3/26 Deck

Question 1

Loans made by a shareholder to an S Corp

Answer 1

Increase the shareholders basis.

Question 2

What best describes the allocation and apportionment for business and non business income for multistate corporations?

Answer 2

The business will allocate nonbusiness income and apportion business income.

Question 3

General requirement for corporate mergers

Answer 3

Both corporations must give shareholders notice and copy of plan

Question 4

Premiums for an insurance policy that covers loss of earnings due to sickness or injury

Answer 4

Are not a qualified medical expense

Question 5

Shareholder has 2 options 800 cash contribution or 320 contribution and 480 loan.
What is the after tax income to the shareholder for each plan?
What is the taxable income to the corp? Corp taxable income 200,
Shareholder will receive 100 in each plan.
Individual tax rate 24, Dividend 15, Corp 21

Answer 5

Shareholder: Plan 1 100 x .15 = 15 100-15 =85
Plan 2 Loan repayment is 70, which is 24 interest 46 principal. 24 interest x .24 = 5.76 18.24 will be after tax interest income. 46 is nontaxable. 100-70 = 30 x .15 = 4.5 30-4.5 = 25.5 dividend income taxable.

Plan 1 corp will have 200 taxable income x .21 = 42 tax liability
Plan 2 corp will have 200 - 24(interest paid) = 176 x .21 = 36.96 corp tax liability

Question 6

John is accused of understating his tax liability. What would be true in this situation?

Answer 6

If John relied on the opinion of a reputable accountant or attorney who prepared his return, he would have a reasonable basis for the tax position and could avoid penalties or understatement tax.

Question 7

Substantial authority for a taxpayer is void when

Answer 7

a private letter ruling is inconsistent with a subsequent Treasury Regulation.

Question 8

Which payment to a foreign person is not subject to US withholding tax requirement

Answer 8

Customer payment for the sale of inventory withing the US

Question 9

In order to qualify for 1231 the asset must

Answer 9

Be used in a trade or business and be held for more than one year.

Question 10

Gold contracted in writing to sell Hatch a used computer for 150. When hatch went to Gold’s home, Gold refused to sell. What would be the nature of Hatch’s remedy against Gold?

Answer 10

Compensatory damages, enough money to put the nonbreaching party in the position he would have been in had the other party performed.

Question 11

Rental real estate income on a k-1 will be classified as

Answer 11

Passive, business income

Question 12

Charitable contributions not fully deducted may be

Answer 12

Carried forward 5 years.

Question 13

When determining the deductible loss for a partner

Answer 13

First calc the year end basis.

Question 14

What is the tax rate for an S corp that pays tax on built in gains?

Answer 14

The highest corporate tax rate.

Question 15

Taxpayer current year AGI is 160,000. What is required amount to avoid underpayment estimated tax penalty

Answer 15

90% of the current year tax or 110% of the PY tax. Paid in four equal installments.

Taxpayers over 150,000 are required to 110%, under would be 100%.

Question 16

Social security benefits do no include

Answer 16

Medicaid payments

Question 17

Purchase of art for 1,200 with a FMV of 800. What amount is deductible?

Answer 17

Excess paid over FMV, 400.

Question 18

Debtor defaults, creditor will collect against guarantors unless

Answer 18

Creditor has not attempted to collect against debtor.

Question 19

What rights will allow shareholders of a closely held corporation to maintain their preference over other/ new purchasers, issuances of additional stock

Answer 19

Pre-emptive rights. They have the right to maintain their current proportional ownership.

Question 20

IRC Section 351, allows no gain or loss to be recognized to the shareholders on property transferred if

Answer 20

Immediately after the transfer the contributing shareholders own 80% of the voting and nonvoting stock.

Shareholders who contribute services are not counted toward the control group.

Question 21

Sanders recently retired at age 60 and received a distribution of 150,000. In what way, if any, will be taxed?

Answer 21

As ordinary income. Withdrawals from traditional IRAs are taxed as ordinary income.

Withdrawals prior to age 59.5 are subject to a 10% penalty.

Question 22

When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually

Answer 22

Performs tests of controls and limited tests of current year property and equipment transactions.