CDFA Flashcards
1
Q
Any transfer of property between spouses during marriage or any transfer of property between spouses (or former spouses if it is incident to a divorce) is tax-free. No gain or loss is recognized, and for income tax purposes, the transferee’s basis and holding period in the property is the adjusted basis and holding period of the transferor
A
IRC 1041
2
Q
- The transfer occurs within one year after the divorce; OR
- The transfer is pursuant to the divorce decree, AND
- The transfer occurs not more than six years after the divorce
A
Incident to Divorce IRC 1041-1T, Q7
3
Q
If one spouses is nonresident alien OR
Transfer of Services
A
Will not qualify under IRC 1041
4
Q
The owner may elect to deduct the cost (expense) of certain types of trade or business property in the year property is purchased, subject to certain limitations based upon the cost of the property and trade or business income
A
Business Expense Recapture IRC 179
5
Q
Provides tax liability relief for a spouse who signs a joint tax return and has no knowledge of the understatement of tax
A
IRC 6015: Innocent Spouse Rule
6
Q
- Joint tax return filed;
- Understatement of tax attributable to erroneous items from one spouse;
- Did not know, and had no reason to know, there was an understatement of tax;
- Inequitable to hold liable for deficiency; and
- Elects no later than 2 years after collection activities have begun
A
Requirements of IRC 6015: Innocent Spouse Rule
7
Q
Custodial parent is entitled if has a qualifying child and meets the low income household requirement
A
IRC 32: Earned Income Tax Credit
8
Q
This section of the IRS Code states that alimony and separate maintenance payments are generally taxable to the recipient and deductible from gross income by the payor.
A
IRC 71: Pre-2019
9
Q
- The payment is made in cash, check, or money order.
- There must be a written court order or separation agreement.
- The couple may not agree that the payments are not to receive alimony tax treatment.
- They may not be residing in the same household.
- They may not file a joint tax return.
- No portion of the payment may be considered child support.
A
Requirements for IRC 71: Pre-2019
10
Q
This section of the IRS Code allows the alternate payee to receive money from a qualified plan, pursuant to a QDRO, without having to pay a 10% tax penalty.
A
IRC 71(t)2(c)
11
Q
The distribution would still be subject to
ordinary income tax and the custodian must withhold 20%
A
When alternate payee receives money from qualified plan (even if no 10% tax penalty
12
Q
How to avoid 20% tax withholding for distribution to alternate payee of qualified plan
A
IRC 401(a)(31) Direct transfer to other retirement plan (i.e. IRA) with no payment going directly to alternate payee
13
Q
Form 1065
A
Partnership
14
Q
Form 1120
A
Corporation
15
Q
Form 1120S
A
S - Corp
16
Q
This section of the IRS Code states that a spouse is considered abandoned
A
IRC 7703
17
Q
- The spouse pays more than half the cost of maintaining household
- Files a separate tax return.
- Household is the principal home of dependent child for more than
six months and the entitled to claim the dependency exemption - Lives separate from spouse for the last six months of the tax year.
A
Conditions for 7703: Abandoned Spouse
18
Q
If you receive government Pension not subject to SSI, then benefits entitled to for spouse’s SSI is reduced by 2/3 (i.e. $2 for every $3)
A
Social Security Offset
19
Q
N = years from 65 to life expectancy x 12
I = Interest rate / 12
PMT = monthly pension payment
FV = 0
A
Formula for Future Value (FV) - Step 1 for Pension Value
20
Q
FV = answer from Step 1
I = interest rate (do not use inflation adj.)
PMT = 0
N= number of years until age 65
A
Formula for Present Value (PV) - Step 2 for Pension Value
21
Q
[(1 + discount rate/1+inflation rate) - 1] x 100
A
Inflation Adjusted Interest Rate for Cost of Living Increase related to Pensions
22
Q
When support decreases by more than $15,000 during first 3 years
A
IRC 71(f): Recapture of Excess Spousal Support
23
Q
Prevent funds for property settlement being disguised as SS to transfer income tax to the payee
A
Purpose of Recapture
24
Q
- Support paid in year 3 - Support paid in year 2
- Support paid in year 2 - answer from #1
- (Support paid in year 2 + support paid in year 3)/2
- (Support paid in year 1 - answer of step 3) - $15,000
A
Formula for Recapture of Excess SS: IRC 71 (f)2-4
25
1. Either spouse dies before end of third post-separation year;
2. Payee remarries before end of third post-separation year; OR
3. Payment fluctuates for reasons out of payor control (i.e. Ostler-Smith order)
Exceptions to Recapture: IRC 71(f)(5)
26
Tax for early withdrawal from retirement
IRC 72(t)(1)
27
When allowed to withdraw from retirement without penalty normally
59 1/2
28
May withdraw without penalty if not lump-sum
IRC 72(t)
