REGULATION MAIN POINTS Flashcards

Question

Built-In Gain on Assets Distributed to S-Corp | by C-Corps

Answer 1

FMV-Basis = Built-In Gain taxable at the corporate level if transferred by a C-Corp. Exempt from Recognition of Gain - Any other form of business that is not a C-Corp - Sale or transfer doesn't occur within 10 years - Property appreciation happened after S-Corp - Property acquired after S-Corp election - Net unrealized built-in gain has been completely recognized in prior years.

Answer 2

Without C-Corp Earnings and Profits (E&P) 1st - To extent of basis in stock, not taxable and reduces basis of stock, return of capital 2nd - In excess of basis in stock, taxed as long-term capital gain (if stock < 1 year), it is capital gain distribution With C-Corp Earnings and Profits (E&P) 1st - to the extent of Accumulated Adjusted Account (AAA), not subject to tax, reduces stock basis, S-Corp profits 2nd - to the extent of C-Corp E&P, taxed as dividend, doesn't reduce stock, old corp taxable dividend 3rd - to the extent of basis of stock, not subject to tax, reduces basis of stock, return of capital 4th - in excess of basis of stock, taxed as long-term capital gain, capital gain distribution

Answer 3

- Ordinary Income (not subject to FICA) includes recapture income, unearned revenue not related to rental activities, and market-to-market income - Rental Income/Loss - Portfolio Income ( interest, dividend, royalties, and capital gains/losses) - Guarantee payments (not included in partner's basis calculation) - Tax-Exempt interest - Percentage depletion method - Foreign Income tax - Section 1231 gains and losses - Charitable contributions - Expense deductions for recovery of property (section 179) - Unrecaptured section 1250 Income - Gain (loss) from sale of collectibles

Answer 4

Simple Trusts - Distributions from ONLY current income - Can't Deduct charitable contribution - Exemption of $300 to arrive to taxable income Grantor Trust - Individual who established trust retains control - Taxable income or deduction is reported on the income tax return of the grantor - Can be a qualified shareholder of an S Corp - Generally not included in the taxable estate of the grantor upon death. Complex Trust - Accumulate current income - May distribute principal - May deduct charitable contributions - Exemption of $100 to arrive to taxable income

Answer 5

Allows taxpayers to deduct routine maintenance expenses for qualifying small taxpayers Qualified Small Taxpayer - Less than $10 million in gross receipts - Building unadjusted basis doesn't exceed less $1 million Deduction of expenses the lesser of 2% of unadjusted basis of the building up to $10,000

