REG2

Question 1

13. SUBSIDIARY LIQUIDATION:
14. Parent and subsidiary recognition of gain/loss
15. Parent basis in property received from sub
16. Shareholder’s holding period of property received

Answer 1

1. Neither parent nor controlled (80% +) sub recognizes gain or loss on a liquidating distribution to the parent
2. Basis of property to the parent from sub = only take the basis of the sub (do not include liab.)
3. Begins the day after the property is acquired

Question 2

13. REORGANIZATION TYPES
14. Recapitalization
15. Stock for assets
16. Division

Answer 2

1. Corp and shareholders agree to exchange stock type from common to preferred
2. Corp A takes substantially all assets of Corp B and B is liquidated
3. Corp A transfer all or part of its asset to Corp B in exchange for controlling interest (80%) of the B’s stock

Question 3

13. REDEMPTION

Stock is redeemed when a Corp acquires its own stock from a shareholder in exchange for property. Redemption is either a distribution (Dividend) or a sale of stock

1. Considered distributions unless:

Answer 3

1. redemption is not equivalent to a dividend
2. redemption is substantially disproportionate
3. distribution terminates the shareholder’s interest
4. distribution is a partial liquidation by a noncorporate shareholder
5. redemption is received by an estate

Question 4

12. CALCULATION OF E&P

Answer 4

Beginning E&P
Taxable Income
Add: excess MACRS depreciation
Deduct: nondeductible expenses (federal income tax, charitable contributions in excess of taxable income limit, net capital losses)
Ending E&P

Question 5

12. FOREIGN TAX CREDIT

What is the credit formula?

Answer 5

US income tax X ( foreign taxable income / worldwide taxable income )

Question 6

12. FOREIGN TAX CREDIT

What is the limit?

Answer 6

Limited to the lower of actual foreign taxes paid or the calculated tax credit

Question 7

12. Earnings and Profits (E & P)

What are positive adjustments?

Answer 7

Exempt income, deductions, deferred income

Examples: interest from municipal bonds, injury compensation, life insurance proceeds, DRD, capital and NOL carryover, depreciation in excess of straight-line, income per completed-contract method, and deferred income from an installment sale

Question 8

12. Earnings and Profits (E & P)

What are negative adjustments?

Answer 8

Nondeductible items for taxable income and recognized deferred income

Examples: life insurance premiums, penalties, fines, municipal bond expense, excessive compensation, federal income taxes, generally 50% of meals and 100% of entertainment expenses, charitable contributions in excess of the percentage of AGI limit, and prior-year(s) installment sales.

Note: if business meal is provided by a restaurant, 100% is tax deductible, resulting in no negative adjustment

Question 9

12. Earnings and Profits (E & P)

What are “no impact” to E & P?

Answer 9

Examples: unrealized gains and losses, gifts, state tax refunds, and contributions to capital

Question 10

10. INSTALLMENT SALES - INTEREST IMPOSED ON DEFERRED TAX

When is interest imposed on installment sales?

Answer 10

When installment receivables are more the $5M

and

there are annual payments of more than $150k

Question 11

10. LIKE-KIND EXCHANGE WITH BOOT - TAXABLE (RECOGNIZED) GAIN

How do you determine the recognized gain when boot is involved?

Answer 11

Determine the realized gain and the boot received then compare and use the one that is lesser

Question 12

10. SECTION 1231

What is Sec. 1231 property?

Answer 12

Real or depreciable property used in a trade or business

Land, apartment buildings, parking lots, manufacturing equipment, and involuntarily converted capital assets

Question 13

10. SECTION 1245

What is Sec. 1245 property?

Answer 13

Depreciable personal property (tangible/intangible) used in a trade or business for over 12 months

Question 14

10. Sec. 1245 - GAIN

How is the GAIN characterized or classified?

Answer 14

Ordinary income = Lesser of recognized gain OR accumulated depreciation

Question 15

10. DISPOSITION OF INSTALLMENT OBLIGATIONS

How is the gain/loss recognized on the disposition of the installment obligation?

Answer 15

Gain/loss is recognized to the extent of the difference between the basis of the obligation and the amount realized

Adjusted basis of the obligation (aka face amt) = sale price - down pmt - total monthly pmt received thus far

Basis = face amt x the remaining GP %

Amount realized = how much the installment obligation was sold for

Gain/Loss = Amount realized - basis

Question 16

20. SECURITY INTERESTS AND ATTACHMENT

What is attachment?

Answer 16

Process where lender of funds can enforce interest against debtor. Note: not effective against anyone before attachment.

Question 17

20. SECURITY INTEREST PRIORITIES

What has priority between a perfected security interest and unperfected security interest in the same collateral?

Answer 17

perfected security interest

Question 18

20. SECURITY INTEREST PRIORITIES

What has priority if there’s conflicts with unperfected security interests?

Answer 18

The first to attach or become effective

Question 19

20. SECURITY INTEREST PRIORITIES

What has priority if there’s conflict with perfected security interests?

