Federal Processes

Question 1

What is a lookback rule?

Answer 1

Under a lookback rule, the taxpayer is required to recalculate the annual profit reported on a contract. In other words, it requires the taxpayer to substitute the actual costs and revenues for the estimated revenues and costs used in the percentage-of-completion method.

Question 2

The statute of limitation begins based on the following rules:

Answer 2

• The date the return is filed
• If the return is filed early, it is considered filed on the due date of the return.

Question 3

The UNICAP rules require:

Answer 3

the capitalization of all direct materials and direct labor. Some indirect costs such as indirect labor and handling costs may be capitalized. Some indirect costs are not capitalized such as selling and distribution costs.

Question 4

General Safe Harbor Rule:

and

Special Safe Harbor Rule:

Answer 4

General Safe Harbor Rule: To avoid any penalty for underpayment of estimated taxes, the taxpayer must pay in 100% of the prior-year tax paid or 90% of the current-year tax due.

Special Safe Harbor Rule: If the taxpayer had taxable income in the previous year in excess of $150,000, then the safe harbor for avoiding underpayment penalties is 110% of the prior-year tax.

Question 5

Work product doctrine

Answer 5

also known as work product rule, is a doctrine or rule that protects certain work to be admitted into a tax case. The material in question may be shielded.

Question 7

What is the Interstate Income Act of 1959?

Answer 7

Restricts a state’s authority to tax interstate commerce

Question 8

What are the principles of the Interstate Income Act of 1959?

Answer 8

A state can’t collect income tax on sales within its borders as long as the orders are filled and shipped outside of the state Applies to tangible property only Does not protect a Corporation in the state where incorporated Does not protect from taxes using metrics other than income (Ex: Sales Tax)

Question 9

What is the Uniform Division of Income for Tax Purposes Act (UDITPA)?

Answer 9

Uniform criteria for determining taxable income of multi-state corporations Also known as the Multi-State Tax Compact

Question 10

What are the basic principles of UDITPA?

Answer 10

Designed to ensure a company is not taxed more than once on its income Forces a corporation to segregate Business Income from Non-Business Income

Question 11

What is considered Business Income?

Answer 11

Part of the corporation’s regular course of business Includes acquisition of tangible and intangible property if such activities are part of the regular trade or business