Final REG Review

Question 1

Individual Taxation

What schedule is used to report additional income and adjustments to income?

Answer 1

Schedule 1
* Part I of Schedule 1 reports income
* Part II of Schedule 1 reports adjustments to income

Question 2

Individual Taxation

What is reported on Schedule 1 on Form 1040?

Answer 2

• Additional income and adjustments
• Summaries from Schedule E and Schedule C
• Hobby income

Question 3

Individual Taxation

What is reported on Schedule B of the Form 1040?

Answer 3

• Portfolio Income
• Interest Income
• Dividend Income

Question 4

Individual Taxation

What is reported on Schedule C of the Form 1040?

Answer 4

Information for Self-Employeed Business Owners and sole proprietorships
* Revenue/Losses
* Expenses
* Meal and dining expenses
* Profit or loss from business
* Foreign Real Property Taxes
* Unincorporated business tax
* Payroll Taxes

Question 5

Individual Taxation

What is reported on Schedule D of the Form 1040?

Answer 5

Capital Gains and Losses
Part I: Short-term capital gains
Part II: Long-Term capital gains

Question 6

Individual Taxation

What is reported on Schedule SE of the Form 1040?

Answer 6

Self-Employment tax due on net earnings

Question 7

Individual Taxation

What is reported on Schedule E of the Form 1040?

Answer 7

Supplemental Income and Loss
* Rental income and deductions
* Self-Employment Tax
* Foreign Property Tax

Question 8

Individual Taxation

What is the limit for an individual in deducting capital losses?

Answer 8

$3,000 (Single, MFJ, HH)
$1,500 (Married-Filing Separately)

Question 9

Individual Taxation

How are an individual’s capital losses calculated?

Answer 9

Step 1: Offset Net Capital Gains with Net Capital Losses

Step 2: Offset Net Capital Losses with Ordinary Income of $3,000

Step 3: Carryfoward excess of $3,000 in Ordinary Income

The individual’s capital loss is reported as ordinary income

Question 10

Individual Taxation

What is an example of a individual’s capital loss carryfoward calculation?

Answer 10

Gain on L/T Stock: $3,000
S/T Loss: -18,000
Ordinary income: $60,000

Gain: $3,000
Loss: -18,000
Net: -15,000
Ordinary Income offset: $3,000
Carryforward: -12,000

Question 11

Individual Taxation

What is the income tax rate on capital gains?

Answer 11

• The tax rate is 0% if the taxpayer is already in the lower tax bracket
• The maximum tax is 15%

Question 12

Individual Taxation

What is the formula to calculate savings bond interest?

Answer 12

Tax-Exempt Interest
* (Higher Education Expense / Total Bond Amount Received) x Accrued Interest

Taxable Interest
* ((Total Amount Received - Tax-Exempt Interest) / Total Bond Received) x Accrued Interest

Question 13

Individual Taxation

What is the income treshold for Tax-Exempt Series EE Savings Bond interest?

Answer 13

Single: $80,000
Married, Filing Jointly: $120,000

Question 14

Individual Taxation

What is the difference between Capital Assets and Section 1231 Assets?

Answer 14

• Capital assets are held for personal use
• Section 1231 are real estate and other assets that are used for business

Question 15

Individual Taxation

What is the best tax planning strategy when an individual’s tax bracket changes?

Answer 15

• Income tax bracket lowers: Defer income until the following year
• Income tax bracket increases: Defer deductions since the deduction will have a higher tax value in the current year

Question 16

Individual Taxation

What are the revenue thresholds to report passive Loss

Answer 16

Is AGI less than $100,000?
* Maximum deduction amount is $25,000

Is AGI between $100,000 and $150,000?
* Maximum deduction of $25,000 is phased out
* $0.50 on the dollar will be calculated
* $25,000 - ($0.50 x (AGI - $100,000))

Is AGI equal or greater than $150,000:
* The passive loss is only offset by the passive income
* The passive loss is carried over

Question 17

Individual Taxation

What is an example of a phased out passive loss deduction when the taxpayer actively participates?

Answer 17

AGI = $110,000, Real estate loss = $30,000
The Phase Out Range = $150,000 - $125,000
$0.50 x (110,000 - 100,000) = $0.50 x $10,000 = $5,000
$25,000 - $5,000 = $20,000 deduction against earned income

Question 18

QBID

What are the thresholds to qualify for QBID?

Answer 18

Taxable Income
Single: $191,950/$241,950
MFJ: $383,900/$483,900

Question 19

QBID

Qualified Business and Specified Service or Trade

What is the calculation to determine the Qualified Business Income (QBI) Deduction if income is lower than the threshold?

Answer 19

QBI Deduction Test
Lesser of:
* 20% of QBI
* 20% of taxable income

Question 20

QBID

Qualified Business

What is the steps to determine QBI when taxable income is within the threshold for a Qualified Business?

Answer 20

Step 1: Calculate the QBI Test
Step 2: Calculate the Reduction Ratio
Step 3: Calculate the W-2 Limit
Step 4: If W-2 limit is greater than 20% of QBI, the Allowable QBI is 20% x QBI
Step 5: If W-2 limit is less than 20% of QBI, then calculate the excess amount
Step 6: Calculate the Allowed QBI Amount

Question 21

QBID

What is the calculation to determine the Qualified Business Income (QBI) Reduction Ratio?

Answer 21

Step 1: Calculate Reduction Ratio:
* Single Filer:
(Taxable Income - $191,950)/$50,000

• Married Filer:
  (Taxable income - $383,900)/$100,000

Question 22

QBI

What is the calculation to determine the Qualified Business Income (QBI) W-2 Limit?

Answer 22

Greater of:
* 50% of all employee wages
* 25% of Wages + 2.5% Unadjusted Basis after Aquisition

Question 23

QBID

What is the calculation to determine the Qualified Business Income (QBI) Excess Amount?

Answer 23

(20% x QBI) - W2 Limit

Question 24

QBID

What is the calculation to determine the
Allowed QBI Amount?

Answer 24

(20% x QBI) - (Reduction Ratio x Excess Amount)

Question 25

QBID

Specified Service Trade or Business

What is the calculation to determine the Qualified Business Income (QBI) Reduction Ratio?

Answer 25

Step 1: Calculate the Reduction Ratio
Step 2: Calculate the Applicable Percentage Ratio
Step 3: Apply Applicable Percentage
Step 4: Calculate the W-2 Limit
Step 5: If W-2 limit is greater than 20% of QBI, the Allowable QBI is 20% x QBI
Step 6: If W-2 limit is less than 20% of QBI, then calculate the excess amount
Step 7: Calculate the Allowed QBI Amount

Question 26

QBID

Specified Service Trade or Business

What is the calculation to determine the applicable percentage?

Answer 26

100% - Reduction Ratio

Question 27

QBID

Specified Service Trade or Business

What is the calculation to apply the applicable percentage?

Answer 27

Includible QBI = QBI x Applicable %
Includible Wages = Wages x Applicable %
Includible Unadjusted = Unadjusted basis immediately after acquisition

Question 28

QBID

What is the calculation to determine QBI when taxable income is greater than the threshold?

Answer 28

Qualified Business:
Lesser of
* QBI Test
* Wage Limit Test

Calculate the W-2 Limit
Greater of:
* 50% of W-2 wages paid
* 25% of W-2 wages paid + 2.5% of unadjusted basis of qualifying property

Question 29

Individual Taxation

What are the income thresholds to determine taxable income on social security benefits?

Answer 29

Taxable Income for Single Filers
* Less than or equal to $25,000: No Tax
* More than $25,000 but less than $34,000: 50% Tax
* More than $34,000: 85% Tax

Taxable Income for MFJ Filers
* Less than or equal to $32,000: No Tax
* More than $32,000 but less than $44,000: 50% Tax
* More than $44,000: 85% Tax

Question 30

Individual Taxation

How are social security benefits calculated when determining taxable income with respect to provisional income being at the 50% tax threshold?

Answer 30

Married, Filing Jointly:
Income is between $32,000 and $44,000

Lesser of:
* 50% of Social Security Benefits
* 50% of the excess of provisional income over $32,000

Single, Head of Household or Qualifiying Widower:
Income is between $25,000 and $34,000

Lesser of:
* 50% of Social Security Benefits
* 50% of the excess of provisional income over $25,000

Question 31

Individual Taxation

How are social security benefits calculated when determining taxable income with respect to provisional income being at the 85% tax threshold?

Answer 31

Single, Head of Household, Qualifying Widow

Lesser of:
* 85% of the excess of provisional income over $34,000 + $4,500
* 85% of benefits

Married, Filing Jointly

Lesser of:
* 85% of the excess of provisional income over $44,000 + $6,000
* 85% of benefits

Question 32

Individual Taxation

What is the calculation to determine the credit for Elderly and/or Permanently Disabled?

Answer 32

Base Amount
(Social Security Benefits)
(50% of AGI of $10,000)
Balance

Credit is lesser of:
* Current tax liability
* 15% of balance

Question 33

Individual Taxation

What is considered as taxable interest income that could cause social security to be taxable?

Answer 33

• Tax exempt bonds
• Banks certificates of deposit
• US Savings Bonds

Question 34

Individual Taxation

What is the maximum credit that can be taken on student loan interest?

Answer 34

• The limit is $2,500
• Deduction starts to phase out when AGI is $70,000 (Single)/$140,000 (MFJ)
• The phase-out range is $15,000

Example:
AGI: $80,000
Interest: $3,000
Phase-out: [(80,000 - 75,000)/15,000] x 2,500
Disallowed: $833
Allowable = $2,500 - $833 = $1,667

Question 35

Individual Taxation

What is the maximum deduction for Health Savings Accounts (HSA)?

