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REGULATION > Consolidated > Flashcards

Consolidated Flashcards

1
Q

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

A

full month convention in the month of acquisition and in the month of disposition

180 months or 15 years

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2
Q

Nonresidential real property

A

39 years (mid-month)

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3
Q

Residential real property

A

27.5 years

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4
Q

Syndication costs - e.g. stock filing

A

Not amortized

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5
Q

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

A

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)

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6
Q

Bonus Depreciationis 60% in 2024

A

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)

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7
Q

Gift - basis for sale of shares

A

take carryover basis of donor

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8
Q

Greater than 40% but less than 50%

A

SUBSTANTIAL (Undisclosed position)

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9
Q

More than Likely (than not standard)

A

Greater than 50%

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10
Q

Reasonable basis standard

A

Greater than 20% (Disclosed position)

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11
Q
A

Annualized income method

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12
Q

Large corporation

A

Taxable income was more than 1mn or more for the last 3 years

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13
Q

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)

A

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 ,

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14
Q

Minimum accumulated earnings credit

The additional Accumulated tax rate is flat 20%

A

limit $250,000

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15
Q

Accumulated Earnings Tax

A

Penalty tax imposed ONLY on C CORP
Max $250,000 lifetime acc earning

Personal service corp - max $150,000

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16
Q

Foreign income taxes paid by a corp

A

can either be claimed as a credit or deduction

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17
Q

Tax Return Preparer Compliance Penalties

A

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

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18
Q

543000 Book Income
-20000 Dep
-25000 Int Earned on municipal bonds
10000 Fines (not deductible)
36000 rental income

544000

A

380000 Book Income
-50000 Municipal Bond Int
170000 Fed Income tax expense
2000 Int expense on debt incurred

502000

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19
Q

Student loan interest - $2500, subject to phase out

Married taxpayers must file jointly to qualify

A

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.

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20
Q

Rental real estate loss

A

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.

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21
Q

Long-term care insurance PREMIUMS on qualified policies - DEDUCTIBLE

A

PREIMUMS on life insurance and disability insurance - NON DEDUCTIBLE

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22
Q

Tax Shelter (listed or reportable transaction)

Disclosed position = Reasonable std >20%

Undiscosed position (substantial

A

More likely than not (50% or not)

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22
Q
A
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23
Q

The first $50,000 of GTL provided by an employer is a non-taxable fringe benefit.

A

=(200000-50000) * 2.76
___________________
1000

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24
Q

Deduct upto $25k loss against nonpassive income (25k is first reduced by 50% of MAGI over $100,000)

A

only when actively participate in the activity and own at least 10% interest

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25
Q

Charitable deduction for art object is limited to _________

A

excess of cost over its FMV (e.g. 1200-800)

1200 = cost
800=FMV

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26
Q

US District court

A

hears before one judge (and not panel)

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27
Q

PLR

A

Related to a specific taxpayer for particular tax issue e.g. for heavy transactions

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28
Q

TAM is requested by ____________

A

IRS Agent typically during IRS AUDIT only on closed transactions

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29
Q

Ultramares decision

A

only

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30
Q

Scienter

A

Intention to fraud

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31
Q

KEOGH (defined contribution plan) Contribution limit

E.g. $225,000 = net self-employment earnings

A

Annual contribution limited to the LESSER of:

  1. 20% of net self-employment income before the deduction
  2. annual limit ($69,000 in 2024)
  3. 100% of earned income
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32
Q

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

A

Gifts = Holding period of donor (long-term or short term)

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33
Q

Capital Asset = Assets held for Investment

A

E.g. Stocks, Bonds

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34
Q

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.

A

Vincent is not entitled to a charitable deduction for the CY because he did not give up his entire interest in the book collection.

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35
Q

5 ELEMENTS under common law FRAUD(MAIDS)

A
  1. Misrepresentation of material fact
  2. Intent to deceive or SCIENTER
  3. Actual and justifiable by the plaintiff on the misrepresentation
  4. An intent (also known as scienter by yhe defendant to induce the plaintiff’s reliance on the misrepresentation) Intent to induce RELIANCE
  5. Damages
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36
Q

ELEMENTS OF NEGLIGENCE

A
  1. proximate cause
  2. Inury or damages
  3. Breach of duty of care was the actual and proximate cause of the plaintiff’s losses
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37
Q

Subpoena

A

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.

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38
Q

Contribution to traditional SELF-EMPLOYED retirement plan (SEP IRA PLAN) is permitted as a ___________

A

deduction to arrive at AGI. (adjustments for AGI)

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39
Q

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

A

Charitable contribution = 2000

Limit = 30% of AGI, 27000

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40
Q

RULES for property acquired by GIFT

A
  1. The general rule for the basis of property acquired by gift is a carryover of basis from the donor.
  2. 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.
  3. 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

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41
Q

Types of DEFENSES: Fraud

A

M - Misrepresentation of Material Fact by Defrauding Party
A - Actual and Reasonable Reliance
I - Intent to Induce
D -Damages
S-Seinter

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42
Q

Death (distribution of stock etc.)

A

FMV at the time of death or AVD whichever is earlier

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43
Q

UCC

A

Sale of goods e.g. sale of used car

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44
Q

Express Warranty

A

Basis of bargain between buyer and seller

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45
Q

REPLEVIN

A

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.

