ALL COMBINED Flashcards
What is the holding period on a stock dividend?
Holding period of new stock received from a dividend takes on the holding period of the original stock
When are scholarships not taxable?
When they are not in return for services rendered, AND The money is used *only* for tuition and books Note: Scholarships for room and board are includable in income.
What authority does a limited partner have under a Limited Partnership?
- Right to inspect records of the business. 2. Can still vote on partnership business without losing limited liability 3. Can consult and advise partnership without losing limited liability (assuming they don’t actually make the decisions)
What are the miscellaneous deductions on Schedule A, and how are they deducted?
Deductible in excess of 2% of AGI Continuing Education - if required to keep your job Business travel 50% Meals and entertainment Union Dues Tax prep fees Legal fees to collect alimony Appraisal fees to value casualty loss of charitable contributions
Which items are not counted as income on Schedule K of form 1065?
Passive Income Portfolio Income 1231 Gain or Loss Mnemonic: PP1231
How are a decedent’s medical expenses handled with respect to an Estate?
Medical expenses paid after death, but incurred within 1 year of death go on decedents personal tax return
What is a refundable tax credit? Which individual tax credits are most commonly refunded?
A tax credit which takes the taxpayer’s tax owed on the return below zero, resulting in a refund to the taxpayer. Earned Income Credit (EIC), American Opportunity Credit and the Additional Child Tax credit. Note: the REGULAR child tax credit is NOT refundable.
What is required by the Statements on Standards for Consulting Services (SSCS)?
Competence; Due Professional Care; Planning; Supervision; Obtain Sufficient Data; Serve Client Interest; Agreement: Written or Oral; Communicate w/ Client; Objectivity NOT REQUIRED: Independence
What is the casualty loss floor for a C-Corporation?
No floor on Corporate casualty loss like there is with an individual taxpayer If destroyed, the loss is the property’s basis (minus proceeds) Calculation: Adjusted basis - Proceeds from Insurance = Loss If partially destroyed, take the lesser of FMV or adjusted basis reduction (minus proceeds)
What are the duties and abilities of a bankruptcy trustee?
Represents the bankruptcy estate Can sue or be sued Oversees bankruptcy and watches for preferential creditor payments Oversees priority transfer of assets to creditors
Under what circumstances can medical expenses paid on behalf of another be deducted on someone’s Schedule A?
Must be a citizen of North America Must live with you, or if they do not, must be mother/father or a relative closer than a cousin. Benefactor must provide more than 50% support to the beneficiary.
How are Net Operating Losses handled in a Trust?
Trusts can have a Net Operating Loss Any unused NOL flows through to the beneficiaries
What is Implied Authority in an agency?
When authority is expressly granted; it is implied that the agent has the authority to carry out the duties Does not include authority to sell or alter a business
How are profits and losses split in a Limited Partnership?
Unlike G.P.; L.P. profits/losses are split according to capital contributions by default
The definition of Ultramares Decision:
Accountants are not liable to third parties unless the third party was an intended beneficiary of the engagement AND the accountant knew they would be relying on the financial statements.
How are gains and losses handled with respect to a Corporation’s transactions involving its own stock?
Corporations have no gain/(loss) from transactions involving their own stock, including Treasury Stock. If Corporation gets property in exchange for stock, there is no gain/(loss) on the transaction.
When can contracts be discharged by law?
Party under contract is bankrupt Party under contract dies or is incapacitated Party cannot physically complete the contract (i.e. They are in prison so can’t finish building your house)
Who can sue under the Securities Act of 1933?
Purchasers of securities only
What is tenancy by entirety?
1/2 of marital assets go to deceased spouses Estate
What is an Agency Coupled with an Interest?
Agent acquires an ownership interest in the Agency Can only be terminated early (before the interest expiration date) by the Agent Unless the Agency has a specific time limit spelled out in a contract; the Agent’s authority is irrevocable by the Principal
What age group is protected under Age Discrimination Laws?
They protect people ages 40 and above at companies where at least 20 people are employed
What amount of a decedent’s Estate is exempt from Estate Tax?