Answer 35

• Maximum deduction is $3,600 (Single) /$7,200 (MFJ)
• Must have a deductible of $1,400 (Single) /$2,800 (MFJ)

Question 36

Individual Taxation

What is the deduction limit for a self-employed pension, or KEOGH, plan?

Answer 36

Lesser of:
* 25% of net income reported on Scheldule C
* Maximum amount of about $69,000

Question 37

Individual Taxation

What is the allowable deduction for IRA contributions?

Answer 37

Lesser of:
* $7,000 (Single) / $14,000 (MFJ)
* Earned Income

Earned income does not include pension plan distributions or interest income

Question 38

Individual Taxation

What is the maximum deductions for IRA Contributions?

Answer 38

Applies to both Traditional and Roth IRAs
* Before Age 50: $7,000/$14,000
* After Age 50: $8,000/$16,000
* If the earned income is less than the maximum deduction, then the deduction contribution would be the earned income.

Example
* Earned income for a 50 year old is $5,200, then the IRA deduction contribution reported would be $5,200.

Question 39

Individual Taxation

What is the spousal rule for IRA contribution deductions?

Answer 39

If the AGI is below $220,000:
* A married spouse who is non-working , or earns very little, is entitled to contribute and deduct the same amount that the working spouse contributed

Question 40

Individual Taxation

What amount can be contributed to an Education IRA?

Answer 40

AGI Below $95,000 (S) / $190,000 (MFJ)

• Maximum Education IRA contribution is $2,000/year
• A distribution of $10,000 is allowed for private K-12 education

Phase out
* Single: Between $95,000 / $110,000
* MFJ: $190,000 / $220,000

Question 41

Individual Taxation

If a student is under the age of 24 and claimed as a dependent, then what is the basic standard deduction amount?

Answer 41

Greater of:

• $1,300
• Dependents earned income + $450

Question 42

Individual Taxation

What is the difference between the Child Tax Credit and the Family Credit?

Answer 42

Child Tax Credit
* The tax credit is $2,000 per child under the age of 17, as of 12/31 of the taxable year
* $1,600 per child is partially refundable

Family Credit
* $500 non-refundable credit for each qualifying dependent, other than qualifying children
* Example of qualifying dependent is a child over the age of 17 or an older or elderly parent

Question 43

Individual Taxation

What is the dependent care credit?

Answer 43

• No AGI limitation
• The calculation is limited to the lowest earned income of the spouse or the expense cap
• If AGI is less or equal to $15,000: 35% is covered
• if AGI is more than $15,000: 20% is covered
• Expenses are capped at $3,000 for one child, $6,000 for more than one child
• If the spouse has no income, then credit cannot be taken

Question 44

Individual Taxation

How is the dependent care credit calculated?

Answer 44

Examples

• For two children, one spouse earned $6,000 and the other spouse earned $10,000. Total child care costs of $15,000. Since $6,000 is less the lowest income earned, then the dependent care credit would be $1,200 ($6,000 x 20%)
• For two children, one spouse earned $73,000 and the other spouse earned $2,000. Since $2,000 is less then the maximum amount of $6,000, the dependent care credit would be $400 ($2,000 x 20%)

Question 45

Individual Taxation

What are the requirements for the American Opportunity Credit?

Answer 45

• Credit limitation of $2,500 per student
• Up to 40% of $1,000 of tax liablity is partially refundable
• AGI phase out begins at $80,000/$160,000
• No credit after $90,000/$180,000
• Taxpayer must be enrolled as a student for at least a half-time basis
• The taxpayer must be a candidate for a degree
• Qualifying expenses must be for the current year and for the first three months of the following year
• Qualifying expenses are for tuition and all related supplies required for courses, except room and board

Question 46

Individual Taxation

What is the calculation to determine the American Opportunity Credit Deduction?

Answer 46

• The spend amount to maximize the credit is $4,000
• 100% of the first $2,000 of qualifying expenses
• 25% of the following $2,000 of qualifying expenses
• If the spend amount is equal to the tax liability, then the calculation is based on $1,000

Question 47

Individual Taxation

What is an example of American Opportunity Credit calculation?

Answer 47

Total tax before credit is $2,000
American Opportunity Credit = $2,500
Tax Liability = ($500) ($2,000 - $2,500)
Amount refunded would be ($500) x 40% = $200

Total tax before credit is $2,500
American Opportunity Credit = $2,500
Tax Liability is zero since $2,500 - 2,500 = 0
Amount refunded would be $1,000 x 40% = $400

Total tax before credit is $800
American Opportunity Credit = $2,500
Tax Liability = ($1,700) ($800 - $2,500)
Amount refunded would be ($1,700) x 40% = $680

Question 48

Individual Taxation

What are the requirements for the Lifetime Learning Credit?

Answer 48

• Phase out of AGI starting at $80,000/$160,000
• No credit at all at $90,000/$180,000
• Credit is non-refundable
• Can be taken for courses in graduate, undergraduate or for learning a new job skill

Question 49

Individual Taxation

What is the calculation to determine the Lifetime Learning Credit Deduction?

Answer 49

• 20% of the amount spent on the first $10,000 of tuition and expenses per year
• Maximum credit is $2,000 per family per year

Question 50

Individual Taxation

What are the steps to calculate Net Investment Income Tax (NIIT)?

Answer 50

Step 1: Calculate investment income

Step 2: Calculate Net Investment Income
* Investment Income - Investment Interest Expense - Advisory/brokerage fees - Rental and Royalty Expenses

Step 3: Calculate MAGI
* AGI + IRA Contributions + Non-Taxable SSI + Tax Exempt Interest

Step 4: Calculate NIIT
3.8% x lesser of:
* NII
* MAGI over threshold ($200,000 (S)/$250,000 (MFJ)/ $125,000 (MFS))

Question 51

Individual Taxation

What is an example of NIIT?

Answer 51

Single Filing Status
Combined Salary: $150,000
Investment Income: $100,000
Total Taxable Income: $250,000
Net Investment Income: $100,000

Tax Liability = $74,600

Net Investment Income = $100,000
MAGI = Wages + NII = 150,000 + 100,000 = 250,000

MAGI - Filer Threshold = $250,000 - $200,000 = $50,000

NIIT = 3.8% x Lesser of NII or MAGI
MAGI Over Threshold = 3.8% x $50,000 = $1,900
NII = 3.8% x $100,000 = $3,800

Step 3: Determine Lesser Amount
MAGI over Threshold: $1,900

Step 4: Calculate Total Liability
$74,600 + $1,900 = $76,500

Question 52

Individual Taxation

How are lapsed stock options recorded?

Answer 52

• A loss will be treated as if it occurred on the last day of the year
• If the time frame was within one year, it would be classified as S/T

Example
2/1/x2: Option to purchase 1,000 of $200 Value stock for $50
8/1/x2: Option to purchase lapsed
Loss: $50 x 1,000 = $50,000
12/31/x2: S/T Loss = 50,000

Question 53

Individual Taxation

What are the requirements for the Elderly and/or Permanently Disabled credit?

Answer 53

• The base amount is $3,750 (Single) / $7,500 (MFJ)
• Credit is either lesser of prior tax credit or 15% of eligible income
• Must be age 65 or disabled to qualify
• The credit is non-refundable
• AGI limits and social security count against the credit

Question 54

Individual Taxation

What is an example of the credit for the Elderly Care Credit?

Answer 54

AGI: $16,000 (MFJ)
Taxes Owed: $95
Social Security: $2,000

Base: $7,500
Social Security Benefits: (2,000)
50% of AGI Over $10,000: (3,000)
Total: $2,500
Balance = 15% x $2,500 = 375
Credit: Lesser of Current Tax Liability or Balance

Question 55

Individual Taxation

What are the requirements for the Retirement Savings Contribution Credit?

Answer 55

• AGI limitation of $37,000/$74,000
• If the AGI is less than $37,000: 50% of the contribution
• Maximum of $1,000 non-refundable credit based on IRA contributions
• The credit is non-refundable
• The credit is available to younger people starting in the workforce

Question 56

Individual Taxation

What is the calculation to determine Retirement Savings Contribution Credit?

Answer 56

• IRA Contribution x 50%
• Credit cannot be greater than $1,000

Question 57

Individual Taxation

What is the maximum deductible for State and Local Property Tax?

Answer 57

This is sometimes known as the SALT deduction

• $10,000 for Single, Head of Household, Married, Filing Jointly
• $5,000 for Married, Filing Separately
• Real Estate Tax is included with this limitation since it based on the residence’s state

Question 58

Individual Taxation

What is the maximum deductible for Interest Expense?

Answer 58

• $750,000 for Single, Head of Household, Married, Filing Jointly
• $325,000 for Married, Filing Separately

Question 59

Individual Taxation

What is the limitation for charitable contributions?

Answer 59

• Cash: 60% of the AGI
• Long-Term Capital Gain: 30% of AGI

Question 60

Individual Taxation

How are non-cash charitable contributions valued?

Answer 60

• Asset was held for more than a year: The fair market value at the date of the donation
• Asset was held for less than a year: The adjusted basis is used
• If the asset is donated for the same genre (i.e. artwork for a museum, then the value is the FMV is used
• If the asset is sold, the value is the lesser lower of the tax basis or the fair market value at the date of the donation

Question 61

Individual Taxation

What is dependent care assistance?

