Final Review Flashcards
(157 cards)
1
Q
What are the pillar topics when it comes to intangible assets, organization costs, and start up costs?
A
Organization costs include legal fees and state filing fees
Organization costs and start up costs are treated seperately?
Intangible assets are amortized over 180 months (15 years)
Organization costs: $5,000 can be immediately deducted if costs are below $50,000. This is reduced dollar for dollar for every dollar above 50,000. $55,000 in organization costs means no immediate deduction.
Start up costs are treated the same as organization costs. They include things that happen before you open the business.
2
Q
What are the pillar topics for Calculating Tax Depreciation for Tangible Business Property Using MACRS?
A
The types of receovery period are 5, 7, 15, 27.5, 39
5 years: Computeres, vehicles
7 year: Machinery, Equipment, & Office Furniture
27.5: Real residential property
39: Real commercial property
Personal property can either be half year or mid-quarter (Mid Quarter is when >=40% of personal property is placed into service the last quarter)
Real property is mid-month convention
Section 179 is immediate expense and the AICPA will give you this because they want you to know the concept not the specific number
3
Q
What are the pillar topics for Section 179 deduction?
A
The total deduction is the lesser of the max for the year or taxable income of the business
The max for the year can be reduced dollar for dollar for the amount of qualified property exceeding the phase out limit for the year
The property has to be new, greater than 50% used for business, can’t be unique software, land is not depreciable, real property is not included, can’t be property from related parties
4
Q
What does form 4868 do for an individual taxpayer?
A
They will have a six month extension of time to file their income tax return but it does not give them an extension of time to pay income tax
5
Q
What is included in rental income?
A
Rent Payments
Rent payments in advance
Improvement of proper in lieu of rent
Rent cancellation payments
(Reduced by rental expenses)
6
Q
What is included in a partner’s income if the partnership on distributes 50% of their ordinary income and the partner also has guaranteed payments from the partnership?
A
100% of their share in the partnership income
Guaranteed payments as well
7
Q
What is the process to calculate the American Opportunity credit?
A
100% of the first $2,000 of qualified expenses
25% of the next $2,000
Max is 2,500
(40% is refundable amount)
8
Q
What are the pillar topics for amortization of intangible assets?
A
intangible are amortized over 180 months regardless of their expected useful life
what is included in intangibles?
customer list (relationships)
goodwill
software
Can’t amortize something that is from the ordinary course of business
9
Q
What are the pillar topics for Calculate the amounts to include in an individual’s gross income?
A
Things included:
Wages
Lottery winnings
Gambling winnings
Guaranteed payments from a partnership
Unemployment compensation
Corporate bonds, dividends
Punititve damages
Traditional IRA/401(k) distributions
Alimony received from a divorce before December 31, 2018
Barters for the FMV of the service you RECEIVED
Excluded
Distributions from Roth IRA
Muni bond income
10
Q
What is the rule for charitable contributions when it comes to long term/ordinary items?
A
Long Term items: Deduct the FMV of the asset (30% * AGI)
Ordinary Items: Deduct the Lesser of the Cost Basis/FMV (50% * AGI)
11
Q
What are key things reported on Schedule E for an individual?
A
Rental Real Estate
S-Corp % of ordinary Income
% of Ordinary Income from a Partnership
Section 179 deduction for separately stated item
12
Q
What are the pillar topics for Capital Gains from Investments and Virtual Currencies?
A
Long term is held >12 months
Short term is held <12 months
First Net Short term gains/(losses) and Long term gains/(losses)
If they are both the same in nature then no further netting
If one is a gain and the other is a (loss) then net them together
Only ($3,000) of capital loss can be deducted against ordinary income for the year
13
Q
What are the pillar topics for Capital Gains from the Sale of Gifted Assets?
A
Gain: Use the donor’s adjusted basis and holding period
Neither: No gain/(loss)
Loss: Use the Lesser of the donor’s adjusted basis or the FMV at the time of the gift
14
Q
What are the pillar topics for Capital Gains from the Sale of Inherited Assets?
A
Step up in basis
FMV on donor’s DOD or 6 month alternatve vaulation Date
Holding period is always long term
Can deduct only 3,000 of capital loss on individual return
15
Q
What are the pillar topics for Tax-Exempt Interest and Gross Income?
A
Muni Bond interest is not taxable
Series EE bond interest is not taxable if used for qualified higher education expenses
Interest income from a Health Savings Account is not taxable if used ot pay for medical expenses
Tax refund is not taxable if the person claimed the standard deduction last year on their tax return
16
Q
What are the pillar topics for Gifts Received, Life Insurance Proceeds, and Gross Income?
