EA Part 2-Passkey 7-8

Question 1

Net Operating Loss (NOL)

Answer 1

is when a business has tax deductions that exceed its current income, resulting in negative taxable income

Question 2

NOL carryback period: ___ years,

carry forward up to ___ years

Answer 2

2 years, then carry forward any remaining NOL for up to 20 years.
A business may elect not to carry back, only carry forward.

Question 3

Longer carryback periods: exception to the 2-year carryback rule are for:

Answer 3

• “qualified small business”, 3 years if in federally declared disaster
• NOL due to casualty or theft, 3 years
• farming loss, 5-year
• product liability, 10-year (ex: recall & lawsuits)

Question 4

FORM 1045

Answer 4

FORM 1045 Application for Tentative Refund, used to apply for quick tax refund resulting from the carryback of an NOL. Or TP may choose to amend a prior year return.

Question 5

NOL only offsets income tax. It cannot change prior years’…

Answer 5

self-employment tax, or interest or penalties

Question 6

Form 3800

Answer 6

Form 3800 General Business Credit
The GBC is a combination of 32 business credits. Each is claimed on a separate form, then the credits are added in aggregate on Form 3800.

Question 7

GBC is nonrefundable credit, but it can be carried back __ year and forward for ___ years

Answer 7

1 year back, 20 years forward.

Question 8

Form 3468 Investment Credit

is sum of 5 credits:

Answer 8

• Rehabilitation of pre-1936 bldgs 10%, or historic structures 20%
• Energy Credits - 10-30% fuel cell or solar to power their manuf. eqpt
• Advanced Coal, Gasification or Advanced Energy Project Credits - to reduce greenhouse emissions by retrofitting existing technology projects

Question 9

Form 8826

Disabled Access Credit

Answer 9

50% of qualified expenses to allow business to comply with Americans w Disabilities Act, $5,000 max cr per yr, for businesses earning $1 million or less, no more than 30 full-time employees

Question 10

Form 5884 Work Opportunity Tax Cr

Answer 10

up to $9,600 per veteran hired & working for for-profit employers
up to $6,240 for Tax-exempt organizations

Question 11

Form 8910 Alternative Motor Vehicle Credit

Answer 11

• fuel cell
• advanced lean burn technology
• hybrid
• alternative fuel
• plug-in electric drive
  Unusual: allowed for personal vehicle as nonrefundable cr, or business-use become part of GBC

Question 12

Form 8936

Qualified Plug-in Electric Drive Motor Vehicle Credit

Answer 12

$2,500 to $7,500 purchased or leased

Question 13

Form 8909

Energy Efficient Appliance Credit

Answer 13

for manufacturers of eligible 
-dishwashers, 
-clothes washers
-refrigerators;
based on how little energy appliance uses

Question 14

Form 8908

Energy Efficient Home Credit

Answer 14

Ranges from $1,000 to $2,000; for contractors of residences

Question 15

Form 8846

Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips

Answer 15

credit equal to employer’s portion of Soc. Sec. & Medicare taxes paid on tips received by employees of restaurants & food service

Question 16

Form 8932

Credit for Employer Differential Wage Payments

Answer 16

incentive to small business to pay wages to military employee on active duty for period of more than 30 days

Question 17

Form 8941

Credit for Small Employer Health Insurance Premiums

Answer 17

25% of premiums for tax-exempt small business;
35% all other small employers;
Business must have <25 FTE employees with ave. wages <$50,000

Question 18

Form 8881

Credit for Small Employer Pension Plan Start-up Costs

Answer 18

A new defined benefit, defined contribution, 401(k), SIMPLE or simpliifed employee pension.
For businesses with no more 100 employees;
50% of costs up to max credit of
$500 per year
for first 3 years of retirement plan

Question 19

Form 8882

Credit for Employer-Provided Childcare Facilities

Answer 19

Up to 25% of cost of childcare facility plus
10% of childcare resources & referral costs.
Limited to $150,000 per tax year.