Answer 61

• Dependent care assistance is part of the employer’s cafeteria plan
• Programs are availabe to the employee
• If the employee chooses this plan, they can exclude up to $5,000

Question 62

Individual Taxation

How are higher education costs treated as part of an employer’s cafeteria plan?

Answer 62

• Payments are made by the employer on behalf of the student
• A maximum of $5,250 is excluded from the employee’s gross income

Question 63

Individual Taxation

When can personal casualty losses be deducted?

Answer 63

• When the loss is declared a disaster by the president
• Each loss is the lesser of the adjusted FMV or the tax basis of the property
• Each loss must be reduced by the insurance reimbursement and $100
• The deduction is the amount of the total loss in excess of 10% AGI

Question 64

Individual Taxation

What is an example of a personal casualty loss deduction?

Answer 64

AGI = $70,000
Less of Adjusted Basis or FMV = $130,000
Reimbursement = $120,000
Total Loss = ($130,000 - 120,000) - $100 = $9,900
10% of AGI = $70,000 x 10% = $7,000
Deductible = $9,900 - $7,000 = $2,900

Question 65

Individual Taxation

What is the calculation to determine the deduction from a self-employed pension, or KEOGH, plan?

Answer 65

Lesser of:
* 20% X (Self-Employed Earnings - Self Employment Taxes)
* 25% x Self-employed earned income

Question 66

Losses and Limitations

How are business casualty losses reported?

Answer 66

• Business casualty losses are reported on Form 4684
• The loss is the lesser of the property’s basis vs. the decline in FMV
• If the property is completly destroyed or stolen, the adjusted basis is used to compute the loss (the FMV is completely disregarded)
• If inventory is stolen, the loss is the adjusted basis

Question 67

Losses and Limitations

How are business casualty losses calculated?

Answer 67

Step 1: Calculate Casualty Loss
* Determine the lesser of the property basis vs the decline in fair value
* Lesser of: (FMV before less - FMV after loss) or Adjusted Basis

Step 2: Calculate Loss Deductible
Casualty Loss (Step 1) - Insurance Deductible

Question 68

Business Credits

What are the types of individual credits used when calculating the General Business Credit?

Answer 68

• Resarch and Development Credit
• Investment Credit
• Work Opportunity Tax Credit
• Low Income Housing Credit

Question 69

Individual Taxation

What is the Work Opportunity Credit?

Answer 69

• The maximum credit is 40% of the first $6,000 wages paid
• Companies get credit for hiring from a certain target group
• The credit reduces the wages paid deduction
• The credit is based on the employee’s first-year wages

Question 70

Business Credit

What are the qualifications for the Credit for Family and Medical Leave?

Answer 70

• Employees must receive at least two weeks of annual paid leave
• If the employer pays 50% of the wages during the employee’s leave, the credit is 12.5%
• If the employer pays 100% of the wages during the employee’s leave, the credit is 25%

Question 71

Business Credits

What are the limits for employee achievement awards?

Answer 71

• If the award plan is in place, the deductible is $1,600 per employee
• If the award plan is not in place, the deductible is $400 per employee

Question 72

Business Credit

What is the calculation to determine business tax credit?

Answer 72

Step 1: Calculate the Net Tax Liability:
* Company’s Tax Liabilitity - $25,000

Step 2: Calculate the current year’s business credit:
* Company’s Tax Liability - (Net Tax Liability x 25%)

Step 3: Determine Carryforward:
* Company’s current liability - Current Year’s Business Credit

Question 73

Business Credits

What is an example to calculate the business credit?

Answer 73

Taxable Income: $500,000
Regular Tax Liabilty: $100,000
TMT: $20,000

Eligible Credits:
R&D Credit: $15,000
Work Opportunity Tax Credit: $10,000
Investment Credit: $5,000
Total General Business Credits = $30,000

Limitation Calculation
Regular Tax Liability less TMT = $100,000 - $20,000 =$80,000
25% of Net Regular Tax Liability of $25,000 = 25% x (100,000 - 25,000) = 25% x 75,000 = $18,750
Limitation is greater of 25% of Net Regular Tax Liability of TMT = $18,750 or $20,000
Limit = $20,000

Credit Application
Lesser of:
* Total General Business Credits = $30,000
* Limitation Calculation = $20,000

$20,000 is used against the tax liability

Question 74

Business Credits

What are the steps to calculate business income loss

Answer 74

• Step 1: FMV Before Loss - FMV After Loss = Decrease in FMV
• Step 2: Choose the lesser of the adjusted basis or the decrease in FMV
• Step 3: (Lesser of the adjusted basis or the decrease in FMV) - Insurance Reimbursement = Business Casualty Loss

Question 75

Partnership Taxation

What is a Form 1065?

Answer 75

• Form 1065 is the Partnership Tax Return
• It is not used to pay income tax for the partners
• It is used to calculate Ordinary income and deductions

Question 76

Partnership Taxation

What is the partner’s basis in a non-liquidating distribution of capital assets?

Answer 76

Lesser of:
* The adjusted basis of the partnership’s basis in the asset
* The partner’s remaining basis in the partnership before the distribution

Example
Partner’s Basis before Distribution: $55,000
Adjusted Basis of Asset: $75,000
Amount of Asset Distribution: $55,000
Partner’s new basis after distribution: 0
No gain or loss is recorded

Question 77

Partnership Taxation

What are hot assets?

Answer 77

• Unrealized receivables
• Appreciated inventory
• Any gain or loss as a result in a hot asset will be reported as ordinary income for the outgoing partner based on their share

Question 78

Partnership Taxation

In a liquidation distribution, how are gains and losses reported for the partner?

Answer 78

Only cash has been distributed:
* A gain is recognized when the cash distributed is more than the partner’s basis
* A loss is recognized when the cash distributed is less than the partner’s basis

Losses can only be reported when it is a cash-only distribution

Question 79

Partnership Taxation

How are assets valued in a non-liquidating distribution?

Answer 79

Since the asset came into the partnership at basis, the asset will be valued at the adjusted basis

FMV is not used in determining the partner’s basis

Example
Partner Basis: $160,000
Securities Basis: $34,000
Securities FMV: $220,000
Basis after Distribution: $126,000 ($160,000 - 34,000)

Question 80

Partnership Taxation

When a cash and non-cash distribution takes place, what is the adjusted basis of the non-cash property?

Answer 80

The adjusted basis of the non-cash property is the difference between the unadjusted basis and the amount of cash received

Example
Partner A has a basis of $50,000
Cash Distribution of $20,000
Distributions are a car with a FMV of $40,000 and cash of $35,000
Partner’s Basis after distribution: $30,000
Gain Reported: $0, since cash distribution is less than the basis

Question 81

Liability to Clients and Third Parties Under State Law

What must be proven in order to find actual or constructive fraud?

Answer 81

Damages were incurred
* Intent to Induce Reliance to persuade the innocent party to believe the misrepresentation
* Intent to Deceive (Scienter) the innocent party
* Misrepresentation of Material Fact
* User Relied on Misreprenstation

Question 82

Liability to Clients and Third Parties Under State Law

What parties can sue a CPA for fraud?

Answer 82

Any person who suffered a loss as a result of the fraud

Question 83

Liability to Clients and Third Parties Under State Law

What must be proven in order to find Gross Negligence/Constructive Fraud?

Answer 83

Damages were incurred
* Intent to Induce Reliance
* Misrepresentation of Material Fact
* User Relied on Misreprenstation

Question 84

Liability to Clients and Third Parties Under State Law

What must a client prove when suing a CPA for negligence?

Answer 84

• Accountant owed the client a duty
• Accountant breach the duty (tort)
• Breach of duty caused injury to the client
• Client suffered damages

Question 85

Liability to Clients and Third Parties Under State Law

Who can sue a practitioner for negligence?

Answer 85

• Primary Users (aka the client)
• Foreseen users that the practitioner knew would be relying on the practitioner’s report

Question 86

Liability to Clients and Third Parties Under State Law

What is the difference between the Traditional Common Law Doctrine and the Current Majority Rule?

Answer 86

Traditional Common Law Doctrine:
* The CPA’s liability is limited to the parties in are privity and primary beneficiaries

Current Majority Rule:
* The CPA’s liability also includes foreseen third party users.

Question 87

Liability to Clients and Third Parties Under State Law

What is the difference between tort law and contract law?

Answer 87

Tort:
* The accountant’s liability.
* It is the wrong that results in a breach of duty that is imposed by society

Contract Law:
* The accountant is bound by the contract to perform the engagement with due care and in compliance with professional standards

Question 88

Tax Return Preparers

What qualifies as substantial or unsubstantial?

Answer 88

The test to determine substantial or unsubstantial is whether a portion of any return or claim for refund is either
* Less than $10,000 or
* Less than $400,000 and less than 20% of the gross income on the return or claim

Question 89

Tax Return Preparers

When would a tax return preparer incur a $60 penalty for each occurrence?

Answer 89

• Failing to furnish a copy of a tax return or refund claim to a taxpayer
• Does not sign a tax return or refund claim
• Omits the PTIN on a tax return or claim
• Fail to retain a copy or list of a tax return or claim they prepared
• Does not file the correct information on the tax return

Question 90

Tax Return Preparers

What is the penalty if a tax return preparer takes an undisclosed position when substantial authority does not exist to support their position?

Answer 90

• Greater of $1,000 or
• 50% of the income derived

Question 91

Tax Return Preparers

What is the penalty for the tax return preparer if they acted with willful or reckless conduct?

