Final Reg Exam Questions Part II

Question 1

What is the difference between a donee beneficiary vs. a creditor beneficiary?

Answer 1

A donee owes NO DEBT, and NO DUTY owed.

Question 2

Common Law Fraud suit - what are the 4 elements?

Answer 2

Material Misstatement
Loss has been suffered
Information was relied upon (justifiable)
Scienter / reckless misconduct

Question 3

2018 and prior divorce - Alimony received + property settlement. How to tax?

Answer 3

Alimony - taxable

Property - not taxable

Child support NEVER taxable

Question 4

1244 worthless: what goes on return as last date of holding?

Answer 4

Last day of current taxable year

Question 5

Real estate contracts must be signed - what happens if only the offeror signs? Oral acceptance by offeree?

Answer 5

Contract enforceable only on offeror because they are the only one who signed.

Question 6

What is the maximum amount of Social Security benefits to be included in gross income?

Answer 6

85%

Question 7

ON the sale of a gift - use FMV at time of transfer OR donor’s original cost basis?

Answer 7

Donor’s original cost basis.

Question 8

Can implied warranty of title be disclaimed?

Answer 8

Yes it can, but if a merchant simply says “any and all warranties disclaimed” it DOES NOT include the implied warranty of title. Needs SPECIFIC LANGUAGE disclaiming implied warranty of title.

Question 9

In absence of election of an accounting period, a partnership would adopt:

Answer 9

a tax year of one or more partners with more than a 50% interest in profits and capital

Question 10

What does a financing statement contain?

Answer 10

• Description of collateral
• Name/address of debtor
• Name/address of creditor

NO witness required
NO dollar amount
NO date of payment of debt

Question 11

Depreciation recapture vs. total gain - which to recognize?

Answer 11

The lesser of the total gain realized or the accumulated depreciation.

Question 12

If understatement is due to fraud to failure to file, the time period that the IRS has to assess additional taxes against the taxpayer is how long?

Answer 12

UNLIMITED

Question 13

Regarding taxpayer penalty - you can either pay

___% of current year tax

___% of prior year liability

___% of prior year liability if PY AGI > $150,000

Answer 13

Regarding taxpayer penalty - you can either pay

90% of current year tax

100% of prior year liability

110% of prior year liability if PY AGI > $150,000

Question 14

How many audits of public companies does a CPA firm registered with the PCAOB have to perform before it receives and annual inspection from the PCAOB?

Answer 14

More than 100 audits

Question 15

Who must have capacity in order to form an agency relationship?

Answer 15

the principal must have capacity to give legal consent

Question 16

Cases tried in what court have NO appeal?

Answer 16

Small Cases Division of the U.S. Tax Court

Question 17

A party losing in the Federal U.S Federal Claims Court or U.S. Tax Court appeals where?

Answer 17

U.S. Court of Appeals

Question 18

A party losing in the Federal DISTRICT Court may appeal where?

Answer 18

U.S. Court of Appeals for the Federal Circuit.

Question 19

How can an award be non-taxable?

Answer 19

• Recipient selected without any action on their part
• Recipient performed no services
• Designated to a charity directly from awarding organization

Question 20

Are public accounting firms allowed to provide bookkeeping services to audit clients?

Answer 20

YES, can’t provide bookkeeping, appraisal, valuation, actuarial, internal audit, etc.

However, they are allowed to provide those services to a NON-audit client.

Question 21

After an S-corp’s status is revoked, how long must they wait to file again?

Answer 21

5 years

Question 22

Person dies. What is the exception rule that applies to medical expenses?

Answer 22

If a waiver is filed, the medical expenses may be deducted on final 1040, even if the estate paid. (treated as paid by the decedent)

Question 23

What are the owners of an LLC called?

Answer 23

members

Question 24

Medicare portion of social security and self-employment taxes

Answer 24

are non-deductible

Question 25

A medical expense incurred in prior years but paid in the current year, when is it deductible?

Answer 25

Deductible in the year that it is paid

Question 26

Can a CPA disclose client information pursuant to an attorney’s solicitation request?

Answer 26

No, violation of confidentiality.

Valid subpoena
Peer review
or client consent

Question 27

Does worker’s comp statutes cover pre-existing conditions that are aggavated?

Answer 27

YES

Question 28

What is the % of AGI limit for an individual donating L-T capital gain appreciated property?

Answer 28

30%

Question 29

What income is including in determining if a company is a PHC?

Answer 29

60% or more of the income has to be from passive sources

Passive: TAXABLE interest, dividends, rents, royalty income

Question 30

Upon termination of a trust, who ordinarily receives the assets of a terminated trust?

Answer 30

Remainderman

Question 31

Parole evidence rule prohibits the use of what kind of evidence?

Answer 31

prior oral or written agreements

Question 32

Legislative Reenactment Doctrine presumes that a longstanding finalized regulation has

Answer 32

congressional approval if Congress has not amended that section of the IRC.

