Are stocks and securities included under like-kind exchng rules?

Answer 45

No

Question 46

How do you treat excng of stock of the same corp?

Answer 46

(1) Common for common, or preferred for preferred is nontaxable (2) C for P or P for C is taxable, unless xchng qualifies as a recapitalization.

Question 47

Is the exercise of conversion privileges in convert. stock or bond taxable?

Answer 47

Generally, no.

Question 48

How do you id stocks in a sale?

Answer 48

Specific ID or FIFO if cannot specifically ID.

Question 49

What is the cap gains exclusion for QSBS (Qualified Small Bus Stock)?

Answer 49

Noncorp taxpayer: 50% of Cap gains resulting from sale of QSBS held for more than 5 years. Exclusion increased for QSBS acquired between Feb. 27, 2010 and Sept. 28, 2010. 100% for QSBS acquired after Sept. 27, 2010 and before Jan 1.2012.

Question 50

What are QSBS that qualifies for exclusion?

Answer 50

1. Must have been acquired at orig. issuance, 2. it is a C corp with $50 Mill or less of capitalization, 3.

Question 51

How can a C corp or indiv. elect to rollover otherwise currently taxable gain fro sale of publicly traded securities if proceeds are used o purchase CS or a partnership interest in a SSBIC?

Answer 51

If they purchase the SSBIC interest w/in 60 days of sale of the securities.

Question 52

What entities are excluded from qualifying as a QSBS small bus?

Answer 52

Excluded from eligibility are personal service, banking, leasing, investing , real estate, farming, mineral extraction, and hospitality businesses.

Question 53

What are gains limits on sale of QSBS?

Answer 53

Limited to the greater of: $10 MIll, or 10 X the inestor's stock basis.

Question 54

What are the limits in the amt of eligible gain for rollover in SSBIC stock?

Answer 54

Limits are $50,00 per yr for indivs. (lifetime cap of $500,000) and $250,000 for corps (lifetime cap of $1 Million).

Question 55

How is the taxpayer's basis in SSBIC stock or partnership interest affected by rolling over of gains from publicly traded securities?

Answer 55

The basis in the stock is reduced by the gain that is rolled over.

Question 56

How is the gain on the disposition of a bond (including a tax exempt bond) that was acquired for a price that was less than the principal amt treated to the extent of accrued market discount for bonds purchased after April 30, 1993?

Answer 56

Treated as taxable interest income.

Question 57

Define accrued market discount.

Answer 57

Accrued market disc is the difference between the bond's cost basis and its redemption value at maturity amortized over the remaining life of the bond.

Question 58

Define a wash sale

Answer 58

Wash sale occurs when stock (or options to acquire stock) are sold at a loss and w/in 30 days before or after the sale, substantially identical stock or options in the same corp are purchased.

Question 59

Are wash sale losses deductible?

Answer 59

No, add the loss to the basis of the new stock.

Question 60

Do wash sale rules apply to gains?

Answer 60

No.

Question 61

What are the rules for how you treat worthless securities?

Answer 61

(1) Treated as a cap loss as if sold on last day of taxable yr. they become worthless. (2) Treated as an ord loss if stock and securities are those of an 80% or more owned corp subsidiary that derived more than 90% of its gross revenues fro active type sources.

Question 62

How is a loss resulting from a nonbusiness deposit in an insolvent financial institution treated?

Answer 62

Treated as a nonbusiness bad debt deductible as a STCL in the yr in which final determination of amt of loss can be made. Alt: if reasonable est of loss can be made, an indiv. may elect to: (1) Treat loss a personal cas loss subj to $100 floor and 10% AGI limitation. No bad debt deduction can then be made. or... (2) Txpyr may teat up to $20,000 as misc. itemized deduction subj to 2% of AGI floor if deposit was not federally insured. The remainder of the loss is treated as STCL.

Question 63

Is a loss allowed on sale or exchange of property between related taxpayers?

Answer 63

No.

Question 64

In trans in property between related taxpayers, what would be transferee's basis and holding period?

Answer 64

The basis is cost and holding pd begins when transferee acquires the property.

Question 65

How is the disallowed loss In trans in property between related taxpayers treated when transferee later sells the property?

Answer 65

Any gain recognized by transferee is reduced by the disallowed loss (unless loss was from a wash sale in which case no reduction is allowed).

Question 66

How are losses treated on exchanges or sales of property between corps that are members of the same controlled group?

Answer 66

Losses are deferred rather than disallowed., until prop is sold outside of group.

Question 67

In trans in property between related taxpayers that are in part a sale and in part a gift, how are gains and losses treated by transferor?

Answer 67

The transferor recognizes gain to extent that the amt realized exceeds the transferor"s basis for the property transfered. No loss can be recognized by transferor.

Question 68

What is the basis in property in related person transaction when the excng is part sale and part gift?

Answer 68

Basis is generally the greater of (1) amt paid by transferee, or (2) the transferor's basis at the time of transfer. For purposes of determining a loss, basis in hands of transferee shall not be greater than the FMV at time of transfer.

Question 69

What is the holding pd of prop rec'd in nontaxable exchange?

Answer 69

Included t he holding pd of the prop exchanged, if the prop that was exchanged was a capital asset or Sec 1231 asset.

Question 70

What is holding pd of prop. rec'd as a gift?