29
1. If employer securities are distributed, the tax on all unrealized appreciation on the
securities is deferred until sale
2. Active participation in plans before 1974 is taxable as a long-term capital gain BUT
3. The portion from active participation after 1973 is taxable as ordinary income.
IRC 402: Qualifies as lump-sum distribution from retirement
30
1. Must provide a direct rollover option.
2. Imposes a mandatory 20% withholding on any eligible rollover not directly to another retirement plan
3. Written notice to participants within reasonable time before distribution
Requirements of USCA
31
Unemployment Compensation Amendment of 1992
USCA
32
Required deadline for deposit into new IRA when withdrawn (instead of direct transfer) to avoid tax/penalties
60 days
33
If an IRA is transferred from one spouse to the other spouse pursuant to a divorce decree, the interest in the IRA is treated as the recipient spouse’s IRA and the transfer between the spouses is tax-free
IRC 408(d)(6)
34
Election to take equal and periodic payments over taxpayer life expectancy
Exception to early withdrawal penalty IRC 72(t)(4)
35
1. Separated from employer providing plan
2. Cannot add anything to account
3. Can only take the equal payments
4. Only one per account
5. Cannot modify until 5 years or reach 59 1/2 (whichever is longer)
Requirements for SoSEPP: IRC 72(t)(4)
36
Extends to 36 months
COBRA for spouse based upon divorce
37
What tax is capped?
SSI
38
Excluded as income for tax purposes
Life insurance proceeds during marriage or incident to divorce decree
39
Who gets recapture of depreciation of asset subject to depreciation is transferred between spouses subject to divorce
Transferee
40
Who gets recapture of depreciation of asset subject to depreciation is transferred other than incident to divorce
Transferor
41
Time rule
Percentage based upon number of years working while married divided by total number of years working
42
IRC for Vesting Requirement
IRC 411
43
An employee who has at least five years of service must have a non-forfeitable right to 100% of the employee’s accrued benefit
5-year cliff vesting: IRC 411(a)(2)
(A)
44
An employee who has completed at
least three years of service must have a non-forfeitable right to at least the
following percentages of his or her accrued benefit:
1. 20% after three years of
service
2. 40% after four years of service
3. 60% after five years of service
4. 80% after
six years of service
5. 100% after seven years of service
7 year graded vesting: IRC 411(a)(2)(B).
45
An alternate payee’s right to receive all or a portion of the benefits payable with respect to a participant under a pension plan with specified requirements
IRC 414(p)(1)(A)(i)
46
The plan participant's full legal name and current address of the participant as well as those of any alternate payee referenced in the order
IRC 414(p)(2)(A)
47
The calculable amount, percentage or manner of the participant's benefits that should be paid to any alternate payee covered by the Order
IRC 414(p)(2)(B)
48
The number of payments or time period for which the Order applies
IRC 414(p)
(2)(C)
49
1. The official plan name to which the Order applies
2. Indication that the Order relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or
dependent of the participant
3. Indication that the Order is pursuant to a state's domestic relations law
Other IRC 414(p) requirement
50
1.Require a plan to provide a type or form of benefit not available to other plan participants (A)
2. Require the plan to provide increased benefits(on the basis of actuarial value. (B)
3. Require payments to an alternate payee that are not required to be paid to another alternate payee under another order previously qualified as a QDRO (C)
QDROs unable to do IRC 414 (p)(3)
51
Established laws relating to the attachment of pension benefits, thereby putting family law courts into a quandary as to how to treat retirement plan assets that state courts clearly determined were marital property
Employee Retirement Income Security Act of 1974 (ERISA)
52
Recognizes military retirement benefits as marital property and asserts that a state court may divide them pursuant to state law.
Uniformed Services Former Spouses’ Protection Act (USFSPA)
53
1. Not to exceed one-half
2. Military during marriage for at least 10 years
Requirements of Uniformed Services Former Spouses’ Protection Act (USFSPA)
54
Provides that qualified plans subject to ERISA may segregate assets for “alternate payee” through QDRO
Retirement Equity Act of 1984 (REA)
55
Added IRC 1041 and existence of QDROs
Tax Reform Act of 1984 (TRA)
56
COLA
Cost of Living Adjustment
57
Means ownership (in retirement terms)
Vested
58
Purchase Cost + Improvements
Cost Basis
59
Selling Price - Expenses for Sale - Cost Basis
Gain/Loss for Tax Purposes
60
Capital Gain Exclusion Amount for Single/Divorced
$250,000
61
Capital Gain Exclusion Amount for Married and Filing Joint Returns
$500,000
62
1. Principal residence for 2 of last 5 years (not required to be consecutive)
Requirement for capital gain exclusion
63
IRC for capital gain exclusion on home
IRC 121
64
Can qualify if not principal residence if...