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46
Q

ANTICIPATORY REPUDIATION

e.g. Lark, CPA repudiates the contract if Lark repudiates the contract prior to the date performance is to begin.

A

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.

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47
Q

Tortfeasor

A
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48
Q

UCC does not provide _______

A

PUNITIVE DAMAGES

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49
Q

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

A

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

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50
Q

Income test for Qualifying relative - gross income (excluding social security benefits) must be less than_______________

A

$5,050 for 2024

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51
Q

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

A

Over or MORE THAN 30 mn during the preceding 3 years = ACCRUAL METHOD must be used

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52
Q

Qualified Adoption Expenses paid by employer upto ____________

A

$16,810 for 2024; phase-out applies

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53
Q

Preferential tax rates for Qualified DIvidends and LTCG tax rates

A

Qualified Dividends/CG Rate
SINGLE MFJ
0% 0-47,025 0-94,050

15% 47,025-518900 94051-583750

20% 518900 583750

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54
Q

Transportation expenses - actual expenses or standard mileage rate @ ___________

A

0.67 per business mile plus parking upto $315 per month and tolls for 2024

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55
Q

NOL Deduction - $305k/610k for 2024. Apply this limitation after _______

A

NOL is computed ?

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56
Q

FEIE

A

126,500 for 2024

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57
Q

IRA Deduction - contribution $ limit for 2024 - $7,000 ($14,000 if MFJ)
Additional $1,000 allowed for 50+ age

A

Phase out limits always on MODIFIED AGI
Traditional Deductible IRA
77k-87k
123k-143k for MFJ

ROTH IRA
$146-$161k
$230-240k for MFJ

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58
Q

FICA - Social security @6.2% for employer plus 6.2% for employee on _________________________

A

max $168,600 for 2024

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59
Q

HSA Contribution limit upto $4,150/ 8,350 for single/family for 2024 +__________________

A

+ $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

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60
Q

Educator expenses

A

Upto $300 to elementary and secondary school teachers

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61
Q

Medical and Dental Expenses

A

Threshold = 7.5% of AGI for 2024
Travel cost for medical care @actuals or 21 cents/mile for 2024

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62
Q

Deductible out of pocket costs for volunteer services, transport only __________________

A

from home to site at actuals or $0.14/mile plus toll and parking.

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63
Q

*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)

A

*Above phase in range OVER $483,900 for MFJ; $241,950 single = No QBI deduction

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64
Q

AGENT acts on behalf of PRINCIPAL ______________

A

e.g. Attorney (

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65
Q

No consideration is required in _________

A

Agency

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66
Q

Agencies coupled with interest are __________

A

irrevocable

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67
Q

Both apparent and actual authoirty are terminated by Principal’s _________

A

Death

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68
Q

Warrants are rights to buy stocks and considered as part of _________

A

Equity Securities

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69
Q

ONLY S corp and Partnership issue K-1

A

C corp issues Form 1099-DIV and Form 1099-B (and NOT k1)

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70
Q

Wages do not affect basis in S corp

A

True

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71
Q

S corp cannot acquire

A

C corp

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72
Q

A general partner may be a creditor of the _____________

A

LIMITED Partnership

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73
Q

Entertainment expense is not deductible in S corp as per _______

A

LAW (6 GHENERTIONS)

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74
Q

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

A
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75
Q

INVOLUNTARY BANKRUPTCY REQUIREMENTS (Chapter 7 and 11)

Lack of payments = Creditors must show debtor is not paying debts as they become due

A

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

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76
Q

Medicaid is a ____________

A

state run program and is not included in SSB

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77
Q

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.

A
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78
Q

Not subject to FICA

A

Capital gain, dividends and Int on municipal bonds

(Car received as productivity award is sub to FICA)

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79
Q

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.

A
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80
Q

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.

A

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.

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81
Q

Appraisal remedy

A

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.

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82
Q

R&D expenditures

A

Capitalize and amortize R&E costs over 5 years

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83
Q

Corp’s capital loss carryoback or carryover is

A

Always treated as ST Capital loss

Carry back 3 years
Carry forward 5 years

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84
Q

Ch 11 reorganization

available to
1. INDIVIDUALS
2. PARTNERSHIPS
3. CORPORATIONS eligible under Ch 7 liquidations

A

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 claimes (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.

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85
Q

Ch 7 - Debts not discharged in Bankruptcy

A
  1. Alimony and Child support
  2. New consumer debt incurred within 90 days before filing for bankruotcy
  3. Debts incurred due to fraud, embezzlement or willful and malicious acts
  4. Unscheduled/unlisted debt (i.e. not listed in bankruptcy petition)
  5. 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)

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86
Q

FUTA and FICA

A

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

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87
Q

Ch 7 VOLUNTARY BANKRUPTCY

  1. Debtor files the petition
  2. No need to prove insolvency
  3. Creditors don’t sign the petition
  4. Order of relief issued immediately
  5. Open to individuals and most entities
  6. Allowed in Chapters 7,11 and 13
A

CH 7 INVOLUNTARY BANKRUPTCY

  1. Creditors file the petition
  2. Must show debtor not paying debts
  3. 1 to 3 creditos must sign petition
  4. Order of relief delayed until court hearing
  5. Open to individuals and most entities
  6. Allowed in Chapters 7 and 11
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88
Q

Ch 13

A

Debt restructure/adjustment (Voluntary only)

In general, individuals need to have regular income along with other specified requirements.