Answer 91

• Greater of $5,000 or
• 75% of the income to be derived

Question 92

Tax Return Preparers

What is the penalty if a preparer negotiates any check issued to the taxpayer?

Answer 92

• $600 for each occurrence
• This penalty also applies to any tax return preparer who operates a check cashing company

Question 93

Tax Return Preparers

What is the penalty if a preparer is not diligent in determining a taxpayer’s eligibility for specific benefits (i.e. filing status, dependent credits, AOC, Earned Income Tax Credit and Lifetime Learning Credit)?

Answer 93

$600 for each failure to determine eligibility

Question 94

Tax Return Preparers

What is the preparer penalty for filing fraudulent or false statements?

Answer 94

Greater of:
* $250,000 for an individual client
* $500,000 for a corporate client
* Imprisonment of not more than 3 years, or both

Question 95

Tax Return Preparers

What is the penalty for when a preparer discloses taxpayer information?

Answer 95

• $250 per disclosure/per year ($10,000 Maximum)
• $1,000 for misappropriation of identity/per year ($50,000 Maximum)
• $1,000 and up to a year in prison if the preparer pleads guilty of a misdemeanor

Question 96

Authoritative Hierarchy

What is the hierarchy of authority for the U.S. Federal Tax System?

Answer 96

• Internal Revenue Code
• Treasury Regulations
• Revenue Rulings and Procedures
• Private Letter Rulings
• U.S. Supreme Court Decisions
• Lower Federal Court Decisions
• IRS Publications, Notices and Forms

Publications such as treatises, articles and tax journal are not used when presenting the tax case

Question 97

Authoritative Hierarchy

What is the purpose of Committee Reports?

Answer 97

• Committee reports determines in the intent that Congress has behind certain tax laws
• The committee reports help examiners properly apply the law
• Can show that the taxpayer’s application of the tax law was in accordance with what is established
• Committee reports are highly authoritative

Question 98

Authoritative Hierarchy

What are revenue rulings?

Answer 98

• A revenue ruling is the official interpretation of the tax law
• It provides guidance on how the tax law is applied to a set of facts
• Revenue rulings are published to provide guidance
• Revenue rulings do not have the force and effect of treasury regulations

Question 99

Authoritative Hierarchy

What are revenue procedures?

Answer 99

• A revenue procedure is an official statement that affects the taxpayers
• Revenue procedures do not have force of law, but they can be cited in arguements

Question 100

Authoritative Hierarchy

What are the levels of courts that can hear tax cases?

Answer 100

• The Tax Court: The taxpayer has not yet settled a tax payment
• U.S. District Court: The taxpayer had settled on any payments first, or they have ruled on similar cases
• U.S. Circuit Court of Appeals: Hears cases from U.S. Tax Court and U.S. District Court
• U.S. Court of Federal Claims: Cases are appealed to the U.S. Court of Appeals for the Federal Circuit

Question 101

Authoritative Hierarchy

Why are publications not used as a defense before the Appeals Office?

Answer 101

• Publications are not binding
• They explain the law in plain language for taxpayers and their advisors

Question 102

Authoritative Hierarchy

What is a Technical Advice Memoranda (TAM)

Answer 102

• It is requested by the IRS after a return has been filed
• It is binding to the taxpayer who is subject to the ruling
• Other taxpayers who are not involved in this ruling should not use the TAM when defending a tax position

Question 103

Filing Requirements, Dependents, and Filing Status

What does a surviving spouse, who has no children, file the year of death and after?

Answer 103

• Married, filing jointly in the first year
• Single all subsequent years

Question 104

Filing Requirements, Dependents, and Filing Status

What are the qualifications to file as Head of Household?

Answer 104

• Taxpayer files a separate return
• Taxpayer does not file as qualifying surviving spouse
• Taxpayer paid for more than half of the costs of maintaining a home
• Spouse did not live in the home during the last 6 months of the year
• For more than a year, the home was the main home to the taxpayer, their children, step children, adopted children or where the taxpayer is a noncustodial parent

Question 105

Filing Requirements, Dependents, and Filing Status

Who are considered qualified dependents

Answer 105

The person cannot have gross income more than $4,700
* Children, including step children, adopted, foster child
* Parent
* Sibling, including step siblings, half siblings, adopted siblings
* Grandparents
* Grandchildren
* Aunt and Uncles
* Nephews and Nieces

Question 106

Filing Requirements, Dependents, and Filing Status

What type of filing is done when the a surviving spouse dies in the same year in the death of the spouse?

Answer 106

The filing for the deceased spouse will be Married, filing separately

Question 107

Payments, Penalties, and Refunds

What are the ways to make estimated tax payments in order to prevent paying a penalty?

Answer 107

Lesser of:
* 90% of the current year’s tax liability
* 100% of the prior year’s tax liability if AGI is less than $150,000
* 110% of the prior tax liability if AGI is equal or more than $150,000
* Quarterly installments of 25% of the previous year’s tax liability

Question 108

Payments, Penalties, and Refunds

What is the penalty fee for failure to pay by the due date?

Answer 108

• 0.5% of the tax amount due for each month unpaid
• The maximum penalty is 25% of unpaid taxes

Question 109

Payments, Penalties, and Refunds

What is the penalty fee for failure to file by the due date?

Answer 109

The return is filed within 60 days of the due date:
* 5% of the tax amount due for each month unpaid
* The maximum penalty is 25% of unpaid taxes

The return is filed more than 60 days late:
The penalty is the lesser of:
1. $485, or
2. 100% of the tax due

Question 110

Payments, Penalties, and Refunds

What is the penalty for inaccruate reporting?

Answer 110

• The penalty is 20% of the underpayment

If there is a substantial understatement of income, the tax penalty is the greater of
* 10% of tax required to be shown on the return, or
* $5,000 for individuals / $10,000,000 for corporations

Question 111

Payments, Penalties, and Refunds

What does the statute of limitations for S Corp begin?

Answer 111

• Returns for S corp are due on March 15th
• The statute of limitations will begin the day after the last day of filing, which is March 16th

Question 112

Filing Requirements, Dependents, and Filing Status

What is the filing date for a Corporation to file Form 7004?

Answer 112

• 15th day of 4th month after the closing of the tax year
• An extension may be filed for an automatic 6-month extension

Question 113

Payments, Penalties, and Refunds

What is the taxpayer’s response time after receiving a notice from the IRS?

Answer 113

• Taxpayer’s address is in the U.S.: 90 days
• Taxpayer’s address is outside of the US: 150 days

Question 114

Payments, Penalties, and Refunds

What is the penalty if a deduction is incorrectly filed as a Sec. 199A business deduction?

Answer 114

The greater of:
* 5% of the tax to be shown on the tax return, or
* $5,000

Question 115

Payments, Penalties, and Refunds

What are the statute of limitations for taxes?

Answer 115

Paying taxes
* 3 years from the date the return was filed
* If omission is 25% or more, then 6 years
* Use the date due if the date was filed was before the due date

Claim a refund
* The later of 3 years from the return due date or two years from when the tax was paid
* If a return was not filed, 2 years from when the tax was paid

Question 116

Payments, Penalties, and Refunds

What is the penalty when a taxpayer files a fraudulent tax return?

Answer 116

Lesser of:
* 15% of the unpaid taxes per month
* 75% of the tax owed

Question 117

Accounting Periods and Methods

How is gain recognized using the installment method (Sec. 453)?

Answer 117

The gain recognized equals

Proceeds received in the current year
x Gross Percentage Profit

Question 118

Tax-Exempt Organizations

How is tax calculated when an exempt organization, such as a non-profit, exceeds the lobbying spending limit?

Answer 118

A 25% excise tax will be incurred based on the overspent amount

Question 119

Limited Partnerships

What is the order of distribution when a limited partnership dissolves in accordance with the Uniform Limited Partner Act?

Answer 119

• Creditors (including all partner-creditors)
• Partners of unpaid distributions
• Partners for the return of their contributions
• Partners for the remaining assets based on the same allocation that distributions are shared

Question 120

Corporate Formation

What is the RMBCA?

Answer 120

• Revised Model Business Corporation Act
• Applies to closely public held and closely held corpoorations
• Subscribers, or future investors, are bound to the subscriptions for 6 months
• Many state statutes require the subscription to be written

Question 121

Corporate Formation

What are subscribers?

Answer 121

• Subscribers, or future investors, are bound to the pre-incorporation subscriptions for 6 months
• Many state statutes require the subscription to be written

Question 122

Corporate Formation

What is an adoption contract?

Answer 122

• Adoption of a contract is the assignment of rights that a promoter has on behalf of the corporation
• Adoption of a contract is a legal substitution for ratification of the pre-incorporation contract
• Adoption of a contract may be implied when accepting the benefits of the contract
• It is not retroactive
• The promoter is liable

Question 123

Corporate Operation, Financing, and Distributions

What is Ultra Vires Doctrine?

Answer 123

• A corporation may not act beyond its implied or express powers
• The Ultra Vires Doctrine is no longer used as a defense by either party in a lawsuit involving the corporation
• A shareholder can seek an injunction
• Corporations can proceed against directors and officers
• The state attorney can proceed against the corporation

Question 124

Nature and Classification of Contracts

What is the difference between Implied-in-Law, Implied-in-Fact and an Express contract?

Answer 124

Implied in fact contract
* May be formed without an express terms of the agreement
* The facts of the situation imply an intent of both parties in the contract

Implied-in-law
* Also known as quasi contract
* Prevents unjust enrichment of one party when the facts show that there was no intent by both parties to form a contract
* Imposed mutually dependant and concurrent conditions to reach a result even though nothing is stated in the contract

Express Contract
* A contract where terms (i.e. money) are specifically agreed on

Question 125

Corporate Operation, Financing, and Distributions

In an LLC, how are non-liquidating profits and losses disbursed?

