Consolidated Flashcards
Amortization - Sec 197 SL intangibles
e.g. covenant to compete, customer list, trade name, goodwill, licenses, trademarks, brand equity, intellectual property, franchise, trade secrets, copyrights, market knowledge, social media presence
full month convention in the month of acquisition and in the month of disposition
180 months or 15 years
Nonresidential real property
39 years (mid-month)
Residential real property
27.5 years
Syndication costs - e.g. stock filing
Not amortized
Section179 Deduction, phase out (tangible personal property)
(The cost of the asset may be deducted under either Sec 179 or as depreciation, but not both. There is no difference in the total amount that is deductible over the life of the asset).
Rankings
1. 179 first
2. Bonus dep
3. MACRS
max - 1220000
Phase out limit - 3050000
*Corps may elect to take Sec 179 deduction
*Real property (except qualified real property IMPROVEMENTS) is generally NOT eligible for Sec 179 ded
*Sec 179 deduction may be reduced based on total purchases
** It’s NOT allowed if there is a loss.
Office building not eligible for 179 expense , just fire alarm system inside office building or non-residential property only (firm alarm system inside residential building is not eligible for 179 expense)
Bonus Depreciationis 60% in 2024
20 year or less recovery period
(doesn’t apply to related party sale, doesn’t apply for personal use property, doesn’t apply to gift or inheritance)
Gift - basis for sale of shares
take carryover basis of donor
Greater than 40% but less than 50%
SUBSTANTIAL (Undisclosed position)
More than Likely (than not standard)
Greater than 50%
Reasonable basis standard
Greater than 20% (Disclosed position)
Annualized income method
Large corporation
Taxable income was more than 1mn or more for the last 3 years
Personal Holding Tax
(Personal holding company income = ROYALTIES + DIVIDENDS +TAXABLE INTEREST NOT bonus, NET RENT if less than 50% of ordinary gross income)
PHC includes consent dividends
PHC is a type of C corp that primarily generates income from interest, dividends or royalties and should be owned by 5 or fewer individuals with 50% or 60% of its income coming from investment income. - check % in BECKER. PHC is not subject to SE tax as it’s max income is derived from Inv Income which is passive income and is not considered as SE income. Shareholders may be subject to SE tax if they r treated as self- employed and not employees (rare scenario)
50% owned by 5 or fewer
(Personal Holding co. status applies if a corp is owned more than 50% by 5 or fewer individuals at any time during the LAST HALF OF THE TAX YEAR and at least 60% of the adjusted ordinary GROSS INCOME for the tax year is PERSONAL HOLDING COMPANY INCOME (which would include income from investments in stocks and securities).
AAA can be imposed (regardless of the number of the stockholders in the corporation) on PSC not on PHC ,
Minimum accumulated earnings credit
The additional Accumulated tax rate is flat 20%
limit $250,000
Accumulated Earnings Tax
Penalty tax imposed ONLY on C CORP
Max $250,000 lifetime acc earning
Personal service corp - max $150,000
Foreign income taxes paid by a corp
can either be claimed as a credit or deduction
Tax Return Preparer Compliance Penalties
Disclosed Position Reasonable basis standard Greater than 20%
Undisclosed position Substantial Authority Standard 40-50%
Listed/reportable transaction More likely than not standard >50%
Disclosure forms
1. Form 8275- if not contrary to U.S. Treasury Regulations
2. Form 8275-R, if contrary to U.S. Treasury regulations
543000 Book Income
-20000 Dep
-25000 Int Earned on municipal bonds
10000 Fines (not deductible)
36000 rental income
544000
380000 Book Income
-50000 Municipal Bond Int
170000 Fed Income tax expense
2000 Int expense on debt incurred
502000
Student loan interest - $2500, subject to phase out
Married taxpayers must file jointly to qualify
Loan is used to pay for the qualified higher educated expenses (e.g. tuition, fees, room, board) of the taxpayer, spouse or a dependent (at the time the debt was incurred).
Student - enrolled on at least a half-time basis.
Rental real estate loss
50% of (AGI - 100,000)
25,000 of rental real estate loss can be deducted against income that is not from passive activites if the taxpayer ACTIVELY participates in the RENTAL REAL ESTATE ACTIVITY.
Long-term care insurance PREMIUMS on qualified policies - DEDUCTIBLE
PREIMUMS on life insurance and disability insurance - NON DEDUCTIBLE
Tax Shelter (listed or reportable transaction)
Disclosed position = Reasonable std >20%
Undiscosed position (substantial
More likely than not (50% or not)
The first $50,000 of GTL provided by an employer is a non-taxable fringe benefit.
=(200000-50000) * 2.76
___________________
1000
Deduct upto $25k loss against nonpassive income (25k is first reduced by 50% of MAGI over $100,000)
only when actively participate in the activity and own at least 10% interest
Charitable deduction for art object is limited to _________
excess of cost over its FMV (e.g. 1200-800)
1200 = cost
800=FMV
US District court
hears before one judge (and not panel)
PLR
Related to a specific taxpayer for particular tax issue e.g. for heavy transactions
TAM is requested by ____________
IRS Agent typically during IRS AUDIT only on closed transactions
Ultramares decision
only
Scienter
Intention to fraud
KEOGH (defined contribution plan) Contribution limit
E.g. $225,000 = net self-employment earnings
Annual contribution limited to the LESSER of:
- 20% of net self-employment income before the deduction
- annual limit ($69,000 in 2024)
- 100% of earned income
Worthless debt, non-business bad debt = ST
Inheritance = LT
Sec 1231 gain = LT capital gains
Sec 1231 assets, held >1 year and used in trade or business = LTCG
Net Loss = Ordinary loss
Gifts = Holding period of donor (long-term or short term)
Capital Asset = Assets held for Investment
E.g. Stocks, Bonds
Vincent gave to the municipal art museum title to his private collection of rare books that was assessed and valued at $60,000. However, he reserved the right to the collection’s use and possession during his lifetime. For the current year, he reported an AGI of $100,000.
Vincent is not entitled to a charitable deduction for the CY because he did not give up his entire interest in the book collection.
5 ELEMENTS under common law FRAUD(MAIDS)
- Misrepresentation of material fact
- Intent to deceive or SCIENTER
- Actual and justifiable by the plaintiff on the misrepresentation
- An intent (also known as scienter by yhe defendant to induce the plaintiff’s reliance on the misrepresentation) Intent to induce RELIANCE
- Damages
ELEMENTS OF NEGLIGENCE
- proximate cause
- Inury or damages
- Breach of duty of care was the actual and proximate cause of the plaintiff’s losses
Subpoena
A subpoena is a legal document that orders an individual to appear in court or produce documents or evidence in a legal proceeding. There are two main types:
Subpoena ad testificandum: Requires a person to testify.
Subpoena duces tecum: Requires a person to produce documents or records.
If someone receives a subpoena, it’s important to comply with it or seek legal advice, as failing to do so can lead to penalties.
Contribution to traditional SELF-EMPLOYED retirement plan (SEP IRA PLAN) is permitted as a ___________
deduction to arrive at AGI. (adjustments for AGI)
Painting (property)held for more than 1 year (higher of FMV or basis), subject to 30% AGI limit.
e,g, Basis 500, FMV 2000
AGI = 90000
Cash is subject to 60% AGI limit
Charitable contribution = 2000
Limit = 30% of AGI, 27000
RULES for property acquired by GIFT
- The general rule for the basis of property acquired by gift is a carryover of basis from the donor.
- If an asset is acquired by gift and the FMV on the date of gift is lower than the donor’s carryover basis, the recipient’s basis cannot be determined until the asset is disposed of.
- The basis of an asset that is purchased must be adjusted for depreciation allowable.
**If the alternate valuation date is elected, the basis may be different than the general rule
Types of DEFENSES: Fraud
M - Misrepresentation of Material Fact by Defrauding Party
A - Actual and Reasonable Reliance
I - Intent to Induce
D -Damages
S-Seinter
Death (distribution of stock etc.)