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89
Q

Ch 9

A

reserved exclusively for MUNICIPALITIES that need bankruptcy debt relief

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90
Q

Ch 12

A

FAMILY FARMERS, family operated FARMS. allows for farmer/debtor to retain all property and pay creditors out of furture income.

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91
Q

Stops the enforcement of a judgement lien in involuntary petition in Bankruptcy

A

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.

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92
Q

Ultravires act

A

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

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93
Q

Cumulative preferred stock

A

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.

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94
Q

DISSENT

A

“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.

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95
Q

MFJ Cannot be filed if TP and SP have different _____________

A

Tax Years

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96
Q

Bankruptcy

A

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.

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97
Q

RANKING OF claims from HIGHEST PRIORITY to LOWEST priority

A
  1. 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)?

  1. Trustee ADMINISTRATION COSTS
  2. Payroll claims
  3. Tax claims or Federal tax claims (check SIMS)
  4. Consumer deposits for goods ordered but not received
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98
Q

MEANS AND MEDIAN TEST

A

?

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99
Q

A voluntary bankruptcy proceeding is available to consumer debtors who makes less than the dollar limits established under the _______________

A

MEANS test

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100
Q

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.

A

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.

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101
Q

DEATH or BANKRUPTCY of a GENERAL PARTNER in a limited partnership will cause ____________

A

DISSOLUTION of the limited partnership. (However, it’s not true if the opposite happens if a limited partner dies or goes bankrupt).

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102
Q

ATTACHMENT (PIG) occurs after ALL 3 conditions are met:

A
  1. Property (ie. collateral) owned by debtor (i.e. has rights)
  2. Interest in the collateral created by either
    (a) signed security agreement or
    (b) Taking possession (writing not required)
  3. Giving value to debtor (present or past)

*File security agreement within 20 days of sale to protect against DOTS

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103
Q

PERFECTION (Occurs after ANY one of the three): (FAT acronym)

A
  1. Filing a financing statement
  2. Automatic perfection (i.e. purchase money security interest or PMSI)
  3. Taking possession of collateral (writing not required)
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104
Q

A PMSI applies in situations where someone who sells consumer goods (e.g. merchant) sells goods on credit

A
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105
Q

Creditor’s actions that release a surety

A
  1. Fail to disclose negative information about debtor
  2. Change original agreement
  3. Extend due date (must be material for compensated surety)
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106
Q

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.)

A

basis (NO IMPACT)

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107
Q

Distributions (IT’S NOT CASH OR INCOME TO THE PARTNERS OR SHAREHOLDERS) does not affect ____________

A

Taxable Income (only the basis)

Distributions should NOT be included in Partnership Ordinary income /Loss

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108
Q

only DIRECT LOAN to Corp creates________

A

________________DEBT BASIS (guaranteed Machine’s corp debt is not counted as Loan) but when they actually loan it that counts as debt basis

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109
Q

179 deduction

A
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110
Q

DRD - when does it apply?

A

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.

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111
Q

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

A

e.g. 3 items 4k each , cannot expense anything as exceeds $2500 limit

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112
Q

niece doesn’t need to live with the taxpayer to be eligible for qualifying relative

A

NIECE = QUALIFYING RELATIVE

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113
Q

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

A

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.

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114
Q

IMPLIED in fact CONTRACT

A

Contract by conduct e.g. doctor prescribing medicines to patient.

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115
Q

IMPLIED-in-Law Contract or Quasi Contract

A
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116
Q

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).

A

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.

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117
Q

The right of subrogation __________

A

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.

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118
Q

A third party beneficiary contract does not involve a ________

A

SURETYSHIP RELATIONSHIP

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119
Q

Prohibited from filing Ch 11 bankruptcy

A

Banks
Savings and Loans
Insurance companies
Stockbrokers

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120
Q

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

A

provides that the seller deliver the goods free from any lien of which the buyer lacked knowledge when the contract was made.

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121
Q

Different tax year of TP and SP_________

A

Cannot file joint return (different accounting method - can still file joint return)

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122
Q

Guaranteed payments have __________

A

no impact on BASIS

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123
Q

SPECIFIC PERFORMANCE

A

Only applicable to Rare or Unique Property e.g. patent, real estate

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124
Q

RESCISSION

A

Cancel a contract and restore parties to original position

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125
Q

COUPLED WITH INTEREST

A

Only Agent can revoke

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126
Q

AGENCY agreement need not be in ________

(agent may withhold further performance)

A

WRITING

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127
Q

Both agent and principal are liable once principal ____________to the parties.

A

is disclosed

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128
Q

Duty to indemnify

A

Gratuitious agent (can only take care of property, CANNOT Commingle funds)

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129
Q

Guaranty must be in __________

A

writing (Statute of Frauds)

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130
Q

A Surety is primarily liable to ____________

(death or insolvency of the debtor is not the defense of the surety)

A

the creditor

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131
Q

_____________ between a debtor and its creditors will generally cause the debtor’s release from its debt

A

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.

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132
Q

Mechanic’s lien arises from IMPROVEMENTS made on REAL ESTATE (real property). An artisan’s lien arises from IMPROVEMENTS made to _________

A

personal property (moveable)

Both require notice to the owner of the property in most states.

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133
Q

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.

A

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.