The First $5,250,000 is exempt with a 40% tax on amount above that
What are the key aspects of a corporate officer?
Appointed by the Board of Directors Act as Agents Owe a fiduciary duty to the corporation Can have legal fees paid by corporation for defense in lawsuit brought on them from carrying out their normal duties (exception- suit brought against officers by shareholders)
What is the tax treatment of startup costs for a partnership?
Tax treatment is the same as that of an individual taxpayer. However syndication fees are not deductible or amortized.
What must a contract contain?
Offer, Acceptance, Consideration, Proper form (oral or written), Legal subject matter, 2 Competent parties
What is Ultra Vires?
Corporation management acting beyond what the Articles of Incorporation allow Shareholders can sue for Ultra Vires
What is a wash sale?
30 Day rule applies Disallowed loss adds to basis of new stock New stock takes on date of acquisition of old stock
Accountant’s liability for negligence - What are the requirements?
DUTY - DAMAGES - RESULT Duty - Accountant must have had duty to perform with due care exercised by an average accountant. Damages - The client experienced actual damages. Result/Causation - The damages were as a result of the negligence.
What actions can pierce the veil of a corporation?
Commingling of assets Fraud Under-capitalization
What are the Proxy Solicitation Requirements under the Securities Act of 1934?
Proxy must give shareholders audited balance sheets from 2 most recent years o Requirement holds true even if one class of stock
What are the principles of the Interstate Income Act of 1959?
A state can’t collect income tax on sales within its borders as long as the orders are filled and shipped outside of the state Applies to tangible property only Does not protect a Corporation in the state where incorporated Does not protect from taxes using metrics other than income (Ex: Sales Tax)
When CAN’T a partnership use cash basis?
- They have inventories 2. Partnership is a tax shelter 3. Has a corporate partner 4. Gross receipts are $5 Million or more Exception: If gross receipts are $1 Million or LESS and Partnership maintains inventories; Cash method is ok.
What does Real Property include?
Land, Buildings fixed to the land, and Property under/above the land.
Name the Requirements for Accountant to be liable under the Securities Act of 1933.
Damages & Material Misstatements Only o Reliance on financial statements are not a requirement unless purchased more than a year after the security is registered Proving negligence is not a requirement
What is a stock subscription and what is required for it to be valid?
An offer to buy shares of stock Must be accepted by corporation to be valid Offer cannot be revoked for 6 months Subscriber becomes liable once accepted
What is the purpose of Schedule M-2 on a Corporate tax return? How is it calculated?
Reconciles beginning to ending retained earnings Beginning Unappropriated Retained Earnings + Net Income + Other Increases - Dividends paid - Other decreases = Ending Unappropriated Retained Earnings
What are the characteristics of perfection of interest in a secured transaction?
Gets higher priority over others claiming rights to collateral after the perfection takes place Attachment must take place BEFORE perfection
What is a mechanics lien?
Lien on real property to secure payment for a repair/improvement done to the house A contractor builds an addition to your house and you won’t pay. They can’t repo your house; so they get a Mechanics Lien that sticks until you sell your house and they get paid
What estimated tax payments must be paid in by an individual taxpayer either via withholding or by quarterly tax payments?
The lesser of: 90% of current year’s total tax 100% of prior year’s total tax 110% of prior year’s total tax (if AGI is $150,000 or more)
Who can and cannot own an S-Corporation?
CAN be owned by Estates; Trusts; and Individuals CANNOT be owned by a C-Corporation
How are Corporate organization costs handled?
Amortization of costs begin the month the Corporation commences business activity If the Corporation doesn’t amortize organization costs in year one, they can never be amortized Costs associated with offerings are neither deductible nor amortized
What procedures must an Accountant have in place under the Securities Act of 1934?
Accountant must have procedures in place to: Determine if Going Concern is an issue Determine if any material related party transactions occurred Determine if material illegal acts occurred
Accountant’s Workpapers - Confidentiality Requirements
- Can be subpoenaed 2. Can be looked at by another CPA doing peer review 3. Property of the accountant who created them Note: Source documents supplied by client must be returned to client if they request them back; even if there is a billing dispute.
