Final Reg Exam Questions Part III

Question 1

Surety/Guarantor:

Must a creditor first proceed against the debtor?

Answer 1

YES. And then if creditor is unable to collect from the debtor, is the creditor allowed to go after the surety.

Question 2

Charitable contributions:

Purchase of art object at church bazaar for $1200
(with a fair market value of $800 on the date of purchase)

How much is deductible?

Answer 2

$400

which is the difference between what he paid and the fair market value of the art object ($1,200 – $800 = $400).

Question 3

Like-kind exchanges no longer apply to personal property. Only applies to the exchanges or real property. Therefore, what do you recognize?

Answer 3

FULL GAIN is relaized

Question 4

Securities Exchange Act of 1934

which of the following activities must be proven by a stock purchaser in a suit against a CPA?

I. Intentional conduct by the CPA designed to deceive investors

II. Negligence by the CPA

Answer 4

I ONLY:

FRAUD

the plaintiff must prove that there was material misrepresentation of fact in the financial statements, loss was suffered due to this misstatement, information was relied upon and that error was on account of reckless disregard to truth or scienter.

REMEMBER:
1933 - easy to sue CPA
1934 - harder to sue CPA

Question 5

Under the liability provisions of Section 11 of the Securities Act of 1933, which of the following must a plaintiff prove to hold a CPA liable?

I. The misstatements contained in the financial statements certified by the CPA were material.

II. The plaintiff relied on the CPA's unqualified opinion.

Answer 5

I only

it is only necessary to prove that (i) Material misstatements or omissions were made in the financial statements and (ii) A financial loss was suffered as a result of the above. The plaintiff need not prove reliance on the unqualified opinion.

Question 6

CHARITABLE CONTRIBUTIONS:

A written acknowledgement is necessary for cash contributions of $___ or more

Answer 6

$250

Question 7

CHARITABLE CONTRIBUTIONS:

qualified appraisal is required to be attached to the tax return if the value of the donated property exceeds $____

Answer 7

$5,000

Question 8

What now qualifies for like-kind exchanges after the TCJA?

What no longer qualifies?

Answer 8

QUALIFIES;

• business for business
• investment for business
• investment for investment property

NO LONGER QUALIFIES:

• property held for personal use
• inventory
• partnership interests

NEVER QUALIFIED
- securities for securities

Question 9

How many people are allowed to be deemed PREPARER of a tax return?

Answer 9

can include a signing preparer and any number of non-signing preparers

Question 10

What is meant by RESPONDEAT SUPERIOR?

Answer 10

doctrine under which a corporation is made liable for the torts of its employees, committed within the scope of their employment

Question 11

What is the CHILD AND DEPENDENT CARE CREDIT?

Is it refundable?

Answer 11

The dependent and child care credit is a non-refundable credit provided to enable an individual to be gainfully employed or look for work. It is available for children below the age 13 or a disabled dependent. Eligible expenses include baby sitter, nursery school, day care, preschool and after-school care for kindergarten and higher-grade children. The maximum amount of credit is the smaller of (1) actual expenses or (2) $3,000 for one dependent and $6,000 for multiple dependents or (3) earned income of the lower paid spouse.

NON REFUNDABLE

Question 12

A taxpayer received a painting valued at $8,000 as a gift. The donor purchased the painting a year earlier for $4,500 and paid no gift tax on the transfer. Nine months later, the taxpayer sold the painting for $9,000. What is the amount and classification of the capital gain?

short-term or long-term

Answer 12

$4500 long -term

gifter’s holding period
gifter’s basis

Question 13

What happens if

the corporation prevails in a determination allowing a deduction in an open tax year that was taken erroneously in a closed tax year. Can the closed tax year be reopened?

Answer 13

YES

The statute of limitations can be reopened under the mitigation provisions under §1311(a) if the taxpayer is able to take a deduction in an open year that the taxpayer deducted previously in a year that is now closed as provided in §1312(2).

Question 14

DOes a power of attorney expire upon death?

Answer 14

YES

Question 15

What is a recission?

Answer 15

Rescission is the method by which the parties to a contract are restored to their original position.

Question 16

In general, a dependent child can be a considered a medical dependent on the parent’s return through what age?

Answer 16

26

Question 17

Gross income limit for a parent to be considered a medical dependent is approximately $___

Answer 17

$4,300

If less, the parent’s medical expenses can be added to yours to help reach over 10% AGI limit on return.

Question 18

What are the requirements for a copyright to be enforced?

Answer 18

A copyright must be registered before an action for infringement may be filed.

Providing notice and registering a copyright prevents an infringer from claiming innocent infringement.

Question 19

under Section 11 of the Securities Act of 1933 only ______ damages can be claimed

Answer 19

under Section 11 of the Securities Act of 1933 only monetary damages can be claimed against the corporation.

Question 20

CPA is sued under 1934 Act: Defendant needs to prove fraud. What are CPA’s defenses?