A
Gift Received are not taxable to the receipient
Life Insurance proceeds are generally not taxable
The exception to this if a person buys one from another person the equation is (Total Life insurance proceeds - amount paid for policy - premiums paid)
17
Q
What are the pillar topics for Income Reported in the Year of Death for a Decedent?
A
Income that is received/earned prior to the death of the Decedent is included in their 1040
The rest is included is in 1040-E
18
Q
What is the Process to calculate the self-employment tax deduction from Form Schedule K-!?
A
Look at Box 14 for Self-employment earnings (loss) Multiply by 92.35%
Multiply this number by the 15.3% SE tax rate
50% of this number is then deductible for SE Tax
19
Q
What is the steps to recall how to calculate the QBI deduction for a task based simulation?
A
1) Sum the gross income which includes: Wages, share of ordinary business income from QTB/SSTB, and Salary or Guaranteed payments less the greater of itemized/standard deduction
2) Check the QBI limitation to see if they are above the threshold and this means SSTB will not get deducted and they will have to check for W-2 and UBIA
3) Determine whether each business is within the U.S. and categorize as a QTB or SSTB
4) Multiply the ordinary business income by 50%
5) Compare this amount for each qualifying business to the (20% * Taxable Income) to get the lesser of the two
20
Q
What are the pillar topics from Taxation of Income from Disregarded Entities?
A
The main disregarded entities are sole proprietorships and single member LLCs
A person reported the business income/business expenses on 1040 Schedule C
Salary paid to the person is not deductible and not included in gross income directly but rather indirectly
Schedule E is a schedule for business rent such as payments, prepaid payments, non-refundable deposits received from tenants as well
21
Q
What are the pillar topics for Taxation of Income from Pass-through Entities?
A
The two main types of Partnerships and S-corporations and certain LLCs
Income is pass through to the owners and taxed at an individual level. This income is taxed regardless of the entity distributing it to that person or not.
A partner or shareholder can deduct a loss greater than their basis (Debt + Stock Basis)
Distriubitons from partnerships are considered a return of capital and are not taxable
Ordinary income and seperately stated items are two different things
List common separately stated items
22
Q
What are the pillar topics for HSA and Retirement Contributions?
A
HSA are health savings account where you can deduct a certain limit based on the tax year.
Traditional IRA contributions can reduce gross income
Rother IRA contributions don’t reduce gross income but they gross tax free and distributions are not taxed
Traditional IRAs might not reduce income if your MAGI is above the threshold
23
Q
Consideration must be ______ bargained for and __________ sufficient.
A
mutually
legally
24
Q
Most offers made by the offeror to the offeree can be __________ anytime prior to acceptance. This is true even if the offer states it will be held open.
A
Revoked
25
Advertisements and price quotes generally are not _________, but rather are invitations to deal.
offers
26
What happens when someone enters into a contract when they are significantly impaired?
The person can disaffirm or rescind if they didn't have mental capacity. The contract becomes voidable to that person.
27
What are the things the non-breaching person in the contract can do for anticipatory repudiation in very simply?
Sue immediately
Wait and see, and then possible sue
Cancel the contract
28
What is the rule for firm offers?
It must be in writing and signed by the merchant
Must be made by a merchant
Offer states that it will remain open for a period of time and no more than 3 months
29
says that once a written contract is finalized, you generally cannot use earlier statements, agreements, or understandings (oral or written) to change or add to the terms of that written contract.
parole evidence rule
30
The UCC Sales Article applies to what type of sales?
The sale of goods (specifically movable personal property aka goods)
31
What happens when a buyer rejects nonconforming goods?
A buyer can do this, and the seller has the right to correct or cure the nonconforming delivery by notifying the buyer it will be corrected on time.
32
When is a writing not requires for the statue of fraud to be enforceable?
The party admits in court that they made the contract.
33
What are the type of contract that fall under the statute of frauds?
M: Marriage – Contracts made in consideration of marriage (like prenuptial agreements).
Y: Year – Contracts that cannot be performed within one year from the date they are made.
L: Land – Contracts involving the sale or transfer of interest in land.
E: Executor – Contracts where an executor promises to pay the debts of an estate out of their own pocket.
G: Goods – Contracts for the sale of goods over a certain value (typically $500 or more under the UCC).
S: Suretyship – Contracts where one party agrees to be responsible for the debt of another (a guarantee).
These are the types of contract that have to be in writing under the Statue of Frauds
34
If an agent exceeds their actual authority (Implied/Express) then a principal can ratify a contract. To ratify a contract, the principal must have knowledge of all _______ ____________
material facts
35
How can a principal-agent relationship be terminated?
Mutual agree of both parties
Expiration of a period of time
Completion of the purpose of entering into agreement
Revocation by the principal unless the agent is coupled with an interest
Renunciation by the agent: The agent can also choose to resign or renounce the authority given by the principal.