When can a board of directors authorize charitable contributions for a tax year?
The Board of Directors can authorized charitable contributions up to 3/15 and have them count in the previous tax year
What is Apparent (Ostensible) Authority in an agency?
Apparent Authority is based on the third party’s perspective - they believe that the Agent has the authority to enter into a contract based on: *Prior dealings with agent *Agent’s title leads the third party to believe they can enter into a contract *The Principal hires the Agent to carry out duties that normally carry with them the rights to enter into contracts
Under what situations are sales of goods covered by the Statute of Frauds? What are the exceptions?
If value of goods sold is > $500; sales contract must be in writing Exceptions: Merchants can enter into oral contracts for > $500 items. Oral contracts are binding for special or uniquely-made items (i.e. custom cabinets or custom furniture that could not be sold if buyer reneged)
How long is AMT paid carried forward, and how is it applied?
It can be carried forward indefinitely. It may be applied against future *regular* income tax, but not against future AMT tax liability.
How are section 1231 gains and losses handled?
Casualty Losses on 1231 Property - Net the losses * Net Loss = Ordinary Loss * Net Gain = Combine with other 1231 Gains 1231 Net Loss - If 1231 Losses exceed gains; treat as Ordinary Loss 1231 Net Gain - If 1231 Gains exceed losses; treat at LTCG 1231 Gain = LTCG 1231 Loss = Ordinary Loss
When are Corporate federal tax estimated payments required, and how are they calculated?
Required if more than $500 in tax liability expected, or 100% current year liability 100% previous year liability Note: If Corporation had more than $1 Million in revenue the previous year, the first estimated payment must be based on the previous year and the remainder based on the current year.
How do you terminate Apparent Authority?
*Let the public know *Let the people or entities that the Agent previously interacted with know *In cases of death; or Principal is otherwise not competent to contract; ALL authority is revoked
How are capital losses taken in a corporation?
capital losses only offset capital gains Carryback 3 years - if you elect NOT to carryback; you lost the option in the future Carry forward 5 years - only as STCL
How is section 1245 depreciation recapture handled; and when does it apply?
To the extent of depreciation; treat as ordinary gain Remainder is 1231 gain; which is LTCG - There are no 1245 Losses 1231 Gain = LTCG 1245 Gain = Ordinary Casualty Gain = LTCG 1231 Loss = Ordinary 1245 Loss = N/A Casualty Loss = Ordinary
How is shareholder basis calculated for a TRANSFEROR of an interest in a Corporation?
Transferor’s basis + Gain recognized by shareholder = Basis OR FMV of Corporate Interest - Adjusted basis of property = Gain
What depreciation convention is used for real property?
Mid-month
Characterize the following carryover: Passive Activity Loss
No carryback Can carry forward indefinitely
What is required to negotiate Order Paper?
Must have delivery and endorsement If paper is exchanged for value; transferor must give an UNQUALIFIED endorsement
Define contract liability.
Guarantees payment of a liability
When is an employee covered by Workman’s Compensation?
Employees injured on the job get protection; even if they messed up and caused the injury themselves Exception: If the employee intentionally harmed themselves; there is no Workman’s Compensation
What is the purpose of the negotiation of commercial paper?
Transfers ownership to another party
How is gain or loss on sale of a partnership interest calculated?
Gain or Loss = Amount realized on sale - basis in partnership interest
True or False: In a Limited Partnership; a General Partner can also be a Limited Partner at the same time.
True. A Limited Partner; however; cannot also be a General Partner and maintain limited liability.
How are Net Operating Losses (NOLs) utilized?
Can be carried back 2 years If any left, can be carried forward 20 years.
How many education credits may be taken on a tax return?
American Opportunity Credit - per student Lifetime Learning Credit - per taxpayer Note: The American Opportunity Credit is refundable.
What are the requirements to form a Limited Partnership?
Governed by state L.P. laws Must file L.P. certificate with Sec. of State Only General Partners must be listed Future additions or subtractions of G.P. require certificate to be updated with state
What are the characteristics of a Mortgage?
