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Accy 171 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

what is a regressive tax system?

A

everyone pays a certain AMOUNT of taxes thus higher incomes pay less of a % of their income

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2
Q

proportional tax system

A

all income levels are taxed at a specific %

ex. 20% for everyone

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3
Q

what tax system does the US use?

A

Progressive tax system

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4
Q

marginal tax rate

A

tax rates at which the next $ earned would be taxed

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5
Q

Effective tax rate

A

tax rate relative to total income

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6
Q

Circular 230

A

must have reasonable basis for decisions when preparing tax

due diligence

no conflict of interest

Duty to promptly submit records and info to IRS (unless privileged)

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7
Q

statutory sources of tax

A

US constitution
International Tax treaties
Tittle 26 of US code (Revenue Code IRC)

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8
Q

Tax avoidance vs Tax Evasion

A

avoidance is an attempt to reduce tax but evasion involves deceit or obscure events

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9
Q

Basic Structure of IRC

A

Subtitles A,B,C
Chapters 1,2,3,
Sub chapters A,B,C
Parts I, II, III

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10
Q

Administrative sources of tax law

A

Treasury Department
Revenue Rulings
Letter Rulings
Memoranda

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11
Q

Judicial source of tax law

A

Trial courts (ex. tax court, District Court, Court of Federal Claims)

Appellate courts
Petitioner v. Respondent

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12
Q

def. of income

A

I.R.C does not define income but must meet
increase in wealth
realization requirement
complete control

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13
Q

def of gross income

A

all income from whatever source derived

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14
Q

examples of income

A

property given to taxpayer
use of property given
services provided to tax payer
debt relief

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15
Q

income is bases on

A

FMV of property/service on the date of receipt

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16
Q

taxable year for C coprs

A

fiscal year

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17
Q

taxable year S corps and Partnerships

A

Calendar year

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18
Q

certain transactions cannot be cash method

A

buying and selling inventory for producing income

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19
Q

income is recognized under cash method

A

when actual or constructive receipt is received or cash equivalent is received

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20
Q

what is constructive receipt

A

money is due
money is available to taxpayer
failure to receive money by taxpayer is because of taxpayer’s own action or inaction.

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21
Q

Original Issue Discount

A

The difference between amount due at maturity and amount originally paid (aka interest)

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22
Q

Accrual method meet

A

the Events test

amount to be received is calculated reasonably

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23
Q

All events test includes

A

the performance has taken place

payment is due or has taken place

24
Q

Exceptions to all events test

A

insolvent debtor

right to income is in controversy

25
Q

deferral option for prepayments under the accrual method

A

services up to 1 year

goods may be deffered

26
Q

Dividend is qualified to be taxed when

A

(taxed as the record date)

27
Q

gift stock exception when it is taxed

A

on declaration date owner of stock pays tax

28
Q

dividend is taxed when

A

company is traded on US stock exchange

must meet holding period (capital gains tax)

dividend is less than what the company earned that year

29
Q

how to calculate adjusted basis

A

Cost + Capital Additions - Cost Recovery = Adjusted Basis

30
Q

cancellation of debt is

A

income 1099-C

31
Q

Tax Benefit Rule

A

Do not go back and amend prior year’s return

32
Q

imputed interested

A

the difference between market interest rate and interest on loan (if below market rate)

33
Q

exceptions for imputed interest on below market loans

A

loans under $10000: can’t be used for tax avoidance and not used to purchase income-producing property

loans under $100,000: Net investment must be below $1000

34
Q

requirements to deduct a business expense under I.R.C. Section 162

A

all ordinary and necessary expenses needed in carrying on a trade or business (must be reasonable) also must be paid in the taxable year

35
Q

cash method recognizes deductions when

A

expense is actually paid

36
Q

Accrual method recognizes a deduction when

A

all events test is met and Economic performance is met

37
Q

Economic performance

A

is when the performance has been performed…

38
Q

Under cash method (for deductions) prepaid expenses must be

A

capitalized

39
Q

rule when accrual method taxpayer pays expense to cash method tax payer

A

deduction is deferred until income is required to be recognized (called Related Party Expense)

40
Q

what constitutes as related party

A

Family members
corporations and 50% or greater shareholders
two corps that are members of a controlled group

41
Q

Excessive Executive compensation are disallowed as business deductions

A

TRUE

42
Q

deduction allowed from investigating a new business and creating it or acquiring it

A

$5000 is deducted if total exp is less than $50,000

but if over $55000 then it is amortized over 180 months

43
Q

T Or F

Loss on sale of property to related parties are disallowed

A

True

44
Q

deduction of property donation when capital gain property

A

deduction equal to FMV

45
Q

deduction of property donation when it is ordinary income property

A

deduction is equal to donor’s basis of the property

46
Q

loss on sale of property between related parties is disallowed

A

TRUE

47
Q

Interest Related to Tax-Exempt Income

A

deduction is disallowed Ex. loans to purchase municipal bonds

48
Q

Research and Experimental Expenditures options

A

Deduct in year paid

Amortize for 60 months when you first realize the benefit

Capitalize

49
Q

cash donations to charitable organizations

A

can only deduct 10% of taxable income

50
Q

requirements for cost recovery allowances

A

property held for qualifying use

property can suffer wear and tear

useful life of over one year

51
Q

cost recovery period for residential real estate (Real Property)

A

27.5 years

52
Q

cost recovery period for nonresidential real estate (Real Property)

A

39 years

53
Q

convention used real property

A

mid month convention for disposing

54
Q

convention used for personal property

A

half year or mid-quarter

55
Q

Section 168(K)

A

bonus depreciation of 50% for NEW assets for the first year

56
Q

Section 179

A

Expense up to $500,000 (limit) of acquisition costs placed in service that year

Accy 171 (2 decks)

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