Answer 125

• Under ULLCA: Profits and losses are share equally
• Not Under ULLCA: Profit and losses are allocated based on the member’s contribution

Question 126

Nature and Classification of Contracts

What’s the difference between void and voidable?

Answer 126

Void
* The contracts are not in effect and are not recognized under law

Voidable
* The contract is not valid due to an issue (i.e. fraud)
* The contract may be enforced if the innocent party enters into a contract
* A contract cannot be voided by either party if its valid

Question 127

Consideration

What is consideration?

Answer 127

• What is being given up to get something?
• Something of legal value being exchanged
• The offeree has a legal detriment (i.e. services performed)
• The offerer has a legal benefit (i.e. cash received)
• The offeree is not legally obligated to perform such act (i.e. policeman in the line of duty)

Question 128

Lack of Genuine Assent

What is duress?

Answer 128

• A threat, in either words or actions, in order for a person to enter a contract that they did not intend to enter
• Taking advantage of the other party’s financial difficult does not constitute duress

Question 129

Lack of Genuine Assent

What is undue influence?

Answer 129

• A person is induced to enter into a contract by another person
• One party can take advantage of the other party because there is close relationship with the parties

Question 130

Lack of Genuine Assent

What is fraud in the inducement?

Answer 130

• The consideration is misrepresented
• Makes a contract voidable
• A material fact that is intentionally misstated by the seller to a buyer

Question 131

Lack of Genuine Assent

What makes a contract void?

Answer 131

• Physical coercion
• Fraud in the execution
• Making a contract in a person who is incompetent
• Death of one of the parties
• Duress through physical compulsion

Question 132

Lack of Genuine Assent

What makes a contract voidable?

Answer 132

• Undue influence
• Duress through improper threats
• Mutual mistakes of facts
• Fraud in the inducement

Question 133

Lack of Genuine Assent

What is a defense that a CPA can take if he is being sued for negligence?

Answer 133

• Due Care
• The CPA must perform the work with a degree of knowledge and expected skill
• The CPA has followed the standards (i.e. GAAP, PCAOB, GAAS, etc.)

Question 134

Performance, Discharge, and Breach

What is the frustration of purpose doctrine?

Answer 134

• When one of the items for consideration in the contract cannot occur
• Example: Contract to purchase a room overlooking a parade route, but then the parade is cancelled

Question 135

Performance, Discharge, and Breach

What are the doctrines of impossibility and impracticability?

Answer 135

Impossibility :
* Performance is excused if unforseeable circumstances occur that would result in the contract not being fulfilled

Impracticability:
* Ordinary business risks (i.e. change in weather condition) cannot be considered when using these doctrines as a defense

Question 136

Performance, Discharge, and Breach

What is commercial impracticability?

Answer 136

• A contract is cancelled due to unforeseen and unjust hardship
• It is less rigid than the impossiblity and impracticability doctrine

Question 137

Performance, Discharge, and Breach

What is the difference between novation and substituted contract?

Answer 137

Novation
* Substitutes a new party for the original party

Substituted Contract
* A new contract that involves all original parties
* Discharges the original duties and impose new duties

Question 138

Remedies

What type of damages can be recovered due to a breach of contract?

Answer 138

• Compensatory
• Foreseeability of damages
• Mitigation of damages
• Specific peformance

Punitive damages cannot be recovered for a breach of contract

Question 139

Remedies

When are monetary damage remedy and specific performance remedy used?

Answer 139

Is the contract for land or other unique property (i.e. patent, commissioned artwork)?
* Yes: Specific performance remedy
* No: Monetary damages

Question 140

Contract Beneficiaries

What is a creditor beneficiary?

Answer 140

Has standing to enforce a contract where they are the third party

Example
* Person A owes Person B
* Person C is in contract with Person A to purchase goods
* Instead of Person C paying Person A, they pay Person B to satisfy the obligation owed
* Person B is the creditor beneficiary

Question 141

Contract Beneficiaries

What is a third-party donee beneficiary?

Answer 141

• A contract is entered into by the primary parties that directly benefits a third party
• A doneed beneficiary occurs when the gift is promised to a third party
• The third-party beneficiary is not considered party to the contract because they are not required to perform a part of the contract
• An example of a third-party donee beneficiary is a beneficiary that is name on a life insurance policy

Question 142

Assignment and Delegation

When an assignment is made for value, what are the implicit warranties that the assignor makes to the assignee?

Answer 142

• The assignor will do nothing to impair the value of the assignment
• The right actually exists and is not subject to limitation
• The right is genuine

Question 143

Assignment and Delegation

What type of contracts cannot be assigned?

Answer 143

• Contracts that prohibits the rights to be assignable
• Increases the other party’s risk
• Personal services
• Malpractice insurance policy rights

Question 144

Qualified Health Plans

How is the minimum value for an employer deteremined under the Affordable Care Act?

Answer 144

• The percentage of coverage that will be paid is based on an actuarial value
• The minimum value allowed for an eligible employer plan is 60%
• The minimum actuarial value is set by the ACA and will not reduce employer contributions

Question 145

Qualified Health Plans

What is the calculation to determine the penalty fee for an employer who fails to follow the ACA?

Answer 145

• The annual penalty is paid when there are at least 50 full-time employees
• The penalty is based on $2,970

Annual Penalty = 2,970 x (Total EFTs - First 30 EFTs)

Question 146

Qualified Health Plans

What is an FTE?

Answer 146

Full-Time Equivalent
* 40 hours per week worked = 1 FTE
* 20 hours per week worked (part-time) = 0.5 FTE

Question 147

Agent’s Authority and Duties

When is a principal liable to a third party because an act committed by the agent?

Answer 147

When an employee fails to notify the employer of a dangerous condition that results in an injury to the third party

Question 148

Agent’s Authority and Duties

What remedies can a principal do when an agent fraudulently breaches a fiduciary duty?

Answer 148

• Terminate the agency
• Require the agent to hold resources for the benefit of the principal even though the agent does not hold legal title (aka Constructive Trust)

Question 149

Agent’s Authority and Duties

What is an agency?

Answer 149

• An agency is an express or implied consensual relationship where the principal and agent agrees that the agent will act on behalf of the agent
• An example of an agency is an attorney retained to handle the sale of a family home

Question 150

Agent’s Authority and Duties

What is apparent authority?

Answer 150

• Apparent authority occurs from words or conduct from the principal directed to a third party
• The third party is under the impression that the agent has actual authority

Question 151

Agent’s Authority and Duties

What is actual authority?

Answer 151

The agent receives the right and power to bind the principal to third parties

Question 152

Principal’s Duties and Liabilities

What is respondeat superior?

Answer 152

• The employer is liable for the torts committed by the employee within the scope and during their employment
• The principals liability to the third party is for acts of the agent within the scope of the agent’s actual or apparent authority

Does not apply to crimes committed by employees

Question 153

Principal’s Duties and Liabilities

When can a principal be held criminally liable for the crime of an agent?

Answer 153

• The principal approves or directs the crime
• The principal participates in the crime
• Violation of regulatory statute caused the crime

Question 154

Principal’s Duties and Liabilities

What remedies does an agent have when the principal violates a duty owed to the agent?

Answer 154

• Recovery of future damages
• Recovery of past damages
• Withholding future performance

Specific performance is not a remedy

Question 155

Agency Termination

When there is an agent coupled with an interest, who can terminate the contract before the interest has expired?

Answer 155

• The agent may terminate at any time without liability if there isn’t a specific period that has been established
• The principal cannot terminate

Question 156

Security Interests and Attachment

What type of transactions can be attached?

Answer 156

• Consumer goods
• Equipment
• Personal property and fixtures created by contract that secures payment or performance obligation
• Farm and Agricultural products
• Consignments
• Inventory

**Does not apply to **
* Corporate debentures or corporate bonds
* Sale of accounts when part of a sale of the business
* Assignment of promissory notes for collection

Question 157

Perfection of Security Interests

How are security interests perfected?

Answer 157

Security interests (instruments, certified securities or negotiable documents)
* For the first 20 days after attachment, perfection is automatic
* After 20 days, the security is unperfected unless the party perfects in other ways
* If the secured party gives up the security to the debtor for certain purposes, then the perfected security will continue for 20 days

Question 158

Perfection of Security Interests

What is perfected security interest by control?

Answer 158

• The secured party becomes the holder, or
• The securities intermediary agree to comply with the orders that originated by the secured party

Question 159

Perfection of Security Interests

What is the best way for a negotiable instrument to be perfected against another party?

Answer 159

Taking possession of the instrument

Question 160

Perfection of Security Interests

What are the types of collateral where control perfects a security interest?

Answer 160

• Investment property, including securities (Certified and Non-Certified)
• Electronic chattel paper
• Letter-of-credit rights
• Deposit accounts

Question 161

Bankruptcy Administration

What are the various types of bankruptcies?

Answer 161

Chapter 7: Liquidation
Chapter 9: Municipalities
Chapter 11: Reorganization for Companies
Chapter 12: Farmers
Chapter 13: Reorganizations for Individuals
Chapter 15: Cross-border insolvencies

Question 162

Bankruptcy Administration

What type of industries are not eligible to file under Chapter 7?