Death or incapacity: The relationship automatically terminates if either the principal or agent dies or becomes legally incapacitate
Bankruptcy: The bankruptcy of the principal (or sometimes the agent) can terminate the relationship, especially if it affects the ability to perform the contract.
Change of circumstances: If circumstances change such that the agent’s role no longer makes sense (e.g., destruction of the subject matter), the relationship may end.
36
What is an example when the principal may not terminate the agency, and the agency does not terminate by operation of law by the death of the principal.
If the agent has paid for the right o be appointed as an agent, the agency is coupled with an interest and may be revoked only by the agent
37
What is a right a surety has against a co-surety?
contribution
38
What are the three available right a surety has against a principal?
Exoneration is the right to compel the principal to pay
Subrogation is the surety’s right to succeed to the creditor’s rights against the principal debtor after the surety pays the creditor
Reimbursement is the surety’s right to recover from the principal whatever the surety pays the creditor.
39
Which of the following statements is correct regarding an agreement to act as a surety?
The promise of a gratuitous surety must be evidenced by a writing signed by the surety because of the Statute of Frauds (MY LEGS)
40
What are the three things required for a security interest to attach?
creditor must give value (aka loan)
agreement between the credit and the debtor
debtor must have rights in the collateral
CAD
41
Which remedy aims to put the non-breaching party in the position they would have been in had the contract been performed as agreed?
compensatory damages
42
Which remedy involves canceling the contract and restoring the parties to their pre-contractual positions?
Recission
43
When a court orders a party to perform their contractual duties as agreed, this remedy is known as:
Specific Performance
44
involves returning the benefit received under the contract to prevent unjust enrichment, ensuring that the non-breaching party is not unfairly enriched at the expense of the breaching party.
Restitution
45
What type of damages are awarded when a breach occurs, but the non-breaching party does not suffer any measurable loss?
Nominal damages
46
Which remedy modifies the contract to reflect the true intentions of the parties when the original contract is incorrect due to mistakes or misrepresentations?
Reformation
47
not typically awarded for breach of contract alone but may be granted in cases involving fraud or egregious conduct to punish the wrongdoer and deter future misconduct.
punitive damages
48
Qualified improvements to the interior of nonresidential real property that are added after the building is placed into service have what recovery period? Can you recall this from a TBS?
15 year recovery period
In the TBS the asset was a security system
49
What is the order to take depreciation deductions?
Section 179
Bonus Depreciation
MACRS Depreciation
50
What type of assets qualify for Section 179 Deduction?
5 year class
7 year class
15 year class
51
What is the process to calculate the depreciation when you have section 179, bonus depreciation, and then MACRS depreciation?
The order of depreciation is section 179, bonus depreciation, and then MACRS depreciation.
Section 179 is available for assets with a recovery period of 5, 7, or 15 years. Section 179 reduces the basis of the asset with the longest recovery period
The limits will be given you compare the max section 179 depreciation for the year to the taxable income after MACRS and use the lesser of the two
Bonus depreciaiton is available for assets with a cost recovery of less than 20 years and it will be given
MACRS is then calculated based on the assets basis after section 179 and bonus depreciation.
52
How is a state franchise tax overpayment previously deducted treated for tax purposes?
It is fully taxable
This is from a tbs and I put that it is not taxable thinking that it is similar to a refund for an individual
53
How are bad debt expense treated on an M-1?
Recall from a TBS. There are three options
Bad debt expense recorded for GAAP purposes is not deductible
Bad debt expense that is actually written off is deductible
Accounts that are recovered in subsequent periods are taxable
54
Filing for bankruptcy triggers an _________ _________, which halts creditors from taking collection actions, such as foreclosures or garnishments.
automatic stay
55
What debts will not be discharged by a bankruptcy?
WAFTED
Willful and malicious injury
Alimony
Fraud
Taxes
Educational loans
Debts undisclosed in the bankruptcy petition
56
How are unsecured creditors typically treated in Chapter 7 bankruptcy?
They receive a pro-rata share of remaining assets after secured creditors are paid
57
What is the main difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 involves liquidation of assets, while Chapter 13 involves a repayment plan
58
What are the three requirements for a security interest to attach?
A valid security agreement exists between the debtor and creditor
The creditor gives value (e.g., loan or credit)
The debtor has rights in the collateral (ownership or control)
59
when a security interest becomes enforceable against the debtor, allowing the creditor to claim the collateral.
attachment
60
What are the common methods to perfect a security interest?
Filing a financing statement (UCC-1)
Taking possession of the collateral
Automatic perfection (in limited cases, like a purchase money security interest in consumer goods)
61
Why is perfection important for a secured creditor?
Perfection gives the secured creditor priority over other creditors in claiming the collateral.
