Final REG Review Flashcards

Question 1

Q

Individual Taxation

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

Answer

A

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

Question 2

Q

Individual Taxation

What is reported on Schedule 1 on Form 1040?

Answer

A

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

Question 3

Q

Individual Taxation

What is reported on Schedule B of the Form 1040?

Answer

A

Portfolio Income
Interest Income
Dividend Income

Question 4

Q

Individual Taxation

What is reported on Schedule C of the Form 1040?

Answer

A

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

Q

Individual Taxation

What is reported on Schedule D of the Form 1040?

Answer

A

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

Question 6

Q

Individual Taxation

What is reported on Schedule SE of the Form 1040?

Answer

A

Self-Employment tax due on net earnings

Question 7

Q

Individual Taxation

What is reported on Schedule E of the Form 1040?

Answer

A

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

Question 8

Q

Individual Taxation

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

Answer

A

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

Question 9

Q

Individual Taxation

How are an individual’s capital losses calculated?

Answer

A

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

Q

Individual Taxation

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

Answer

A

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

Q

Individual Taxation

When is a state tax refund reported on the 1040?

Answer

A

Itemized deduction is being used
The amount is the lesser of
* Actual State Tax Refund
* The difference between the itemized and standard deduction

Question 12

Q

Individual Taxation

What is the income tax rate on capital gains?

Answer

A

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

Question 13

Q

Individual Taxation

What is the formula to calculate savings bond interest?

Answer

A

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 14

Q

Individual Taxation

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

Answer

A

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

Question 15

Q

Taxation

What are the four types of asset classification?

Answer

A

Capital Assets: Personal Assets that are used
Sec. 1231: Real estate or other assets used in trade or business for more than a year (Included in the Ordinary Income calculation)
Sec. 1245: Certain Depreciable Property
Ordinary Assets: Inventory or A/R

Question 16

Q

Taxation

What are the tax rates for Sec. 1231 and Sec. 1245 Gains?

Answer

A

Sec. 1231: 15% as long-term capital gain
Sec. 1245: 40% as ordinary income

Question 17

Q

Individual Taxation

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

Answer

A

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 18

Q

Individual Taxation

What are the revenue thresholds to report passive Loss

Answer

A

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 19

Q

Individual Taxation

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

Answer

A

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 20

Q

QBID

What are the thresholds to qualify for QBID?

Answer

A

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

Question 21

Q

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

A

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

Question 22

Q

QBID

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

Answer

A

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

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

Question 23

Q

QBID

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

Answer

A

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

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

Question 24

Q

QBID

Specified Service Trade or Business

What is the calculation to apply the applicable percentage?

Answer

A

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

Question 25

Q

Individual Taxation

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

Answer

A

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 26

Q

Individual Taxation

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

Answer

A

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 27

Q

Individual Taxation

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

Answer

A

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 28

Q

Individual Taxation

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

Answer

A

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

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

Question 29

Q

Individual Taxation

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

Answer

A

Tax exempt bonds
Banks certificates of deposit
US Savings Bonds

Question 30

Q

Individual Taxation

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

Answer

A

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 31

Q

Individual Taxation

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

Answer

A

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

Question 32

Q

Individual Taxation

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

Answer

A

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

Question 33

Q

Individual Taxation

What is the allowable deduction for IRA contributions?

Answer

A

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

Earned income does not include pension plan distributions or interest income

Question 34

Q

Individual Taxation

What is the maximum deductions for IRA Contributions?

Answer

A

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 35

Q

Individual Taxation

What is the spousal rule for IRA contribution deductions?

Answer

A

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 36

Q

Individual Taxation

What amount can be contributed to an Education IRA?

Answer

A

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 37

Q

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

A

Greater of:

$1,300
Dependents earned income + $450

Question 38

Q

Individual Taxation

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

Answer

A

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 39

Q

Individual Taxation

What is the dependent care credit?

Answer

A

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 40

Q

Individual Taxation

How is the dependent care credit calculated?

Answer

A

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 41

Q

Individual Taxation

What are the requirements for the American Opportunity Credit?

Answer

A

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 42

Q

Individual Taxation

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

Answer

A

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 43

Q

Individual Taxation

What is an example of American Opportunity Credit calculation?

Answer

A

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 44

Q

Individual Taxation

What are the requirements for the Lifetime Learning Credit?

Answer

A

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 45

Q

Individual Taxation

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

Answer

A

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 46

Q

Individual Taxation

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

Answer

A

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 47

Q

Individual Taxation

What is an example of NIIT?

