Certification Exam Review Flashcards
TAX SECTION REVIEW
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.
IRC §1041
TAX SECTION REVIEW
IRC §1041 - Spouse
Spouse. No gain or loss is recognized on transfers of property during
marriage. This rule covers transfers at any time during marriage,
whether or not the spouses are contemplating a divorce.
TAX SECTION REVIEW
IRC §1041 - Former Spouse
Former spouse. A transfer of property is incident to a divorce if:
* 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
TAX SECTION REVIEW
Exceptions to Non-Recognition
There are two major exceptions to the non-recognition rule:
It does not apply if one spouse is a nonresident alien; and
It does not apply to a transfer of services.
TAX SECTION REVIEW
Recapture Provisions
Expensing election recapture. The owner may elect to deduct the cost
(expense) of certain types of trade or business property in the year the
property is purchased, subject to certain limitations based upon the cost of the property and trade or business income [IRC §179].
IRC § 6015: Innocent Spouse Rule
Provides tax liability relief for a spouse who signs a joint tax return and has no knowledge of the understatement of tax. In order to qualify, the following requirements must be met:
That a joint return was filed.
* There was an understatement of tax attributable to erroneous items from one spouse filing the joint return.
* That in signing the return, the innocent spouse did not know, and had no reason to know, and there was an understatement of tax.
* That taking into account all of the facts and circumstances, it would be inequitable to hold the innocent spouse liable for the deficiency in tax.
* The innocent spouse elects the benefits no later than two years after the date the IRS has begun collection activities with respect to the individual making the election.
IRC § 32: Earned Income Tax Credit
This section of the IRS Code states that the custodial parent is entitled to increased earned tax income credit if he or she has a qualifying child and meets the requirements.
IRC § 71- Alimony Rules Pre-2019
ENDLESSLY ANNOYING TO ME HOW MANY ?s THERE ARE ABOUT THIS
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.
These payments can be treated as alimony for tax purposes if:
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.
IRC § 72(t)2(c)
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. The distribution would still be subject to ordinary income tax and the custodian must withhold 20%
Abandoned Spouse Rule
This section of the IRS Code states that a spouse is considered abandoned when all of the following conditions are met:
* The abandoned spouse pays more than half the cost of maintaining his/her household
for the taxable year.
* The individual files a separate tax return.
* The individual’s household is the principal home of a dependent child for more than six months of the tax year and the individual is entitled to claim the dependency
exemption (even if no claim is made).
* The individual lives in a residence separate from his/her spouse for the last six months of the tax year.
Social Security Offset
If you receive a pension from government employment that was not covered by Social Security, then any Social Security benefits you receive based on your spouse’s Social Security contributions (either as a spouse, widow, or widower) will be reduced by two-thirds of your government pension. Thus, the Social Security benefit is reduced $2 for every $3 of the government pension.
Formulas - Pension Evaluation
The amount needed to fund the payments = FV
N = years from 65 to life expectancy x 12
I = Interest rate / 12
PMT = monthly pension payment
FV = 0
PV = the value of the pension at 65
Formulas - Present Value
The amount needed to fund the payments = FV
FV = answer from above
I = interest rate (do not use inflation adj.)
PMT = 0
N= number of years until age 65
PV = the present value
Inflation Adjusted Interest Rate
(1 + 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒
/ 1 + 𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒
− 1) 𝑥 100
= 𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑎𝑑𝑗𝑢𝑠𝑡𝑒𝑑 𝑖𝑛𝑡𝑒𝑟𝑒𝑠t
Where should child support and maintenance be listed on the financial affidavit?
a) Child support should be listed as a living expense to the payor on the
financial affidavit.
b) Maintenance should be listed as a living expense to the payor on the
financial affidavit.
c) Both maintenance and child support should be listed as a living expense by the payor on the financial affidavit.
d) Neither maintenance nor child support should be listed as a living
expense by the payor on the financial affidavit
These expenses would be listed separately, and not included in
living expenses.