Answer 6

``` Education Loan Interest Deduction limited to $2,500 Phase-Out Single: $65,000 - $80,000 Married: $130,000 - $160,000 ``` Tuition and Fees Deduction: $4,000 ( < $65,000, or < $130,000(MFJ) ) $2,000 (> $65,000 but < $80,000, or > $130,000 - $160,000 (MFJ) Note: No tuition and fees deduction when the American Opportunity Credit and/or Lifetime learning credit. - Nontaxable education savings account distributions.

Answer 7

20% of qualifying expenses per taxpayer. Undergraduate, Graduate Courses, Professional Degree courses or any to acquire or improve skills Phaseout when Modified AGI exceeds $55000

Answer 8

Deductible Traditional IRAs Contributions: Max Deduction: $5,500 per taxpayer Phaseout in Excess of AGI Single: $61,000 - $71,000 MFJ: $98,000- $118,000 __________________________________

Answer 9

Single $6300 HHS $9300 MFJ $12600 MFS $6300 Additional Standard Deduction Single Married 65 or Blind 1550 1250 x 2 = if 2 tp qualify 65 and blind 3100 2500x 2 = if 2 tp qualify

Answer 10

- Child Tax credits - Earned Income Credit - Withholding taxes (W-2) - Excess of Social Security paid - American Opportunity Credit (40% refundable )

Answer 11

Credit may not exceed "Net Income Tax" less the greater of: - 25% of regular tax liability above $25,000 or - Tentative Minimum tax for the year

Answer 12

Maximum Ordinary Loss Deduction MFJ - $100,000 All other individuals - $50,000 Qualifications: 1 - Cash or property paid to corporation for its first $1,000,000 capital stock 2- Stock must have been issued to an individual for cash or property. Not Stock, Securities or services rendered. Small Business Stock Shareholder who holds stock for 5 years exclude 100% of the gain on the sale or exchange of stock: Maximum Exclusion and limited to 100% of the greater of: - 10 times the taxpayer's basis in stock, or - $10 million; 5 million if MFS

Answer 13

Amount Realized = FMV of new property + Boot Received - NBV of old property Basis of New Property = NBV of old property + gain recognized - Boot received + Boot Paid

Answer 14

Section 11 requires no proof of scienter, reliance, or negligence. Plaintiff only shows he/she acquired the stock, suffered a loss and material misstatement. **CPA has due diligence defense reasonable grounds f/s were accurate. Section 10b-5 requires proof of both scienter and reliance. Plaintiff bought stock and suffered a loss. Proof of negligence is insufficient.

Answer 15

Equal to the greater of 1000 or 50% of the income the preparer received for tax return preparation services.

Answer 16

Equal to the greater of $5000 or 50% of the income the preparer derived with respect to the tax return or refund claim.

Answer 17

1- Failure to Provide Copy to the Taxpayer $50 for each failure (maximum 25,500 per calendar year) 2- Failure to Sign Return $50 for each failure (25,500 max per calendar year) 3- Failure to Properly Retain Records Keep for 3 years following the last day of the return period. $50 ( 25,500 for return period) 4- Failure to File Correct Information $50 (25,500 max per return period) 5- Negotiation of IRS Refund Check $510 for each check 6- Failure to be Diligent in Determining Client's Eligibility Earned Income Credit $510 for each failure 7- Aiding and Abetting Understatement of Tax Liability Civil penalty of $1000 for all taxpayers except for C corps. and $10,000 for C Corps. 8- Wrongful Disclosure and/or Use of Tax Return $250 for each disclosure (max of $10000) 9- Fraudulent/ False Statements on Tax Returns guilty of felony and it is imposed a criminal penalty of not more than $100,000 (or $500,000 Corp) and imprisoned for no more than 3 years. 10-Failure to file tax-preparer's return does not apply to the extent that failure is due to reasonable cause and not to willful neglect.

Answer 18

Both parties agree to the new terms that vary from the original contract and will discharge the old agreement completely

Answer 19

Novation occurs when a new contract substitute a new party for an old party in an existing agreement of all the parties.

Answer 20

When the promisor unequivocally indicates to the promise that he will not perform when the time comes and are executory duties on both.

Answer 21

when a contractor's performance is in some way deficient from original contract but equivalent that it will be unreasonable to deny the agreed upon payment.

Answer 22

Promises are enforceable when consideration exist. Consideration must be bargained in exchange for something of value. A detriment to the promisee or a benefit to the promisor constitute value. *Past acts don't constitute valid consideration because the acts were not bargained for.

Answer 23

- Contract must be in writing if sale of product is greater than $500. An oral contract on sale of products greater than $500 will not be enforceable except for the following: - Specially manufactured goods - Written confirmation - Admitted in court - Performed (to the extent of liability of the responsible party) Partial payment or partial distribution of products will only be enforceable up to the extent of the consideration received.

Answer 24

- Registered in the national exchange - 500 or more of shareholders in any class of stock - $10 million in assets - Compliance with reporting of (10-K, 10-Q, 8-K, proxies, etc)

Answer 25

- Goodwill, Covenants, patents, etc.... are all amortized over 15 years. Straight-Line depreciation

Answer 26

GR: Capital Gain/ Loss Except when sold to Partnerships, LLC, or individuals Gain/Loss is allocated between ordinary income and capital - Accounts Receivable ( FMV) - Appreciated Property (FMV) - 1245 & 1250 assets Income Recapture

Answer 27

100% of the first $2000 qualified expenses 25% of the next $2000 expenses Qualified Expenses: Tuition, fees, course materials(including books), (post secondary education) - Must be enrolled half-time, or full time for at least one academic period.

Answer 28

Individuals = 50% of AGI Limit | C Corps. = 10% of Adjusted Taxable Income

Answer 29

Any loss sustained during the taxable year and not compensated by insurance or otherwise IS DEDUCTIBLE. NO $100 reduction or 10% AGI reduction. FMV (b4 loss) - Basis = casualty loss b4 insurance proceeds Insurance Proceeds - Casualty Loss = Total Deductible Loss Partial destroyed = the lesser of Decline in value or NBV (b4 casualty) Fully destroyed = NBV of property.

Answer 30

Adjusted Current Earnings Items: - Municipal Interest Income - Organization amortization expenses - 70% dividend received deduction - Life insurance proceeds for key employees - Difference of AMT Depreciation - ACE depreciation CALCULATION Step 1 - Adjusted Current Earnings - Unadjusted AMTI = Difference Step 2- Difference x 75% = Adjusted Current Earnings Adjustments. Step 3- Unadjusted AMTI + ACE adjustment = Alternative Minimum Tax

Answer 31

$40,000 - 25%( AMTI - $150,000)

Answer 32

Corporations are exempt from AMT if the average gross profit in the last 3 years are $7.5 or less.

Answer 33

Credits can't exceed Net Income Tax = ( Regular Tax + Alternative Minimum Tax (AMT)) less the greater of: 25% of regular tax liability above $25,000 or Tentative minimum tax

Answer 34

Cash Distribution in Liquidation Corporations recognizes Gain in the sale of asset (Sales Price - Basis) Shareholders recognizes Gain only to the extent that CASH exceeds adjusted basis of stock. (Proceeds (Cash) - Adjusted basis) Property Distribution in Liquidation C Corp. recognizes gain of (FMV - NBV) Shareholder recognizes gain to the extent of FMV of the property distributed. ( FMV - Stock Basis) if cash received, then it reduces the stock basis first. _______________________________________ S Corp recognized gain/loss on the distribution of property FMV-NBV Shareholder recognizes gain/loss on the distribution of cash, FMV of property, liabilities assumed less the stock basis. Gain/loss depends on the amount of time the property was held by the corp and whether the stock is a capital asset.

Answer 35

``` Partnership's Basis - Any monies (Cash) received = Remaining Basis - property received basis up to the amount of the Partner's basis = 0 ``` Can't be 0!!!

REGULATION MAIN POINTS Flashcards

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