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134
Q

Signed by the party being sued $500 or more

A

exceptions

S - specially manufactured goods
W-written confirmation between merchants
A - admission in courts
P - performance

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135
Q

UCC does not follow __________

A

mirror image rule

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136
Q

Where the seller is not the merchant and painting gets stolen after payment is made by the buyer ___

A

risk of loss with the buyer at tender of delivery (non merchant and where shipment contract is not involved)

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137
Q

Destination contract FOB

A

specified destination

138
Q

FOB place of shipment

A

are delivered to the carrier

139
Q

PERFECT TENDER DOCTRINE

A

If the goods at the time of the tender of delivery do not exactly conform to the requirments of the contract.

140
Q

EXPRESS WARRANTY doesn’t require __________

A

that the seller select goods knowing the buyer’s intended use (just bargain basis)

141
Q

Warranty of fitness

A

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

142
Q

Warranty of merchantability

A

Implied warranty of Merchantibility - requires a MERCHANT SELLER

143
Q

Mailbox rule only makes acceptances effective on dispatch

A

but revocations, rejections and counteroffers are effective only upon receipt

144
Q

Common Law = Price is material (real estate or else the contract is void)

A

UCC = QUANTITY is material

145
Q

Corps that are not small banks or thrift institutions are required to use ____________ rather than the reserve method.

A

DIRECT CHARGE-OFF

146
Q

Land = charitable contribution

A

subject to 30% of AGI

146
Q

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.

A

four months

147
Q

Even a non-relative can be a qualifying relative if the non-relative lives with the taxpayer ______________

A

for the whole year and taxpayer provides more than 50% of the SUPPORT

148
Q

Ranking - Perfection / filing

Rank 1 - Buyer in ordinary course of business as long as the buyer has no knowledge or sale violating security agreement

A

Rank 2 - All abt perfection dates Perfected creditors - on the basis of date they filed or perfected

149
Q
A

Within 30 days - cannot change fee as compared to the print media (newspaper, journal, etc.)

150
Q

3 ELEMENTS for ATTACHMENT :

A
  1. 2.
    3.
151
Q

A sec int will automatically be perfected upon attachment only when creditor takes a __________

A

PMSI in consumer goods

152
Q
A
153
Q

__________________ written off are deductible for tax purposes as the allowance method or any other type of estimated bad debt methos is not permissible.

A

ONLY ACTUAL BAD DEBTS

154
Q

DRD is allowed to minimize multiple taxation ONLY in case of ___________

A

C corp (both PSC and PHC)

155
Q

Organization expense

A
  1. Expenses of temp directors and of org meetings
  2. Fee paid to the state of incorporation
  3. Accounting services incident to organization
  4. Legal services for drafting the corporate charter and bylaws

Subtract 5000 from Org exp to calc amortization or write-off amount

156
Q

STate income tax expense are deductible expenses on the federal corporate income tax return and therefore ________________

A

no adjustment is required while calc Book to taxable income

157
Q

A ________________includes any written or electronic advice concerning transactions specified by the IRS as listed transactions.

A

covered opinion

158
Q

___________________ is an AGENCY concept that makes an employer liable for the actions of an employee done within the scope of employment.

A

RESPONDEAT SUPERIOR

159
Q

BOTH civil penalties and fraud penalties can apply at the ___________

A

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.

160
Q

RIBS

A

Ch 7 bankruptcy

161
Q

Damages received forr 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

A

EXCLUDED

162
Q

E.g. Employer reimbursmeent of college tuition expense of $8,000 _____

A

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.

163
Q

Scholarship is excludable upto the amounts actually spent on tuition, fees, books and supplies

A

Room and board is taxable

164
Q

SERIES EE bonds are taxable unless they were used to pay ___________

A

educational expenses

165
Q

S corp election =

A

to be effective for the current year, the election must be made within the first 2.5 months of the current tax year

166
Q

Family credit for qualifying dependents other than qualifyinf children

A

$500

Phase out is 400,000 for MFJ
200,000 for other filing status

167
Q

PArtnership cannot be a shareholder in _________

A

S corp (only Individuals, Estates or Certain Trusts)

168
Q

Automatic stay does not stop the collection of ___________

A

alimony

169
Q

Automatic stay created upon filing a petition in bankruptcy stops any attempt by creditors to collect through the __________

A

garnishment of the debtor’s wages

170
Q

The filing of an voluntary or involuntary petition in bankruptcy ________

A

stops the enforcement of all judgment liens and collection actions against the debtor (automatic stay)

171
Q

A creditor must wait 120 days to file a plan unless a trustee has been appointed

A

CH 11 Federal Bankruptcy code

172
Q

Post petition wages are excluded from the ___________

A

Estate

173
Q

After a chapter 7 bankruptcy, the debtor may not obtain another bankruptcy for ________

A

8 years

174
Q

NON-DIschargeable (add from Universal CPA) - WAFTED

A
  1. Willful and malicious injury
  2. Alimony
  3. Fraud
  4. taxes
  5. Educational loans
  6. Debts undisclosed in bankruptcy petition
175
Q

Unemployment comp insurance and worker’s comp insurance are both paid by the ____________

A

EMPLOYER

175
Q

A reorg plan under Ch 11 will not be approved unless the plan provides for the full payment of __________

A

admin expenses (and for full payment to certain under class of creditors)

176
Q

Workers’ comp laws provide for :

A
  1. % of his or her wages (not full pay) during disability
  2. Burial expenses
  3. The cost of prothetic devices
  4. Monthly payments to surviging dependent children
177
Q

Cafeteria plan

A

participants may select their own menu of benefits (such as health ins and life insurance) do not include 401k plans

178
Q

Real property

A

mid month convention

179
Q

jury duty

A

deducted from Gross income to arrive at AGI (if remitted to the employer)

180
Q

Purchases were less than $3050000 and therefore, max den for SEction 179 is

A

1220000

181
Q

A general partnership does not require approval of the state _________

A

when the entity is formed.

