3/29 test Flashcards
What is the formula for amount realized in like kind exchanges?
FMV new property + Boot received - Boot paid - Adj basis of property given.
What debts cannot be discharged in bankruptcy?
Debt incurred through fraudulent representations by the debtor to the creditor. Debts arising from intentional torts.
Under the Sales Article what sales by a manufacturer are automatically perfected?
Perfection is automatic for PMSI consumer goods. Purchase Money Security Interest. Sales made direct to consumers.
How do S Corp distributions differ from C Corp distributions?
S Corp distributions are non taxable and reduce the shareholder basis. C Corp distributions are a dividend to the extent of current then accumulated E&P. Then beyond E&P it is a return of capital that reduces the basis.
For both S Corp and C Corp excess beyond basis is a capital gain.
For M-1 Schedule, Reconciliation of Income per books with income per return, what are expenses not deductible?
Life insurance premiums,
What is the gain or loss recognized by the taxpayer in like kind exchanges?
The lesser of the amount realized or the boot received. Do not net boot received with boot paid if they are not the same. IE debt and property.
What is the basis of the new property in like kind exchanges?
New basis = Adj basis of old property + Gain Recognized - Boot received + Boot paid
Income generally excluded from UBI
Rent from real property, Gains from property not held for sale, Research by University, college, hospital, Interest, Dividends, other investment income.
Exclusion for rent does not apply if services are provided to occupant.
What are elements of valid consideration in a contract.
Doing something you are not legally obligated to do, giving up something you are not legally obligated to do.
A mere promise is no consideration.
Elements of the 90 day letter from IRS
Taxpayer either pay the deficiency or file a petition with US Tax Court.
Process is audit examination, proposed adjustments, 30 day letter, pay or appeal, 90 day letter, pay or court.
What is the basis for property exchange with a corporation for stock?
Corporation with use the rollover basis.
When creating a partnership when would the partner recognize a gain?
If the debt against property contributed exceeds basis.
Accrual method accounting is required for what entities?
Tax shelters, C Corp that average more than 26 mil over 3 years, manufacturers.
Compensation included on W-2 for employee?
Wages, FMV of bonus received (cash or stock), bargain element of nonqualified stock option.
Can a Surety compel the creditor to collect from debtor?
No, Surety has no authority to compel creditor to collect from the debtor or proceed against collateral.
In chapter 11 bankruptcy what must be done before court will approve reorganization plan?
Administration expenses paid in full, at least one impaired class accepted plan, plan does not discriminate unfairly (fair and equitable to all classes).
No trustee unless fraud or gross mismanagement.
Earnings invested in US property calculation
Average basis at each quarter - adj basis of preceding year.
(Q1 + Q2 + Q3 + Q4)/4 - PY end = Earnings invested in US property
C Corp treatment of capital losses
Capital losses are carried back 3 and forward 5 years. Capital losses are limited to the extent of taxable income. It cannot create a net operating loss.
Parol evidence rule
Prohibits evidence of prior oral or written agreements that contradict the terms of the signed contract.
Prohibits prior written agreements that vary the terms of a fully integrated contract.
In bankruptcy, an creditor’s committee consists of
Unsecured creditors
Retirement savings contribution credit
Nonrefundable credit for contributions up to $2,000 to either a traditional or Roth IRA
A composition of creditors
Agreement between debtor and creditor that the creditors will settle for less that amounts owed. Limited to those who participate in the composition.
Assignment for the benefit of creditors
Debtor’s property is transferred to trustee. Trustee sells property and pays creditors. There is no discharge of debt unless Trustee can pay in full.
General discharge in bankruptcy will be denied if
Debtor failed to keep adequate books.
Purchased shares, later the company redeemed. How to treat the amount of income.
Capital gain, long-term if over one year.
What is the MACRS life for non residential property
39 years, mid month convention
Regarding common law, what are some details regarding acceptance
When is acceptance specified
Mail box rule, offeree can accept upon dispatch by reasonable means
Offer open vs acceptance received by
Method of acceptance
Not following the rules of acceptance is a counter offer.
Qualifying expenses for adoption credit
Legal and agency fees. Medical expenses do not qualify.
General rules in the formation of a corporation
No gain or loss recognized by corp for issuing stock in exchange for property.
Basis in property for corp is greater of NBV or debt assumed
Generally non taxable for shareholders if no boot
Boot is cash received or relief from liability above basis
What is required when admitting a new or replacement partner
Unanimous consent
A partner may assign their share of interest without consent but that person only has rights to profits. No voting.
What is the QBI phase in range
164,900 - 214,900
What is the QBI deduction calculations if the taxpayer is in phase out range
Tentative QBI deduction: QBI income x 20%
Wage limitation: wages x 50%
A - B = excess amount
Phase in percentage: inc bfor deduction - 164,900 / 50k
Excess x phase in percentage= reduction amount
Tentative - reduction= QBI deduction
In regards to creditors, a partners interest in partnership property
Cannot be assigned to individual creditors and cannot be subject to attachment by a partner’s individual creditors.
A partner sells their interest for cash and relief of debt. What is their gain or loss
Amount realized (cash+relief) - basis = gain
What is the calculations for amortization of startup costs
Phase in 50,000 to 55,000
Can deduct 5,000 immediately if below 50k. The remainder is over 180 months.
Above 50k the 5k is reduced $ for $.
The charitable deduction for property contributed is limited to
The lesser of 30% of AGI or 50% of AGI less cash contributions
QBI losses can be offset by
Losses can be allocated to businesses with income. Allocated based on % of income. This will reduce the tentative QBI deduction.
Regarding gift exclusion future interests are
Not eligible for gift exclusion
Which parties will an accountant who negligently prepares a client’s financial report be liable?
To any party or third party who the accountant knows or should foresee will rely on the accountants work.
What method are large corporations required to use for deduction of bad debts?
Direct charge off method. Write off as debts become worthless.
What is the accuracy related penalty on underpayments.
The penalty to the taxpayer is 20% of the understatement.
If the accuracy related penalty is due to the taxpayer and not the preparer no penalty to the preparer.
How is the limitation for 179 deduction calculated.
Maximum depreciation is 1,050,000. Phase out begins 2,620,000. Qualified property above the phase out reduced the 1,050,000 $ for $.
Requirements for an Incentive Stock Option
Less that 10% shareholder, Option price less than FMV at grant date, held for at least two years.
What are the requirements for an Employee Stock Purchase Plan
Less that 5% shareholder, option price is greater than 85% of the stock price when granted, held for at least two years, held for at least one year after exercise date.
Subrogation is
The right of a surety to collect against the debtor after they have paid the obligations. They assume the creditors rights.
A cash basis taxpayer reports income when
It is constructively or actually received in cash or property.