FMV at the time of death or AVD whichever is earlier
UCC
Sale of goods e.g. sale of used car
Express Warranty
Basis of bargain between buyer and seller
REPLEVIN
Replevin is a legal action that allows a person to recover personal property that has been wrongfully taken or withheld from them. The primary purpose of replevin is to restore possession of the property to its rightful owner, rather than to seek monetary damages.
In a replevin action, the plaintiff must typically demonstrate that they have a superior right to possess the property and that it is being unlawfully held by another party. If successful, the court can order the return of the property, sometimes even before a full trial if the plaintiff can show a strong case.
ANTICIPATORY REPUDIATION
e.g. Lark, CPA repudiates the contract if Lark repudiates the contract prior to the date performance is to begin.
Anticipatory repudiation occurs when one party to a contract clearly indicates, either through words or actions, that they will not fulfill their contractual obligations before the performance is due. This gives the other party the right to treat the contract as breached and seek remedies, such as damages or cancellation of the contract. Essentially, it’s a way for a party to protect themselves from potential loss when they foresee that the other party won’t perform as promised.
UCC does not provide _______
PUNITIVE DAMAGES
Kiddie tax - 1300 std dedn, same amount to be taxed at parent’s rate and remaining at child’s rate
or Dependent child’s unearned income above $2,600 is taxed at the parent’s marginal tax rate
Std deduction is greater of $thirteen hundred or earned income of the dependent + $400
e.g. dependent who receive wages of $3,000 in 2024 would have a basic std deduction of $3,000 +400 = $3,400
Income test for Qualifying relative - gross income (excluding social security benefits) must be less than_______________
$5,050 for 2024
Cash method allowed for small businesses (including Partnerships and Corporations) that have average annual gross receipts of $30 mn or LESS for 2024 during the preceding 3 years (may use COMPLETED CONTRACT METHOD) =UNIFORM CAPITALIZATION RULES
Over or MORE THAN 30 mn during the preceding 3 years = ACCRUAL METHOD must be used
Qualified Adoption Expenses paid by employer upto ____________
$16,810 for 2024; phase-out applies
Preferential tax rates for Qualified DIvidends and LTCG tax rates
Qualified Dividends/CG Rate
SINGLE MFJ
0% 0-47,025 0-94,050
15% 47,025-518900 94051-583750
20% 518900 583750
Transportation expenses - actual expenses or standard mileage rate @ ___________
0.67 per business mile plus parking upto $315 per month and tolls for 2024
NOL Deduction - $305k/610k for 2024. Apply this limitation after _______
NOL is computed ?
FEIE
126,500 for 2024
IRA Deduction - contribution $ limit for 2024 - $7,000 ($14,000 if MFJ)
Additional $1,000 allowed for 50+ age
Phase out limits always on MODIFIED AGI
Traditional Deductible IRA
77k-87k
123k-143k for MFJ
ROTH IRA
$146-$161k
$230-240k for MFJ
FICA - Social security @6.2% for employer plus 6.2% for employee on _________________________
max $168,600 for 2024
HSA Contribution limit upto $4,150/ 8,350 for single/family for 2024 +__________________
+ $1000 for age 55 years or older only if covered under high deductible HDHP which has >1,600 for self-coverage and $3,200 for family
Educator expenses
Upto $300 to elementary and secondary school teachers
Medical and Dental Expenses
Threshold = 7.5% of AGI for 2024
Travel cost for medical care @actuals or 21 cents/mile for 2024
Deductible out of pocket costs for volunteer services, transport only __________________
from home to site at actuals or $0.14/mile plus toll and parking.
*QBI deduction that exceed the threshold $383,900 for MFJ , $191950 for single = 20% of QBI and SSTB (W2 wage and property limitations do not apply)
*Above phase in range OVER $483,900 for MFJ; $241,950 single = No QBI deduction
AGENT acts on behalf of PRINCIPAL ______________
e.g. Attorney (
No consideration is required in _________
Agency
Agencies coupled with interest are __________
irrevocable
Both apparent and actual authoirty are terminated by Principal’s _________
Death
Warrants are rights to buy stocks and considered as part of _________
Equity Securities
ONLY S corp and Partnership issue K-1
C corp issues Form 1099-DIV and Form 1099-B (and NOT k1)
Wages do not affect basis in S corp
True
S corp cannot acquire
C corp
A general partner may be a creditor of the _____________
LIMITED Partnership
Entertainment expense is not deductible in S corp as per _______
LAW (6 GHE
NERTIONS)
CHAPTER 7 LIQUIDATION: TRUSTEE Appointed
CHAPTER 13: Adjustment of Debts of Individuals with Regular Income (Trustee)
Chapter 11 Reorganization: No Liquidation, Trustee NOT Required
Chapter 15: Ancillary and Cross-Border Cases
INVOLUNTARY BANKRUPTCY REQUIREMENTS (Chapter 7 and 11)
Lack of payments = Creditors must show debtor is not paying debts as they become due
Debt = UNSECURED creditors filing the petition must have claims of $18,600 or more and if:
12 or more creditors, 3 or more must sign petition or
Fewer than 12 creditors; only 1 must sign petition
Medicaid is a ____________
state run program and is not included in SSB
Social Security benefits typically include:
Retirement Benefits: Monthly payments for individuals who have paid into Social Security during their working years.
Disability Benefits: Financial assistance for those who are unable to work due to a qualifying disability.
Survivors Benefits: Payments to eligible family members of deceased workers who qualified for Social Security.
Supplemental Security Income (SSI): Financial support for individuals with limited income and resources who are aged, blind, or disabled.
Medicare: Health insurance for people aged 65 and older, and for some younger people with disabilities.
Family Benefits: Benefits for spouses and children of workers, which can include spousal benefits and benefits for dependent children.
Not subject to FICA
Capital gain, dividends and Int on municipal bonds
(Car received as productivity award is sub to FICA)
Funding from FICA (Federal Insurance Contributions Act) contributions is provided to assist qualifying individuals in the following groups:
Retirees: Individuals who have reached retirement age and have paid into Social Security during their working years.
Disabled Individuals: People who are unable to work due to a qualifying disability and meet specific criteria.
Survivors: Family members of deceased workers, including spouses and dependent children, who qualify for benefits based on the deceased’s work history.
Low-Income Individuals: Those who qualify for Supplemental Security Income (SSI), which assists aged, blind, or disabled individuals with limited income and resources.
The type of business entity where ownership is most freely transferable is a _____________.
In a corporation, ownership is represented by shares of stock, which can be bought and sold on the open market if the corporation is publicly traded. This allows for easy transfer of ownership without needing to dissolve the entity or involve other partners.
corporation.
In contrast, ownership in partnerships or sole proprietorships is generally less transferable, as it often requires the consent of other partners or may involve more complex legal processes.
Appraisal remedy
It refers to a legal process that allows dissenting shareholders to obtain an independent valuation of their shares when they do not agree with a merger or acquisition decision.
R&D expenditures
Capitalize and amortize R&E costs over 5 years
Corp’s capital loss carryback or carryover is____________
Always treated as ST Capital loss
Carry back 3 years
Carry forward 5 years
Ch 11 reorganization
available to
1. INDIVIDUALS
2. PARTNERSHIPS
3. CORPORATIONS eligible under Ch 7 liquidations
Creditors’ committee is formed, and the committee consists exclusively of unsecured creditors. SECURED creditors are prohibited from serving on the creditors’ committee.
Debtor has upto 18 months to submit a reorganization plan to each class of claims (e.g. secured and unsecured creditors_. The plan must be approved by a creditor vote of at least 2/3 of the DOLLAR amount of all creditor claims and more than 1/2 of the NUMBER OF CLAIMS in each class.
MUST OCCUR BEFORE THE COURT MAY CONFIRM A REORGANIZATION PLAN - Include a provision in the plan for full payment of administration expenses.
