NINJA MCQS Flashcards
Mineral and similar natural resources deposits
are considered to be capital assets when sold in place.
The sale of mineral deposits, which are removed and sold in units, results in ordinary income.
Copyrights held by the creator
are not capital assets;
however, purchased copyrights are capital assets.
Inventory and land used in a business are
specifically excluded from the definition of capital assets.
Home equity indebtedness is limited to the lesser of:
the FMV of the qualified residence, in excess of the acquisition indebtedness with respect to that residence, or
$100,000 ($50,000 if married filing separate).
Forms a household employer who owes both FICA and FUTA tax in relation to the employment of his domestic service employees and has withheld income tax and FICA tax from the domestic employees’ wages may file in order to report all applicable federal employment taxes and withheld taxes for his domestic employees
file Schedule H and do not have to file Form 940 or Form 941
IRC Section 179
is a business tax provision
requires an active trade or business for eligibility
requires purchase from an unrelated party
cost of new or used
tangible depreciable
personal property
when property is contributed in exchange for a partnership interest.
no gain or loss is recognized, either by the partnership or the partner
tax on unrelated business taxable income is computed
using regular corporate income tax rates if an exempt organization is a corporation
For charitable trustsUBIT is taxed at trust rates.
gain on the sale of a principal residence
exclude $250,000 of gain ($125,000 of the gain since he lived in the residence only one year)
If the residence which was sold has not been occupied for at least two years, the $250,000 exclusion is prorated if the sale is due to a change in place of employment, health, or unforeseen circumstances as provided in the regulations.
types of entities is entitled to the net operating loss deduction
Trusts and estates
Not-for-profit organizations are generally denied net-operating-loss deductions except in calculating any unrelated business income tax.
pass-through (partnerships and S corporations) are denied a net operating loss deduction
IRC Section 179
is a business tax provision
requires an active trade or business for eligibility
requires purchase from an unrelated party
cost of new or used
tangible depreciable
personal property
expense up to $25,000 of the cost of personal property purchased and used in the active conduct of a trade or business and deduction cannot exceed net income
Excess amounts carry over to future years.
for personal property in excess of $200,000, the $25,000 is reduced dollar for dollar.
income and expense items where the partnership must decide on the accounting treatment,
especially where there are choices in the treatment of each item.
These include:
amortization of organization costs,
treatment of involuntary conversions, and
the option of Section 179 expensing of equipment.
The choice of choosing the credit or the use of a deduction for foreign taxes is left to the individual partner.
mid-quarter convention
required if more than 40% of assets acquired during a tax year are placed into service in the last quarter of a year
“Sales on approval” under Article 2 of the U.C.C.
allows the buyer a trial period in which to sample, temporarily use, and inspect the goods
Upon the passing of such trial period without return of the goods, the buyer takes title to the goods and assumes risk of loss.
Consideration
is a required element of a contract
some act of forbearance or detriment incurred, or benefit or promise thereof,
given to and received by the other party
in exchange for an act or promise by the second party
Consideration supports the promise given, causing the promise to be enforceable.
inducement to enter into a contract
need not have a monetary value
must be mutual for a valid contract, need not be equal
Consideration is not any of the following:
- Past consideration (consideration given in the past in exchange for a previous promise)
- A preexisting duty (that which the promisor is already legally bound to do by contract or statutory duty)
- Illusory promise (a promise in form but not in substance)
- A moral obligation (something a person feels morally obligated to do but is not legally obligated to do)
simple trust
all net income must be distributed on an annual basis
complex trust
all income does not have to be distrusted on an annual basis
charitable remainder trust
irrevocable trust established by a donor to provide an income stream to the income beneficiary, which the public charity or private foundation receives the remainder value when the trust terminates
generation-skipping trust
contributed assets are passed directly to the grantor’s grandchildren, not the grantor’s children
Exemptions to workers’ compensation coverage exempted.
vary state by state.
Typical statutory exclusions are:
domestic and agricultural employees, and
employers with less than a designated minimum of employees (which will vary by state).
Temporary employees are also commonly exempted.
The percentage depletion rate
coal mined in the United States - 10%
Some types of mining for clay - 5%
gold, silver, copper, and iron ore - 15%
gas and oil (small independent producers only) - 15%
Beneficiaries are taxed
on their share of the trusts income distributed to them,
but not more than their share of DNI of the trust
In a composition agreement,
a debtor enters into an agreement with his creditors whereby the debtor agrees to pay the creditors some fraction of the amount of the outstanding debt.
Such an agreement discharges the debtor once the debt is actually paid.
An assignment for the benefit of creditors
is a transfer by the debtor of all of his assets to a trustee, with the assigned funds to be used to pay off outstanding debts.
This does not have the effect of releasing the debtor from the debts.
passive activity loss rules are applicable to
individuals (including Pship/SCorp s/h), estates, trusts, closely held C corporations, and personal service corporations.
The passive activity loss rules are not applicable to
partnerships,
widely held C corporations,
S corporations.
For partnerships and S corporations, the passive activity loss rules apply at the partner/shareholder level.
requirements for a negotiable instrument:
- in writing.
- signed by the maker or the drawer.
- unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order.
- payable to order or to bearer at the time it is issued or first comes into possession of a holder (unless it is a check).
- payable on demand or at a definite time.
- does not state any other undertaking or instruction by the person promising or ordering to do any act in addition to the payment of money,
but the promise or order may contain
(1) an undertaking or promise relative to collateral to secure payment,
(2) an authorization for confession of judgment, or
(3) a waiver of benefit of any law intended for the advantage or protection of an obligor.
A portion of a taxpayer’s Social Security benefits may be taxable.
For single taxpayers with provisional income above $34,000, gross income includes the lesser of:
85% of Social Security benefits received or
85% of excess of provisional income (defined as modified AGI + 1/2 Social Security benefit) over $34,000,
plus the smaller of:
the amount includible under the old law (1/2 of Social Security) or
$4,500
A person is discharged from a contractual obligation
if the other party has taken action to prevent a performance under the contract.
in the case of “accord and satisfaction.”
“accord” - agreement of the parties to modify a contract so as to require a different kind of performance than originally expected
“satisfaction” = completion of the modified performance, thus discharging the new obligation.
Corporate income tax: When a capital loss is carried to another year,
it is treated as a short-term loss (does not retain its original identity)
carry back three years, forward five years
Capital losses can only offset capital gains.
A partner’s share of a partnership loss is limited to
the partner’s basis in the partnership
then by passive activity rules and at-risk rules under IRC Sections 469 and 465
Excess loss over basis is carried forward.
Constructive fraud on the part of a CPA
Gross negligence
Extreme, flagrant, or reckless departure from the standards of due care and competence in performing or reporting upon professional engagements.
There need not be actual intent to deceive (scienter).
There is no necessity to identify any third-party users.
Ordinary negligence is a lesser offence than gross negligence.