Must be in writing Signed Description of property Delivered
Define qualifying child for most individual tax factors.
Must be resident of North America Under age 19, or under age 24 if a student
What actions or circumstances will revoke a contract?
Offeror revokes and offeree receives revocation Offeree finds out prior to acceptance that offeror has sold the item In the case of an Option; offeror cannot revoke until the time of the option has elapsed Initial rejection by offeree doesn’t void the option.
When does warranty liability occur?
Occurs when you negotiate commercial paper By signing; you warrant to all future parties By not signing; you warrant to current party only
What assets are NOT capital assets?
Inventory; Business interest; Accounts Receivable; Covenant not to compete Goodwill IS a capital asset
Does a casualty loss affect the basis of property?
No. It decreases the fair market value (FMV) of the property.
Are interest and dividends active or passive income?
Neither. They are portfolio income.
How are partnership losses taken on an individual’s return?
Losses cannot be taken beyond a partner’s basis in the partnership Losses in excess of basis are carried forward until basis is available
Which of the following are taxable: Child Support, Divorce Property Settlements, Alimony
Alimony IS taxable. Child support and divorce property settlements are NOT taxable.
What are the key points of the 1933 Securities Act; Regulation A?
Issuer can issue $50M of securities per year and be exempt if they file a notice with the SEC Non-issuers (AKA a private individual) can sell $1.5M per year and be exempt
What is Constructive Fraud?
Gross Negligence - reckless disregard for truth CPAs usually not liable for simple negligence; but Gross Negligence (aka Constructive Fraud) opens the CPA up to be liable to third parties.
What is joint tenancy with respect to an Estate? How is it calculated?
When two non-spouses jointly own property FMV at death X % Ownership = Amount in Estate
How long can investment interest expense in excess of investment income be carried forward?
Indefinitely.
When does a partnership terminate?
When there is less than 2 partners (only one partner) When 50% of the partnership interests sell within a 12 month period- partnership IMMEDIATELY terminates.
Which personal insurance premiums are not deductible as medical expenses on Schedule A?
Accident or disability insurance premiums are not deductible.
What is the Uniform Division of Income for Tax Purposes Act (UDITPA)?
Uniform criteria for determining taxable income of multi-state corporations Also known as the Multi-State Tax Compact
What amount of business start-up costs can be deducted? How is it expensed?
Up to $5,000 Amortized over 180 months Reduced dollar-for-dollar by amount over $50,000
What are the required actions with Discovery of Illegal Activity?
Accountant must report discovered illegal activity to Audit Committee or Board of Directors If material in public company; BOD has *1 DAY* to notify SEC.
What entities are exempt from filing registration statements under the 1933 Securities Act?
Banks; Commercial Paper; Farmers; Co-ops; Charities; Governments Also exempt: Securities sold in ONE state; where investors are residents; 80% of business done in one state; and resales can’t occur within 9 months to interstate parties.
What is the partner’s basis in a partnership when they provide a service in exchange for the interest?
The basis in the partnership interest is the amount of taxable service revenue provided by service provider.
Which farming costs related to land are deductible? Which aren’t?
Deductible: Costs incurred to PRESERVE soil/water Non-deductible: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)
What property qualifies for section 1250 treatment; and how are gains/losses handled?
1250 property is Real Estate Use 1250 for Gain only. For losses; use 1231 Individuals: Post-1986 property with a gain is 1231 LTCG If Straight Line depreciation is used; don’t use 1250 - Entire gain is 1231 Corps: Section 291 requires 20% of depreciation classified as ordinary gain Remainder is 1231 LTCG
What are the basic characteristics of a Chapter 7 bankruptcy (liquidation)?
Discharges all non-exempt debt Can only be filed every 8 years from previous Chapter 7 filing Voluntary or involuntary filing Certain businesses are disallowed from Chapter 7 bankruptcies - Railroads; Banks; Insurance companies; Savings & loans (think: 7th inning RBIs)
Adoption expenses - Are they deductible?
NO, they are not deductible. However tax benefits are available through the adoption CREDIT.
What are the basic characteristics of a Simple Trust?