Ch 7 - Debts not discharged in Bankruptcy
- Alimony and Child support
- New consumer debt incurred within 90 days before filing for bankruotcy
- Debts incurred due to fraud, embezzlement or willful and malicious acts
- Unscheduled/unlisted debt (i.e. not listed in bankruptcy petition)
- Tax claims incurred within 3 years before filing bankruptcy
The person can obtain another Ch 7 bankruptcy claim after 8 YEARS have elapsed from the date of prior filing.The debtor must SURRENDER certain property received within 180 days after petition is filed. This property includes:
1. Inheritances
2. Life insurance proceeds
3. Divorce property settlements (payments to divide marital property not alimony)
FUTA and FICA
SOC SEC + MEDICARE (half provided by employee, half provided by employer)
FED AND STATE UNEMPLOYMENT TAX + WORKERS’ COMPENSATION (all paid by EMPLOYER and none by EMPLOYEE)
*A business must file a FUTA return if it employed, for a portion of at least 20 WEEKS, at least 1 person (part time or full time) or
*Paid $1500 or more in wages to employees in any quarter
Ch 7 VOLUNTARY BANKRUPTCY
- Debtor files the petition
- No need to prove insolvency
- Creditors don’t sign the petition
- Order of relief issued immediately
- Open to individuals and most entities
- Allowed in Chapters 7,11 and 13
CH 7 INVOLUNTARY BANKRUPTCY
- Creditors file the petition
- Must show debtor not paying debts
- 1 to 3 creditos must sign petition
- Order of relief delayed until court hearing
- Open to individuals and most entities
- Allowed in Chapters 7 and 11
Ch 13
Debt restructure/adjustment (Voluntary only)
In general, individuals need to have regular income along with other specified requirements.
Ch 9
reserved exclusively for MUNICIPALITIES that need bankruptcy debt relief
Ch 12
FAMILY FARMERS, family operated FARMS. allows for farmer/debtor to retain all property and pay creditors out of future income.
Stops the enforcement of a judgement lien in involuntary petition in Bankruptcy
A judgment lien is a legal claim against a debtor’s property, typically real estate, that arises when a court rules in favor of a creditor. This lien secures the creditor’s right to be paid from the proceeds of the sale of the property.
Ultravires act
The term “ultra vires” is a Latin phrase meaning “beyond the powers.” In a legal context, it refers to acts conducted by a person or an entity that are beyond the scope of their authority as defined by laws, regulations, or governing documents.
In corporate law, for example, if a corporation takes an action that is not permitted by its charter or articles of incorporation, that action may be deemed ultra vires and therefore invalid. This doctrine is meant to protect the interests of shareholders and ensure that companies operate within their designated purposes.
The concept can also apply to government actions or other organizations where an authority exceeds its granted powers. I
Cumulative preferred stock
Cumulative preferred stock is a type of preferred stock that includes a provision requiring that any unpaid dividends accumulate over time. If a company fails to pay dividends in any given period, those dividends will accumulate and must be paid out to cumulative preferred shareholders before any dividends can be distributed to common shareholders.
DISSENT
“Dissent” refers to the expression of opinions or beliefs that differ from those commonly held or officially endorsed. It can manifest in various contexts, such as:
Legal Context: In judicial terms, dissent refers to a judge’s disagreement with the majority opinion in a court ruling, often accompanied by a written explanation.
MFJ Cannot be filed if TP and SP have different _____________
Tax Years
Bankruptcy
Liabiltiies from breaches of contract, whether intentional or not, are DISCHARGEABLE in bankruptcy
Debtor does have the right to retain its own accountant. The debtor does not have the right to be compensated in the same manner as a Trustee. The debtor has the right to continue managing and operating the business.
RANKING OF claims from HIGHEST PRIORITY to LOWEST priority
- SECURED creditors with perfected security interests - first priority claim
1(a) UNSECURED creditors (ALIMONY)
1(C) Unsecured creditors- CLaims that accrue in the ordinary course of business after an involuntary petition is filed but before the order for relief or appointment of a trustee ( involuntary case gap claims)
1(d) (wages earned within 180 days prior to the filing)?
- Trustee ADMINISTRATION COSTS
- Payroll claims
- Tax claims or Federal tax claims (check SIMS)
- Consumer deposits for goods ordered but not received
MEANS AND MEDIAN TEST
?
A voluntary bankruptcy proceeding is available to consumer debtors who makes less than the dollar limits established under the _______________
MEANS test
An entry of an order for relief by a bankruptcy judge is a formal decision that initiates bankruptcy proceedings for a debtor. It means that the court has granted the debtor relief from creditors, allowing them to reorganize their debts or liquidate assets.
It marks the start of the bankruptcy process, putting certain protections in place, such as the automatic stay, which prevents creditors from pursuing collection actions during the bankruptcy process.
DEATH or BANKRUPTCY of a GENERAL PARTNER in a limited partnership will cause ____________
DISSOLUTION of the limited partnership. (However, it’s not true if the opposite happens if a limited partner dies or goes bankrupt).
ATTACHMENT (PIG) occurs after ALL 3 conditions are met:
- Property (ie. collateral) owned by debtor (i.e. has rights)
- Interest in the collateral created by either
(a) signed security agreement or
(b) Taking possession (writing not required) - Giving value to debtor (present or past)
*File security agreement within 20 days of sale to protect against DOTS
PERFECTION (Occurs after ANY one of the three): (FAT acronym)
- Filing a financing statement
- Automatic perfection (i.e. purchase money security interest or PMSI)
- Taking possession of collateral (writing not required)
A PMSI applies in situations where someone who sells consumer goods (e.g. merchant) sells goods on credit
Creditor’s actions that release a surety
- Fail to disclose negative information about debtor
- Change original agreement
- Extend due date (must be material for compensated surety)
GUARANTEED Payments does not affect __________ but are considered in ORDINARY INCOME CALC
(Guaranteed payments represent taxable income to the receiving partner and are reported SEPARATELY on the partner’s FORM K-1.
Guaranteed payments are allowable tax deductions to the partnership, provided they are payments for services rendered or the use of capital without regard to partnership income or profit and loss sharing ratios.)
basis (NO IMPACT)
Distributions (IT’S NOT CASH OR INCOME TO THE PARTNERS OR SHAREHOLDERS) does not affect ____________
Taxable Income (only the basis)
Distributions should NOT be included in Partnership Ordinary income /Loss
only DIRECT LOAN to Corp creates________
________________DEBT BASIS (guaranteed Machine’s corp debt is not counted as Loan) but when they actually loan it that counts as debt basis
DRD - when does it apply?
C corp
<20% = 50% deductible
<80% = 65% deductible
>80%=100% deductible
The Dividends Received Deduction (DRD) applies to corporations that receive dividends from other corporations in which they own stock. The purpose of the DRD is to mitigate the potential for triple taxation: once at the corporate level when income is earned, once when dividends are paid to shareholders, and again when the dividends are received by another corporation.
The DRD applies to domestic corporations that receive dividends from other domestic corporations, not to individuals or foreign entities. The deduction is available to reduce taxable income and, thereby, the corporation’s tax liability.
No FINANCIAL STATEMENT - upto 2500
If they have financial statement, take entire as dedcution - paid upto 5k each . 12000 paid for 3 pieces of furnitu
e.g. 3 items 4k each , cannot expense anything as exceeds $2500 limit
niece doesn’t need to live with the taxpayer to be eligible for qualifying relative
NIECE = QUALIFYING RELATIVE
A C corp or Partnership cannot be a shareholder in an S corp, but an S corp can be a shareholder in a C corp or Partnership
Chatgpt:
No, a C corporation cannot be a shareholder in an S corporation. This restriction is outlined in the Internal Revenue Code (IRC), specifically Section 1361, which governs the eligibility requirements for S corporations.