Answer

A

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 48

Q

Individual Taxation

How are lapsed stock options recorded?

Answer

A

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 49

Q

Individual Taxation

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

Answer

A

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 50

Q

Individual Taxation

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

Answer

A

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 51

Q

Individual Taxation

What are the requirements for the Retirement Savings Contribution Credit?

Answer

A

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 52

Q

Individual Taxation

What is the calculation to determine Retirement Savings Contribution Credit?

Answer

A

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

Question 53

Q

Individual Taxation

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

Answer

A

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 54

Q

Individual Taxation

What is the maximum deductible for Interest Expense?

Answer

A

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

Question 55

Q

Individual Taxation

What is the limitation for charitable contributions?

Answer

A

Cash: 60% of the AGI
Long-Term Property: 30% of AGI
Short-Term Property: Up to the asset’s adjusted basis

Question 56

Q

Individual Taxation

How are non-cash charitable contributions valued?

Answer

A

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 57

Q

Individual Taxation

What is dependent care assistance?

Answer

A

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 58

Q

Individual Taxation

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

Answer

A

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 59

Q

Individual Taxation

When can personal casualty losses be deducted?

Answer

A

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 60

Q

Individual Taxation

What is an example of a personal casualty loss deduction?

Answer

A

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 61

Q

Individual Taxation

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

Answer

A

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

Question 62

Q

Losses and Limitations

How are business casualty losses reported?

Answer

A

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 63

Q

Losses and Limitations

How are business casualty losses calculated?

Answer

A

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 64

Q

Business Credits

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

Answer

A

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

Answer 65

A

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

Answer 66

A

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%

Answer 67

A

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

Answer 68

A

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

Answer 69

A

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

Answer 70

A

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

Answer 71

A

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

Answer 72

A

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

Answer 73

A

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

Answer 74

A

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

Answer 75

A

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)

Answer 76

A

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

Answer 77

A

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

Answer 78

A

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

Answer 79

A

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

Answer 80

A

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

Answer 81

A

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

Answer 82

A

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.

Answer 83

A

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

Answer 84

A

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

Answer 85

A

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

Answer 86

A

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

Answer 87

A

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

Answer 88

A

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

Answer 89

A

$600 for each failure to determine eligibility

Answer 90

A

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

Answer 91

A

$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

Answer 92

A

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

Answer 93

A

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

Answer 94

A

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

Answer 95

A

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

Answer 96

A

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

Answer 97

A

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

Answer 98

A

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

Answer 99

A

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

Answer 100

A

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

Answer 101

A

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

Answer 102

A

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

Answer 103

A

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

Answer 104

A

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

Answer 105

A

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

Answer 106

A

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

Answer 107

A

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

Answer 108

A

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

Answer 109

A

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

Answer 110

A

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

Answer 111

A

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

Answer 112

A

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

Answer 113

A

The gain recognized equals

Money received in the current year
x Gross Percentage Profit

Answer 114

A

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

Answer 115

A

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

Answer 116

A

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

Answer 117

A

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

Answer 118

A

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

Answer 119

A

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

Answer 120

A

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

Answer 121

A

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

Answer 122

A

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

Answer 123

A

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)

Answer 124

A

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

Answer 125

A

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

Answer 126

A

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

Answer 127

A

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

Answer 128

A

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

Answer 129

A

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.)

Answer 130

A

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

Answer 131

A

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

Answer 132

A

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

Answer 133

A

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

Answer 134

A

Compensatory
Foreseeability of damages
Mitigation of damages
Specific peformance

Punitive damages cannot be recovered for a breach of contract

Answer 135

A

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

Answer 136

A

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

Answer 137

A

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

Answer 138

A

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

Answer 139

A

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

Answer 140

A

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

Answer 141

A

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)

Answer 142

A

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

Answer 143

A

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

Answer 144

A

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)

Answer 145

A

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

Answer 146

A

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

Answer 147

A

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

Answer 148

A

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

Answer 149

A

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

Answer 150

A

Recovery of future damages
Recovery of past damages
Withholding future performance

Specific performance is not a remedy

Answer 151

A

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

Answer 152

A

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

Answer 153

A

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

Answer 154

A

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

Answer 155

A

Taking possession of the instrument

Answer 156

A

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

Answer 157

A

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

Answer 158

A

Insurance companies
Banks
Municipalities
Railroads
Credit Unions
Savings and Loan Associations