Question 33

What is the “Pease limitation” and what did the TCJA do to it?

Answer 33

Pease - limitation of itemized deductions for wealthy individuals

TCJA suspended this limitation

Question 34

Like-kind exchanges - don’t forget this about boot!

Answer 34

If debt relief (other party assume mortgage), ADD this to BOOT.

Question 35

what kind of gifts do NOT reduce the unified credit?

Answer 35

Spouse
Charity
Church
Tuition

Question 36

Is QBI claimed on Schedule C or Form 1040?

Answer 36

Form 1040

Question 37

A partner’s BANKRUPTCY results in

Answer 37

disassociation from the partnership

Question 38

One spouse works, other does not, under 50. How much IRA contribution?

Answer 38

12,000

Question 39

A principal’s ratification relates to

Answer 39

the authorization of an agent’s UNAUTHORIZED ACTS

Question 40

Personal property - MACRS depreciation

Answer 40

double declining balance

1/2 year depreciation is taken in the first year and 1/2 a year is taken in the year of sale

Question 41

If an individual taxpayer has elected to amortize the premium on a bond that yields taxable interest…

Answer 41

the bond’s basis is reduced by the amortization. Permitted as a deduction and considered recovery of the basis of the bond.

Question 42

An accuracy related penalty of 20% based on underpayment of tax due to what 3 things:

Answer 42

1. Negligence or disregard of tax rules
2. Substantial understatement
3. Substantial valuation overstatement of liabilities

Question 43

Original basis: $10,000
FMV at gift time: $12,000
Gifted person later sells for $14,000

Capital gain amount?

Answer 43

$14,000

Question 44

Complete liquidation of a corp:

Asset basis: 660,000
Mortgage: 700,000 (assumed by shareholder)
FMV of property: 730,000

Gain for corp?

Answer 44

Use the greater of FMV or mortgage. If shareholder assume mortgage, rule says that the FMV must be at least that, or else why would the shareholder take it? But if mortgage is higher, use that, produces a higher gain for the corp and the FEDs are greedy.

Question 45

What is the cap on the deduction of investment interest expense?

Answer 45

It is deductible UP TO the amount of investment income.

Question 46

4 parts of negligence:

Answer 46

Duty of Care
Breach of Duty
Cause/Effect (justifiable reliance)
Damages

Question 47

Under the unified transfer tax system, one transfer tax schedule is used to compute the gift tax as well as the estate tax. Transfers at death and lifetime taxable gifts are taxed on a __________basis.

Answer 47

cumulative

Question 48

The income that is passed through to a beneficiary has the SAME/DIFFERENT tax attributes in the hands of the beneficiary as when it is received by the trust?

Answer 48

SAME

The basis of property donated to a trust is the donor’s carryover basis and holding period.

Question 49

Gifted stock basis: 8,000
FMV at gift: 6,000
Sale price by gifted person: 7,000

*Note that the SALE PRICE is between BASIS and FMV.

6,000 - 7,000 - 8,000

Gain or loss amount?

Answer 49

$0

Section 1015(a) provides for two bases in the case of depreciated property acquired by gift. The basis for determining gain is the donors cost basis in the gifted property. The basis for determining loss is the lesser of (1) the donors cost basis or (2) the FMV of the property on the date of the gift. When the gifted property is sold for an amount that is between the gain and loss bases, then no gain or loss is recognized [Reg. §1.1015-2(a)(2)].

Question 50

Difference in EXTREME duress vs SIMPLE duress when it comes to forming a contract?

Answer 50

Extreme Duress, i.e. duress through physical compulsion, would render the contract VOID, whereas a Simple Duress would render the contract VOIDABLE.

Question 51

activities regularly conducted by a tax-exempt organization will result in unrelated business income?

Answer 51

Business activities RELATED to the organization’s tax exempt purpose are excluded when calculating Unrelated Business Income (UBI).

Question 52

ULTRAMARES RULE: who will the accountant be liable to for negligence?

Answer 52

ONLY those with privity.

Ultramares = UltraNICE to accountants

Question 53

WHen does gain or loss arise for a taxpayer?

• trade date
• settlement date
• date proceeds received

Answer 53

TRADE DATE

Question 54

Is a personal residence considered a capital asset?

Answer 54

YES

Question 55

Which TYPE OF PARTY is liable to REPAY an illegal distribution to a corporation?

Answer 55

A shareholder must repay illegal distributions from Corporation that was insolvent at the time of distribution, even though the shareholder was unaware of the illegality of the distribution.

Question 56

Real estate offered for sale. Offeror dies. Offeree has not accepted. What happens to offer?

Answer 56

Terminated upon death.

However, it would be valid of the offeree had accepted prior to death.

Question 57

Court cases tried in which court have NO APPEAL?

Answer 57

Cases tried in the Small Claims Division of the U.S. Tax Court