Answer 162

• Insurance companies
• Banks
• Municipalities
• Railroads
• Credit Unions
• Savings and Loan Associations

Question 163

Bankruptcy Administration

What industries are not eligible to file under Chapter 11?

Answer 163

• Shareholders
• Commodities and Stock Brokers
• Insurers
• Banks
• Credit Unions
• Savings and Loan Associations

Question 164

Bankruptcy Administration

What industries are ineligible for involuntary bankruptcy petitions?

Answer 164

• Farmers
• Banks
• Insurers
• Non-profit organizations
• Railroads
• Persons owing less than $18,600

Question 165

Bankruptcy Liquidations

What is the order of distribution under liquidation provisions?

Answer 165

• Secured Claims
• Priority Claims
• General Creditors/Unsecured claims

Question 166

Priorities

How will collateral be distributed among prioritized secured creditors?

Answer 166

Priority #1: Consumer purchased the collateral (i.e. inventory) from a merchant in the ordinary course of business (PMSI)
Priority #2: Properly perfected PMSI
Priority #3: Judicial and artisan liens that have become attached to the secured property
Priority #4: Non-PMSI parties (unperfected security by attachment)
Priority #5: General Creditors

Question 167

Bankruptcy Liquidations

What are the order of priority claimants?

Answer 167

• Alimony/Child Support
• Administrative Expenses
• Claims from the ordinary course of business after the filing but before the relief was granted
• Wages up to $15,150/employee within 180 days before filing
• Employee benefit plan claims
• Claims of grain farmers or fisherman up to $7,475
• Claims of undelivered goods up to $3,350 each
• Tax claims
• Death and injury claims

Question 168

Bankruptcy Liquidations

What are the types of voidable preferences?

Answer 168

• The creditor will benefit from the payment before the petition is filed
• A pre-existing debt has been paid
• During the debtor’s insolvency
• Within 90 days prior of filing the petition
• A creditor is paid a large amount before the petition is filed

Question 169

Bankruptcy Liquidations

What are the maximum exemptions of a debtor’s estate?

Answer 169

Tools of the Trade: $2,800
Household Goods (Furniture, instruments, etc): $14,875 of aggregate value or $700 per item
Jewelry: $1,874
Motor vehicle: $4,450

If the asset is less than the maximum amount, the lesser amount is used to determine the calculation

Question 170

Sureties

What is contribution?

Answer 170

The surety has the right to recover their share of the additional money paid to the credtior from the other cosureties

Question 171

Sureties

What happens a surety gurantees a loan based on fraudulent information?

Answer 171

• The creditor knew about the fraudulent information: the surety does not need to repay the loan
• The creditor did not know about the fraudulent information: The surety must repay the loan

Question 172

Sureties

What is subrogation?

Answer 172

• Subrogation is the best method of collection from the debtor when the surety pays the entire obligation
• If the debtor defaults, the surety succeeds to the legal rights of the creditor against the principal, debtor, cosureties or any collateral

Question 173

Basis

How is the basis calculated when the property is a gift?

Answer 173

Is the FMV received is greater than the adjusted basis?
Yes: Donor’s Adjusted Basis
No: FMV at the time of giving

Question 174

Basis

How is the adjusted gift tax calculated?

Answer 174

• The annual exclusion for the gift tax is $18,000 per person
• The calculation
  [(FMV - Adjusted Basis)/(FMV - Annual Exclusion)] x Gift Tax Paid

Question 175

Basis

What is an example of the basis calculation for gift property?

Answer 175

FMV = $60,000
Adjusted Basis = $20,000
Gift Tax Paid = $8,600

[(60,000 - 20,000)/(60,000 - 17,000)] x $8,600
= (40,000/43,000) x 8,600
= 8,000

Adjusted Basis + Adjusted Gift Tax
$20,000 + $8,000 = $28,000

Question 176

Basis

How is the basis calculated when the property is inherited?

Answer 176

Basis on Inherited Property
* No alternative Valuation Date: Basis is the FMV at the Time of Death
* Alternative Valuation Date Elected: Basis is the FMV of property 6 months after the date of death

Question 177

Basis

What is the Uniform Capitalization Rules of Code 263A?

Answer 177

Uniform Capitalizaton Rules apply to companies that have an average gross income of $29,000,000 for the past three years
* Large Manufacturers
* Retailers
* Wholesalers of Inventory

Question 178

Basis

What is the order of the residual method under 1060?

Answer 178

The purchase price is allocated based on the FMV of all assets

• Cash and Cash Equivalents
• Near-Cash Items (i.e. U.S securities, marketable securities, CD, foreign currencies)
• Accounts Receivable, Mortgages, Credit Card Receivables
• Inventory
• Property held for sale in the ordinary course of business
• Other assets
• Sec. 197 Intangibles (Except Goodwill and Going Concern Value)
• Goodwill and going concern value

Question 179

Basis

How is the basis calculated when personal property is converted for business use?

Answer 179

The depreciation is lesser than the
* FMV of the property at conversion date, or
* Adjusted basis of conversion

Question 180

Basis

What the calculation to determine the adjusted basis of property at conversion?

Answer 180

Beginning Basis + Permanent Improvements - Casualty Loss Deduction

Any casualty claims will be allowed only if they are in a federally declared disaster area

Question 181

Depreciation and Amortization

What is bonus depreciation?

Answer 181

• Property acquired before January 1, 2024, the bonus is 80%
• Property acquired after January 1, 2024, the bonus is 60%
• The bonus depreciation applies to the taxpayer’s first use
• Property used for utility companies or real property trade or business does not qualify
• Certain properties with longer production periods will have 100% bonus depreciation if placed between 9/28/17 - 12/31/23

Question 182

Depreciation and Amortization

What is the bonus depreciation phase-out?

Answer 182

• Property Placed Between
  12/31/23 - 1/1/25: 60%
  12/31/24 - 1/1/26: 40%
  12/31/25 - 1/1/27: 20%
• If the properties have longer production periods, the dates are increased by 1 year (i.e. 12/31/24 - 1/1/26)

Question 183

Depreciation and Amortization

What is the bonus depreciation phase-out if the properties have longer production periods?

Answer 183

• The dates are increased by 1 year
• Property Placed Between
  12/31/24 - 1/1/26: 60%
  12/31/25 - 1/1/27: 40%
  12/31/28 - 1/1/29: 20%

Question 184

Depreciation and Amortization

How is the Sec. 179 deduction calculated:

Answer 184

The Sec. 179 Deduction is lesser than the taxable income or the Calculated Sec. 179 Deduction

Maximum Deduction: $1,220,000
Phase-Out Threshold: $3,050,000
No deduction if purchase cost is $4.05 million

Maximum deduction - (Purchase Price - Phase Out)

The basis does not include any asset that was previously held by the taxpayer (i.e. money received for a trade-in)

Question 185

Depreciation and Amortization

What is the MACRS depreciation for intangible assets?

Answer 185

The amortization period of intangible assets is 180 months or 15 years

Assets included as intangible
* Convenants not to compete
* Customer lists
* Trademarks
* Trade names
* Goodwill

Question 186

Depreciation and Amortization

What is the MACRS depreciation for property

Answer 186

• Straight Line Depreciation is used
• Salvage Value is ignored
• Land is not included in the basis of depreciation
• Residential: 27 1/2 Years, mid-month convention
• Non-Residential: 39 Years, mid-month convention
• Mid-month convention is used is used in the 1st and final years

Question 187

Depreciation and Amortization

What is the mid-year convention?

Answer 187

• Mid-year convention is used for personal property
• Asset is treated as if it was placed into service at the midpoint of the year instead of when it was actually placed into service

Question 188

Depreciation and Amortization

What is the mid-month convention?

Answer 188

• The mid-month convention is used for real property
• Asset is treated as if it was placed into service at the midpoint of the month instead of the month when it was actually placed into service

Question 189

Depreciation and Amortization

What is the mid-quarter convention?

Answer 189

• The mid-quarter convention must be used when more than 40% of tangible property is placed into service during the last 3 months of the tax year
• The 1st year depreciation is calculated by multiplying the full amount by the percentages when it was placed into service
  1st Quarter: 87.5%
  2nd Quarter: 62.5%
  3rd Quarter: 37.5%
  4th Quarter: 12.5%

Question 190

Depreciation and Amortization

How is depreciation calculated when no class life is assigned to an asset?

Answer 190

• Straight-line depreciation method
• No salvage Value
• Life of the asset is 12 years

Question 191

Depreciation and Amortization

When is the Half-Year Convention Used?

Answer 191

The assets are combined

Question 192

Depreciation and Amortization

What is the recovery for personal property

Answer 192

Using 200% Declining Balance Depreciation
* Special Tools: 3 years
* Computers, office machinery, cars, trucks, equipment: 5 years
* Most machinery, office furniture and equipment and other property: 7 years
* Water Vessels: 10 years

Using 150% Declining Balance Depreciation
* Data Communication Plants: 15 years
* Utilities (i.e. municipal sewers): 20 years

Question 193

Depreciation and Amortization

How is the depreciable basis calculated for the MACRS Computation?

Answer 193

Original Cost
(Sec. 179 Deduction)

Question 194

Basis

How is the gift amount subject to tax determined?

Answer 194

The amount is the FMV of the gift over the tax exclusion

Example
* The gift = 24,000
* The exclusion = 17,000
* Amount subject to tax is $7,000 (24,000 - 17,000)

Question 195

Gross Income

How is cancellation of debt included as gross income?

Answer 195

It is the FMV less the adjusted basis of the asset

Question 196

Exclusions

When is a gain reported by a taxpayer when the residence is sold?