Income distributions mandatory Accumulation of income disallowed No charitable contributions Distribution of Trust corpus DISALLOWED Allowed personal exemption of $300
Are workman’s compensation insurance benefits taxable?
No - similar to an award for damage to make a person whole.
What is the parol evidence rule?
Prevents one party to a written contract from coming in after the fact and claiming that a certain conversation took place that conflicts with what is agreed upon in the written contract It also prevents using an oral argument to read into the meaning of what is written on paper If it’s on paper; it trumps what was agreed-upon orally prior to the written contract Note: does not negate oral agreements made AFTER the contract or disallow oral words from clarifying ambiguous contract language.
What are the key aspects of Treasury Stock?
No Gain/Loss recognized on Treasury stock Have no voting rights Can be re-purchased below par Cannot produce dividends
Who must approve mergers and consolidations?
Boards must approve Shareholders must approve by Majority Disapproving shareholders can get an appraisal and get their stock back at current market price Merger does NOT need creditor approval
With respect to liability on subsequent debts; what happens when a partner withdraws from a partnership?
Partner not liable assuming notice given. Notice must be given to nullify apparent authority People who had knowledge of their role must be personally notified Public must be notified
When are 1231; 1245 and 1250 gains or losses always ordinary?
When the asset is held less than one year.
Name the key responsibilities of an accountant when preparing a tax return.
Accountant must prepare the return in good faith and ask for more information if something is missing When recommending a tax position; the accountant should realistically believe that it would stand up under the scrutiny of a court
What makes a contract subject to the Statute of Frauds?
o Cannot be completed within one year o Involves the purchase of real estate o $500+ Sale of Goods o Co-signing and guaranteeing the debt of another
What are the powers granted under the Environmental Protection Act?
EPA has the power to assess civil penalties for violating environmental laws like the Clean Air Act The EPA can sue violators Citizens can sue violators States can sue violators Citizens can even sue the EPA to force enforcement For hazardous waste sites: owners; operators; transporters; and lenders associated with the site can be held liable
When does a security interest attach; or become legally enforceable?
Secured interest must be supported by consideration given. Debtor must actually own the rights to the collateral or have possession. Secured interest much be recorded
How are charitable donations for STCG property and property not related to the charity’s function deducted on Schedule A?
Deduction is taken for adjusted basis in the property, up to 50% of AGI.
How does death of a partner affect the partnership’s taxable year?
The taxable year closes with respect to the decedent partner’s interest ONLY.
How are Corporate distributions to shareholders handled?
Distribution is a dividend to the extent of current accumulated earnings and profits (ordinary income) Then, remainder (if any) is a return of basis. Then, add’l remainder (if any) is a Capital Gain Distribution amount = FMV of Property + Cash - Liability Assumed Shareholder basis = FMV of Property + Cash received (basis not reduced by the attached liability)
Who can accept an offer?
Must be accepted by intended party (offeree) Acceptance can only be made by a party who knows an offer has been made and has all of the facts - AKA a meeting of the minds They must intend to accept
How are a C-Corporation’s deductible charitable contributions calculated?
Sales -COGS= Gross Profit Gross Profit + Rent, Royalties, Gross Dividends, Capital Gains =Total Income Total Income - Deductions (No charitable contributions, Dividends Received Deductions (DRD), or NOL Carrybacks allowed) - NOL Carryforwards =Taxable Income before charitable contributions, DRD, NOL Carrybacks x 10% =Deductible Charitable Contributions
Which property is governed by section 1231?
Real or Personal Business Property held more than a year Inventory is never 1231 Property
How is an S-Corporation terminated?
To terminate election, 50% of the shareholders must consent No S Corp election allowed for 5 years after termination S Corp termination effective immediately following an act that terminates status
What is promissory estoppel?
Promises to donate are legally enforceable Basically; you can’t tell a charity; Hey; if you buy this $100;000 piece of land; I’ll pay for the building that will go on it; and then renege on your promise
When does the dissolution of a Limited Partnership occur?