Question 20

Credit for Increasing Research Activities

Answer 20

intended for use in developing new or improved technology that would be used in a taxpayer’s business

Question 21

In 2012, section 181 allows film & TV producers to expense

Answer 21

the first $15 million or production costs incurred in US, $20 million if in economically depressed areas, rather than capitalizing costs

Question 22

DPAD

Answer 22

Domestic Production Activities Deduction

Question 23

DPAD is equal to __% of the lesser of a business’ …

Answer 23

9%
-qualified production activities income or
- taxable income determined without regard to the DPAD
Limited to 50% of wages paid on Form W-2 (meant to discourage outsourcing & use of independent contractors)

Question 24

Eligible Activities for the DPAD

all must be done or relating to U.S.-based production or services

Answer 24

• manufacturing activities in U.S.
• Selling, leasing or licensing U.S.-manufactured items
• selling, leasing or licensing motion pictures (except porn)
• construction of real property
• engineering & architectural services
• software development
• production of water, natural gas & electricity
• growth & processing of agricultural products & timber

Question 25

Form 8903

Domestic Production Activities Deduction

Answer 25

available to individuals, trusts & estates, C corporations, partnerships, S-corps and LLCs.
- may not exceed 9% of C corp taxable income or 9% of AGI for Sch C, partners, Owner-shareholders in S corps.

Question 26

AMT tax preference items for businesses

Answer 26

• depletion
• excess intangible drilling costs,
• tax-exempt interest on private activity municipal bonds
• accelerated depreciation on property placed in service before ‘87
• exclusion of gain on qualified small business stock

Question 27

Form 6251

Answer 27

Alternative Minimum Tax-Individuals

this form used by sole prop. & partnerships

Question 28

Form 4626 Alternative Minimum Tax-Corporations

Answer 28

Small corps are exempt from AMT if gross receipts for last 3 years are <$7.5 million, or $5 million for company’s first 3-year testing period

Question 29

Form 3468 Investment Credit: cannot be claimed for property used…

Answer 29

• outside U.S.
• by governmental unit or foreign person/entity
• by a tax-exempt organization
• for lodging or the furnishing of lodging
• for any property that has already been expensed under Sec. 179

Question 30

Authorized by IRC Sec. 199, what is DPAD designed to do?

Answer 30

DPAD is designed to stimulate domestic manufacturing & farming.

Question 31

If a taxpayer pays real estate taxes on property he buys, taxes that were owed by the seller,

Answer 31

those taxes are added to the basis and cannot be deducted

Question 32

Demolition costs ___ an asset’s basis

Answer 32

increase, because they are necessary in order to prepare a property for use

Question 33

Costs incurred to demolish a building are added to the basis ___

Answer 33

of the land on which building was located

Question 34

NOT included in basis of real property

Answer 34

• casualty insurance premiums
• rent or utility costs related to occupany of the property before closing
• any charges for acquiring a loan, such as mort. ins. premiums, loan assumption fees, cost of a credit report, fees for appraisals or refinancing, and points

Question 35

Points are prepaid interest on a loan and are ___

Answer 35

deducted as interest over the life of the loan, rather than added to an asset’s basis.

Question 36

Name items that INCREASE the basis of business property

Answer 36

• cost of extending service lines to ppt
• impact fees
• legal fees, such as cost of defending & perfecting title
• zoning costs
• government assessments for paving roads, sidewalks

Question 37

Name items that decrease the basis of property

Answer 37

• items that represent a return of capital; i.e., rebates and casualty losses
• deductions for deprec,, amortization & depletion
• nontaxable corporate distributions
• exclusion of subsidies for energy conservation measures
• tax credits
• easements

Question 38

Form 4684

Answer 38

Casualties and Thefts

For businesses are fully deductible, unlike personal limits ($100 & 10% of AGI)

Question 39

A business casualty or theft loss deduction that’s more than its income for the year __

Answer 39

is a net operating loss. It can be carried back 1 year or carried forward 20 years.

Question 40

DRIP

Answer 40

Dividend Reinvestment Plan

Question 41

Bargain Purchase

Answer 41

If as compensation for service a TP buys goods or other ppt at < FMV, the difference between the purchase price and ppt’s FMV must be included in his income.