Ongoing Review Cards

Question 1

What is true of non-liquidating land distributions from a partnership?

Answer 1

They must be recognized by recipient/partner, at the value of the BASIS to the partnership.

Question 2

Workers comp benie’s – taxable or non-taxable?

Answer 2

Non-taxable

Question 3

What’s an example of something a taxpayer may deduct from AMT?

Answer 3

Casualty losses

Question 4

Personal holding company - AGI made of NIRD

Answer 4

• More than 50% owned by 5 or fewer individuals
• 60% of ordinary AGI consisting of NIRD:

N-Net Rent (if less than 50% of AGI)
I- Interest, taxable ONLY (nontaxable doesn’t count)
R- Royalties (but no mineral/gas/oil/copywrite)
D- Dividends from an unrelated domestic corp.

Question 5

When does a wash sale occur?

Answer 5

Taxpayer sells a stock at a LOSS and invests in a substantially identical stock within:

• 30 days before, or
• 30 days after

The loss becomes DISALLOWED (for tax purposes and otherwise,) and basically just serves to up the value of the NEW shares.

Question 6

Related party rules of non-recognition within a partnership

Answer 6

If a partner directly or indirectly (EG has a son/father in the partnership) owns 50%+ of a partnership, all equipment sold to him will be non-taxable under the rules of Related Party Non-Recognized Transactions.

Question 7

Are fines and penalties in a partnership tax-deductible?

Answer 7

No they are not.

However they serve to reduce partners’ bases.

Question 8

What kind of income are dividends treated like, to a partnership?

Answer 8

Separately Stated Income by the partnership, Taxable to the partner

Question 9

Are cash distributions to partners taxable?

Caveat?

Answer 9

No, however they reduce basis in a partnership.

If cash distribution EXCEEDS basis, the excess will be taxable income to the receiving partner.

Question 10

What are salaries and wages, to a partnership?

Answer 10

They are deductible business expenses incurred in the ordinary course of business… therefore deductible in arriving at Ordinary Business Income

Question 11

For Partnership - is Interest Income included in the Partnership tax return?

Answer 11

NO. It flows to schedule K-1.

Question 12

Are Keogh pension plans includable/deductible on the Partnership 1065 Tax Return?

Answer 12

NO. They flow to the partner.

Only pension plans that they sponsor for their employees are considered expenses in the O.C.B., which makes them therefore deductible on the 1065.

Question 13

Are charitable contributions includable/deductible on the Partnership 1065 Tax Return?

Answer 13

NO. They flow through to the partner.

They are separately stated. NOT O.C.B

Only non-sep-stated business income is includable on the Partnership 1065 tax return.

Question 14

What are the MAIN THINGS includable on a partner’s K-1?

Answer 14

Their share of:

• Ordinary business Income (or Loss)
• Rental real estate income/(loss)
• Guaranteed Payment
• Interest income/loss (Flow Thru for sep stated!!)
• any DRAWS they’ve taken from the partnership

Includable and NOT as DEDUCTIONS:
-Charitable contributions, contributions to Keogh plans, medical insurance received.

NOT INCLUDABLE ON K-1:
ANYTHING ALREADY DEDUCTED IN THE 1065. EG, Retirement plans on behalf of the employees, depreciation on machinery, COGS, salaries and wages to other employees.

Question 15

For Estates and Trusts, what types of income/expenses are INCLUDABLE in DNI?

Answer 15

• All bond interest
• Rental income/expenses
• The ENTIRETY of trustee fees, regardless of “allocations to principal vs. Income”

NOT Includable:
-Long-term capital gains. These are allocated to the principle, not DNI.

Question 16

What is the Income Distribution Deduction for estates and trusts?

Answer 16

LESSER Of:
1) Taxable DNI LESS the tax-exempt interest (eg Municipal Bond Int.)

OR

2) Total Distribution Less tax exempt interest

(in Sim: this is 1800 vs. 39500 so easy answer)

Question 17

What is the GIFT TAX EXCLUSION to be used on the CPA exam?

Answer 17

A: $14,000

Question 18

Are Personal losses (and not capital losses) deductible on an individual tax return?

Answer 18

NO. Zero dollars’ worth.

Question 19

How do you deal with Deferred Gain when dealing with destroyed property, for tax purposes?

Answer 19

NEW PROP (built) Less the Deferred Gain

See how much of their Proceeds they are re-investing

IF THERE IS A LOSS YOU TAKE IT.

Question 20

What are Section 1245 Assets? What will Section 1245 Recapture?

Answer 20

-Section 1245 Assets are generally PERSONAL PROPERTIES used in a trade or Business for Over 12 Months (eg automobiles)

Question 21

What is Section 1245 Gain?

Answer 21

This will happen upon the sale of a Section 1245 asset, aka a depreciable personal property asset used in the business.

Upon the Sale of Sec.1245 Asset, you will recapture as ORDINARY income, the lesser of:

1) gain recognized, OR acc. dep.

Any REMAINING GAIN, once you’ve selected the lesser, will be section 1231 gain. which as we know receives LONG TERM CAPITAL GAINS TREATMENT since it has been held over a year.

Question 22

What kind of loss is a Section 1231 Loss?

Answer 22

Ordinary Loss - NOT CAPITAL LOSS, even though in gains, there is capital gains.

Remember that for corps., capital losses cannot be deducted beyond netting with capital gains.

Question 23

Are there Section 1245 losses and Section 1250 losses?

Answer 23

No. GAINS ONLY.

Question 24

What is the Section 1250 Gain about? Are there losses?

Answer 24

Section 1250 Gain relates to REAL PROPERTIES used in trade or business for over 12 months. IT’S THE REAL ESTATE ONE. Think warehouses or Office Buildings.

It “Recaptures” the depreciation that is in excess of straight-line depreciation.

Question 25

What are the Section 1231 Assets?

Answer 25

NONCAPITAL ASSETS held a Year or More

And some overlap with 1245 and 1250 assets

Question 26

What do section 1231, 1245, and 1250 Assets all have in common?

Answer 26

Assets used in business for 12+ months.

Question 27

Are wash sale losses allowed on tax returns?

Answer 27

No.

Question 28

What is the rule about “in-between basis” for gifts?

Answer 28

The basis becomes the IN-BETWEEN basis. So that you are realizing no gain actually, and for tax purposes no gain as well.

Question 29

What are all capital losses to corps technically considered, even though they can’t be used that year?

Answer 29

Short-term losses.

Question 30

How are distributions of stock from an estate treated, PRE- AVD selection?

Answer 30

You must treat them with their FMV per share when they leave the estate during pre-AVD selection period (6 months between death and date).

LESSON LEARNED: note the dates to understand if AVD value is being selected in the calculation, or not.

Question 31

Accrued Interest Calculation on Bonds?

Answer 31

=Facepercent(#months/12 months)