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Enrolled Agent: Individual Exam 2020 > Adoption/Alimony/Life Insurance/Cancellation of Debt (COD) > Flashcards

Adoption/Alimony/Life Insurance/Cancellation of Debt (COD) Flashcards

1
Q

What are three types of transfers incident to divorce?

A
  1. alimony
  2. child support
  3. property settlement pursuant to decree
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2
Q

When is alimony received included in Gross Income?

A

2019 and after: include in GI

pre-2019 do NOT include in

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3
Q

When are alimony payments deductible from Gross Income?

A

pre-2019 deductible

2019 and after NOT deductible

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4
Q

When is child support included in Gross Income?

A

Never

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5
Q

When are child support payments deductible?

A

Never

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6
Q

If you receive a one payment for both alimony and child support how is it applied?

A

First to child support and then to alimony

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7
Q

When is a payment considered Alimony?

A
  1. Not designated as Other than alimony in decree
  2. paid in cash
  3. terminates on death of recipient
  4. not paid to member of your household
  5. not paid to a spouse you are filing MFJ with
    * if a decree is silent assume it is alimony
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8
Q

When is a payment considered Child Support?

A
  1. the decree does not have to say that a payment is child support
  2. payment is contingent on an event in the child’s life (ie: child turning 21 years old)
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9
Q

Can an alimony payment be sent to a 3rd party?

A

Yes if it is on behalf of the spouse and meets other conditions

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10
Q

What is a property settlement incident to divorce? Is it included in GI?

A
  1. transfer of property from one spouse to another within one year after date marriage ceases
  2. Treated as a gift and not included in GI
    Exception: one spouse is a Non-resident Alien: include in GI
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11
Q

When is the Alimony Recapture provision triggered?

A

If payments significantly decrease in the 2nd and 3rd year after divorce

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12
Q

Are life insurance proceeds taxable for the beneficiary?

A

no (exception: beneficiary is employer then might be partially taxable)

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13
Q

Is interest earned on life insurance proceeds paid out over time taxable to the beneficiary?

A

yes

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14
Q

What is an Employer Owned Life Insurance policy?

A

An employer takes out a policy on a key employees to protect from losses that would occur if the employee no longer worked at the company.

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15
Q

What is the exclusion limit for Employer Owned Life Insurance policies?

A

The exclusion amount can not exceed the premiums and other amounts paid by the policy hold for the insurance. (can’t exceed basis)
Inclusion does not apply to insured’s family or beneficiary other than the policy holder

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16
Q

Is the cost of Group Term Life Insurance included in the employees income?

A

<= $50,000 - not included in GI

portion >$50,000 - is included in GI based on IRS chart

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17
Q

What is the exception to the First $50,000 exclusion for Group Term Life Insurance?

A

If a Group Term Life Insurance plan discriminates towards certain key employees, then the first $50,000 of insurance the company pays for is not automatically excluded

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18
Q

What is the inclusion amount that an employee must add to GI when an employer pays for a discriminatory Group Term Life insurance plan?

A

Include the Greater of:

  1. Annual premiums paid by employer OR
  2. Amount calculated on the Uniform Premium Table
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19
Q

Include or exclude in GI the COD on items that would have been deductible to the TP?

A

exclude

ie: interest on a business loan

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20
Q

Include or exclude in GI debt that is “gratuitously” forgiven?

A

excluded.

ie: family loan that is forgiven. Make sure to mark the note paid.

21
Q

Include or exclude in GI the COD for as an inheritance?

A

excluded

22
Q

Include or exclude in GI the COD as a gift?

A

excluded - gift rules apply

23
Q

Include or exclude in GI the COD while TP is bankrupt?

A

excluded

24
Q

Include or exclude in GI the COD while TP is insolvent but not bankrupt?

A

excluded up to insolvency

25
Q

How do you calculate the excluded amount when a TP is insolvent but not bankrupt?

A

Debt excluded = Smaller of
1. debt cancelled or
2 amount of insolvency

Cancelled Debt
- Assets at time debt cancelled
_______________________
Insolvent amount

26
Q

Include or exclude in GI the COD for qualified farm debt?

A

exclude

27
Q

Include or exclude in GI the COD for qualified business real property?

A

exclude

28
Q

Include or exclude in GI the COD for a personal residence?