Answer 196

• A gain equal to or greater than $250,000 will be recognized
• Any gain below $250,000 is excluded

Question 197

Exclusions

When are dividends on life insurance policies excluded from gross income?

Answer 197

When the cumulative dividend does not exceed the premium

Question 198

Business Income and Expenses

What is the maximum deduction available for business gifts?

Answer 198

• $25 per person
• Business gifts that are tickets to event are considered entertainment and are not deductible

Exceptions
* The cost to the taxpayer does not exceed $4
* The name of the taxpayer is imprinted
* Signs and display racks to be used on the business premises
* Achievement awards are not subject to the $25/person limitation

Question 199

Business Income and Expenses

How are bad debts reported on Schedule C?

Answer 199

• The specific write-off method must be used when reporting bad debts
• The trade receivable is deductible to the extent of its worthlessness, or what was actually written off
• The allowance method is not allowed
• A partial bad debt it not deductible

Question 200

Business Income and Expenses

How is business income calculated for a company that is an illegal business?

Answer 200

• The business income is adjusted based on the cost of merchandise
• All other business expenses related to the sale of the illegal product is not deductible

Question 201

Business Income and Expenses

What are the various tests used to determine whether household income can be treated as rental income/loss?

Answer 201

Personal Residence Test
* Residence rented out less than 14 Days? Yes
* The rental activity may not result in a loss

Rental Use Property Test
* Residence rented out more than 14 days? Yes
* Personal use of residence is used either more than the greater of 14 days or 10% of the days it is treated as a rental property? No

Hybrid Use Property Test
* Residence rented out more than 14 days? Yes
* Personal use of residence is used either more than the greater of 14 days or 10% of the days it is treated as a rental property? Yes
* The rental activity may not result in a loss

Question 202

Business Income and Expenses

How are start-up expenses reported as a business deduction?

Answer 202

• $5,000 of start-up costs are deductible in the year the business started
• The $5,000 amount is offset by the total start-up costs less a maximum amount of $50,000
• The remaining amount is amortized over a 15 year period

Example
* Start-up Costs in 12/1/x1: $52,300
* Amount deducted in x1: $2,700 ($5,000 - ($52,300 - 50,000)
* Amortized Amount: $276 [($52,300 - $2,700)/(1/12)]

Question 203

Business Income and Expenses

When are expenses considered capital expenditures?

Answer 203

• Adds value to the property
• Extends the life of the asset
• Adapted to be used for a different use
• Freight paid on new equipment
• Rewiring a building
• Adds value of the business (i.e. eliminating competition)

Question 204

FICA and FUTA Taxes

What are the different tiers for witholding FICA?

Answer 204

Tier 1:
* Wages from $0-$168,600
* Social Security: Wages x 6.2%
* Medicare: Wages x 1.45%

Tier 2:
* Wages from $168,600 - $200,000
* Medicare: Employee’s wages x 1.45%

Tier 3:
* Above $200,000 to earned income
* Medicare: Employee’s wages x 1.45%
* Additional Medicare: Employee’s wages x 0.9%

Question 205

Standard and Itemized Deductions

What are the standard deductions for a taxpayer?

Answer 205

• Single: $14,600
• Married, Filing Jointly: $29,200
• Head of Household: $21,900
• Over the age of 65: Add $1,900 for each taxpayer

Question 206

Losses and Limitations

How is a net operating loss (NOL) Reported?

Answer 206

• A net operating loss is limited to 80% of taxable income
• It is carry forward indefinitely
• It is not carried back

Question 207

Losses and Limitations

What is the calculation to determine loss of rental activity as an offset against income from nonpassive sources?

Answer 207

• If there is more than one rental activity: Net all activities. If there is still loss, calculate for the allowable loss
• The dollar threshold is $100,000
• If the taxpayer actively participates in rental real estate activity: Loss limit of $25,000

Calculation to determine Allowable Loss
* MAGI - Threshold = Excess
* Excess x 50% = Reduction
* Loss Limit - Reduction = Allowable Loss

Question 208

Losses and Limitations

When are losses from real estate no longer subject to the passive activity rules?

Answer 208

• More than 50% of the taxpayer’s earned income is from services performed at the property
• The taxpayer performs more than 750 hours of service at the property

Question 209

Losses and Limitations

When does the passive activity rules apply?

Answer 209

• Individuals
• Closely held C Corporations
• Estates
• Trusts
• Personal Service Corporations

Question 210

Loss and Limitations

What is the exception regarding passive activity loss limitation in regard to real estate activity?

Answer 210

The $25,000 maximum is not used if:
* The taxpayer actively participates in the activity that is not rental activity
* Owns 10% or more of the activity, by value, for the entire year
* MAGI is less than 150,000

Question 211

Computation of Tax Liability

What is the calculation to determine Self-Employment Tax?

Answer 211

Net income from Self Employment
(Employer’s Portion of Self-Employment Tax)
(Social Security Tax)
(Medicare Tax)

Question 212

FICA and FUTA Taxes

What are the percentages deducted from wages?

Answer 212

Employer and Employee Deductions
SSI
* 6.2% of the first $168,600 for employer
* 6.2% of the first $168,600 for employee

Medicare
* 1.45% for Employer
* 1.45% for employee

Employer Deductions
FUTA
* 6% of the first $7,000 for each employee

Employment Tax
* (Sales - COGS - Business Expenses) x 7.65%

Question 213

Computation of Tax Liability

What is not included when calculating business income for a sole proprietor?

Answer 213

• Keogh contributions
• Gains
• Net Operating Loss

Question 214

Computation of Tax Liability

How is the FICA tax liability calculated on self-employment net earnings?

Answer 214

Tier 1
* From 0 - $168,600
* Tax rate is 15.3%

Tier 2
* From $168,600 - $200,000
* Net earnings from self employment x 2.95

Tier 3
* Above $200,000 ($250,000 MFJ / $125,000 MFS)
* Net earnings from self employment x 3.8% (2.9% for Medicare and and .9% for additional medicare)

Question 215

Gross Income of a C Corporation

What value is given when a tangible asset is contributed?

Answer 215

The value is the FMV of the asset

Question 216

Deductions of a C Corporation

How are dividend reduction deduction calculated for C Corps?

Answer 216

The DRD is the lesser of
* % Allocation applied to Dividend income
* % Allocation applied to taxable income with the dividend deduction

% Allocation to determine DRD:
* < 20%: 50% of the dividend
* >20% < 80% ownership: 65% of the dividend
* > 80% and Affiliiated: 100%

If the % of ownership is not provided, assume it to be less than 20%

If the total expenses are more than the gross revenues, then the DRD is the % of the dividend

Question 217

Losses and Limitations

How is rental loss determine for a company that is exempt from the passive activity rules?

Answer 217

The loss may be offset by active rental real estate income, as well as portfolio income

Example
Active Rental Income: $250,000
Portfolio Income: $150,000
Passive Loss: ($300,000)
Income will be offset by $250,000 of rental income and $50,000 of portfolio income

Question 218

Gross Income of a C Corporation

How are the deductions calculated when determining net income?

Answer 218

Taxable income needs to be computed before calculating any deductions that are going to be taken

Question 219

Losses of a C Corporation

Is the DRD included when there is a NOL in the current tax year?

Answer 219

• Yes
• The DRD is computed without regard to the taxable limitation
• The DRD is calculated based on the dividends received

Question 220

Gross Income of a C Corporation

How are charitable contributions calculated for C Corporation deductions?

Answer 220

• 10% of the taxable income
• The charitable deduction is calculated before any dividend received deduction

Question 221

Regular Income Tax and Foreign Tax Credits

What is the Foreign Tax Credit Calculation?

Answer 221

The Foreign Tax Credit is the lesser of:

• Foreign Tax Limitation: [(Foreign Source Income / Worldwide Income) x US Tax on Worldwide Income]
• Actual foreign taxes paid

Question 222

Personal Holding Company (PHC) Tax

When is a corporation a personal holding company?

Answer 222

• At least 60% of its AGI for the year is Personal Holding Company Income
• More than 50% of the value of the outstanding stock is owned by 5 or less individuals
• Personal holding company income includes income received from stock and securities

Question 223

Personal Holding Company (PHC) Tax

What is the tax rate for personal holding company income?

Answer 223

• The tax rate is 20% of the undistributed personal holding company income
• A company cannot have a PHC tax and an Accumulated Earnings Tax in the same year

Question 224

Personal Holding Company (PHC) Tax

What entities are exempt from Personal Holding Company Income Tax?

Answer 224

• S corporations
• Tax-exempt organizations
• Banks
• Domestic building and loan associations
• Certain lending or finance companies
• Life insurance and surety companies
• Businesses operating under the Small Business Act
• Corporations under Chapter 11 protection
• Foreign corporations

Question 225

Accumulated Earnings Tax (AET)

What is the minimum Accumulated Earnings Credit?

Answer 225

Non-Personal Service Corporations: $250,000
Certain Personal Services Corporations: $150,000

Question 226

Accumulated Earnings Tax (AET)

What is the formula to determine Accumulated Earnings Tax?

Answer 226

[Current E&P
(Dividends Paid)
(Accumulated Earnings Credit)]
x 20%

Net operating losses deductions and capital loss carrybacks/carryfowards are not allowed

Question 227

Accumulated Earnings Tax (AET)

What is the minimum accumulated earnings credit base in order to determine AET?

