Investments/Tax/RP

Question 1

Yankee Bond

Answer 1

Dollar-denominated bond issues in the U.S. by foreign banks and corporations.

• Foreign issued
• Dollar-denominated

Question 2

REITs

Answer 2

Real Estate Investment Trust-
- Normally distribute 90% of all net investment income
- Listed and trade on stock exchanges
- Negotiable
- Must invest at least 75% of their assets in RE related activities to qualify for conduit treatment.

REITs are NOT redeemable.

Question 3

MARKETABLE vs. LIQUID ASSETS (definition & examples)

Answer 3

Marketable: Can be sold quickly (ex: T-Bond, Blue Chip Stock, T-Bill)
Liquid: Cannot lose money, convert to cash without significant loss
(ex: CD’s, Money market fund, T-Bill)

Question 4

Original Basis

Answer 4

A tax payers investment in any asset or property right. It is originally unrecovered dollars represented by the asset.

Basis is increased by:
- Legal fees
- Commissions
- Sale Tax
- Freight
- Improvements

BUT NOT BY:
- repairs
- Real estate taxes
- Normal business operating expenses

When the basis is increased by these incidental costs, it becomes the cost basis

Question 5

Ratio Percentage Test

Answer 5

(qualified plan)

The plan must cover a percentage of non-highly compensated employees (NHCE) that is at least 70% of the percentage of highly compensated employees (HCE) covered.

Therefore, if the plan covers 100% of the highly compensated employees, up to 30% of the non-highly compensated employees can be excluded.

Question 6

Average Benefits Test

Answer 6

The average benefits for all non-highly compensated employees (NHCE) must be at least 70% of that for highly compensated employees (HCE).

Question 7

HCE RULE - Attribution Rules

Answer 7

HCE & Key Employees:

Children and grandchildren and parents are subject to ownership attribution rules but not siblings.