Reason:
The key reason a C corporation cannot be a shareholder in an S corporation is because of the S corporation eligibility rules, which are designed to maintain the S corporation’s status as a pass-through entity for tax purposes. The rules prohibit certain types of entities from being shareholders in an S corporation, including:
C corporations
Partnerships
LLCs taxed as partnerships
Non-resident aliens or foreign entities
The restriction ensures that the income of an S corporation continues to pass through to individual shareholders (who are subject to individual income tax rates), rather than being taxed at the corporate level. If a C corporation were allowed to be a shareholder, this would create complications, as C corporations are subject to corporate-level taxation, and allowing them to hold S corporation shares could disrupt the flow-through tax treatment that is central to the S corp structure.
Key Points:
S Corporation Requirements:
S corporations can only have eligible shareholders. These include:
Individuals (U.S. citizens or resident aliens)
Estates
Certain types of trusts (e.g., grantor trusts, qualified subchapter S trusts (QSub), electing small business trusts (ESBTs))
C corporations are not eligible shareholders, meaning they cannot hold shares in an S corporation.
If a C corporation inadvertently becomes a shareholder of an S corporation, the S corporation could lose its S status and be taxed as a regular C corporation. This would happen automatically if the S corporation violates the eligibility rules by having ineligible shareholders.
IMPLIED in fact CONTRACT
Contract by conduct e.g. doctor prescribing medicines to patient.
IMPLIED-in-Law Contract or Quasi Contract
Gratutious surety is ___________
(family e.g. mother )
The principal is originally obligated to build a parking lot 148 feet by 90 feet. If the
principal and creditor agree to change the contract to a lot 138 feet by 90 feet,
a gratuitous surety is discharged. The risk has been varied.
But a compensated surety would not be
discharged, both because the change does not appear to be material and because it makes
performance easier (a smaller parking lot).
Unpaid surety
Extension of Time vs. Delay in Collection
If the principal debtor and creditor agree to extend time, the above rules apply (gratuitous
surety discharged; compensated surety discharged if the change is material and
increases risk). However, if the creditor does not agree to extend time, but rather merely
delays in collection, the surety is not discharged.
The right of subrogation __________
may permit the surety to assert rights he otherwise could not assert.
It can be asserted by a cosurety without including all other cosureties. Right of subrogation exists REGARDLESS of whether it is explicitly provided for in the surety agreement.
A third party beneficiary contract does not involve a ________
SURETYSHIP RELATIONSHIP
Prohibited from filing Ch 11 bankruptcy
Banks
Savings and Loans
Insurance companies
Stockbrokers
Under Sales Article of the UCC, the warranty of title ______________-
E.G. of contracts governed by the Sales Article of the UCC is A SALE OF A USED CAR BY A NONMERCHANT
provides that the seller deliver the goods free from any lien of which the buyer lacked knowledge when the contract was made.
Different tax year of TP and SP_________
Cannot file joint return (different accounting method - can still file joint return)
Guaranteed payments have __________
no impact on BASIS
SPECIFIC PERFORMANCE
Only applicable to Rare or Unique Property e.g. patent, real estate
RESCISSION
Cancel a contract and restore parties to original position
COUPLED WITH INTEREST
Only Agent can revoke
AGENCY agreement need not be in ________
(agent may withhold further performance)
WRITING
Both agent and principal are liable once principal ____________to the parties.
is disclosed
Duty to indemnify
Gratuitious agent (can only take care of property, CANNOT Commingle funds)
Guaranty must be in __________
writing (Statute of Frauds)
A Surety is primarily liable to ____________
(death or insolvency of the debtor is not the defense of the surety)
the creditor
_____________ between a debtor and its creditors will generally cause the debtor’s release from its debt.
Composition of creditors
(Assignment for the benefit of creditors is a transfer of some or all of a debtor’s property to a trustee who then uses the property to pay the creditors. There is no discharge of debts here because the creditors have not entered into any contract to take less than full payment unlike COMPOSITION OF CREDITORS.
Mechanic’s lien arises from IMPROVEMENTS made on REAL ESTATE (real property). An artisan’s lien arises from IMPROVEMENTS made to _________
personal property (moveable)
Both require notice to the owner of the property in most states.
A writ of attachment is an order by the court to sheriff to seize a person’s property. The writ can apply to personal property and real property and so the writ can be used even when a person owns no real property.
Garnishment is an order to a 3rd person who holds property of the debtor to turn the property over to a creditor. The property involved usually are wages and/or other property owed by the 3rd person to the debtor. There is no requirement that the property be the debtor’s real property.
Signed by the party being sued $500 or more
exceptions
S - specially manufactured goods
W-written confirmation between merchants
A - admission in courts
P - performance
UCC does not follow __________
mirror image rule
Where the seller is not the merchant and painting gets stolen after payment is made by the buyer ___
risk of loss with the buyer at tender of delivery (non merchant and where shipment contract is not involved)
Destination contract FOB
specified destination
FOB place of shipment
are delivered to the carrier
PERFECT TENDER DOCTRINE
If the goods at the time of the tender of delivery do not exactly conform to the requirments of the contract.
EXPRESS WARRANTY doesn’t require __________
that the seller select goods knowing the buyer’s intended use (just bargain basis)
Warranty of fitness
seller knows the particular purpose for which the buyer will use the goods and the buyer is relying on the seller to choose suitable goods
Warranty of merchantability
Implied warranty of Merchantibility - requires a MERCHANT SELLER
Mailbox rule only makes acceptances effective on dispatch
but revocations, rejections and counteroffers are effective only upon receipt
Common Law = Price is material (real estate or else the contract is void)
UCC = QUANTITY is material
Corps that are not small banks or thrift institutions are required to use ____________ rather than the reserve method.
DIRECT CHARGE-OFF
Land = charitable contribution
subject to 30% of AGI
If the debtor moves from one state to another, perfection in the first state generally is valid for
_________________ after the debtor moves to the second state. To maintain its priority, the creditor
must perfect in the new state within this four-month period.
four months
Even a non-relative can be a qualifying relative if the non-relative lives with the taxpayer ______________
for the whole year and taxpayer provides more than 50% of the SUPPORT
Ranking - Perfection / filing
Rank 1 - Buyer in ordinary course of business as long as the buyer has no knowledge or sale violating security agreement
Rank 2 - All abt perfection dates Perfected creditors - on the basis of date they filed or perfected
Within 30 days - cannot change fee as compared to the print media (newspaper, journal, etc.)
A sec int will automatically be perfected upon attachment only when creditor takes a __________
PMSI in consumer goods
__________________ written off are deductible for tax purposes as the allowance method or any other type of estimated bad debt methos is not permissible.
ONLY ACTUAL BAD DEBTS
DRD is allowed to minimize multiple taxation ONLY in case of ___________
C corp
Organization expense
- Expenses of temp directors and of org meetings
- Fee paid to the state of incorporation
- Accounting services incident to organization
- Legal services for drafting the corporate charter and bylaws
Subtract 5000 from Org exp to calc amortization or write-off amount
STate income tax expense are deductible expenses on the federal corporate income tax return and therefore ________________
no adjustment is required while calc Book to taxable income
A ________________includes any written or electronic advice concerning transactions specified by the IRS as listed transactions.
covered opinion
___________________ is an AGENCY concept that makes an employer liable for the actions of an employee done within the scope of employment.
RESPONDEAT SUPERIOR
BOTH civil penalties and fraud penalties can apply at the ___________
SAME TIME
(For the IRS to prevail in a case with a criminal penalty, the IRS must prove beyond a reasonable doubt that the taxpayer willfully and deliberately attempted to EVADE (not avoid) TAX.
RIBS
Ch 7 bankruptcy
Damages received for physical injuries, medical expenses paid due to physical injury and payments received from accident incurance policy for which insured paid the premiums (not tax deductible) are _____________from gross income
EXCLUDED
E.g. Employer reimbursmeent of college tuition expense of $8,000 _____
Upto $52,50 may be excluded from gross income for payments made by an employer on behalf of an employee for an employee’s educational expenses. Therefore, 5250 is excluded and is non taxable .