Automatically happens 1. Once final General Partner leaves 2. Time specified in certificate lapses 3. Event specified in certificate happens 4. Unanimous consent by partners 5. Illegal activity
Define primary liability with respect to a contract.
First in line to pay on the note/draft Maker of a Promissory Note has primary liability and must pay according to terms of the note With a Check; no party has Primary Liability Exception: Drawee (your bank) is primarily liable to pay if they certify - i.e. promise to pay
What are the key aspects of a corporation?
Shareholders have limited liability to the extent of their capital contribution C Corporations have a perpetual life and continue even after shareholder death Corporations are a separate legal entity from their owners and can own property; sue; be sued Corporations must file Articles of Incorporation in state of governance
Which IRA contributions are deductible?
Traditional IRA = deductible Roth IRA = not deductible
What does the Volcker Rule require banking institutions to disclose?
Relationships with hedge funds must be fully disclosed to regulators
What does a gross Estate consist of?
Cash and Property FMV at death, or alternate valuation.
How did Reg D, Rule 506 change under the JOBS Act?
General Solicitation and Advertising now allowed
What is the purpose of Schedule M-1 on a Corporate tax return? Which items are included?
Schedule M-1 reconciles book to tax income before Net Operating Loss/Dividend Received Deduction Includes permanent differences (such as tax-exempt interest and non-deductible expenses) and temporary differences (accelerated depreciated tax depreciation, straight-line, etc.)
In a like-kind exchange; how is it handled if a netting of mortgages results in net boot paid?
DO NOT subtract the boot paid amount from the cash received Ignore the boot paid amount from the mortgage completely
When are mortgage points deductible and how are they deducted?
They are deductible if they represent prepaid interest on purchase of a new home or improving a home. Refinance points are amortized over the life of the mortgage.
What can make a contract VOID?
Fraud in the execution Formed under extreme duress - extreme Illegal
What is a surety (co-signing)?
A third party agrees to be liable for a loan Example: A parent co-signs on their child’s car loan
How much social security income can be taxed for individuals in higher income brackets?
Up to 85%
How are partner benefits paid by the partnership treated?
Health insurance; life insurance and other benefits paid on behalf of the partner are treated as guaranteed payments and are includable as self-employment income.
What entities are disallowed from involuntary Chapter 7 bankruptcy filings?
Charities Farms
What is the annual exclusion amount for a taxpayer’s Gift taxation? What is required to get the exclusion?
$14,000 per year per spouse to each individual In order to get the exclusion, the recipient must immediately acquire a present interest in the property and get unrestricted access to the property and all of its benefits
How is a surety liable in a transaction?
A surety is primarily liable Surety can be released from liability if the creditor behaves in a way that increases the risk that they initially agreed to Surety can be released from liability if the debtor changes the loan agreement in a way that materially increases the surety’s risk
What is an artisan’s lien?
Applies to personal property like a car If the dealership does $500 in repairs to your car; you don’t get the car back until you pay
What is (are) the depreciation convention(s) for personal property?
Mid-year/Mid-quarter
When is inspecting Board minutes the right of a shareholder?
Shareholders can inspect Board minutes and records only if request is in good faith
What is a trade acceptance?
Seller extends credit to Buyer Buyer agrees to pay Seller - Buyer has primary liability Seller is both Drawer and Payee - Seller has Secondary Liability
What is Warranty of Merchantability?
This good will do its intended purpose Can be disclaimed
What forms may acceptance of a contract take?
Can be written or oral Must be in the form/method required by offeror Must be mirror image - i.e. no changes in terms
Interest on home equity loans up to what amount are deductible on an individual tax return?
$100,000
What is joint tenancy?
Undivided interest in entire property Upon death; property goes to other joint tenants
What items are required in a corporations Articles of Incorporation?
Name; purpose; powers of Corporation Name of registered agent & incorporators Stock share classes authorized; par values Name of corporate officers NOT required
What is the result of a clerical error in a contract?
The contract is unenforceable. Example: Person signs a contract to pay $500.00 to have their lawn re-seeded but due to clerical error; it actually reads $5000.00
What aspects are related to all classes of corporate stock?