Answer 227

The greater of:
* $250,000 - (Current Year Ending Accumulated E&P)
* Current earnings and profits retained for the reasonable needs of the business - Current Year Long-term capital gain adjustments

** When undistributed E&P does not exceed $150,000, then the ATI will be zero**

Question 228

Accumulated Earnings Tax (AET)

How is the Allowable Accumulated Earnings Credit determined?

Answer 228

It is the greater of:
* Base amount of $250,000 - Prior year’s accumulated earnings and profit
* Current earnings and profits - Dividends Paid - Long-term capital gain adjustments for the current year

Question 229

Accumulated Earnings Tax (AET)

What is the calculation to determine Accumulated Taxable Income (ATI)?

Answer 229

Taxable Income
+/- Adjustments
-Federal Income Tax
-Dividends Paid
-$250,000 minimum Accumulated Earnings Credit (if not calculated) or Maximum of AEC

Question 230

State and Local Tax Issues

What is calculation to determine the apportionment of UDITPA?

Answer 230

(Property Factor + Payroll Factor + Sales Factor)/3

Question 231

State and Local Tax Issues

What is the calculation to determine the Property Factor?

Answer 231

(Average Acquisition Cost + Rental Value) / Average value of all property

• Property rented by the taxpayer is valued at eight times the net annual rent expense
• Property owned by the taxpayer is based on the original cost, so no depreciation is included

Question 232

State and Local Tax Issues

What is the calculation to determine the Payroll Factor?

Answer 232

In-State Compensation Paid / Total Compensation Paid

The calculation does not include
* Payroll for management
* Maintenance are otherwise allocable to nonbusiness property

Question 233

State and Local Tax Issues

What is the calculation to determine the Sales Factor?

Answer 233

In-State Sales / Total Sales

• Sales is based on net sales
• Capital gains and nonbusiness income are allocated, but are not apportioned

Question 234

Regular Income Tax and Foreign Tax Credits

What is the calculation to determine estimated tax payments for a corporation when there is taxable income in the current year, but not in the previous year?

Answer 234

100% of Current Year

Question 235

Regular Income Tax and Foreign Tax Credits

What is the calculation to determine estimated tax payments for a corporation when taxable income is less than $1,000,000?

Answer 235

25% of the Lesser of:

• 100% of the previous year’s tax
• 100% of the current year’s tax

Question 236

Regular Income Tax and Foreign Tax Credits

How are the quarterly estimated taxes calculated when taxable income is over $1,000,000?

Answer 236

1st Quarter: 25% of the Lesser of:
* 100% of the previous year’s tax
* 100% of the current year’s tax

2nd - 4th Quarters:
* 25% of the current year’s tax

Question 237

Estimated Tax

How is the estimated tax calculated for a large corporation?

Answer 237

• A large corporation has $1,000,000 or more in taxable income
• The estimated tax is 100% of the current year’s tax liability

Estimating based on previous year’s taxes are not used

Question 238

S Corporations: Eligibility and Election

Is passive investment income allowed when a corporation becomes an S Corp?

Answer 238

There are no limits to passive investment income

The S Corporation will terminate if:
* The C corp has earnings and profits for three consecutive years after filing S Corp status
* During the 3 years, over 25% of gross receipts of the S corp is due to passive income

Question 239

S Corporations: Eligibility and Election

If a corporation loses its S Corp status, how long do they have to wait until the can reapply?

Answer 239

They can reapply 5 years after the tax year in which the termination was made

Example:
* Status was revoked on 12/31/23
* Eligible for reelection is 1/1/29

Question 240

S Corporations: Eligibility and Election

What is the timeline for a Corporation to file as an S Corp?

Answer 240

• Form 2553 must be filed either within the preceding tax year or within 2 1/2 months of the current tax year
• The IRS may allow late filing if a reasonable cause existed
• All shareholders must provide written consent at the time the election is made
• Anyone who was a shareholder at any time during the election year, including former shareholders, must consent.

Question 241

S Corporations: Operations

What is included as nonseparately stated income?

Answer 241

Items related to the business:
* Gross income
* COGS
* Sales expense
* Interest Expense on business loans
* Corporation Organizational Costs
* Guaranteed Payments are subtracted
* Bad Debt Expenses
* Compensation paid to the shareholder
* Section 1245 Gain or Loss

Question 242

S Corporations: Operations

When would distributions be reported as tax-exempt from shareholder’s income?

Answer 242

Any distribution that is not more than the shareholder’s basis will be treated as tax-exempt return of capital

Question 243

S Corporations: Operations

When is a guaranteed loan from a shareholder in an S Corporation reported?

Answer 243

• Payments are made to the shareholder
• Guaranteed loan payments increases the shareholder’s basis

No payments on a guaranteed loan will not be reported

Question 244

Partner’s Taxable Income

How are loans reportable in a partner’s tax return?

Answer 244

Loans are not included as income to the partner since they will be repaid in future years

Question 245

S Corporations: Operations

How are future earnings allocated between stock basis and debt basis?

Answer 245

Future earnings will be applied to debt basis first, and then to stock basis

Question 246

Partnership: Basis of Partner’s Interest

When does the holding period begin for a partnership interest that is acquired in exchange for a contributed capital asset?

Answer 246

• The day after the exchange of the capital asset began
• It includes the period that the property was held by the contributing partner
• No gain or loss is recognized when property is contributed

Question 247

Partner’s Taxable Income

What is the calcuation to determine the partner’s basis when property is contributed and then sold?

Answer 247

Step 1: Calcuate Pre-Contribution Gain/(Loss)
FMV of Asset before Contribution - Basis of Asset before Contribution

Step 2: Calculate Gain/(Loss) after asset has been contributed
Sale Price - FMV of Asset

Step 3: Calculate Partner’s Basis
Pre-Contribution Gain/(Loss) +(% Owned x Post-Contribution gain/(Loss))

Question 248

Partnership: Basis of Partner’s Interest

What is the basis when services are exchanged for a partnership interest?

Answer 248

• The basis is the Cash Contributed + FMV of Contributed Services + Share of Partnership Liability
• The basis would be classified as ordinary income
• Compensation income is the FMV of the partnership interest
• If there was an additional contribution made with the services, then the basis would be the (FMV of the Interest - FMV of the services rendered)

Question 249

Partnership: Basis of Partner’s Interest

What is the basis when the partnership interest would be treated as an investment company?

Answer 249

• The basis is increased by the amount of gain recognized by the partner
• Gain of Stock + Basis of Stock

Example
FMV of Stock: $10,000
Basis of Stock: $5,000
Gain of Stock: $5,000 ($10,000 - $5,000)
Partnership Basis: $10,000 ($5,000 + $5,000)

Question 250

Partnership: Basis of Partner’s Interest

How is the distributive share calculated when the guaranteed payment has a minimum amount?

Answer 250

Step 1: Calculate the current guranteed payment
* Minimum Payment - (% Ownership x Partnership Income)

Step 2: Calculate the Other Distributive Share
* % of Ownership x Partnership Income

Step 3: Calculate Total Distributive Share
* Current Guaranteed Payment + Other Distributive Share

Question 251

Partner’s Taxable Income

What is the calculation to determine a partner’s income that is reported on the tax return?

Answer 251

Step 1: Calculate the reportable Partnership Income for the Partnership
* Business Income - Guaranteed Payments

Step 2: Determine Reportable income for the partner
* (% of Interest x Partnership Income for the Partnership) + Guaranteed Payment + (% of Interest x Separately Stated Items)

Question 252

Partner’s Taxable Income

What is not included when calculating a partner’s income?

Answer 252

• Guaranteed Payments
• Payments for Services
• Distributions
• Loans

Question 253

Partner’s Taxable Income

How are guaranteed payments treated?

Answer 253

• Guaranteed payments are deductible in the partnership
• They are deducted from the basis of the partner who is receiving the payment
• Compensation for services provided is treated as a guaranteed payment

Question 254

Partner’s Taxable Income

How is the basis calculated when the beginning basis includes liabilities and there are additional liabilities at the end of the year?

Answer 254

Net the beginning liability with the ending liability
* Net liability > 0: Decrease the net amount
* Net liability < 0: Increase the amount

Question 255

Partner’s Taxable Income

What is the calculation to determine a partner’s adjusted gross income?

Answer 255

Ordinary Income + Capital Gains + Dividend Income - Maximum Capital Loss

Tax-exempt income is not included since it’s tax-exempt

Question 256

Partner’s Taxable Income

How do S Corp and Partnerships report payments for services rendered ?

Answer 256

S Corp: Reportable on the W-2
Partnership: Reportable on the K-1

Question 257

Reconciling Book and Taxable Income

What type of an adjustment is needed for previous year’s state refunds includable in determining taxable net income?

Answer 257

An adjustment is not needed, as long as the deduction in the prior year created a tax benefit

Question 258

Reconciling Book and Taxable Income

How is bad debt recorded for tax purposes?

Answer 258

• The allowance method is not allowed
• If additional debt estimated accounts were added to the allowance, then the difference between what was actually written off and the additional allowance will either be added or subtracted to determine taxable income
• More accrued debt than what was written off: Increase
• Less accrued debt than what was written off: Decrease

Question 259

Reconciling Book and Taxable Income

What is included in Schedule M-3?

Answer 259

Part 1
* Financial information and Net Income (Loss) Reconciliation
* Asks certain questions about the financial statements and reconciles book net income to net income for tax purposes

Part 3
* Recording expenses and deduction items

Question 260

Reconciling Book and Taxable Income

How is interest from State Bonds treated when reconciling from book to tax?

Answer 260

State bond interest, including other tax-exempt interest, is considered a permanent difference