Review 1 Flashcards
(28 cards)
What is BEAT tax
BEAT imposes a minimum tax on large US corporations with a significant amount of deductible payments to related foreign affiliates because such deductions reduce the US tax base. If the corporation is making payments to its foreign parent for depreciable property, this would represent a deductible payment to a foreign affiliate.
What is the process for installment sale method?
- Sales price - basis = total gain
- Gross profit (GP) percentage = gain/ sales price
- Cash collected in year * GP% = Gain Recognized for year
Realized Gain/ Loss
Amount of gain or loss that happened. Not necessarily on the tax return.
Recognized gain/ loss
Amount of gain or loss taken on the tax return
What amount should a SH recognize as dividend income? (Specifically, with property)
The amount of cash + FMV of noncash property received
How do you calculate after-tax rate of return (ATRR)
- ROI = (Inv sales price - Cost of Inv) / Cost of investment
- ATRR = ROI * (1- Tax Rate)
* The tax rate will be state and federal combined*
How much of a foreign corporation’s stock must a US person own to be deemed a US SH for the purpose of CFC rules?
10%
A foreign corporation is considered a controlled foreign corporation (CFC) if more than 50% of its stock is owned by US SH
What does the unified transfer tax consist of?
The federal gift tax (on taxable transfers of property during lifetime) PLUS estate tax (on taxable transfers of property at death)
What is a Type B reorganization?
The target is acquired using the stock of the acquiring corporation or the acquiring corporation’s parent (triangular acquisition). In a Type B reorganization, the acquiring corporation must be in control of the target immediately after the acquisition
What is the maximum amount that a TP can contribute to an IRA
Lesser of earned income or $7,000. TP age 50 or older can contribute an additional $1,000. A married TP can use a spouse’s earned income to make an IRA contribution.
On what date does an employee recognize ordinary compensation income for a restricted stock award?
An employee recognizes ordinary compensation income for the FMV of the restricted stock on the date the stock vests and the restrictions lapse
What amount of income qualifies a corporation for BEAT tax?
Applies to corporations with average annual gross receipts of $500 million or more for the three preceding tax years
What is the maximum Section 1244 loss that can be deducted in one year by a single taxpayer?
$50,000 ordinary loss
Exclusion of gain for small business stock
What is the Advance Pricing Agreement Program (APA)
A binding contract between the IRS and the TP by which the IRS agrees not to seek a transfer pricing adjustment for a covered transaction if the TP files its return for a covered year consistent with the agreed transfer pricing method.
What is nonsystematic risk?
Risk that does not affect an entire “system”; therefore, an investor can protect against nonsystematic risk by diversifying investments.
What is Systematic Risk?
Risk that affects entire systems such as the capital markets or the economy as a whole. Systemic risk cannot be mitigated through diversification.
What types of interest income are added back to regular taxable income to calculate alternative minimum taxable income (AMTI)?
Municipal (state and local) bond interest is exempt from regular federal income tax. However, private activity municipal bond interest is still subject to the AMT, so it must be added back to regular taxable income to AMTI.
What is the de minimis exception for loans and interest?
Any loans between individuals of $10,000 or less
What is the phase out limitations for Rental Real Estate losses?
$25,000 deduction, phase out once AGI is greater $100,000 and is phased out by 50%.
Risk reduction is most suitable strategy for which situation?
High-frequency and low-severity risks.
Avoidance is most suitable strategy for which situation?
High-frequency and high-severity risks.
Risk transfer is most suitable strategy for which situation?
Low-frequency and high-severity risks.