Answer 19

Priority depends upon the order of filing or perfection with respect to the collateral

Question 20

20. BANKRUPTCY LIQUIDATIONS - CHAPTER 7

Does a debtor need to have a minimum number of creditors or debt to file for voluntary bankruptcy under Chapter 7?

Answer 20

NO

Question 21

20. BANKRUPTCY LIQUIDATIONS - DEBTOR’S ESTATE

Which asset acquired by the debtor within 180 days after filing the bankruptcy petition becomes property of the estate?

Answer 21

Inheritance, life insurance policy, property settlement from divorce case

Question 22

20. BANKRUPTCY ADMINISTRATIONS - INVOLUNTARY PROCEEDING/PETITION

If the debtor has 12 or more creditors and owes at least $16,750, how many creditors must join in the involuntary petition?

Answer 22

any 3 or more

Question 23

20. BANKRUPTCY ADMINISTRATIONS - INVOLUNTARY PROCEEDING/PETITION

If the debtor has fewer than 12 creditors and owes at least $16,750, how many creditors must join in the involuntary petition?

Answer 23

any 1 or more

Question 24

20. SECURITY INTERESTS - UCC ARTICLE 9 CLASSIFICATION

What are the classification of goods under the UCC Article 9?

Answer 24

Consumer goods, equipment, farm products, and inventory

not Accounts

Question 25

17. BUSINESS ORGANIZATIONS What is a PARTNERSHIP?

Answer 25

An association of two or more persons carrying on a business as co-owners for profit

Question 26

17. BUSINESS ORGANIZATIONS What is a GENERAL PARTNERSHIP?

Answer 26

The form of partnership that may be created without statutory formalities

Question 27

17. BUSINESS ORGANIZATIONS What is a LIMITED PARTNERSHIP?

Answer 27

Partnerships created only by statute

Question 28

17. BUSINESS ORGANIZATIONS What is a LIMITED LIABILITY COMPANY?

Answer 28

A hybrid of the corporation and partnership

Question 29

17. ASSIGNMENT OF PARTNERSHIP INTEREST What is the assignee entitled to?

Answer 29

* Only to the profits and distributions the assignor would normally receive * Does not automatically become partner (cannot participate in management) * Cannot act as an agent

Question 30

13. ADMINISTRATIVE LAW - PLR What is a Private Letter Ruling (PLR)?

Answer 30

An IRS written response to a taxpayer concerning guidance a specific facts and situations Example: taxpayer has a complex transaction and wants assurance that there will be no adverse tax effects from the transaction

Question 31

3. AUTHORITATIVE HIERARCHY - TAX AUTHORITY HIERARCHY What are the 3 authoritative tax law?

Answer 31

Legislative law Administrative law Judicial law

Question 32

3. JUDICIAL LAW - FEDERAL COURT SYSTEMS What are the 3 levels of federal courts that hear tax cases?

Answer 32

High Court Appellate Court Trial Court

Question 33

3. JUDICIAL LAW - FEDERAL COURT SYSTEM At the bottom of the hierarchy, what are trial courts (aka original jurisdiction)?

Answer 33

US Tax Court US District Court US Court of Federal Claims

Question 34

3. TAX PLANNING - TYPES OF TAX PLANNING What are the most basic/common types of tax planning?

Answer 34

Timing of income recognition Shifting of income among taxpayers and jurisdictions Conversion of income among high- and low-rate activities

Question 35

3. TAX PLANNING - TIMING TECHNIQUES What should be considered when evaluating the use of timing techniques?

Answer 35

Time value of money Future tax law Individual circumstances of taxpayer Doctrine of constructive receipt

Question 36

11. FORMATION - GAIN TREATMENT WITHOUT SEC. 351 How is the transferor's gain treated on a transfer of property to a corporation in exchange for stock of the corporation without Sec. 351?

Answer 36

Any gain realized would be recognized (taxable)

Question 37

11. FORMATION - BASIS OF CORPORATION IN PROPERTY In a property exchanged by a control group for the corporation's stock, how is the basis of the property to the corporation determined? Are there any exceptions?

Answer 37

Take the shareholder's AB in the property plus any gain recognized by the shareholder (anything other than stock). The exception is if the AB in the property exceeds the FMV (built-in loss), then use the FMV.

Question 38

11. FORMATION - LIABILITY TRANSFER UNDER SEC. 351 If a taxpayer exchanges an asset under sec. 351 that is attached with a liability, how or when is the gain or income recognized?

Answer 38

In a 351 exchange, the income or gain is recognized if the liability exceeds the basis of the asset being transferred. The amount of excess over the basis is recognized or taxable income.

Question 39

11. LOSSES OF A CORPORATION - NOL What is an NOL?

Answer 39

Any excess of deductions over gross income

Question 40

11. LOSSES OF A CORPORATION - NOL and CAPITAL GAINS & LOSSES Capital losses in excess of capital gain is not permitted to offset ordinary income, instead, how should it be treated?

Answer 40

Suspended and carried back 3 years and forward 5 years to offset capital gains