182
Q

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

A

other members

183
Q

On dissolution of a general partnership __________

A

Ranking
1. General partner loans
2. Partners’ capital accounts
3. General partners’ profits

184
Q

A JOINT VENTURE is an __________

does not require filing of organziation letter with the state

A

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.

185
Q

LLC voting rights___________

A

is propritonate to the contributions of capital in the LLC (its not equal)

186
Q

LLC operating agreement is an __________

A

Optional agreement designed to forestall and resolve disputes among the owners

187
Q

Tim, peter and rick want to form a LLC. They should file _____________

A

Article of Organization

188
Q

WHich business type does not require the filing of docs with the state ___________

A
189
Q

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

A

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 partenership property
TRANSACTIONS with 3rd parties who knew a partner’s actual authority was exceeded

190
Q

Reasonable basis = 20% or more
Realistic possibility = 33.33% or more ?
Substantial Authority = 40% or more
More likely than not = More than 50%

A

?

191
Q
A
192
Q

Short form mergers such as 90% owned subsidiary into a parent generally do not require__________

A

Shareholder approval

193
Q

Shareholders should be directors or officers to ________

A

manage their corporation

194
Q

Shareholders must appoint or remove the _____________

*(Articles of Incorporation may be ameded by the shareholders and not by the directors)

A

directors

195
Q

Business Casualty loss

A

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.

196
Q

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 _______

A

1 or 2 directors.

197
Q

Partners with NEGATIVE CAPITAL accounts must contribute _________

A

additional funds to the partnership

198
Q

LIMTED 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

A

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

199
Q

INACTIVE PARTNERS __________

A

have the right to inspect partnership books and records

200
Q

LIMITED PARTNERSHIP

A

Absent of agreement, DISTRIBUTE profits in proportion to the CAPITAL contributions.

201
Q

BYLAWS

A

Sets forth the AUTHORITY or SCOPE OF AUTHORITY of corporate officers. It also contains specific rules for the management of a business corporation.

202
Q

Proxy statement sets forth material to support shareholder votes.

A

Charter sets the name, purpose and powers of the corporation

203
Q

Certificate of authority

A

It is a certificate that must be obtained for the corp to do business in another state.

204
Q

Shareholders’ agreemnet

A

sets forth the rights and obligations of shareholders.

205
Q

Articles of incorporation __________

A

higher level guidelines that are filed with the state of incorporation and set forth the corp name, purpose, powers, etc.

206
Q

MACRS

A

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

207
Q

General requirement for the merger of 2 corporations:

A
  1. The stockholders of both corps must be given due notice of a special meeting, including a copy or summary of the merger plan
208
Q

C corp - as many shareholders as required

A

S corp - max 100, all US citizens

209
Q

Similarity in C and S corp

A

Shareholders can contribute property into a corp without being taxed

210
Q

Article of Inc

A

BOTH name of registered agent and no. of authorized shares

211
Q

Unpaid dvididendsranks as _______

A

unsecured shareholder (cumulative preferred stock hodler)

212
Q

DERIVATIVE SUIT

A
213
Q

______________are not defined as a distribution.

A

STOCK DIVIDENDS (Auth but unissued shares). No assets are distributed. Stockholderès wealth and ownership is not increased. It has no impact on E&P.

214
Q

Pre-emptive voting rights

A

right to purchase new issuances of additional stock in order to maintain current propetional ownership

215
Q

POINTS TO PURCHASE

A

DEDUCTIBLE

216
Q

POINTS TO REFINANCE

A

CAPITALIZE AND AMORTIZE over the life of the loan

217
Q

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

A

Temp difference - Net long term capital loss, CHaritable contributions, warranty expense, Depreciation expense,

218
Q

PERMANENT DIFFERENCE

A

Political contributions, Penalty and fines , premiums paid on life insurance for key employees, Federal Income tax expense, Interest income,

219
Q

Removal of directors is _________

A

subject to shareholder approval

220
Q

GIFT - If FMV>NBV at the time of gift use Donor’s basis and Donor’s holding period

A

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

221
Q

INHERITED STOCK - ALWAYS USE STEPPED UP BASIS
NBV is not needed

A

Inherited property - HOLDING PERIOD IS ALWAYS LONG TERM

222
Q

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

A

INHERITANCES = HOLDING PERIOD IS ALWAYS LONG TERM

223
Q

DISALLOWED LOSSES

A

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

224
Q

Non residential or office building ___________

A

179 deduction DOES NOT apply

Exception 179 deduction applies to qualified improvement to office building e.g. alarm system

225
Q

CHARITABLE DEDUCTION

AGI = 5 million

e.g. ticket cost 2000 each , value (received :needs to be deducted)= 500 each : Difference 1500 each is deductible

A
  1. Bedroom suite DOnated or thrift: COnsider FMV
  2. LT property Painting 30% , consider FMV Less: 30% allowed

3.