Answer 70

If using lower FMV on date of gift to determine loss, holding pd. begins when gift rec'd.

Question 71

When does holding pd of the prior owner tack on to the present owner of a prop. exchanged as a gift?

Answer 71

If the basis of prop to prior owner carries over top present owner.

Question 72

Describe how to calc cap g and l for all taxpayers.

Answer 72

First net STCG with STCL and net LTTCG with LTCG to determine: (1) NSTCG or NSTCL and (2) NLTCG or NLTCL. Then net these two together to determine whether there is a NCG or NCL.

Question 73

For individuals what is max tax rate on gain from sale of prop, held more than 12 months?

Answer 73

Max. rate of 28%

Question 74

For individuals what is max tax rate on gain from sale of Sec 1250 prop, held more than 12 months, that is attrib. to unrecaptured depreciation?

Answer 74

Max rate of 25%

Question 75

For installment sales of assets held more than 12 months by an individual, what determines the cap gains rate that should be applied?

Answer 75

The date an installment payment is rec'd, not the date the asset was sold.

Question 76

For indivs, how are gains and losses netted to arrive at a net cap gain or loss?

Answer 76

G and Ls w/in each of the rate groups are netted to arrive at net g or l. A net loss in any rate group is applied to reduce the net gain in the highest group first (28%), then 25% group and then the 15% group.

Question 77

What rules apply to individs deducting NCLs?

Answer 77

A NCL is a deduction in arriving at AGI but is limited to the lesser of either $3,000 ($1,500 MFS) or the excess of cap losses over cap gains.

Question 78

For inivids figuring a cap loss deduction do you use long term or short term losses first?

Answer 78

ST losses are used before LT losses. The amt of ncl that exceeds the allowable deduction is carried over for unlimited amt of time and retain thier identity (ST or LT).

Question 79

For indiv, how do you determine the amt of ncl that can be carried over to future years?

Answer 79

The taxpayer's ncl of the year is reduced by the lesser of $3000 ($1500 mfs) ant the amt allowed for personal exemptions. An excess of deductions allowed over GI is taken into account as negative taxable income.

Question 80

For Corps, what is carryback/carryforwd pd for NCLs?

Answer 80

Carryback 3 years, carryforward 5 years. All are treated as STCLs and are only allowed to offset cap gains, not ord income.

Question 81

What does Sec 1231 say about gain and loss treatment to business assets if gains from these assets exceed losses?

Answer 81

Although prop used in bus. is excluded from the def of "cap assets", Sec. 1231 extends cap asset treatment g/l treatment to bus assets if gains from these assets exceed losses. But before Sec 1231 becomes operative, Secs 1245, 1250, and 291 provided for recap of depreciation. Also, all g/l on bus prop. held for less than one yr are ordinary.

Question 82

What does Sec. 1231 g/l include

Answer 82

G/L from sale or exchng of prop used in trade or bus. (or held for prod of rents or royalties) and which is not (1) inventory or (2) a copyright or artistic composition. G/L from casualty, theft, or condemnation of (1) prop used in trade or bus, (2) cap assets held in connection with a trade or bus., or a transaction entered into for profit. And also from infrequently encountered items such as cut timber, coal and domestic iron ore, livestock and unharvested crop.

Question 83

What is Sec 1245 recapture?

Answer 83

This requires recapture as ord income gain attrib to (1) post 1961 depreciation on disposition of 1245 prop. (2) Post 1980 recovery deductions on disposition of 1245 prop (including amts expensed under Sec 179 exp election.)

Question 84

What is included in Sec 1245 property?

Answer 84

Depreciable tangible and intangible property.

Question 85

Why doesn't Sec 1245 apply to res real prop put into service after 1986?

Answer 85

Only straight line deprec. is allowable.

Question 86

What are characteristics of 1245 recovery prop?

Answer 86

Sec 1245 recover prop means all ACRS recovery prop placed in service after 1980 and before 1987 other than nineteen yr. real prop. that is classified as real residential rental property, real property used outside the US subsidized low income housing, and real prop for which a straight line election was made.

Question 87

How do you recognize gain on disposition of Sec 1245 property?

Answer 87

Any recog. gain will be ord income to the extent of all depreciation or post 1980 cost recovery deductions. Any remaining gain after recapture will be Sec 1231 gain if prop held more than one year.

Question 88

How would you value 1245 disposition if disposition was not made by sale?

Answer 88

Use FMV to determine gain.

Question 89

Sec 1245 and boot received in like kind exchange, application?

Answer 89

Sec 1245 will apply to the recognized gain.

Question 90

What does Sec 1250 recature apply to?

Answer 90

All real prop (e.g. buildings and structural components ) that is not Sec 1245 recovery prop.

Question 91

How do you handle Sec 1250 prop held 12 mos or less?

Answer 91

Gain on disposition is recaptured as ord income to extent of all depreciation (including strt line).

Question 92

How do you treat Sec 1250 prop held more than 12 mons?

Answer 92

Gain is recaptured as ord income to extent of post 1969 additional depreciation (generally in excess of str line).

Question 93

What effect does Sec 29 Recapture have on Corps?

Answer 93

The ord income element on disposition of Sec 1250 prop by corps is increased by 20% of the additional amt that would have been ord income if the prop has instead been Sec 1245 prop or 1245 recovery prop.