Dalton Quizzes Flashcards
Tony Scarponi has come to you asking about the basis of property that his brother Calvin gave to him. The property had a market value of $75,000 and Calvin’s adjusted basis in the property was $18,000 at the time of the gift. Calvin paid gift tax of $3,500 on the gift. Tony wants to know what his adjusted basis in the property is. Assume Calvin had utilized his annual gift tax exclusion for gifts previously given to Tony that year. What will you tell him?
A)Tony’s new basis is $18,000, the same as Calvin’s basis was at the time the gift was made.
B)Tony’s new basis is the fair market value of the gift at the time of the gift.
C)The adjusted basis for Tony is $20,660.
Rationale
The correct answer is “C.”
Increase in Donee’s Basis = (Appreciation of the Property/ Taxable Gift) x Gift Tax Paid FMV of Property at Date of Gift
[($57,000 ÷ $75,000 = .76) x $3,500] + $18,000 = $20,660
D)The adjusted basis for Tony is $21,500.
As a direct result of the rules under TCJA 2017, qualifying dividends will be treated in which manner:
Under TCJA the capital gain breakpoints are at set dollar amounts not corresponding to the current tax brackets. See provided tax tables in Helpful Documents within Blackboard.
What kind of tests of corporation must meet to be considered a personal holding company?
a.) Ownership test—During the last half of the taxable year, more than 50% of the value of the outstanding stock of the corporation is owned by five or fewer individuals.
b.) Passive income test—At least 60% of the corporation’s adjusted ordinary gross income consists of personal holding company income.
■ Adjusted ordinary gross income is the company’s gross income, with several adjustments. Adjustments include reductions for property taxes, depreciation, and interest expense.
■ Personal holding company income is generally defined as passive income and certain income from services.
c.) Undistributed personal holding company income is the corporation’s adjusted taxable income, less the dividends paid deduction.
What are the Itemized deductions that are deductions from AGI?
These include charitable contributions, medical expenses, mortgage interest, taxes paid, and casualty losses in a federally declared disaster area. c. These deductions are also known as Schedule A itemized deductions.
What is the maximum capital loss for individuals?
Capital losses can offset capital gains without limit. a. Capital losses are deductible against a taxpayer’s ordinary income up to $3,000 ($1,500 for taxpayers filing as MFS) annually, with an unlimited carry-forward amount. b. Any capital losses unused after filing a taxpayer’s final federal income tax return are lost and may not be used by the estate or a beneficiary. c. A corporation can use capital losses only as an offset against capital gains. 1.) Capital losses in excess of a year’s capital gains may be carried forward for five years or carried back to each of the preceding three tax years. 2.) The loss is treated as a short-term capital loss for the year in which it is carried forward or back. 3.) Remaining capital losses that cannot be fully utilized in the carryover periods (three years back and five years forward) are not deductible.
cost recovery
成本回收
Which of the following appropriately describes senior worker’s social security benefit situation?
Her benefits would have been reduced $1 for every $3 she earned in excess $48,600 (2020) in the year in which she attained full retirement and there is no penalty after normal age retirement
Factors affected the money purchase plan are:
Forfeitures may reduce employer contributions due to contribution offsets or Section 415 limitation on annual additions. Increased compensation will result in increased contributions by the employer, subject to Section 415 limitations. Returns on portfolio assets and actuary funding are a concern in defined benefit plans. A money purchase plan is defined contribution plan.
A rabbi trust
A rabbi trust is a irrevocable trust but, unlike a funded deferred compensation plan, the assets are subject to the claims of the employer’s creditors. This avoids constructive receipt by the employee and delays income taxation until distribution.
Which of the following statement(s) concerning Unrelated Business Taxable Income (UBTI) is/are accurate?
I. Dividends, interest, and other types of income derived from investments in a business are not subject to UBTI.
II. A partnership interest in an investment enterprise, whether active or passive, is subject to UBTI.
III. A direct business activity carried on for the production of income is considered a trade or business for UBTI purposes.
IV. Securities of the employer purchased with loan proceeds by an Employee Stock Ownership Plan (ESOP) are not subject to UBTI.
A)I only. B)I, II and III only. C)II, III and IV only. D)I, III and IV only. Rationale The correct answer is "D." Direct investment in a business generates income which is UBTI. Any investment which is purchased with "leverage" or borrowed funds generate UBTI except for a qualifying ESOP or LESOP.
ERISA
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.
5144Question 19 of 24Retirement and EE Benefits Quiz 4
An employer has made a contribution equal to 5% of each plan participants income into a profit sharing plan. The plan with a one-year service requirement is found to be top heavy. Which of the following statements is true?
A)The top-heavy condition must be corrected before the end of the plan year or the plan will be disqualified.
B)The plan must use a 2-6 or shorter vesting schedule.
C)An additional contribution of 3% to Non-Highly Compensated Employee (NHCE) accounts is mandated.
D)Highly compensated employees must have their contributions reduced so the plan is no longer top-heavy.
Rationale
The correct answer is “B.” A top heavy plan mandates a 3-year cliff vesting or 2-6 graded vesting schedule (or faster if elected by sponsor.) Top heavy plans must make a minimum contribution of 3% to non-key employees. This PSP had already made a 5% contribution so no additional contribution is required. Top heavy plans are still qualified as long as minimum vesting and contribution requirements are met.