Valid consideration must be given for shares Cash; property; or services performed No promises to pay or perform services
For an Emerging Growth Company IPO, how many years of audited financial statements are required?
2 years
Which items can be carried over to future years on an individual tax return?
Investment interest expense in excess of investment income Charitable contributions Excess Section 179 Capital losses AMT Paid Passive Activity Losses
Can spouses married filing jointly use different accounting methods?
Yes, if they each own a small business. All non-business income is cash basis.
What is the APPARENT authority of a partner in a partnership?
A third party reasonably believes partner has authority to bind partnership to contract Cannot use apparent authority to add a new partner Cannot use apparent authority to sell or bind partnership assets
What is BOOT in a like-kind exchange?
Cash received + unlike property received + liability passed to other party
Which depreciation table is used for personal tangible property related to farming?
MACRS 150
What are the REAL defenses against a holder in due course (HDC); which will WIN?
A holder in due course takes an instrument subject to Real Defenses (WIN vs. HDC) Material alterations to the instrument Forgery Bankruptcy Maker not competent to Contract Fraud in the execution
How are expenses and fees related to tax-exempt income handled in a Trust?
Expenses and fees from tax-exempt income are not deductible for either a Complex or Simple Trust
When is a corporation liable for pre-incorporation actions taken by a Promoter?
Promoter personally liable unless third party agrees to a novation and releases Promoter from liability; UNLESS the corporation adopts.
Contracts under the Statute of Frauds must be in what form to be valid?
They must be in writing.
What five warranties occur with every commercial paper transfer?
Warranty of Title No defense will stand against it No material alteration No knowledge of bankruptcy proceedings All signatures are legitimate
What is Common Law Fraud?
Regular fraud Misrepresentation of Material Fact Scienter Damages Reasonable Reliance
How is adjusted partnership basis calculated?
Beginning partnership basis + Capital contributions + Share of ordinary partnership income + Capital gains + Tax-exempt partnership income (DON’T FORGET!) = Ending partnership basis
What are the personal defenses against a holder in due course (HDC) which will LOSE?
An HDC takes an instrument free of Personal Defenses (LOSE vs. HDC) Lack of consideration/value given Breach of contract/warranty Duplicate payments Fraud (in the inducement only) Voidable contracts
What are the requirements for exclusion of gain on a primary residence? How are losses treated?
Must live there 2 out of 5 years Loss on sale of home is NOT deductible
What is the treatment of a secured creditor in a bankruptcy?
Superior to claims of other types of creditors Can take either collateral or cash proceeds from the sale of an asset If collateral doesn’t satisfy amount owed; Secured Creditors become a general creditor for the difference.
When can a LOSS occur in a partnership distribution?
Only in a liquidating distribution.
What elements are needed for a sale covered under the Uniform Commercial Code (UCC)?
Offer - You offer to sell something at a price Acceptance - the other party accepts Consideration - Something of value has been exchanged for the goods Note: The UCC only covers sales of goods.
If a Gift is an annuity, what value is used for the Gift?
If the Gift is an annuity, use Present Value to determine the gross Gift
Is unemployment compensation taxable?
Yes.
How are affiliated (80%) Corporation tax returns handled?
Consolidation election is binding going forward Dividends between them are eliminated, Advantage- Gains are deferred, Disadvantage- losses are deferred. One AMT exemption One accumulated earnings tax allowed Note: In order to consolidate, the parent must have 80% voting power and own 80% of the stock value
What are the elements of a Firm Offer?
You offer to sell something at a price and keep that offer open for a set period of time 3 months max Only merchants can make firm offers Must be in writing and signed
How does bankruptcy of a corporation affect the owner’s ability to file bankruptcy?
It doesn’t; because the corporation is a separate legal entity. Under bankruptcy; corporations are dissolved Under bankruptcy; individuals are discharged
What is the formula for an S-Corp Built-in Gains Tax?
FMV of Assets @ S-Corp Election Date - Adjust. Basis of Assets = Built-in Gain x 35% Corporate Rate
What is the new basis of a partnership interest sold?
Basis = Capital account + Liabilities assumed