Spouse using as principal residence
65
When gain/loss deferred to 2nd home
When purchase of 2nd home exceeds net proceeds of 1st
66
How often can claim capital gain exclusion
Every 2 years
67
Not added to cost basis
Repairs
68
The Act eliminated the deductibility of maintenance payments for the payor and the inclusion as income to payee for divorces finalized after December 31, 2018.
Tax Cuts and Job Act of 2017
69
1. Income Shares
2. Percentage of Income
3. Melson Formula
Child Support Guideline Models
70
When the payments are to be reduced not more than six months
before or after the date on which the child reaches age 18, 21, or the state's age of majority
Six Month Rule: The amount reduced could be treated as CS rather than SS
71
When payments are to be reduced on two or more occasions, which occur not more than one year
before or after another child reaches a certain age
The amount reduced could be treated as CS rather than SS. Only applies with multiple children
72
IRC Dependency Exception
IRC 152(e)(1)
73
1. Child receives over half support from parents.
2. Parents divorced, legally separated, or lived apart during last six months of year
3. Child in custody of one or both parents for over half the year
Requirements for IRC 152 Dependency
74
How to transfer Dependency Exemption
Form 8332
75
1. Earned Income Credit
2. HH Status
3. Childcare Expense Credit
Can only be claimed by custodial parent
76
1. Dependency Exemption
2. Child Tax Credit
Could potentially be claimed by either parent
77
Reduced Dependency Exemption to $0
§ 11041(a)(2) of the Act
78
How long dependency exemption will be at $0
Through 2025
79
Nonrefundable tax credit available for the custodial parent who pays child or
dependent care expenses so that they can be gainfully employed.
Childcare Credit
80
IRC for Childcare Credit
IRC 21(a)
81
IRC for custodial parent receiving childcare credit regardless of dependency
IRC 21(e)(5)
82
Regular child tax credit
Nonrefundable
83
Additional child tax credit
Refundable
84
May apply when any portion of the regular child tax credit is disallowed
Additional child tax credit
85
Requires certain spousal support payments to be included in the recipient spouse’s income and
permitted the payor spouse to deduct these payments as an itemized deduction.
Revenue Act of 1942
86
This Act permitted spousal support to be deductible in arriving at adjusted gross income so that the tax payer who does not itemize deductions may nevertheless deduct spousal support.
Tax Reform Act of 1976
87
IRC for HH
IRC 2
88
1. Not married at end of the year or did not live with spouse for last six months of the year.
2. pays more than one-half of costs to maintain household
3. child qualifies as dependent and lives with more than one-half of the year
Requirements for claiming HH: IRC 2
89
Arizona,
California,
Idaho,
Louisiana,
Nevada,
New Mexico,
Texas, and Washington.
CP States
90
Alaska
Optional CP
91
Wisconsin
Quasi-CP state
92
1. The legally-married spouses live apart at all times during the tax year.
2. The spouses do not file a joint return.
3. No portion of the community income is transferred between the spouses during the tax year.
Conditions to treat as SP for IRS: IRC 66(a)
93
IRC for SP
IRC 66(a)
94
1. No joint tax return
2. Excluded income was earned by other spouse
3. No knowledge of the excluded income
4. Would be inequitable to tax on that item of community income
Requirements for relief if failed to claim share of CP on returns: IRC 66(c)
95
Discretion to deny CP treatment to spouse who fails to notify other of nature and amount of income and acts as solely entitled to income
IRC 66 (b)
96
Taxpayers may allocate estimated tax payments in any manner agreeable to them
Reg 1.6015(b)-1(b)
97
Allocated based upon each spouse’s separate capital
losses
Capital Loss Carryforwards Reg 1.212-(c)(1)(iv)
98
Allocated between spouses based
upon what contribution would have been had the spouses filed separate returns for the year the contribution was made.
Joint charitable contribution carryforward
99
Apportioned between the spouses
in the ratio of what would have been if each spouse had computed their income separately.