Answer 159

A

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

Answer 160

A

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

Answer 161

A

Secured Claims
Priority Claims
General Creditors/Unsecured claims

Answer 162

A

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

Answer 163

A

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

Answer 164

A

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

Answer 165

A

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

Answer 166

A

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

Answer 167

A

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

Answer 168

A

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

Answer 169

A

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

Answer 170

A

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

Answer 171

A

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

[(60,000 - 20,000)/(60,000 - 18,000)] x $8,600
= (40,000/42,000) x 8,600
= 8,190

Adjusted Basis + Adjusted Gift Tax
$20,000 + $8,190 = $28,190

Answer 172

A

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

Answer 173

A

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

Answer 174

A

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

Answer 175

A

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

Answer 176

A

Beginning Basis + Permanent Improvements - Casualty Loss Deduction

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

Answer 177

A

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

Answer 178

A

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)

Answer 179

A

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%

Answer 180

A

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)

Answer 181

A

Sec. 1245 is the maximum of the accumulated depreciation
A Sec. 1245 gain is the lesser of the total gain or the accumulated depreciation
A Sec. 1245 gain is reported by multiplying the Sec. 1245 gain by the tax rate is 40%
A Sec. 1245 loss is reported at full loss

Answer 182

A

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

Answer 183

A

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

Answer 184

A

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

Answer 185

A

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

Answer 186

A

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: (3.5/4) = 87.5%
2nd Quarter: (2.5/4) =62.5%
3rd Quarter: (1.5/4) = 37.5%
4th Quarter: (.5/4) = 12.5%

Answer 187

A

*(200%/Life) x Quarter

Example: Life = 7 Years
1st Quarter: (200%/7) x (3.5/4)
2nd Quarter: (200%/7) x (2.5/4)
3rd Quarter: (200%/7) x (1.5/4)
4th Quarter: (200%/7) x (.5/4)

Answer 188

A

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

Answer 189

A

The assets are combined

Answer 190

A

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

Answer 191

A

Original Cost
(Sec. 179 Deduction)

Answer 192

A

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

Example
* The gift = 24,000
* The exclusion = 18,000
* Amount subject to tax is $6,000 (24,000 - 18,000)

Answer 193

A

It is the FMV less the adjusted basis of the asset

Answer 194

A

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

Answer 195

A

When the cumulative dividend does not exceed the premium

Answer 196

A

$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

Answer 197

A

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

Answer 198

A

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

Answer 199

A

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

Answer 200

A

$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)]

Answer 201

A

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)

Answer 202

A

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%

Answer 203

A

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

Answer 204

A

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

Answer 205

A

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

Answer 206

A

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

Answer 207

A

Individuals
Closely held C Corporations
Estates
Trusts
Personal Service Corporations

Answer 208

A

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

Answer 209

A

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

Answer 210

A

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%

Answer 211

A

Keogh contributions
Gains
Net Operating Loss

Answer 212

A

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)

Answer 213

A

The value is the FMV of the asset

Answer 214

A

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
* Dividends from Unrelated Corporation: 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

Answer 215

A

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

Answer 216

A

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

Answer 217

A

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

Answer 218

A

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

Answer 219

A

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

Answer 220

A

At least 60% of its adjusted ordinary income, or Passive Income, 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

Answer 221

A

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

Answer 222

A

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

Answer 223

A

All passive investments (“RAIRD”)
* Rents
* Annuities
* Interest (do not include tax-exempt)
* Royalties
* Dividends

Answer 224

A

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

Answer 225

A

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

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

Answer 226

A

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**

Answer 227

A

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

Answer 228

A

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

Answer 229

A

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

Answer 230

A

(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

Answer 231

A

In-State Compensation Paid / Total Compensation Paid

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

Answer 232

A

In-State Sales / Total Sales

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

Answer 233

A

100% of Current Year

Answer 234

A

25% of the Lesser of:

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

Answer 235

A

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

Answer 236

A

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

Answer 237

A

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

Answer 238

A

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

Answer 239

A

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.

Answer 240

A

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

Answer 241

A

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

Answer 242

A

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

No payments on a guaranteed loan will not be reported

Answer 243

A

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

Answer 244

A

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

Answer 245

A

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

Answer 246

A

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))

Answer 247

A

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)

Answer 248

A

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)

Answer 249

A

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

Answer 250

A

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)

Answer 251

A

Guaranteed Payments
Payments for Services
Distributions
Loans

Answer 252

A

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

Answer 253

A

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

Answer 254

A

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

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

Answer 255

A

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

Answer 256

A

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

Answer 257

A

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

Answer 258

A

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

Answer 259

A

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

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Final REG Review Flashcards

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