226
Q

Seller’s dock = Buyer should pay the freight

A

UCC - titile passes to the buyer even if the goods are nonconforming

227
Q

ADOPTION CREDIT

A

Carry forward 5 years

228
Q

FTC

A

Carryback 1 year and Carryforward 10 years

229
Q

REFUNDABLE TAX CREDITS

A
  1. Premium Tax Credit
  2. Earned Income Tax Credit
230
Q

EMPLOYER PROVUDED medical insurance

A

is a TAX FREE FRINGE BENEFIT

231
Q

EIC - Not more than $11,600 of Investment income

A

test for a qualifying child

  1. Age-under 19 2. Relationship 3. Residence

Income of a child DOES NOT DETERMINE whether a child qualified for TP’s EIC

232
Q

CTC - $2000 per child

PArtially refundable upto $1700 per child and applicable for children under 17 years of age.

A

Under age 17, available upto MFJ $400,000

233
Q

Child and dependent care credit

A

Under age 13

$3000 for one dependent or $6,000 for multiple dependents

234
Q

SEP IRA

A

20% of net SE income

235
Q

Breach of contract

A

Money damages

236
Q

Ultra mares

A

Only applies to parties in PRIVITY and INTENDED 3rd party beneficiaries but NOT foreseen parties.

237
Q

Sch M-3

A

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

238
Q

NEGLIGENCE - Prove failed to exercise __________

A

DUE CARE

239
Q

NEGLIGENTLY prepared a financial report

A

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.

240
Q

NEGLIGENCE ELEMENTS

A

PDIB or BIDP

PROXIMATE Cause
BREACH OF DUTY (lack of due care)
INJURY/damages
DUTY TO CARE

241
Q

Common law FRAUD ELEMENTS

A

MAIDS
Misrepresentation
Actual and Justifiable Reliance
INTENT to deceive
DAMAGES
INTENT to INDUCE Actual and Justifiable Reliance

242
Q

Form 1120 - Sch M-1 and M-3 reconciliations

At the end of the year, if a corporation has:

  1. TOTAL RECEIPTS and total assets < 250,000 - No reconciliation is required.
  2. Total assets > 250,000 but <$10 million - Sch M-1 is required but may file M-3
  3. Total Assets >_ $10 million - Sch M-3 is required
A

True

243
Q

SE tax

A

Only SE income upto $168,600 for 2024 is subject to SS or FICA tax of 12.4%

244
Q

Penalty for returns not filed within 60 days of DUE DATE (including extensions), IRS may assess a minimum penalty which is lesser of ____________

A

$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

245
Q

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

A

$60 per return / upto $31,500 per year for 2024

246
Q

Endorsing or Negotiating TP’s refund check

A

$635 per check/no limit for max penalty for 2024

247
Q

Failure to be diligent in determining eligibility for certain benefits (EIC<, CTC, ODC, AOC, HOH Filing status)

A

$635 for each failure on each return /No limit for max penalty for 2024

248
Q

ACA, 2010 - Expand Access to Insurance Coverage

A

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)

249
Q

Mortgage insurance premium _____________

A

is no longer deductible on Sch A (expired in 2023)

Mortgage prepayment penalty is deductible

250
Q

IRA early withdrawal

A

No penalty + no tax on :

  1. Homebuyer (1st time) $10,000 for use in 120 days
  2. 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)

251
Q

Generally, the final individual return can claim deductions for expenses the decedent paid before death:

A
  1. 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)
  2. 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

252
Q

Life Insurance Proceeds

A

C corp can’t deduct for key people if corporation is the beneficiary.

253
Q

Section 280F luxury automobile depreciation limits do not apply to vehicles ______________

A

that charge for transportation

254
Q

FOllowing are not eligible for BONUS DEPRECIATION:

  1. Assets converted from personal to business use are not eligible for bonus depreciation.
  2. Assets acquired from related party are not eligible for Bonus Dep.
  3. Assets received as a gift are not eligible for Bonus Dep
  4. Inherited property is not eligible for Bonus Dep
A

True - MACRS applicable

New or used business property with a depreciable life of 20 yr OR LESS is eligible for bonus depreciation.

255
Q

LTCG gets preferential tax rate and QUalified Dividends as well

A
256
Q

NIIT - 3.8% over $250,000 of 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

A

Form 8960

257
Q

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)

A

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

258
Q

CPA who did fraud _________

A

is liable to any party who suffered an injury or damage

259
Q

There is no requirement that a contract be profitable to be enforceable

A
260
Q

Nonconforming goods

A

Breach of contract, since with accomodation note, reasonable notice was not provided to the buyer.

261
Q

Selling exp

A

Stock issue cost and underwriter fee

262
Q

DRD

50% of taxable income

A

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

263
Q

Warranty of Merchantability

A

It is implied whenever a merchant sells goods or ordinarily sells goods.

264
Q

Parol evidence rule

A

Subsequent oral agreement - admissible

contradictory not admissible

265
Q

Neither party can appeal decision of small court section of US Tax court

A
266
Q

A 100% DRD may be claimed for a Dividend Received from a _____

A

FOREIGN corp in which ownership EXCEEDS 10% and the stock was owned for more than 365 days.

267
Q

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.