62
What is a Purchase Money Security Interest (PMSI)?
A PMSI is a security interest that gives a creditor priority when they finance the purchase of collateral (e.g., a creditor lends money to buy equipment and takes a security interest in that equipment).
63
What are the pillar topics for Medical expenses?
Itemized deduction reported on Schedule A
The floor is 7.5% times AGI
Insurance reimbursements reduce this
Things Included would be: Medical payments charged to a credit card, prescription drugs, medical expenses for dependents
Things not included would be: drugs that have been recommended, things that have been covered with an HSA account, non-prescription drugs, cosmetic surgery that is not necessary
64
What are the pillar topics for the Casualty loss deductions?
Itemized Decution (Schedule A)
It has to be in a federally declared disaster area
Lesser of decrease in FMV or adjusted basis of property
less insurance repayments, ($100), and (10% of AGI)
65
What are the pillar topics for Real Estate, Personal Property, and Income Taxes?
Itemized Deduction (Schedule A)
Greater of salt income or salt sales tax can be deducted but not both
Taxes on personal property (house/car) can be deducted
Taxes on rental property is deducted on Schedule E
Taxes on car for business purposes can be deducted on Schedule C
The SALT cap is $10,000 for the year
Federal Income Tax is not deductible
66
What are the pillar topics for charitable contributions for an individual?
Limited to certain percentage of AGI
Cash contributions have a 60% limits
Ordinary property has a 50% limit
Long term property is valued at lesser of basis or FMV and 30% limit
If there are multiple things such as the three above it goes in the same order and the cash contributions reduces the subsequent limits
Carryforward is 5 years
67
What are the three things that a credit may do when a debtor defaults in a suretyship?
They can do any of the following
1) Immediately demand payment from the surety
2) Immediately demand payment from the debtor
3) Immediately go after the collateral, if there is any
68
Following an IRS audit, if agreement is reached with the taxpayer, the taxpayer signs what form?
Form 870
69
How is interest income/interest expense treated for municipal bonds?
Interest income is not taxable
Interest expense is not deductible
70
What are the refundable tax credits for an individual?
FACES
F – Federal tax withholding (on wages, pensions, etc.)
A – American Opportunity Tax Credit (AOTC) (up to 40% refundable)
C – Child Tax Credit (CTC) (refundable portion known as Additional Child Tax Credit)
E – Earned Income Tax Credit (EITC)
S – Social Security overpayment (when too much is withheld for Social Security taxes)
71
The elements of constructive fraud. Why does this matter?
Misrepresentation of a material fact.
Defendant acts with gross negligence or recklessly.
Intent to induce plaintiff's reliance.
Actual and justifiable reliance by plaintiff.
Damages.
72
What's the main difference between constructive fraud and actual fraud?
A plaintiff (the person charging the defendant) has to prove the intention of the CPA in actual fraud
73
Who is a CPA liable to for Negligence, Gross Negligence, Constructive Fraud, and Actual Fraud?
Negligence: Client, third parties who are part of a limited group the CPA knew would rely on their work
Gross Negligence: client, forseeable third parties who could reasonably rely on the CPA's work
Constructive fraud: client, any third party who relied ont he CPA's work
Actual Fraud: client, any third party who was intended to rely on the false information
74
What happens if a merchant mistakenly sales good to a customer?
Under the Uniform Commercial Code (UCC), when goods are entrusted to a merchant who deals in goods of that kind (in this case, clocks), the merchant has the power to transfer good title to a buyer in the ordinary course of business, even if the sale was a mistake.
75
When would a tax position be unreasonable as defined by the IRC?
If it involves a tax shelter and it is not more likely than not that the position will be upheld.
76
What happens to a seller’s perfected security interest in exchanged collateral?
When collateral is exchanged, the seller's perfected security interest in the original collateral extends to the new collateral for 20 days. After this period, the seller must take additional steps to maintain perfection.
77
In the current taxable year, Alex holds 100 shares of XYZ Corporation stock. By the end of the year, XYZ Corporation goes bankrupt and the stock becomes completely worthless. How is this stock treated for tax purposes?
The stock is treated as sold on the last day of the current taxable year.
78
What are the exceptions to the general rule that offers can be revoked before acceptance?
Option Contract: Consideration is paid to keep the offer open for a specified period.
Substantial Start on a Unilateral Contract: Significant performance has begun.
Merchant’s Firm Offer under the UCC: A merchant offers to keep an offer open in writing for a specified period.
(offers can generally be revoked)
79
When can an accountant disclose a client's workpapers?
With Client’s Consent: Written consent from the client.
Legal or Regulatory Requirements: Under subpoena, court order, or regulatory request.
Peer Review: For professional peer review, with confidentiality.
