It's the Law

Question 1

when are contingent fees allowed to be charged?

Answer 1

• examination or challenge of an original tax return or an amended return or claim for refund. (not preparing one)
• where a claim for refund is filed solely in connection with determination of statutory interest or penalties
• when the accountant is representing the client in judicial proceedings

Question 2

may a CPA provide a clients wps w/o client consent or subpeona to the IRS or FASB?

Answer 2

no

Question 3

what is the penalty for late paying

Answer 3

5% of net tax due per month capped at 25%

Question 4

what is the penalty amount for fraudulent understatement

Answer 4

75% of understatement

Question 5

what tax form should be used to claim a refund of erroneously paid income taxes before the statute of limitations expires

Answer 5

Form 1040X Amended US individual income tax return

Question 6

what is respondeat superior

Answer 6

“let the master answer” It is a doctrine that holds the principal liable for the torts of the agent

Question 7

does the principal have the right to control the method and manner of an agents work?

Answer 7

yes - if a master/servant relationship exists

No - if an independent contractor relationship exists

Question 8

Frolic and detour

Answer 8

acts and conduct by the agent outside of the scope of employment that are done while the agent is supposed to be working for the principal

Question 9

What is the common law used for

Answer 9

services, real estate

Question 10

what is the Uniform Commerical Code (UCC) used for

Answer 10

sale of goods

Question 11

Define express contract

Answer 11

a contract formed wholly by oral and/or written words

Question 12

what is a bilateral contract

Answer 12

a promise is exchange for a promise

Question 13

what is a unilateral contract

Answer 13

a promise in exchange for an act

Question 14

what is an executory contract?

Answer 14

a contract not performed by both sides (you agree to buy my watch in ten days)

Question 15

what is an unenforceable contract

Answer 15

a valid contract that cannot be enforced due to a legal defense

Question 16

what is a quasi contract

Answer 16

a contract imposed by law even when no contract was formed, to prevent unjust enrichment

Question 17

what is an implied or an implied in fact contract?

Answer 17

a contract formed, at least in part, based on the conduct of the parties or based on the factual circumstances

Question 18

what is an option contract?

Answer 18

a distinct contract in which the offeree gives consideration to keep the offer open

Question 19

what happens under common law if the acceptance is not a mirror image and their are additional terms of the acceptance?

Answer 19

the acceptance is a counteroffer and rejection

Question 20

what are the requirements for a consideration in a contract?

Answer 20

Each party to the contract has a benefit and detriment. The promises (detriment) are induced by the benefits and the benefits are induced by the promises (detriment). Bargained‐for exchange. Consideration must actually change hands.

Question 21

promissory estoppel

Answer 21

Promissory estoppel acts as a substitute for consideration and renders the promise enforceable. The elements necessary for promissory estoppel are (1) detrimental reliance on a promise, (2) reliance on the promise is reasonable and foreseeable, and (3) damage results (injustice) if the promise is not enforced. EX. A promise to donate money to a charity which the charity relied upon in incurring large expenditures is a situation involving promissory estoppel

Question 22

what contracts must be in writing?

Answer 22

Contracts involving real property sales, transfers, listing, and leases longer than one year.
Contracts to pay the debt of another.
Contracts that cannot be performed within one year.
Contracts for the sale of goods for $500 or more.

Question 23

what is the parol evidence rule

Answer 23

A fully integrated contract clearly written cannot be contradicted, varied, or altered by evidence of the parties’ prior negotiations, agreements, or contemporaneous oral agreements.

Question 24

What is required for modification of a contract under common law?

Answer 24

Additional consideration

Question 25

what is a exculpatory clause?

Answer 25

a clause in a contract that disclaims any liability regardless of fault

Question 26

what are the defenses that can invalidate the formation of a contract?

Answer 26

Mistake
Misrepresentation
Fraud 
Duress
Undue influence

Question 27

what is the basic difference between fraud and misrepresentation

Answer 27

the element of intent

Question 28

what is undue influence

Answer 28

Undue influence is a defense that makes a contract voidable. Classic situations of this concept involve close relationships in which a dominant person has extreme influence over a weaker person, ie parent/child

Question 29

what is novation

Answer 29

Novation is a contract involving three parties whereby a previous agreement is discharged by the creation of a new agreement. For example: A leases a house to B for one year. B wants out of the house after four months. B gets C to take over the balance of the lease. Both B and C will be liable under C’s assumption of the lease. However, if A, B, and C all agree (a novation), B can be released, leaving only A and C as parties to the lease.

Question 30

what is anticipatory repudiation?

Answer 30

allows a party to either sue at once or wait until after performance is due when the other party indicates s/he will not perform.

Question 31

what is sale on approval?

Answer 31

Risk of loss for the goods passes to the buyer when the goods are accepted after the trial period. allows the buyer to return the goods even if they conform to the contract.

Question 32

when is rescission available?

Answer 32

in cases of misrepresentation

Question 33

what are liquidated damages?

Answer 33

those agreed to in a contract to set the amount of damages in the event of breach of contract

Question 34

The 10% charitable contribution deduction % of AGI is calculated before or after the dividends received deduction?

Answer 34

Before the DRD is taken.

Question 35

Describe the criteria necessary for a security interest attachment when the collateral is not in possession of the secured party.

Answer 35

• a written agreement describing the collateral signed by the debtor
• secured party must give the debtor something of value
• the debtor must have rights to the collateral.

Question 36

what must happen for a security interest to attach?

Answer 36

• the secured party must give value
• the debtor must have rights to the collateral
• there must be a security agreement (may be ORAL if the secured party has possession of the collateral - otherwise must be in writing and signed by debtor)

Question 37

what is perfection?

Answer 37

Me. But also a means by which a secured party gains priority to a debtors collateral over other third parties who claim to have an interest in the same collateral.

Question 38

when does a creditor have temporary perfection?

Answer 38

when a debtor has moved to another state, the creditor has 4 months perfection in the new state. which can be continued with filing a financing statement in the debtors new state

Question 39

what is the order of distribution in a bankruptcy hearing

Answer 39

Secured parties
child support
bankruptcy admin costs
gap creditors

Question 40

section 504 of securities act of 1933

Answer 40

exempts an issuance of securities up to $1M in a 12m period to any number of investors. the issuer must notify the SEC of the offering within 15 days after sale of the securities began.

Question 41

1934

Answer 41

Under the Securities Exchange Act of 1934, a corporation’s officers (and all other insiders) are required to report any changes in ownership of the corporation’s stock within 15 days. Also under the 1934 Act, the proxy statement, the proxy itself, and any proxy soliciting material concerning securities required to be registered under the 1934 Act must be filed with and approved by the SEC before it can be sent to shareholders.

Question 42

is a donor taxed on medical and tuition expenses paid on behalf of a donee?

Answer 42

no, unlimited exclusion

Question 43

if goods are in transit to a buyer who is insolvent, what happens to the goods in transit?

Answer 43

the seller is entitled to stop the delivery of the goods in the hands of the carrier if an insolvent buyer who is not in the possession of the docuemnt of title refuses to pay cash

Question 44

How are agreements not to compete of $60k to not compete for the next 6 years treated by recipient?

Answer 44

as 60k of ordinary income in year received