A

NON DEDUCTIBLE

268
Q

Nonbusiness or personal bad debt - always ST capital loss

A

Inheritance = always long term

269
Q

TI is negative , CHaritable contributions are not dedcutible

A

NEGATIVE

270
Q

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

A

START UP COSTS - $5,000 start up deduction

e.g. Advertising Start up cost, prospective client start up cost, training costs

271
Q

SHS CONSTRUCTIVELY owned (Indirectly owned) or owned by a company- PHC, Personal Holding Company

A

,ONLY - Parents, spouse, child, grandchild, siblings are considered as FAMILY.

272
Q

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.

A

Neither corps, nor partnerships , nor Non-US citizens are not eligible

273
Q

GIFT middle value when SP is the middle value of both SP and Basis_________

A

Zero

274
Q

Tax basis for calc gain/loss

A

Cost less: Depreciation

275
Q

LAnd Cash payment = 40000
Mortgage = 50000
Title isnurance = 200

A

90200

276
Q

Capital asset

A

Personal use or Investment

277
Q

QBI income includes =

A

income from Sole proprietorship, partnership, S corp, Trust or Estate

278
Q

General partner is the only oen responsible for Recourse liability

A

and not the limited partner

279
Q

Jury trial - US District court

A
280
Q

A minor can disaffirm (rescind) any time while a minor and does not depend on UCC

A
281
Q

USS - SWAP acronym

A

Specially manufactured goods
Written contract
A
P

282
Q

Undisclosed principal

A

Agent - NO Apparent authoirity

283
Q

Undisclosed principal cannot ratify the contract (as client/party will not be aware of the principal)

A

Only other 2 can - fully disclosed and partially disclosed can

284
Q

APPLICABLE/AUDITED FINANCIAL STATEMENT (AFS)available :

  1. Deduct allowed for business property upto $5,000 per item?

(if cost of the item is more than allowed amount, CAPITALIZE the entire cost)

A

AFS not available - deduction allowed upto $2,500 per item

(if cost of the item is more than allowed amount, CAPITALIZE the entire cost)

285
Q

Middle value =

A

APPLICABLE ONLY IN TERMS OF GIFT TAX = NO GAIN OR NO LOSS

286
Q

CONSTRUCTIVE NOTICE = PUBLIC NOTICE

A

ACTUAL NOTICE TO DIRECT 3RD PARTIES = E.G. CUSTOMERS, VENDORS

287
Q

UWORLD

  1. COMPENSATORY damages = DIRECT OR ACTUAL LOSSES
  2. CONSEQUENTIAL damages = INDIRECT AND ANTICIPATED LOSSES
  3. LIQUIDATED DAMAGES = Predetermined loss amount (e.g. deposit forfeitures) agreed by both parties
  4. NOMINAL DAMAGES = Trivial sum (e.g. $1) to vindicate the plaintiff’s rights when no actual loss or damages occurs
  5. SPECIFIC PERFORMANCE = Unique subject matter (e.g. patent, works of art) when a monetary award is not sufficient.
A

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.

288
Q

Shareholder’s salary does not affect basis at all , DO NOT CONSIDER IN BASIS of S CORP SHAREHOLDER.

Penalty lowers basis of shareholder.

A

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.

289
Q

PARTNERSHIP BASIS

A
  1. 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.
  2. Purchase of land for investment DOES NOT affect basis (only affects when there is a gain or loss from sale of land)
  3. PARTNERSHip paid EMPLOYEE SALARIES AND WAGES - “Deductible by the partnership in arriving at partnership ORDINARY BUSINESS INCOME.”
  4. PARTNERSHIP INCURRED INTEREST EXPENSE On partneship investment indebtedness - Treated AS SEPARATELY SEPARATED DEDUCTION and potentially DEDUCTIBLE BY THE PARTNERS.
  5. 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

290
Q

Bankruptcy estate and grantor trust can be shareholders in an S CORP

A

TRUE , S CORPS were created to help small. family owned businesses.

291
Q

a CORP
S CAPITAL LOSS CARRYBACK OR CARRYOVER IS

A

ALWAYS SHORT TERM CAPITAL LOSS

292
Q

NEXUS

A

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

293
Q

S CORP - DISTRIBUTIONS IN EXCESS OF BASIS ARE TAXABLE TO THE TAXPAYER ON __________

A

INDIVIDUAL RETURN AS CAPITAL GAIN

294
Q

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%)

A

C CORPS (S corps cannot claim as they are pass through that do not create triple taxation)

295
Q

R&E - 5 years
Amortization - 15 years (foreign)

A
296
Q

Apportionment between states - NEXUS

A

Avg of all sales + payroll + property costs/3

because they r 3 income and expense items

297
Q

S CORP

A

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.

298
Q

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

A

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 %)

299
Q

Both Individuals and corporations can utilize the like-kind exchange provisions of Code section _______

A

1031

300
Q

C CORP

A

IF CHARITABLE CONTRIBUTIONS IS MADE WITHIN 3.5 MONTHS of the following tax year , then it’s deductible.

301
Q

Casualty loss for corps = Adjusted basis less : Insurance rembursement

A

Individuals

= Amount
-100 floor
-10% of AGI

302
Q

20% credit is allowed for qualifying expenditures made to rehabilitate a certified historic structure.

A

The credit is claimed ratably over 5 years beginning with the year the building is placed in service.

303
Q

to QUALIFY as tax exempt

A

one-third support should come from GOVT and GENERAL PUBLIC

304
Q

Int is non operating income so should be taxed only in

A

HOME STATE

305
Q

DRD loss exists - income limitation does not apply

A

Full DRD applies e.g. 65% or 50% or 100%

306
Q

Start up cost - deduct 50k

A

Org expense
deduct 5k first and amortize the rest

307
Q

Accounts payable is a ________. Only GENERAL PARTNER is liable for it in the partnership and not the limited partner.