Joint net operating loss
100
Alternative Minimum Tax
Investment Interest Expense
No rules for how to treat carryforward
101
Follow the property or business
Suspended general business credit carryforwards
102
Attorney fees and court costs
Not deductible
103
1. Deceased ex entitled to Social Security benefits.
2. Married for ten years before the divorce became final.
3. Age 60 or over (or is between the ages of 50 and 60 and disabled).
4. Not married.
5. Not entitled to retirement benefit equal to or greater than ex's benefit.
Survivor Benefits for SSI
104
Does not prevent from being entitled
Widow remarries after age 60
105
1. Married 10 years (date of marriage to final divorce)
2. Participant eligible to receive
3. Spouse not married
4. Spouse 62 or older
5. Spouse not eligible for more than half of participant amount
Requirements for Receiving spouse/ex-spouse SSI
106
If divorced more than 2 years and age 62, and meets all other requirements
Spouse can receive ex SSI benefits even if ex defers their own benefit to age 70
107
If spouse caring for child under 16 or disabled, and ex retired or disabled
Spouse entitled to SSI regardless of age
108
Reduction if spouse starts receiving ex SSI at 62
25%
109
Reduction if start receiving own SSI at 62
20%
110
COBRA
Consolidated Omnibus Budget Reconciliation Act of 1986
111
Any debt incurred in acquiring, constructing, or substantially improving a principal residence
and which is secured by the principal residence
Qualified Principal Residence Indebtedness
112
Ty and Kelly bought a vacation home 15 years ago for $530,000. Before their divorce was final they sold their vacation home for $330,000. The costs associated with the sale were $20,000. What is the tax consequence of the sale?
They have a loss of $220,000 and cannot deduct it. (Because not primary residence)
113
How are assets divided in an equitable distribution state?
In an equitable manner, except assets acquired by inheritance or gift
114
How many days is the typical residence requirements for filing for divorce? (all states)
90 days
115
What tax filing status would not allow a taxpayer to take the childcare credit?
Married Filing Separately
116
What is accumulating all of one's expenses in one year to maximize the itemized deductions for that year called?
Bunching deductions
117
If both the spouses are going to continue to own the home jointly after the divorce, with only one of them continuing to reside in the house, which of the following expenses would the resident spouse be 100% responsible for?
Minor repairs
118
Which of the following expenses is LEAST likely to be double counted? Mortgage payments, property taxes, property insurance, health insurance
Mortgage payments
119
Andrea is receiving spousal support from Mike and is refusing to provide her Social Security number to him. What is the fine she will have to pay for withholding her Social Security number?
$50
120
When a distribution is paid from an IRA, the trustee must withhold what percentage of taxes?
0% There is no withholding requirements for IRAs; the 20% withholding is for distributions from qualified plans
121
Which of the following standards is NOT listed in the CDFA Code of Ethics and Professional Responsibility? Integrity, Scope, Confidentiality, Honesty
Honesty
122
Which of the following tax carryfowards affects the basis of an asset upon transfer in a divorce? Capital Loss, Net operating loss, passive activity loss, investment interest expense
Passive Activity Loss
123
A CDFA professional's work product is never protected by attorney-client privilege when working in which role?
Pro se divorce
124
What were the spousal support recapture rules designed to prevent?
Excess front-loading of spousal support
125
Why did the IRS want to reclassify spousal support as child support?
To prevent a property settlement from being disguised as child support
126
Which of the following recognizes common law marriage? Illinois, New York, Maryland, District of Columbia
District of Columbia
127
Which states recognize common law marriage?
Colorado, Iowa, Kansas, Montana, New Hampshire, South Carolina, DC, and Texas
128
Considered income for purposes of contributing to IRAs
Spousal Support
129
Which of the following payments is NEVER taxable? Social Security benefits, Unemployment benefits, Child support, Spousal support in pre-2019 divorce
Child support (Social Security is taxable in some instances)
130
Assume that Blake’s annual wages are $144,000 and he contributes $16,500 to his 401(k). Blake paid the following expenses: $5,760 for state and local taxes, $3,600 for real estate taxes, $8,600 for interest paid on his home mortgage, and $1,400 for donations. Assuming Blake files as a single person, how much is his federal taxable income?
$108,140:
$144,000-$16,500-
$5,760-$3,600-$8,600-
$1,400
131
According to statistics, approximately how many divorce cases use the "pro se" approach to settlement?
50%
132
If a qualified retirement plan is being transferred to a non-participant spouse pursuant to a QDRO, payment of a tax penalty can be avoided if a distribution is taken by the:
Non-participant spouse as a one-time opportunity.