$8,000-$5,250 = $2,750 is TAXABLE for reimbursement of college tuition expenses.
Scholarship is excludable upto the amounts actually spent on tuition, fees, books and supplies
Room and board is taxable
SERIES EE bonds are taxable unless they were used to pay ___________
educational expenses
S corp election =
to be effective for the current year, the election must be made within the first 2.5 months of the current tax year
Family credit for qualifying dependents other than qualifyinf children
$500
Phase out is 400,000 for MFJ
200,000 for other filing status
PArtnership cannot be a shareholder in _________
S corp (only Individuals, Estates or Certain Trusts)
Automatic stay does not stop the collection of ___________
alimony
Automatic stay created upon filing a petition in bankruptcy stops any attempt by creditors to collect through the __________
garnishment of the debtor’s wages
The filing of an voluntary or involuntary petition in bankruptcy ________
stops the enforcement of all judgment liens and collection actions against the debtor (automatic stay)
A creditor must wait 120 days to file a plan unless a trustee has been appointed
CH 11 Federal Bankruptcy code
Post petition wages are excluded from the ___________
Estate
After a chapter 7 bankruptcy, the debtor may not obtain another bankruptcy for ________
8 years
NON-Dischargeable (add from Universal CPA) - WAFTED
- Willful and malicious injury
- Alimony
- Fraud
- taxes
- Educational loans
- Debts undisclosed in bankruptcy petition
Unemployment comp insurance and worker’s comp insurance are both paid by the ____________
EMPLOYER
A reorg plan under Ch 11 will not be approved unless the plan provides for the full payment of __________
admin expenses (and for full payment to certain under class of creditors)
Workers’ comp laws provide for :
- % of his or her wages (not full pay) during disability
- Burial expenses
- The cost of prothetic devices
- Monthly payments to surviving dependent children
Cafeteria plan
participants may select their own menu of benefits (such as health ins and life insurance) do not include 401k plans
Real property
mid month convention
jury duty
deducted from Gross income to arrive at AGI (if remitted to the employer)
Purchases were less than $3050000 and therefore, max den for SEction 179 is
1220000
A general partnership does not require approval of the state _________
when the entity is formed.
Member of LLC cannot transfer his membership without the consent of __________
(LLC is dissolved upon death, retirement, resignation, bankruptcy of a member)
(LLC seem to have interests in the LLC not the shares)
LLC - owners r not required to be US citizens
other members
On dissolution of a general partnership __________
Ranking
1. General partner loans
2. Partners’ capital accounts
3. General partners’ profits
A JOINT VENTURE is an __________
does not require filing of organization letter with the state
association of persons engaged as CO-OWNERS in a single undertaking for profit (can be more than 2 partners and is treated as a partnership). may be formed for a single transaction or a series of transactions.
LLC voting rights___________
is propritonate to the contributions of capital in the LLC (its not equal)
LLC operating agreement is an __________
Optional agreement designed to forestall and resolve disputes among the owners
Tim, peter and rick want to form a LLC. They should file _____________
Article of Organization
WHich business type does not require the filing of docs with the state ___________
Joint venture
In a general partnership, unanimous consent of general partners is required
😊for :(AGAST(
(no filing is necessary to form a general partnership suchas letter of article of incorp, etc)
partnership cannot raise capital by issuing sale of stock, only
ADMITTING a new partner
GUARANteeing the debts of a third party
ADMITTING or submitting a legal claim in court or in arbitration
SALE (outside normal course of business) or pledge of partnership property
TRANSACTIONS with 3rd parties who knew a partner’s actual authority was exceeded
Reasonable basis = 20% or more
Realistic possibility = 33.33% or more ?
Substantial Authority = 40% or more
More likely than not = More than 50%
?
Short form mergers such as 90% owned subsidiary into a parent generally do not require__________
Shareholder approval
Shareholders should be directors or officers to ________
manage their corporation
Shareholders must appoint or remove the _____________
*(Articles of Incorporation may be ameded by the shareholders and not by the directors)
directors
Business Casualty loss____________-
if the business property is completely destroyed, the amount of casulaty loss dedecution is the property’s adjusted basis immediately before the CASUALTY.
Note that $100 floor and 10% of AGI apples to personal casualty losses not to business casualty losses.
Business casualty losses do not have to be part of a federal disaster area to be deductible.
CUMULATIVE voting gives the shareholder 1 vote for each share owned times the number of directors being elected. This gives shareholders an opportunity to get some representation on the board by voting all shares for _______
1 or 2 directors.
Partners with NEGATIVE CAPITAL accounts must contribute _________
additional funds to the partnership
LIMITED PARTNERSHIP consists of _________
A GENERAL PARTNER May be a SECURED CREDITOR of the limited partnership. A general partner may be a secured creditor of the limited partnership.
Limited partner = Unsecured partner
1 limited partner and 1 general partner
One may be both a general and a limited partner SIMULTANEOUSLY.
A limited partnership must have 1 or more general partners whose liability is unlimited
INACTIVE PARTNERS __________
have the right to inspect partnership books and records
LIMITED PARTNERSHIP
Absent of agreement, DISTRIBUTE profits in proportion to the CAPITAL contributions.
BYLAWS
Sets forth the AUTHORITY or SCOPE OF AUTHORITY of corporate officers. It also contains specific rules for the management of a business corporation.
Proxy statement sets forth material to support shareholder votes.
Charter sets the name, purpose and powers of the corporation
Certificate of authority
It is a certificate that must be obtained for the corp to do business in another state.
Shareholders’ agreement________
sets forth the rights and obligations of shareholders.
Articles of incorporation __________
higher level guidelines that are filed with the state of incorporation and set forth the corp name, purpose, powers, etc.
MACRS
First year and last year are considered to be half year convention - take property life for 6 months only no matter in which month was it purchased and in which month was it sold
General requirement for the merger of 2 corporations:
- The stockholders of both corps must be given due notice of a special meeting, including a copy or summary of the merger plan
C corp - as many shareholders as required
S corp - max 100, all US citizens
Similarity in C and S corp
Shareholders can contribute property into a corp without being taxed
Article of Inc
BOTH name of registered agent and no. of authorized shares
Unpaid dvididendsranks as _______
unsecured shareholder (cumulative preferred stock hodler)
DERIVATIVE SUIT
______________are not defined as a distribution.
STOCK DIVIDENDS (Auth but unissued shares). No assets are distributed. Stockholder’s wealth and ownership is not increased. It has no impact on E&P.
Pre-emptive voting rights
right to purchase new issuances of additional stock in order to maintain current propetional ownership
POINTS TO PURCHASE
DEDUCTIBLE
POINTS TO REFINANCE
CAPITALIZE AND AMORTIZE over the life of the loan
No difference - Gross margin, wage expense, state and local taxes, dividends paid, tax credits
CHaritable contributions can be carried forward 5 years , never carried back
Temp difference - Net long term capital loss, CHaritable contributions, warranty expense, Depreciation expense,
PERMANENT DIFFERENCE
Political contributions, Penalty and fines , premiums paid on life insurance for key employees, Federal Income tax expense, Interest income,
Removal of directors is _________
subject to shareholder approval
GIFT - If FMV>NBV at the time of gift use Donor’s basis and Donor’s holding period
As tax basis
Donor’s acquisition date is considered as start of holding perioD (MI)
EXCEPTION:
When FMV<NBV at the time of gift (basis and holding date depends on future sale price of stock. E.g. NBV or donor’s basis = 29 per share and FMV at the time of gift is $27 per share. In this scenario, WE WILL USE THE FMV as TAX BASIS because Sale price is $27 - future SP will be the deciding factor for Tax basis per gain or loss.
e.g. 2 where SP is higher
Donor’s basis is $29, FMV $27 less than the basis, SP = $30 per share = We need to reduce gain and therefore, we will consider TAX BASIS as $29
If the sale price is between Basis and FMV, NO GAIN OR LOSS, Holding date unnecessary
E.g. When Stocks are sold at a loss
SP = 28 Feb 3, Yr 3
Donor’s basis = 33 Purchase date April, Yr 1
FV = 30, May 17, Yr 2
Holding period (May 17, Yr 2 to Feb 3, Yr 3) - ST
TAX BASIS = 30
INHERITED STOCK - ALWAYS USE STEPPED UP BASIS
NBV is not needed
Inherited property - HOLDING PERIOD IS ALWAYS LONG TERM
WHen AVD is after the stock is distributed, then take FMV on the date of DISTRIBUTION in cases of _____________
**Decedent’s BASIS : IGNORE in cases of INHERITANCES
INHERITANCES = HOLDING PERIOD IS ALWAYS LONG TERM
DISALLOWED LOSSES
WRaP -W= Wash Sale
If stock is sold at a loss and repurchases within 30 days, the loss is DISALLOWED and will be deferred.