A

recourse debt

308
Q

Termination of S corp election can take place if :

A

Passive investment income is greater than the 25% receipts in the prior 3 years

309
Q

Individual is not subject to underpayment penalty is tax due is $500 or less

A

$1000 for corps?

310
Q

Provision for state tax and interest incurred on loan to carry US obligations are considered same for both ___________

A

Book income and tax income

311
Q

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%.

A

Subject to SE tax but not on dividends paid by corp as it is passive income and not the SE income

312
Q

LLP

A

Does not pay federal income tax

313
Q

Order to apply proceeds from sale of COLLATERAL

A
  1. SELLING EXP(attorneys, brokers CPAs)
  2. Foreclosing (primary creditor), unpaid debt
  3. Subrodinate creditor (lesser security interes)-unpaid debt
  4. Refunded to Debtor
314
Q

CHaritable deduction order for PUBLIC CHARITIES and PVT OPERATING FOUNDATIONS (distributes funds to its own charitable programs) -

  1. Cash (60%)
  2. ordinary Income property (50%)
  3. LTCG (30% AGI)
A

PVT Non OPERATING FOUNDATIONS (distributes funds to other charitable organizations):

  1. Cash (30%)
  2. Ordinary income property (30% of AGI)
  3. LTCG (20% of AGI)
315
Q

Becker - to calculate DRD - include amount of charitable contributions dedn? video 2 of DRD

*DRD we generally take LESSER of the two:

  1. 50% of dividends received
  2. 50% of TI
    However exception applies:
A

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

316
Q

VIRTUAL CUrrency is not a reportable account for__________unless th account holds other reportable assets.

A

FBAR.

317
Q

Conversion of G Partnership to an LLC

A

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

318
Q

Furniture and fixtures - 7 year under MACRS (200% DDB)

A

CHATGPT - 200% Declining Balance (DDB) is typically the default method for 7-year property under MACRS

319
Q

Temp director’s meeting

A

Org expense

320
Q

CH 7 - The debtor must surrender certain property received within 180 days after the petition is filed.

A

This property includes:

  1. Inheritances
  2. Life insurance proceeds
  3. Divorce property settlements (payments to divide marital property, not alimony)
321
Q

Elements necessary to prove negligence (CAMPS)

A
  1. Casual relationship-plaintiff suffered harm because of CPA’s actions
  2. Absence of reasonable due care
  3. Material misstatements
  4. privity- only to clients or intended/foreseen third parties . Only they can sue.
  5. Suffered Loss

CPA is not required to sign the extension.

322
Q

VOluntary bankruptcy

  1. Debtor files the petition
  2. No need to prove insolvency
  3. Creditors don’t sign the petition
  4. Order of relief issued immediately
    Open to individuals and most entities
A

Involuntary bankruptcy

  1. Creditors file the petition
  2. Must show debtor not paying debts
  3. One to 3 creditors must sign petition
  4. Order of relief delayed until court hearing
  5. Open to individuals and most entities
  6. Allowed in Chapters 7 and 11

$18,600 debt for CH 7 bankruptcy

323
Q

Order to apply proceeds

A
  1. Selling expenses (attorneys, brokers, CPAs)
  2. Foreclosing primary creditor
  3. Subordinate creditor
  4. Debtor
324
Q

Obligation of Surety - Public OFFICIAL bonds such as Tax collector bond, Treasurer bond, COunt Clerk Bond

A

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.

325
Q

Unsecured bonds

A

COnvertible, debenture and municipal bonds

326
Q

Copyright infringement

A

Reproduction
make derivative works (in different language)
Distribution
Performance
Display
Transmission

327
Q

ERISA - EMPLOYEE RETIREMENT INCOME SECURITY ACT

  1. VESTING - employee contri vest immediately
  2. Employer contri vest within a reasonable time (e.g. 5 years)
A

Must be managed by independent party with no relation to the employer

It’s not a mandatory plan - optional

328
Q

CH 11

A

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?

329
Q

Tax claims incurred within 3 years before filing bankrupcy _________

A

never dischargeable under CH 7 bankruptcy

330
Q

Revised Model Business Corp Act

A
331
Q

RUPA

A
332
Q

Dependent care expenses -

lesser of the
20% of actual dependent care expenses
or 20% of $3000 limit per dependent

A

20% or

35%

333
Q

EIC rules

A

MFS disqualified for claiming EIC

334
Q

Decedent can file MFS if spouse re-marries before end of the year

A

True

335
Q

Fraud on income tax return

A

No time limitation - IRS may reassess the TP anytime.

336
Q

uNEARNED income of the child is subject to

A

Kiddie tax

337
Q

GIFT - always take DONOR’S Basis unless ____________

A

it’s being sold at a loss, then take FMV

338
Q

Omission of more than 25% of gross income ____

A

statute of limitations move up to 6 years

otherwise it’s 3 years from the date the return was filed.

339
Q

UCC

A

consider only manufacturing related cost (like off storage cost)

340
Q

Municipal arbitrage bonds

A

Taxable

341
Q

REIT div not subject to DRD because they r not treated as dividends

A

True

REGULATION (8 decks)

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