133
Which of the following is a career asset? A car paid for with employee paychecks, unemployment benefits, golf club membership, UTMA college fund
Unemployment benefits (does not indicate the golf club membership is paid for by employer)
134
Mary is working as a CDFA professional for her client, Stephanie. Stephanie would prefer to pay only one person to do as much as possible for her. What can Mary do for Stephanie that would NOT be a conflict of interest with her duties as a CDFA professional? Provide financial planning advice, prepare her tax returns, testify as an expert witness, prepare a business valuation
Testify as an expert witness (CDFA cannot provide financial planning advice while acting as CDFA)
135
Childcare expenses for a child without disabilities can qualify for the tax credit for child and dependent care expenses as long as the child is no older than:
12 (13 if the child is disabled)
136
How long does the IRS have to perform a random audit of a joint tax return?
3 years
137
How long does the IRS have to audit a joint tax return when fraud is involved?
Anytime.
138
How are capital loss carryforwards allocated between a divorcing couple?
Losses on separately owned property belong to the spouse that owned the property.
139
Distributions of non-deductible IRA contributions after age 60 are subject to what taxation?
Applicable state and local income taxes
140
Distributions of deductible IRA contributions after age 60 are subject to what taxation?
Applicable state , local and federal taxes
141
Distributions of pre- tax contributions from 401(k) plans after age 60 are subject to what taxation?
Applicable state , local and federal taxes
142
Distributions of after-tax contributions from 401(k) plans after age 60 are subject to what taxation?
Applicable state and local income taxes
143
What best describes the relationship between child support and spousal support?
As spousal support increases the need of child support usually reduces and the two tend to have an inverse relationship.
144
How do you calculate FV for life insurance needed to protect a SS or CS order?
Same as Pensions but only step 1
145
Identifying career assets usually requires investigation. Which of the following sources of information is the LEAST likely to help identify career assets? Employment contract, Benefit booklet acquired from the HR department, A review of the last three years' tax returns, Paystub
Paystub. Career assets are only likely to be reflected on a paystub if there has been action such as a stock option exercise, the other three options are more likely to provide assistance in locating career assets.
146
You are hired as a CDFA® professional by Mindy. Her main concern is to make sure that she is able to pay her basic bills in the short term without giving up on her long term goals. Which of the following would you recommend for her to do first? Ask Phil for more spousal support for a shorter period of time, Refinance the house and take some equity out, Take substantial equal periodic payments from her retirement accounts,
Go back to school and become a doctor
The best alternative to help meet her immediate concerns is to receive more alimony for a shorter period of time until she is able to open the bakery and become self sufficient.
147
What kind of debt is debt that has been incurred by one spouse on a joint credit card, after filing for divorce?
Marital debt and both spouses are legally liable.
148
Ray and Sandy bought a vacation cottage 15 years ago for $400,000. Before their divorce was final, they sold the vacation cottage for $180,000. The sale's costs total $30,000. What is the tax consequence of the sale?
There will be no tax effect. There is no capital loss or deduction for a loss on personal property.
149
What happens when an annuity contract is assigned pursuant to a divorce decree?
The recipient spouse gets the transferor's investment in the contract
150
Sam's 401(k) is worth $3,200. His employer matches $.25 for every $1 that Sam contributes within the confines of the plan. Sam is 40% vested. What is the amount that Sam should include on his financial affidavit?
$2,816. The employee contribution is $2,560 and the employer contribution is $640. Apply the vesting percentage to the employer contribution (640*.40) and you add the product(256) to the employee contributions.
151
A qualified joint and survivor annuity (QJSA) in Mark’s defined benefit plan provides that, at his death, his surviving spouse will receive a monthly annuity equal to 50% of the reduced monthly amount payable to the participant before his death. Is this the only form of benefit available to Mark’s soon to be ex-wife, Cindy, if he dies in retirement?
No; the QDRO may stipulate a different benefit, especially if a separate interest in the plan has been established for Cindy.
152
What will the Department of Labor (DOL) do with a recipient's unemployment benefits when he or she has an outstanding child support payment?
The DOL will deduct the child support payments, then send the recipient the remaining unemployment wages
153
Which legal fees incurred during a divorce are deductible?
Attorney fees for tax advice.
154
Gerry lives in an equitable distribution state. He inherited $300,000 before he married Betty. At that time, they put all their assets in joint names. Now they are getting divorced and the account is worth $410,000. What is the value of the marital property? $110,000, $205,000, $300,000, $410,000
$410,000; because put into a joint account
155
Tammy received a gift from her father of $8,500 after he sold the family cabin. She put it into a joint savings account with her husband. Now, Tammy is getting divorced and the savings account is worth $13,200. What is the value of the marital property? $0, $4,700, $8,500, $13,200
$13,200; When the account was titled in joint name it was a presumptive gift to her husband.
156
What is the penalty for a premature distribution from an IRA account?
10%