Related Party Transactions,
P=Personal Losses
Non residential or office building ___________
179 deduction DOES NOT apply
Exception 179 deduction applies to qualified improvement to office building e.g. alarm system
CHARITABLE DEDUCTION
AGI = 5 million
e.g. ticket cost 2000 each , value (received :needs to be deducted)= 500 each : Difference 1500 each is deductible
- Bedroom suite DOnated or thrift: COnsider FMV
- LT property Painting 30% , consider FMV Less: 30% allowed
3.
Seller’s dock = Buyer should pay the freight
UCC - titile passes to the buyer even if the goods are nonconforming
ADOPTION CREDIT
Carry forward 5 years
FTC
Carryback 1 year and Carryforward 10 years
REFUNDABLE TAX CREDITS
- Premium Tax Credit
- Earned Income Tax Credit
EMPLOYER PROVIDED medical insurance
is a TAX FREE FRINGE BENEFIT
EIC - Not more than $11,600 of Investment income
test for a qualifying child
- Age-under 19 2. Relationship 3. Residence
Income of a child DOES NOT DETERMINE whether a child qualified for TP’s EIC
CTC - $2000 per child
PArtially refundable upto $1700 per child and applicable for children under 17 years of age.
Under age 17, available upto MFJ $400,000
Child and dependent care credit
Under age 13
$3000 for one dependent or $6,000 for multiple dependents
SEP IRA
20% of net SE income
Breach of contract
Money damages
Ultra mares
Only applies to parties in PRIVITY and INTENDED 3rd party beneficiaries but NOT foreseen parties.
Sch M-3
Prepared for corps with total assets of $10 mn or more (more detailed than M-1)
** Sch M1 to be prepared by corps with total receipts or total assets of $250,000 or more
NEGLIGENCE - Prove failed to exercise __________
DUE CARE
NEGLIGENTLY prepared a financial report
LIable only to 3rd parties whom the accountant knows or should foresee will be relying on his work. Any FORESEEN or known 3rd party who relied on his info.
NEGLIGENCE ELEMENTS
PDIB or BIDP
PROXIMATE Cause
BREACH OF DUTY (lack of due care)
INJURY/damages
DUTY TO CARE
Common law FRAUD ELEMENTS
MAIDS
Misrepresentation
Actual and Justifiable Reliance
INTENT to deceive
DAMAGES
INTENT to INDUCE Actual and Justifiable Reliance
Form 1120 - Sch M-1 and M-3 reconciliations
At the end of the year, if a corporation has:
- TOTAL RECEIPTS and total assets < 250,000 - No reconciliation is required.
- Total assets > 250,000 but <$10 million - Sch M-1 is required but may file M-3
- Total Assets >_ $10 million - Sch M-3 is required
True
SE tax
Only SE income upto $168,600 for 2024 is subject to SS or FICA tax of 12.4%
Penalty for returns not filed within 60 days of DUE DATE (including extensions), IRS may assess a minimum penalty which is lesser of ____________
$510 for 2024 or 100% of net tax due
for both Individuals and C corps.
Since S-Corps & Partnerships generally do not have taxes due at the entity level. the failure to file penalty is:
S CORPS (if no tax is due) - $245 per month for a max of 12 months * # of shareholders
Partnership - $245/ month for a max of 12 months * # of partners
Failure to furnish copy of the return to TP, Failure to sign return, Failure to furnish ID # of preparer on return, Failure to retain a copy of return for 3 years or maintain a list of names and ID number of TPs for whom returns are prepared
$60 per return / upto $31,500 per year for 2024
Endorsing or Negotiating TP’s refund check
$635 per check/no limit for max penalty for 2024
Failure to be diligent in determining eligibility for certain benefits (EIC, CTC, ODC, AOC, HOH Filing status)
$635 for each failure on each return /No limit for max penalty for 2024
ACA, 2010 - Expand Access to Insurance Coverage
Add minimized out of pocket expenses - For 2024, irrespective of the calculations entailed in the insurance policy, the insured would not need to pay above $9,450 for individual plan adn $18,900 for family plans(i.e. all covered costs to be paid by the insurer)
Mortgage insurance premium _____________
is no longer deductible on Sch A (expired in 2023)
Mortgage prepayment penalty is deductible
IRA early withdrawal
No penalty + no tax on :
- Homebuyer (1st time) $10,000 for use in 120 days
- Death or Disability (permanent or indefinite)
No penalty + TAX (tax is ok for traditional)
1. Higher (college) education qualified expense
2. Medical expenses in excess of 7.5% of AGI
3. Medical insurance for 12 weeks unemployed
4. Per SECURE Act, upto $5,000 to defray the costs of having or adopting a child
5. Federally declared disaster (limited to $22,000)
6. Distributions to victims of domestic abuse (lesser of $10,000 or 50% of the value of the retirement account)
7. Emergency $1,000
Generally, the final individual return can claim deductions for expenses the decedent paid before death:
- Medical expenses paid by estate within 1 year of death can be elected to be claimed in final Form 1040 (sub to 7.5% limit)
- Funeral expenses of the decedent - claimed by the estate, Form 706
Tax return due date is same as yearly returns - Apr 15 unless the surviving spouse or representative files an extension
Life Insurance Proceeds
C corp can’t deduct for key people if corporation is the beneficiary.
Section 280F luxury automobile depreciation limits do not apply to vehicles ______________
that charge for transportation
FOllowing are not eligible for BONUS DEPRECIATION:
- Assets converted from personal to business use are not eligible for bonus depreciation.
- Assets acquired from related party are not eligible for Bonus Dep.
- Assets received as a gift are not eligible for Bonus Dep
- Inherited property is not eligible for Bonus Dep
True - MACRS applicable
New or used business property with a depreciable life of 20 yr OR LESS is eligible for bonus depreciation.
LTCG gets preferential tax rate and QUalified Dividends as well
NIIT - 3.8% over $250,000 of NET Investment Income - Inv Income is generated from Int, Div, LTCG, STCG, Rental and Royalty Income, NON-QUALIFIED Annuities and Income from Businesses involved in the trading of FInancial instruments or commodities and businesses that are passive activities.