Which of the following penalties are assessed when prohibited transactions occur?
I. 10% of the amount involved unless shown that ERISA fiduciary standards were satisfied.
II. Penalties can continue when ongoing transactions carry over to subsequent years.
III. The plan must be restored to a financial position no worse than if the transaction had never occurred.
IV. Income tax will be assessed against those plan participants who were party to the transaction by the courts.
A)I and III only.
B)II and III only.
C)III and IV only.
D)I and II only.
Rationale
The correct answer is “B.” The first tier excise tax for prohibited transactions is 15% of the amount involved and is automatic even if the violation was inadvertent. The second tier excise tax is 100% of the amount involved and is assessed if the prohibited transaction is not remedied. There are no income taxes applied; all remedies are made through restitution and excise taxes.
Gia, age 45, is married and has two children. Her employer, Print, Inc sponsors a target benefit plan in which she is currently covered under. Which of the following statements is true regarding her plan?
A)She can name anyone she wishes as her beneficiary.
B)A target benefit plan favors younger employees.
C)A target benefit plan is covered under PBGC.
D)The investment risk is on the employee.
Rationale
The correct answer is “D.” The investment risk is on the employee because this is a defined contribution plan. She can only name someone other than her spouse if she has a valid waiver signed by the spouse. This applies to all pension plans. A target benefit plan favors older entrants. A target benefit is not covered under PBGC.
an “incidental benefit” if offered through a defined contribution plan?
Life insurance in a qualified plan is limited, under the incidental benefit rule, to 25% of aggregate contributions to the participant’s account for Term and Universal life plans. Whole life plans may constitute 50% of the contribution.
QJSA?
A qualified joint and survivor annuity (QJSA) provides a lifetime payment to an annuitant and spouse, child, or dependent from a qualified plan.
Pension plans are required to offer a QJSA to participants, including:
I. Cash balance plan.
II. Target benefit plan.
III. Defined benefit plan.
IV. Money purchase plan.
A profit sharing plan is not subject to QJSA requirements.
QJSA rules apply to money-purchase pension plans, defined benefit plans, and target benefits. They can also apply to profit-sharing and 401(k) and 403(b) plans, but only if so elected under the plan.
A supplemental deferred compensation plan that pays retirement benefits on salary, above the Section 415 limits, at the same level as the underlying retirement plan is known as:
A)A Supplemental Executive Retirement Plan (SERP).
B)A funded deferred compensation plan.
C)An excess benefit plan.
D)A Rabbi trust.
Rationale
The correct answer is “C.” An excess benefit plan extends the same benefits to employees whose contributions to the plan are limited by Section 415 (e.g., employee earns $285,000 yet receives $57,000 contribution instead of $70,000 contribution due to Section 415 limitation on a 25% money purchase plan). An excess benefit plan would put additional $13,000 into non-qualified retirement plan. Do not confuse with a SERP which provides benefits in excess of the Section 415 limits AND ignores the covered compensation limits (i.e., $285,000 in 2020) applied to qualified plans.
which of the following components must be factored into the calculation of the maximum annual addition limit?
Employer and employee contributions to all defined contribution plans.
Annual additions are defined as new money contributed into the individual account of a participant. Because forfeitures reduce employer contributions and are not added directly to employee’s individual accounts, the forfeitures are not included in annual additions. Annual earnings and rollover contributions are not included in annual additions.
The rule of withdraw and rollover the IRA
Once an individual has participated in a rollover where funds have been withdrawn and held and then reinvested, he or she is ineligible for such a transaction again for one year from the date of receipt of the amount withdrawn.
Pension Benefit Guaranty Corporation (PBGC),
while PBGC insures CB Cash Balance Plans, it does not insure 401(k) plans.
How do cash balance plans differ from 401(k) plans?
The employer bears the risks and rewards of the investments in a Cash Balance Plan, while under 401(k) plans, participant bear the risks and rewards of investment choices.
qualified profit-sharing plans
Profit-sharing plans should make contributions that are “substantial and recurring.
While contributions to profit sharing plans are generally discretionary, meaning a plan sponsor can decide from year to year whether to make a contribution or not, the IRS expects that contributions will be “recurring and substantial” over time in order for a plan to be considered ongoing and remain viable
In a profit sharing plan, if the plan sponsor has failed to make substantial contributions in three out of five years, there may be a discontinuance of contributions
IRA investment
Most investments are permitted in an IRA.
- ) Stocks, bonds, mutual funds, and limited partnerships are examples of investments that are permitted within an IRA.
- ) Prohibited investments are the following:
a. ) Collectibles—includes art, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages, and certain other tangible personal property. (Certain U.S. coins are permitted.)
b. ) Life insurance
What are the prohibited transactions for a defined benefit plan?
Prohibited transactions
- ) Sale, exchange, or lease of any property between the plan and a party in interest
- ) Loan between the plan and any party in interest
- ) Transfer of plan assets to or use of plan assets for the benefit of a party in interest
- ) Acquisition of employer securities or real property in excess of legal limits