Deck 8 Flashcards
How do you calculate the realized amount of a sale of a partnership interest by the partner?
You would take the sales price - any liabilities the partner owed.
You wouldnt include basis in here, it would only be selling price and liabilities
An estate or trust is not allowed a standard deduction in preparing the fiduciary income tax return.
An estate or trust is not allowed a standard deduction in preparing the fiduciary income tax return.
Does a PMSI have priority over all secured and non secured debtors?
For inventory, yes
A (PMSI) in noninventory goods has priority over all other security interests in the same collateral if the PMSI is perfected within 20 days of the debtor’s getting possession.
In an example where there in 100,000 of debt outstanding and there are cosureties who each are liable for 100,000, and one surety is relieved of debt, how much does the surety that is left owe?
Even though both sureties maximum liability is the full $100,000, they each owe $50,000 if the debtor defaults. After the one surety is let go without approval from the 2nd surety, the 2nd surety’s max liability then becomes $50,000.
Keep in mind that any collateral or payments would reduce the full $100,000 and then the 2nd surety would have a max liability of half that amount.
Which of the following are debt securities?
Convertible Bonds
Debenture Bonds
Warrants
Bonds are debt securities. Thus, convertible bonds and debenture bonds are debt securities. A warrant is a contractual right to purchase stock, which constitutes a share of corporate equity.
How would you calculate a negligence penalty and a substantial understatement penalty?
It would be the same, 20% of the understatement.
You would have one or the other, not both. It would be either a negligence or substantial understatement penalty.
To determine if it’s substantial understatement =
Greater of
1) 10% of tax liability
2) 5,000 for individuals, 10,000 for C Corps
If the understatement was below the greater of the 2, no substantial understatement.
If a C corp becomes an S corp and it has an asset that was during that year after S corp status, what portion of the same amount is taxable?
The built in gains portion is taxable (FMV at time of S corp status - Basis). Since an S corp is not taxble, any gain over the built in gains tax is not taxed at the corporate level.
If a tax payer sold an antique they had purchases many years ago and received a gain, would that be classified as ordinary income or long-term capital gain?
Because the taxpayer was not in the business of selling antiques, the profit from the sale will be treated as a gain from the disposition of a capital asset, not ordinary income.
If there is a like kind exchange and the taxpayer gets out of a debt, is that considered part of the gain recognized?
YES, relief of a debt by the taxpayer is considered boot.
In a situation where a corporation forms, what is the basis of the shareholder who contributes land with a FMV of 100, an adjusted basis of $50, and who also received 20 from the corporation?
70 (50+20)
When a corporation is formed your basis in the corp is the adjusted basis and when gain or debt is received you add that onto the adjusted basis in the property to get the shareholders basis.
How do you calculate what portion of a distribution is taxable and non taxable to the shareholder?
Stock basis has an order in which the basis is increased or decreased that is important because it will determine the taxability of distributions and how much loss can be deducted. The order is:
- Increased for income items and excess depletion;
- Decreased for distributions;
- Decreased for non-deductible, non-capital expenses and depletion; and
- Decreased for items of loss and deduction.
So if a shareholder has basis of 50 and the corporation (S or C) has income of 10, losses of 10, and gave a distribution of 70. You would calculate the basis before distribution as 60 (50+10) and reduce that by the 70 distribution which would lead to 60 non taxable distribution and 10 of taxable distribution and then no loss can be applied since there is no more basis.
A tax exempt organization is considering buying stock in an S corporation in an unrelated business. Is the S corporation taxed to the non exempt organization at all?
A tax-exempt organization is subject to regular corporate income tax on unrelated business income, which is income from a business enterprise that is not related to its tax-exempt purpose.
Merchants who make an offer and promise to keep the offer open for a certain period of time cannot revoke the offer. even if there was no consideration to keep the offer open.
Merchants who make an offer and promise to keep the offer open for a certain period of time cannot revoke the offer. even if there was no consideration to keep the offer open.
Under the Secured Transactions Article of the UCC, what would be the order of priority for the following security interests
in consumer goods?
I. Financing agreement filed on April 1.
II. Possession of the collateral by a creditor on April 10.
III. Financing agreement perfected on April 15.
Generally, for consumer goods, a buyer of good in the ordinary course of business has priority over other creditors followed by those who have Purchase Money Security Interest (PMSI). In the absence of PMSI, the order of priority is determined by the order in which perfection was achieved. Note, apart from PMSI, perfection can be achieved by (1) filing of financial statement or (2) taking possession of the collateral. In the given situation, in the order of priority, security interest was first perfected on April 1 with the filing of the financial statement. Followed by this the second perfection was achieved on April 10 with the possession of collateral. Finally, the third perfection was achieved with the filing of the financial statement on April 15.
Investment interest can only be deducted up to the amount of investment interest income (i.e. US. Treasury bond income).
Investment interest can only be deducted up to the amount of investment interest income (i.e. US. Treasury bond income).