K-1, General Partner - Ordinary Income (Not subject to NIIT)
K-1, Limited Partner - Passive Income, considered Investment income, subject to NIIT
Form 8960
QBI or Sec 199A overview
1. 20% deduction for eligible flow-through US entites with QBI (20% of ORDINARY BUSINESS INCOME Less NET CAPITAL GAIN)
2. This includes individuals, partnerships, S corps, Most LLCs and Trusts
3. BELOW the Line DEDN
4. Determine if it is QTB or SSTB
SSTB = Health, law, accounting, actuarial science, performing arts, consulting, athletics or financial services., trading, investing, investment management,
QTB= anything that’s not SSTB
FOllow TAXABLE INCOME ranges to determine which category will follow
** Limitation = cannot exceed 20% of Taxable Income (Before QBI)
Need to have business in the U.S. to be eligible for QTB
Category 1 = 20% of Ordinary Business Income (less: Net CAPITAL GAIN and less: SELF EMployed HEALTH Insurance)
Category 2 - Wage Limitation kicks in
Step 1 = calc tentative QBI = 20%
Step 2
A) 50% of W-2
B) 25% of W-2 wages + 2.5% of UBIA of qualified property
SELECT greater of A) or B)
Step 3 C) Take lesser of Step 1 or Step 2
CPA who did fraud _________
is liable to any party who suffered an injury or damage
There is no requirement that a contract be profitable to be enforceable
Nonconforming goods
Breach of contract, since with accomodation note, reasonable notice was not provided to the buyer.
Selling exp
Stock issue cost and underwriter fee
DRD
50% of taxable income
TO be eligible for DRD,
*Shareholder must own the stock for at least 46 days during 91 day period
*corp already paid
0 to 19% , DRD = 50% (unrelated, unaffiliated domestic company, small investment)
20-79%, DRD =65% (LARGE INVESTMENT)
80% or more = 100% (consolidated, affiliated), SMall Business Investment Corporations
lesser of 50% of DRD or 50% of Taxable Income but beyond limitation if it creates loss or NOL
Foreign = ownership >10% and 365 day holding period = take full DRD as the amount of Dividends
DRD is not available to :
X PSC, PHC, personally taxed S corps, certain banks and savings institutions, RICs, REITs, Public utilities, tax-exempt corps, cooperatives, DISCs
Warranty of Merchantability
It is implied whenever a merchant sells goods or ordinarily sells goods.
Parol evidence rule
Subsequent oral or written agreement - admissible
contradictory prior oral or/and written and contemporaneous - not admissible
Neither party can appeal decision of small court section of US Tax court
A 100% DRD may be claimed for a Dividend Received from a _____
FOREIGN corp in which ownership EXCEEDS 10% and the stock was owned for more than 365 days.
C corp - Since the proceeds of the loan were used to purchase municipal bonds which generate tax-exempt income, the interest expense on the loan is __________________
** C corp - An accrual method TP can deduct compensation for nonstockholder employees when there is an obligation to make payment. Payment is made not later than 2.5 months after the end of the TAX YEAR.
NON DEDUCTIBLE
Nonbusiness or personal bad debt - always ST capital loss
Inheritance = always long term
TI is negative , CHaritable contributions are not dedcutible
NEGATIVE
ORG EXPENSES - to form corp/partnership. Required to be capitalized and amortized. Dollar phase out if expenses >50,000
$5,000 org dedcution
SL over 180 months for the ones not expensed
Accounting fee, legal fee, charter fee, corporate bylaws, stock certificates, state filing fee
START UP COSTS - $5,000 start up deduction
e.g. Advertising Start up cost, prospective client start up cost, training costs
SHS CONSTRUCTIVELY owned (Indirectly owned) or owned by a company- PHC, Personal Holding Company
,ONLY - Parents, spouse, child, grandchild, siblings are considered as FAMILY.
S corp - eligible shareholders - Individuals, estates or certain type of trusts
Us citizen or resident
Qualified retirement plans and 501(c)(3)
Sole proprietor or single member LLC
Family member counted as 1
Max members - 100
Ex-spouse counts as same family for S corp PURPOSE, Uncle, AUNt and first Cousins, grandchildren, grand parents considered part of the same family.
Neither corps, nor partnerships , nor Non-US citizens are not eligible
GIFT middle value when SP is the middle value of both SP and Basis_________
Zero
Tax basis for calc gain/loss
Cost less: Depreciation
LAnd Cash payment = 40000
Mortgage = 50000
Title isnurance = 200
90200
Capital asset
Personal use or Investment
QBI income includes =
income from Sole proprietorship, partnership, S corp, Trust or Estate
General partner is the only oen responsible for Recourse liability
and not the limited partner
Jury trial - US District court
A minor can disaffirm (rescind) any time while a minor and does not depend on UCC
USS - SWAP acronym
Specially manufactured goods
Written contract
A
P
Undisclosed principal
Agent - NO Apparent authoirity
Undisclosed principal cannot ratify the contract (as client/party will not be aware of the principal)
Only other 2 can - fully disclosed and partially disclosed can
APPLICABLE/AUDITED FINANCIAL STATEMENT (AFS)available :
- Deduct allowed for business property upto $5,000 per item?
(if cost of the item is more than allowed amount, CAPITALIZE the entire cost)
AFS not available - deduction allowed upto $2,500 per item
(if cost of the item is more than allowed amount, CAPITALIZE the entire cost)
Middle value =
APPLICABLE ONLY IN TERMS OF GIFT TAX = NO GAIN OR NO LOSS and when FMV < Donor’s cost basis
CONSTRUCTIVE NOTICE = PUBLIC NOTICE
ACTUAL NOTICE TO DIRECT 3RD PARTIES = E.G. CUSTOMERS, VENDORS
UWORLD
- COMPENSATORY damages = DIRECT OR ACTUAL LOSSES
- CONSEQUENTIAL damages = INDIRECT AND ANTICIPATED LOSSES
- LIQUIDATED DAMAGES = Predetermined loss amount (e.g. deposit forfeitures) agreed by both parties
- NOMINAL DAMAGES = Trivial sum (e.g. $1) to vindicate the plaintiff’s rights when no actual loss or damages occurs
- SPECIFIC PERFORMANCE = Unique subject matter (e.g. patent, works of art) when a monetary award is not sufficient.
PRINCIPAL may be liable once DISCLOSED.
Once principal ratifies the contract, only principal is liable and agent is free from liability.
Agent is personally liable for all the torts that he/she commits.
Shareholder’s salary does not affect basis at all , DO NOT CONSIDER IN BASIS of S CORP SHAREHOLDER.
Penalty lowers basis of shareholder.
SHareholder’s salary is a business expense. Salry to Mike does not affect his basis(same for partnership)
Charitable deduction is not a business expense.
PARTNERSHIP BASIS
- Life insurance premium/ expense(nondeductible for partnership, same as penalty) does not affect business income when company is the beneficiary but it DECREASES the partner’s BASIS.
- Purchase of land for investment DOES NOT affect basis (only affects when there is a gain or loss from sale of land)
- PARTNERSHip paid EMPLOYEE SALARIES AND WAGES - “Deductible by the partnership in arriving at partnership ORDINARY BUSINESS INCOME.”
- PARTNERSHIP INCURRED INTEREST EXPENSE On partnership investment indebtedness - Treated AS SEPARATELY SEPARATED DEDUCTION and potentially DEDUCTIBLE BY THE PARTNERS.
- MUNICIPAL BOND INCOME (TAX-EXEMPT INCOME ) flows on partner’s K-1. Regular interest deduct by tax-exempt income
*Distributions should NOT be included in Partnership Ordinary income /Loss
Bankruptcy estate and grantor trust can be shareholders in an S CORP
TRUE , S CORPS were created to help small. family owned businesses.
a CORP
S CAPITAL LOSS CARRYBACK OR CARRYOVER IS
ALWAYS SHORT TERM CAPITAL LOSS
NEXUS
Connection between a company and a state that is sufficient for the state to tax the company.
When nexus is established, the entity is then subject to the state’s sales and incoem tax requirements and can be sued there.
property, payroll or sales
S CORP - DISTRIBUTIONS IN EXCESS OF BASIS ARE TAXABLE TO THE TAXPAYER ON __________
INDIVIDUAL RETURN AS CAPITAL GAIN
DRD is only APPLICABLE FOR ___________________
To qualify, they must have held the stock for at least 46 days prior to the ex-dividend date. (80%)
C CORPS (S corps cannot claim as they are pass through that do not create triple taxation)
R&E - 5 years
Amortization - 15 years (foreign)
Apportionment between states - NEXUS
Avg of all sales + payroll + property costs/3
because they r 3 income and expense items
S CORP
UNANIMOUS = 100% VOTE IS REQUIRED FOR ELECTION TO BE AN S CORP, FORM 2553, election Due date is 15th day of the 3rd month of the tax year to be effective for the year (March 15) or 2.5 months
termination - more than 50% voting required )voting or nonvoting)
S CORP - NOT AFFECTED BY ENTITIY’S BANK LOAN INCREASES OR DECREASES
S CORP CAN ONLY OWN 100% of ANOTHER S CORP THus 75% of OWNERSHIP is not allowed.
