Chapter 4 Flashcards
Gain is only recognized on an exchange of “like-kind” property for the lesser of
the amounts of “gain realized” or the amount of “boot” received in the exchange
When dealing with small corporations, how much stock must a shareholder own for them (shareholder and corporation) to be considered related parties?
more than 50%
A reorganization is tax free
no gain or loss is recognized. the new basis is FMV-realized gain
Under the “Ultramares” rule, to which of the following parties will an accountant be liable for negligence?
parties under privity
What is the installment method for gains
The installment method is a method of accounting enabling a taxpayer to spread the recognition of gain on the sale of property over the payment period. Under this procedure, the seller computes the gross profit percentage from the sale (i.e., the gain divided by the contract price) and applies it to each payment received to arrive at the gain to be recognized.
Explain capital gains tax
Since both of the installments were received after May 5, 2004, and the property sold was held more than 12 months, both installments are taxed at the 15% capital gains rate. Thus, the capital gains tax is $9,000 ($60,000 × 0.15).
A security interest for consumer interests is perfected upon
attachment if the seller lends the buyer funds to purchase the goods.
Under the position taken by a majority of the courts, to which third parties will an accountant who negligently prepares a client’s financial report be liable?
Any foreseen or known third party who relied on the report
Contract rights may be
transferred, just as any other property, and such a transfer is called an assignment. The assignee need not have been a party to the original contract. In the assignment of rights, no particular form of assignment is necessary—it may be oral or in writing as long as there is a manifestation of the intent to transfer such rights. In the question scenario, there have been no attempted assignments of a personal service, personal credit, trust or confidence. The assignment has not materially varied the duty or the risk of the obligor (the person who still must perform).
If you own more than 2% of a s corp
you included the health premiums in income
What is a lookback rule?
The taxpayer is required to recalculate the annual profit reported on a contract.
In other words, it requires the taxpayer to substitute the actual costs and revenues for the estimated revenues and costs used in the percentage-of-completion method.
carry forward charitable contributions
can be carried forward for 5 years
The statute of frauds is
Certain contracts must be in writing and signed by the party to be charged in order to be enforceable. The writing need not be formal; a signed memo or several writings (e.g., letters) may be sufficient.
The statute of frauds applies to the following:
1) The sale of goods having a value in excess of $500
2) A contract that will not be performed within ONE year of the signing.. IF CAN BE COMPLETED IN ONE YEAR, ORAL IS FINE.
3) The sale of real property or of securities
4) The promise to answer for the debt of another
What is parole evidence?
All preliminary negotiation should have been merged into the writing. Oral can not amend what is written.
Can parole evidence be used without a written contract
no, needs to be in writing
if more than 40% of the depreciable personal property is acquired in the last quarter of the year, what kind of depreciation convention is used?
the mid-quarter convention is used for all personal property acquired that year.
Dividend income
is not part of business income
Capital losses may be
carried forward 5 years and back 3 years
The Securities Act of 1933
is a federal statute regulating the initial public offering (IPO) and private placement of securities. It creates liability of the seller (the company and all officers, directors, etc. and experts, including accountants, associated with the financial statements and the offering) to all third-party purchasers of the securities.
Net capital losses are deductible to arrive at AGI but limited to
$3,000 per year for individuals with the remaining carried over to future years.
The Ultramares rule states that a third party that proves gross negligence does not have to have
privity of contract or a direct contractual relationship with the CPA. The rule of privilege refers to the attorney-client privilege.
Incidental beneficiaries are not parties to the contract.
a
Scienter refers to
the knowledge of a falsity, knowingly acting with malice or evil intent. It is an essential element of fraud that must be proven to impose liability.
For alternative minimum tax purposes, unreimbursed medical expenses must exceed
10% of adjusted gross income in order to be deductible.
The basis of property acquired by gift when it is subsequently sold at a loss is the lesser of
(i) the donor’s basis or (ii) value at the time of the gift.
A corporation’s dividends-received deduction (for dividends from unrelated domestic corporations) is
70% of the lesser of the dividend received or taxable income before the dividends-received deduction. A special rule applies if the deduction creates or increases an NOL.
Simple negligence
d
A corporation’s tax year can be reopened after all statutes of limitations have expired if the corporation
prevails in a determination allowing a deduction in an open tax year that was taken erroneously in a closed tax year.
A 50% nonfraudulent omission from gross income
has a 6 year statute of limiatation