Succession Planning: When transferring practice to a successor.
Enforcement of Rights: To collect unpaid fees if necessary.
80
What is the order of hierarchy of authority in tax law?
Federal Statutes (Internal Revenue Code)
Treasury Regulations
IRS Revenue Rulings and Procedures
Private Letter Rulings
Judicial Decisions (Court Cases)
Legislative History and Committee Reports
81
What is the tax treatment of compensation of officers for an S-Corp?
They can deduct it as a ordinary business expense
82
What is the tax treatment difference between Section 1245 gain and Section 1231 gain?
Section 1245 gains are taxed as ordinary income and are included in the calculation of ordinary business income (loss).
Section 1231 Gain: Net Gain: After netting Section 1231 gains and losses, if there is a net gain, it is taxed as long-term capital gain.
83
There is an exception to the gain/loss on a gifted asset when the selling price is in between the FMV at the time of gift and the donor's basis, what is it?
When the FMV on the selling date is above the donor's basis but below the FMV on the DOG, there would be a gain recognized on the sell.
84
How is health insurance treated for a partnership at the partnership level and at the partner's level?
Partnership Level:
Deduction: The partnership can deduct health insurance premiums paid on behalf of partners as a business expense. This is reported as part of the partnership’s ordinary business income
Partner's Level:
Deduction: Health insurance premiums paid by the partnership for a partner are reported as self-employed health insurance on the partner's individual tax return. This deduction is reported on Form 1040 and is used to reduce the partner’s adjusted gross income (AGI).
Separate Reporting: The premiums are not separately stated on the partner's Schedule K-1 but are included in the partner's overall income for self-employment tax purposes.
85
How much can a taxpayer deduct for business gifts to each client, customer, or other business associate during the year?
$25
86
How much of a business expense is deductible for club dues or membership fees?
None of it is deductible, however the business meals are if they are ordinary and necessary business expenses for the business.
87
In chapter 7 liquidation preceding an involuntary petition may be filed by as few as how many creditors if owed at least how much in unsecured debt?
one
$18,600
88
A debtor must wait at least how many year before receivng another discharge in bankruptcy?
eight years
89
This mnemonic helps in recalling the order in which unsecured debts are paid during bankruptcy proceedings.
The acronym SAG WEG CTI is used to remember the priority order of claim payments in bankruptcy, specifically under the U.S. Bankruptcy Code. It stands for:
S - Support obligations (e.g., child support, alimony)
A - Administrative expenses (costs associated with administering the bankruptcy, such as legal fees)
G - Gap creditors (claims that arise in the period between the filing of an involuntary bankruptcy petition and the court's order for relief)
W - Wages (unpaid wages, salaries, or commissions earned within 180 days before the bankruptcy filing)
E - Employee benefits (unpaid contributions to employee benefit plans)
G - Grain farmers and fishermen (unpaid claims of grain producers or fishermen)
C - Consumer deposits (deposits made by individuals for undelivered goods or services)
T - Tax claims (certain types of unpaid taxes)
I - Injury claims (claims arising from personal injury or death caused by the debtor's operation of a vehicle while intoxicated)
90
Who must pay Federal Unemployment Tax (FUTA)
Self employed individuals
Employer who meet a minimum quarterly payroll
Employers who employ at least one person for 20 weeks
91
Who pays for workers' compensation and who do they purchase it from?
Employers
From the state or from a private carrier
92
LLC Active Recall: Formation, Liability of Owners, Management, Transferability, Taxation.
Formation: File articles of organization with state
Liaility of owners: Members generally not personally liable beyond their investment
Mangement: Mebers mange directly or can agree to appoint a manager
Transferability: Absent agreement otherwise, members cannot transfer ownership interest without unanimous consent
Taxation: Pass through
93
When is the corporate veil pierced?
undercapitalization at the time of formation
commingling of assets
fraud
94
What is the identity of officers of a corporation
Agent and fiduciaries of the corporation
95
Who hires officer within a corporation?
BOD
96
What are the shareholders right of an organization?
Right to elect BOD
Vote on fundament changes
97
What is a requirement for a merger between two corporations?
The boards of directors of both corporations must approve the merger.
98
What are the pillar topics for the QBI deduction?
General deduction is 20% of QBI
There are QTB and SSTB and this is important if taxable income is above the limit because none of the SSTD is deductible.
Limitation on QTB if taxable income is above threshold
Greater of: W-2 * 50% or (W2 * 25% + UBIA * 2.5%)
Lesser of: 20% * QBI, 20% * Taxable income - net capital gains, the greater of the thing above
99
What are the pillar topics for personal-use asset losses and hobby losses?
Personal use asset losses are not deductible for an individual
For hobbies, income is reported for the individual and the expenses are not deductible.