S CORP - _Interest and dividends____increases the accumulated adjustments account of an S corp. Interest and dividends increase the AAA of an S corp. Capital contri no effect on AAA.
AAA = total of income items less expenses and distributions.
AAA = applies to regular corps other than PHC, tax -exempt and passive foreign inv corps.
C CORPS, PARTNERSHIPS WITH A C CORP PARTNER, TAX SHELTERS ARE PROHIBITED ____________
Businesses with gross receipts in excess of $ 5 million may not use the cash basis.
e.g. Retail store with $ 2 million inventory - prohibited
from using cash method of accounting. (PSC and farming business can use CASH method? Uworld-CHatGPT or IRS. An internation accounting firm can use CASH BASIS.
C CORPS different than other ones
Revenues
+Dividend income
_operational expenses
__________________________
Adjusted taxable income (ATI)
*10% charitable contribution (before DRD)
ATI is calcuted before Charitable contribution, before NOL and before DRD
C COrp, DRD - limited to 50% of TI or 50% of Dividends (depending on ownership %)
Both Individuals and corporations can utilize the like-kind exchange provisions of Code section _______
1031
C CORP
IF CHARITABLE CONTRIBUTIONS IS MADE WITHIN 3.5 MONTHS of the following tax year , then it’s deductible.
Casualty loss for corps = Adjusted basis less : Insurance rembursement
Individuals
= Amount
-100 floor
-10% of AGI
20% credit is allowed for qualifying expenditures made to rehabilitate a certified historic structure.
The credit is claimed ratably over 5 years beginning with the year the building is placed in service.
to QUALIFY as tax exempt
one-third support should come from GOVT and GENERAL PUBLIC
Int is non operating income so should be taxed only in
HOME STATE
DRD loss exists - income limitation does not apply
Full DRD applies e.g. 65% or 50% or 100%
Start up cost - deduct 50k
Org expense
deduct 5k first and amortize the rest
Accounts payable is a ________. Only GENERAL PARTNER is liable for it in the partnership and not the limited partner.
recourse debt
Termination of S corp election can take place if :
Passive investment income is greater than the 25% receipts in the prior 3 years
Individual is not subject to underpayment penalty is tax due is $1000 or less
$500 for corps
Provision for state tax and interest incurred on loan to carry US obligations are considered same for both ___________
Book income and tax income
Personal Service Corporation is a type of C corp that provides personal services and meets specific criteria set forth by the IRS. These services are performed by highly skilled in the areas of Health care, law, accounting, consulting, engineering and architecture, acting and other artistic services. Flat tax rate 21%.
Subject to SE tax but not on dividends paid by corp as it is passive income and not the SE income
LLP
Does not pay federal income tax
Order to apply proceeds from sale of COLLATERAL
- SELLING EXP(attorneys, brokers CPAs)
- Foreclosing (primary creditor), unpaid debt
- Subrodinate creditor (lesser security interes)-unpaid debt
- Refunded to Debtor
CHaritable deduction order for PUBLIC CHARITIES and PVT OPERATING FOUNDATIONS (distributes funds to its own charitable programs) -
- Cash (60%)
- ordinary Income property (50%)
- LTCG (30% AGI)
PVT Non OPERATING FOUNDATIONS (distributes funds to other charitable organizations):
- Cash (30%)
- Ordinary income property (30% of AGI)
- LTCG (20% of AGI)
Becker - to calculate DRD - include amount of charitable contributions dedn? video 2 of DRD
*DRD we generally take LESSER of the two:
- 50% of dividends received
- 50% of TI
However exception applies:
Exception: if Greater of 50% of TI or 50% of Dividends creates an NOL,
then we will take greater of the two in this scenario
VIRTUAL CUrrency is not a reportable account for__________unless th account holds other reportable assets.
FBAR.
Conversion of G Partnership to an LLC
NOn -taxable event without an interim closing of the tax year.
No gain or loss on the conversion is recognized by partnership or partners
P/S keeps same EIN
Each partner’s basis and holding period of their P/S carries over
Furniture and fixtures - 7 year under MACRS (200% DDB)
CHATGPT - 200% Declining Balance (DDB) is typically the default method for 7-year property under MACRS
Temp director’s meeting
Org expense
CH 7 - The debtor must surrender certain property received within 180 days after the petition is filed.
This property includes:
- Inheritances
- Life insurance proceeds
- Divorce property settlements (payments to divide marital property, not alimony)
Elements necessary to prove negligence (CAMPS)
- Casual relationship-plaintiff suffered harm because of CPA’s actions
- Absence of reasonable due care
- Material misstatements
- privity- only to clients or intended/foreseen third parties . Only they can sue.
- Suffered Loss
CPA is not required to sign the extension.
VOluntary bankruptcy
- Debtor files the petition
- No need to prove insolvency
- Creditors don’t sign the petition
- Order of relief issued immediately
Open to individuals and most entities
Involuntary bankruptcy
- Creditors file the petition
- Must show debtor not paying debts
- One to 3 creditors must sign petition
- Order of relief delayed until court hearing
- Open to individuals and most entities
- Allowed in Chapters 7 and 11
$18,600 debt for CH 7 bankruptcy
Order to apply proceeds
- Selling expenses (attorneys, brokers, CPAs)
- Foreclosing primary creditor
- Subordinate creditor
- Debtor
Obligation of Surety - Public OFFICIAL bonds such as Tax collector bond, Treasurer bond, COunt Clerk Bond
It is a type of surety bond which a SURETY guarantees that a public official will faithfully execute the governmental duties entrusted to that official. SURETY will reimburse the govt entity for the loss caused by the official’s improper actions.
Unsecured bonds
COnvertible, debenture and municipal bonds
Copyright infringement
Reproduction
make derivative works (in different language)
Distribution
Performance
Display
Transmission
ERISA - EMPLOYEE RETIREMENT INCOME SECURITY ACT
- VESTING - employee contri vest immediately
- Employer contri vest within a reasonable time (e.g. 5 years)
Must be managed by independent party with no relation to the employer
It’s not a mandatory plan - optional
CH 11
Creditors vote on plan (2/3 of the $ amount on all claims (e.g. creditors) and 1/2 of the number of claims in each class– Check more in book?
Tax claims incurred within 3 years before filing bankrupcy _________
never dischargeable under CH 7 bankruptcy
Revised Model Business Corp Act
RUPA
Dependent care expenses -
lesser of the
20% of actual dependent care expenses
or 20% of $3000 limit per dependent
20% or
35%
EIC rules
MFS disqualified for claiming EIC
Decedent can file MFS if spouse re-marries before end of the year
True
Fraud on income tax return
No time limitation - IRS may reassess the TP anytime.
uNEARNED income of the child is subject to
Kiddie tax
GIFT - always take DONOR’S Basis unless ____________
it’s being sold at a loss, then take FMV
Omission of more than 25% of gross income ____
statute of limitations move up to 6 years
otherwise it’s 3 years from the date the return was filed.
UCC
consider only manufacturing related cost (like off storage cost)
Municipal arbitrage bonds
Taxable
REIT div not subject to DRD because they r not treated as dividends
True
NOT ELIGIBLE FOR DRD (Becker, don’t take it personally)
The dividends-received deduction is not available to:
1. personal service corporations;
2. personal holding companies; or
3. (personally taxed) S corporations.