Answer 20

• Followed GAAS
• good faith and auditor lacks knowledge of falsity (no scienter)
• Misstatement is not material

**Cannot use lack of privity as a defense as anyone is allowed to sue

Question 21

Lilac Corp., a C corporation with earnings and profits, redeemed shares of stock from individual shareholder. The distribution in redemption of stock will likely result in dividend income treatment to the redeeming shareholders if

Answer 21

The redemption is proportionate with respect to the shareholder where every shareholder’s percentage ownership remains same after the stock redemption or buyback

Question 22

Who can no longer use the installment sales method for tax purposes?

Answer 22

A dealer in real estate or a merchant selling personal property can no longer use the installment sales method for tax purposes.

Question 23

The Uniform Principal and Income Act allocates ______expenses to trust principal.

Answer 23

The Uniform Principal and Income Act allocates extraordinary expenses to trust principal.

Current and ordinary operating expenses are chargeable to income.

Question 24

Does the use of credit cards count as payment in the tax year or is it the year the credit card bill was paid?

Answer 24

The use of bank credit cards is deemed to be a payment for purposes of timing the deductibility of charitable and medical expenses.

Question 25

Chapter 9 bankruptcy is reserved for

Answer 25

municipalities

Question 26

A corporation’s deduction for charitable contributions generally is limited to 10% of taxable income without regard to

Answer 26

(1) the deduction for charitable contributions
(2) the dividends-received deduction
(3) any capital loss carryback to that year

Question 27

Gain from an involuntary conversion of taxpayer’s property may be deferred if the property is replaced within the statutory time limit, which are as follows:

__years for destruction or theft of property resulting in insurance recovery
__ years for government condemnation or eminent domain award
__ years for conversion in connection with a declared federal disaster

Answer 27

2 years for destruction or theft of property resulting in insurance recovery
3 years for government condemnation or eminent domain award
4 years for conversion in connection with a declared federal disaster

Question 28

IRS audit

Taxpayer rejects findings

What happens next?

Answer 28

IRS will send the taxpayer copy of the examination report and a Preliminary Notice i.e. 30-day letter which implies that the taxpayer has 30 days to accept the deficiency or request an administrative appeal with an appeals officer.

Question 29

Under the Age Discrimination in Employment Act, what is a possible remedy?

Answer 29

Back pay

**early retirement is NOT a remedy

Question 30

Can a husband and wife who have different accounting method file MFJ?

Answer 30

YES

Question 31

Can a couple file MFJ if they divorced during the year?

Answer 31

NO, they must be married at the end of the tax year.

Question 32

Who files a plan of reorganization during bankruptcy?

Answer 32

Only the debtor can.

Question 33

Remainder interest in trust is a future interest gift. Are future interest gifts included or excluded from the annual exclusion of $15,000.

Answer 33

Annual exclusion of $15,000 is NOT available for future interest gifts.

Question 34

provisions of the 1933 Act only apply to first time _______ with SEC.

Answer 34

registration

Question 35

A widower can only claim qualifying widower in the 2nd year after death if

Answer 35

she has young children AND stays with her for the whole year AND she pays for more than half support.

Question 36

DIstributions from an S Corp are tax free to the extent of

Answer 36

BASIS

Question 37

DO municipal bonds count as a gift?

Answer 37

YES, despite tax exempt status, still include to calculate annual gift tax exclusion.

Question 38

In what case would IRS have 6 years from the date of filing to audit?

Answer 38

If understatement is due to gross negligence (> 25%), then it is 6 years after

Question 39

REMEMBER! What is the required holding period for Section 1231 assets?

Answer 39

Section 1231 assets have to be held for 12 months or longer

Question 40

pARTNERSHIP BASIS CANNOT GO BELOW

Answer 40

ZERO

Question 41

What type of entity has the most flexibility with the type of accounting period it uses?

Answer 41

A C-Corp

Question 42

Do personal property taxes paid on an automobile count toward SALT deduction?

Answer 42

YES

Question 43

Built-in gain property for a partnership. How is the gain handled?

Basis $60,000
FMV $100,000 at time of contribution

Later sale by partnership for $160,000

Answer 43

Total Gain for partnership: $100,000

Partner who contributed recognizes $40,000 of built-in gain (100-60)

Remaining gain to be distributed amongst all partners = $60,000

Question 44

How long do individuals have to AMEND a return?

Answer 44

Amended tax returns may be filed 3 YEARS after the original due date including extensions or 2 YEARS AFTER ACTUAL TAX PAYMENT, whichever is later.

In the case of a calendar year individual who filed the original tax return in April, the amended tax return must be filed no later than April 15 of the third year, i.e., three years, three months and 15 days after end of the calendar year or 2 years after actual tax payment, whichever is later.

Question 45

As of December 31, the Mitchells were legally separated and maintained separate households for the entire year. The Mitchells have no children. What filing status should Mr. Mitchell claim for the year?

Answer 45

SINGLE

Single is the filing status that is available for unmarried OR married but legally separated as of year-end.

Question 46

How do you calculate the penalty on early withdraw from IRA?

Answer 46

Marginal tax rate (not effective)
+
10% penalty

Question 47

Who is subject to the Net Investment Income Tax?

Answer 47

Jeff Legum

Net Investment Income Tax applies at 3.8% on investment income of individuals, estates and trusts that have net investment income and modified adjusted gross income above certain threshold amounts.