If an individual makes a profit in 3 of the past 5 years then they can deduct the expenses.
100
What are the pillar topics for tax-payer filing statuses?
It only matter what the individual is at the end of the year.
Head of household requires a dependent live with live greater than half the year.
Qualifying surviving spouse requires that a dependent lives with them the whole year, and it is within two years of their spouse's death.
101
What is the "employer mandate" under the ACA?
Employers with 50 or more full-time employees must offer health insurance that meets minimum standards.
102
Internal Revenue Code (IRC) Section 6695(b) provides a penalty of _________ for each failure of a preparer to sign a tax return [maximum penalty of ___________ per calendar year (2024)]
$60
$31,500
103
What is a principal required to do when they terminate the principal-agent relationship?
Direct notification of any third party who has dealt with the agent
Public Notice: If the agent had broad dealings with the general public, the principal might need to take additional steps to inform potential third parties. This can involve publishing a notice in a local newspaper or updating company websites to reflect the change.
Why This Matters: Failure to notify third parties can result in the principal being held liable for the agent's actions even after the termination. Proper notification protects the principal from future legal or financial responsibilities that could arise from the agent's unauthorized acts.
104
What is the mirror image rule?
The acceptance must exactly match the offer without changes; otherwise, it is a counteroffer, not an acceptance.
105
What is the mailbox rule?
An acceptance is effective when sent, not when received, as long as it is properly addressed and sent by an authorized method.
106
How long do minors have to disaffirm a contract?
Minors can disaffirm at any time while underage and for a reasonable time after reaching the age of majority (usually 18).
107
How are profits and losses shared if a partnership agreement is silent?
in the absence of an agreement otherwise partnership losses are allocated among partners in the same proportion as partnership profits.
108
Which business entities do not have to file organization documents with the state?
Sole Proprietorships
General Partnerships/Joint Ventures
109
What’s the difference between a corporate charter, corporate bylaws, and certificate of incorporation?
Corporate Charter: Document that establishes the corporation's existence and includes basic details.
Corporate Bylaws: Rules governing the internal management of the corporation.
Certificate of Incorporation: Document filed with the state to legally create a corporation.
110
If a director of a corporation makes a contract with another company that he is a shareholder of, what happens?
If the direct fully discloses the contract then it is voidable, but if the corporation says it is a fair contract then is it enforceable.
111
What are examples of non-deductible expenses?
Fines/Penalties
50% of meals
Interest Expense on Muni bonds
Entertainment expenses
Political contributions
112
How is partnership recourse debt (trade accounts payable) treated for a limited partnership?
The general partner has personal liability for the partnership's recourse debt and this increase his basis.
113
How is partnership nonrecourse secured debt (land) treated for a limited partnership?
Both partners will increase their basis based on the percent of allocation to each partner regardless of being a general partner or being a limited partner
114
Which type of court allows a jury trial?
U.S. District Court
115
The acronym "SWAP" is used to remember the exceptions to the Statute of Frauds, which are situations where the Statute of Frauds does not apply. Here's what each letter stands for:
S: Specially Manufactured Goods – Contracts for goods that are specially manufactured for a particular buyer and cannot be sold to others in the ordinary course of business.
W: Written Confirmation – A written confirmation between merchants that is not objected to within 10 days can enforce an agreement.
A: Admitted – If a party admits in court that a contract exists, it can be enforced even if it does not meet the Statute of Frauds requirements.
P: Performed – Contracts that have been partially or fully performed can sometimes be enforced despite the Statute of Frauds.
116
What is the qualifying Child test?
CARES acronym
Close Relative
Age Limit: under 19 or under 24 if full time student
Residency: a child must live in the same place as the taxpayer for over half the year
Eliminate Gross Income Test
Support Test: taxpayer must contribute over half of their support
117
What is the Qualifying Relative test?
SUPORT acronym
Support test: taxpayer supports person by greater than 50%
Under Gross Income Limitation: Qualifying relative's gross income is less than $5,050
Precludes Dependent filing a joint return
Only Citzens of the U.S or Residents of the US, Mexico, or Canada
Relative
Taxpayer lives with the individual (if non-relative) for the whole year
118
How to calculate net investment income tax liability?
Lesser of:
3.8% * Net Investment Income
3.8% * (MAGI - Limit)
119
What are the pillar topics for S Corporation Status Termination and Revocation?
No more than 100 shareholders
Only one class of stock (Can be voting/non-voting)
Eligible shareholders include: individuals, entities, trusts
Noneligible shareholders include: Corporations, Partnerships, and Nonresident aliens
In order for an S-corp status to be voluntarily revoked shareholders greater than 50% must vote
If an S corporation was originally a C Corporation, and it has had passive income of 25% or greater of total earnings for the past three consecutive years, the S-Corp Status can be terminated
120
Why is the "more-likely-than-not" standard important for tax shelters?