A

Exclude if a “qualified” personal residence
Exclusion = 2 million (1 million for MFS)
Use primary residence definition for Sale of Home

29
Q

Include or exclude in GI the COD for students loans?

A

Include unless a Qualified Student Loan.

exclude: qualified student loans
(ie: student working for a certain type of job, in a certain place for a certain period of time)

30
Q

Include or exclude in GI the COD in exchange for services provided by the taxpayer.

A

include

31
Q

Include or exclude in GI the COD in exchange for corporations stock or property?

A 
Include
Principal amount owed
- FMV stock
_Fmv property
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Amount of debt included in GI
32
Q

If COD is excluded what attributes (in order) must be reduced? What election can the TP make?
(5)

A
  1. NOL
  2. General business credit
  3. minimum tax credit
  4. Capital loss carry over
  5. basis reductions
    Election: TP can choose to reduce basis of depreciable assets first
33
Q

How is the TP affected by the COD on real property?

A
  1. Property is sold. Gain is realized but loss is not deductible
  2. Remainder of debt cancelled is included in GI
    (unless excluded)
    *Sale of property and cancellation of debt do not have to occur in the same tax year.
34
Q

What form does a TP receive if debt is cancelled?

A

1099-C

35
Q

How is a Discount on Early Payment of Mortgage Loan treated?

A

Early payment discount is treated as cancelled debt and is included in GI

36
Q

What is the Mortgage Forgiveness Debt Relief Act?

A

Exclusion of COD from GI if:

  1. home is your principal residence
  2. Debt is because home value declined below mortgage value OR because of TPs financial condition
  3. Debt related to home :
    - acquisition
    - construction
    - substantial improvement
  4. exclusion amt - 2 million (1 million MFS)
37
Q

How does the Mortgage Forgiveness Debt Relief Act exclusion affect the basis of the home?

A

Exclusion amount reduces basis but not below zero

38
Q

List the 8 exclusions for including COD from GI?

A
  1. insolvent but not bankrupt
  2. bankrupt
  3. Qualified student loan debt
  4. Qualified farm debt
  5. Qualified business real property
  6. Qualified personal residence
  7. items that would have be deductible
  8. gifts and inheritance
39
Q

What is the maximum amount for the Adoption Credit?

A

$14,080/child

*including special needs domestic adoptions

40
Q

What are NOT eligible expenses for the Adoption Credit? (4)

A

1, surrogate expenses

  1. expenses in relation to violation of law
  2. adoption of spouses child
  3. infant care supplies
41
Q

Is the Adoption Credit refundable?

A

No. Unused credit amounts can be carried forward for 5 years.

42
Q

Who is considered an Eligible Child for the Adoption Credit?

A
  1. <18 years old OR
  2. physically/mentally incapable of self-care
    * prorate months under 18 for the year they turn 18
43
Q

What are the requirements to be considered a Qualified Adoption Assistance Program? (3)

A
  1. written plan and accountable plan
  2. non-discriminatory benefit with adequate notice to employees
  3. Does not pay more than 5% of its payments each year to shareholders/owners with > 5% of stock
44
Q

What is an Adoption Assistance Program?

A

Allows exclusion from GI of amounts reimbursed/paid by the employer for qualified adoption expenses

45
Q

What is the maximum exclusion under the Adoption Assistance Program?

A

$14,080

46
Q

Phase out limits for the Adoption Assistance Program and Adoption Credit?

A

MAGI < $ 211,106 full exclusion/credit
211,106 - 251,600 phase out
>251,160 no exclusion/credit

47
Q

How does the Adoption Assistance Program exclusion affect the Adoption Assistance Credit?

A

Qualified Expenses
- Expenses used to claim Exclusion
_____________________
Expenses that can be used for the Adoption Credit

48
Q

Can MFS claim the Adoption Credit?

A

Yes if:

  1. spouses lived apart for the last 6 months
  2. eligible child lived in tp home over 1/2 year
  3. tp provided over 1/2 cost of the home
49
Q

Qualified Adoption expenses

A
  1. reasonable and necessary
  2. directly related to adoption
  3. . principal purpose for expenses is adoption
    includes: travel, adoption fees, legal expense, court costs

Enrolled Agent: Individual Exam 2020 (32 decks)

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