It ensures that tax shelters have a strong likelihood of being upheld, reducing the risk of penalties if the IRS challenges the position.
121
How can a tax practitioner communicate fee information under Circular 230?
By using various methods, including professional lists, telephone directories, mailings, and electronic mail.
122
What assets must be surrendered if received within 180 days of filing for Chapter 7 bankruptcy
Inheritance
Property settlements
Life insurance proceeds
123
If the taxpayer agrees with the conclusions reached by the IRS agent in an audit, the taxpayer will do what?
sign Form 870 and pay any additional tax assessed (plus interest and penalties).
124
To perfect a security interest under Article 9 of the Uniform Commercial Code (UCC), the following requirements must be met:
AFPC
Attachment: The security interest must be attached to the collateral. This requires:
Filing a UCC-1 Financing Statement: This is typically done with the appropriate state authority (usually the Secretary of State). The financing statement should provide the debtor's name, the secured party’s name, and a description of the collateral.
Possession of the Collateral: For certain types of collateral (like tangible goods), the secured party can perfect the security interest by taking possession of the collateral.
Control: For certain types of collateral such as deposit accounts, electronic chattel paper, and investment property, perfection can be achieved through control (i.e., having the ability to direct the disposition of the collateral).
125
How much of business interest expense is deductible in a year?
Limited to the Sum of:
Business Interest Income
30% of adjusted taxable income (ATI) Gross receipts less expenses exluding interest income/expenses
THIS DOES NOT APPLY IF AVERAGE ANNUAL GROSS RECEIPTS IS LESS THAN $30 MILLION IS THE PRIOR THREE YEARS
126
What is the carryforward for business interest expense?
Indefinite carryforward
127
What are the 5 elements of fraud?
False Representation: A lie or false statement made by one party.
Knowledge of Falsity: The person knows the statement is false.
Intent to Deceive: The false statement is made to trick someone.
Reliance: The victim believes the false statement and acts on it.
Damages: The victim suffers a loss due to relying on the false statement.
128
When is a CPA liable to third parties for negligence, gross negligence, and actual fraud?
Negligence: CPA fails to act with reasonable care, and a third party relies on their work (only specific parties like clients or intended users can sue). (parties in privity)
Gross Negligence: CPA acts recklessly without caring if their work is right or wrong; more third parties can sue (even if not directly connected). (forseeable parties)
Actual Fraud: CPA knowingly lies or cheats; any third party harmed by the CPA's actions can sue.
129
Are revocation of an offer effective when they are mailed or received?
Received
130
When can offers not be revoked?
If the offeree paid consideration to keep the offer open
If the offeror is a merchant and the firm offer rule applies to keep the offer open for a duration of time
131
___________ have no right to compensation other than profits unless otherwise agreed.
Partners
132
What is an easy definition of capital assets?
Things that are held for investment or personal use and not available for immediate resale
133
If a principal is undisclosed in a principal agent relationship what happens unauthorized acts performed by the agent?
They cannot be ratified by the principal
134
When does the risk of loss pass from seller to buyer for a merchant vs. non-merchant?
Merchant Seller: Risk of loss passes when the buyer receives the goods.
Non-Merchant Seller: Risk of loss passes when the seller makes the goods available to the buyer (e.g., when they say, "You can pick it up now").
135
What are the different warranties between a buyer and seller?
Express Warranty: Seller makes a specific promise about the product (e.g., "This phone has a 2-year battery life").
Implied Warranty of Merchantability: If the seller is a merchant, the product must work as expected (e.g., a car must run).
Implied Warranty of Fitness: Seller knows the buyer needs the product for a specific purpose, and the buyer relies on the seller’s advice (e.g., buying a waterproof jacket for hiking).
136
When there is a fundamental change proposed such as a merger what must happen?
the board must pass a resolution, and the shareholders must be given notice and must approve of the change by at least a majority to pass the resolution.
137
When can accountants be liable to 3rd parties for negligence?
Generally: Accountants aren’t liable to 3rd parties due to lack of privity (no direct contract).
Exception: 3rd Party Beneficiary Rule (Intended User Rule) — Accountants are liable if they knew the 3rd party would rely on their work.
Fraud/Constructive Fraud: Privity defense doesn’t apply; accountants can be liable regardless of privity.
138
What's the QBI deduction limit for MFJ and Single?
MFJ: 383,900
Single: Around 180,000
139
Where are contributions to a HSA deductible?
Above the line regardless of using them for medical expenses
140
The 50 investors who recently created a corporation held their first shareholders' meeting to determine the corporation's tax status. Under federal tax law, the corporation may elect S corporation status if the election has, at a minimum, the approval of:
All of the shareholders
141
What are the pillar topics for Calculating C Corporation Estimated Tax Payments?
Lesser of:
100% of Last's year tax liability
100% of estimated Current Year tax liablity
EXCEPTION: The corporation is a large corporation which means taxable income is greater than 1,000,000 for past three years
Calculating foreign income tax credit/deduciton
Determine which would would reduce tax liability by the most
142
What are the pillar topics for personal holding companies?
Owned by 5 or fewer people that have ownership greater than 50%
Passive income is greater than 60% of total income
Tax liability = (Taxable income - dividends distributed) * 20%
143
Is rental income a ordinary income or a separately stated item?
Separately stated item
144
What are the pillar topics for the AAA account for S-corps?
It represents that amount that has been taxed to shareholders that has not been distributed
Beginning
This is given in the question
Additions
Ordinary Income
Capital Gains
Dividends from other corporations
Subtractions
Ordinary losses
Capital losses
Distrubtions to shareholders
Nondeductible Expenses
ENDING
This will be the sum of all of these things
Key point is AAA cannot go below 0 because of distributions to shareholders
Tax exempt income and expenses related to it do not affect AAA (Muni bonds or life insurance)
145
What are the pillar topics for S Corp Debt Basis and Stock Basis?
Treated seperately for S Corps
Debt basis increases with loans to S Corp and decreases when the loans are repaid
Stock basis is more involved
Additions
Cash Contributions
Ordinary Income/Seperately Stated Item Income
Subtractions
Cash Distrubtions
Ordinary Losses/Seperately Stated Item losses
Stock basis can't go below 0 and if there is an excess debt basis can be decreased
146
What are the pillar topics for Partnership Ordinary Income and Separately Stated Items?
Pretty much the same as S-Corp for this one.
Guaranteed payments are deductible by the partnership and included in the partner's 1040
Seperately Stated items
Passive Rental Income
Capital Gains/Losses
Section 179 depreciation expense
Charitable contributions
147
What are the pillar topics for calculating partner's basis?
Stock and debt basis are combined
BEGINNING
Given
ADDITIONS
Ordinary Income
Seperately Stated income
Increase in liability and % of nonrecourse liabilities
Capital Contributions
SUBTRACTIONS
Ordinary Losses
Seperately Stated Losses
Cash Distributions
Decrease in debt
Ending Balance: Sum these up
148
What does the $10,000 limit apply to for itemized deductions?
State taxes withholdings
State estimated payments
Real Estate taxes either residence or vacation home
Personal property taxes
149
How are health insurance premiums paid by the partnership for the partner's treated in a partnership?
They are deductible by the partnership
They are treated like guaranteed payments
150
What are the pillar topics from the TBS on taxpayer failure to file and failure to pay penalty?
Failure to file is a bigger penalty with the greater of $510 or 0.05 * liability * number of months filing late
Failure to pay is a smaller penalty and is 0.005 * liability * number of months
The number of month is full month and if there are additional days it counts as a whole month
The bigger penalty will be reduced by the smaller penalty
151
When a partnership agreement is silent regarding the allocation of profits and losses, the default rule under the Uniform Partnership Act (UPA) or the Revised Uniform Partnership Act (RUPA) generally applies:
Profits are shared equally among the partners, regardless of their capital contributions or effort.
Losses are shared in the same proportion as profits. This means if the profits are split equally, the losses are also split equally.
If the partnership agreement states that profits are shared differently then losses would be treated the same way
152
any transaction that the Secretary of the U.S. Treasury Department has determined as having a potential for either tax avoidance or tax evasion.
reportable transaction
153
Under the Revised Uniform Partnership Act, which of the following have the right to inspect partnership books and records?
Active and inactive partners
154
To qualify as publicly supported, at least _________ of the organization’s total support must come from governmental units and the general public.
33%
155
Eller, Fort and Owens are members of Venture Associates, LLC. Trent Corp. brought a breach of contract suit against Venture for a contract executed by Eller as an agent of the LLC. If Trent prevails, Trent will generally be able to collect the judgment from:
The LLC's assets only
156
Is consumer interest deductible?
No, consumer interest is generally not deductible for individuals. This includes interest on personal loans, credit card debt, and car loans that are used for personal purposes
157
How is insurance treated for individuals, and is the cost deductible?
Health insurance: Deductible as a medical expense on Schedule A (if total medical expenses exceed 7.5% of AGI).
Self-employed health insurance: Deductible as an above-the-line deduction on Form 1040 (up to 100% of the premiums, subject to limits).
Life insurance premiums: Not deductible.
Homeowner's/renter's insurance: Not deductible for personal use.
Auto insurance: Not deductible for personal use.
