Other Entity Taxation, Professional Responsibilities, and Federal Tax Procedures Flashcards
is an estate or trust allowed a standard deduction?
NO
when must an estate file a return on Form 1041?
if the estate has gross income of 600 or more for the tax year and if none of the beneficiaries are nonresident aliens
what kind of fiduciary entity must adopt a calendar year for tax purposes?
trusts (except tax-exempt trusts)
what is a grantor trust?
when the creator is the owner of the trust
what kind of trust may distribute principal (corpus)?
complex
what is a disadvantage of a revocable trust?
the assets of the trust are still included in the estate of the grantor
how do you figure out the income distribution deduction?
its the amount of income taxed to the beneficiaries
how is the income from a revokable trust reported? (i.e., on which forms/schedules?)
on the grantor’s Form 1040
*the trust is disregarded for tax purposes
when must a gift tax return be filed?
if a TP gives a taxable gift in excess of 15,000 per donee, TP is required to file Form 709.
- anything over the 15,000 is taxed
- 30,000 if married couple and treat gift as made by 1/2 from each spouse
what is the maximum amount that can be transferred pursuant to a death tax-free?
11,580,000 in 2020
what are the 4 circumstances that are fully excluded from the gift tax?
payments made directly to educational institution for tuition
payments made directly to health care provider for medical care
charitable gifts
marital transfers
are campaign contributions considered a “gift”?
NO
T or F, imputed interest on an interest-free loan is subject to gift tax for each year the loan is outstanding.
T
when is the generation-skipping tax imposed?
imposed on transfers of future interest who are two generations or more below the donor’s generation
what kind of gift does not qualify for either a deduction or the annual exclusion from gift tax?
a future interest gift
what type of expenses are deductible against the gross estate for purposes of the federal estate tax?
accounting and legal fees to settle the estate
funeral costs
taxes (excluding the federal estate tax itself)
estate debts
certain medical expenses
claims against the estate
transfers to spouse
charitable contributions
what is the marital deduction?
all items in the decedent’s estate and transferred to the spouse
when is the estate tax return (Form 706) due?
9 months after the date of death
what is the value of a gift for gift tax purposes?
FMV at the date of gift.
*remember that value is different than basis
what is unrelated business income?
income derived from an activity that constitutes a trade or business that is:
regularly carried on
AND
is not substantially related to the organization’s tax-exempt purpose
- this type of income is taxable
- work performed by unpaid volunteers is not considered unrelated business
organizations qualify as tax-exempt if… (3 things)
it is both organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes; for public safety testing; for the prevention of cruelty to children and animals; or to foster national or international amateur sports competition
no part of its net earnings goes to any private shareholder or individual
AND
no substantial part of its activities consists of carrying on propaganda or otherwise attempting to influence legislation
when is an exempt organization not taxed on unrelated business income?
if it is less than 1,000
Section 509 private foundations include all Section 501(c)(3) organizations, expect:
max 60% charitable deduction donees
broadly publicly-supported organizations
supporting organizations
public safety organizations
in what situations can a CPA charge a contingent fee?
an IRS examination or audit
claim solely for a refund of interest and/or penalties
a judicial proceeding arising under the IRC
what constitutes a covered opinion?
any written or electronic advice concerning transactions specific by the IRS as listed transactions
how long must a CPA keep a completed copy of a return?
3 years after the close of the return period
what are the 3 broad categories of misconduct?
misconduct while performing accounting services
misconduct outside the scope of performing accounting services
criminal conviction
what are the due diligence requirements for the earned income credit?
eligibility checklists
computation workpapers
record retention
reasonable inquires to the taxpayer
what is the civil penalty for aiding and abetting an understatement of tax liability on a tax return?
1,000 for all taxpayers
10,000 for corporations
*burden of proof shifts to the IRS from the taxpayer
what criteria goes with each?
position does not involve a tax shelter
position does involve a tax shelter
substantial authority or a reasonable basis for the position
more-likely-than-not
what are the percentages that go along with the following?
more-likely-than-not
substantial authority
reasonable basis
more than a 50% chance of succeeding
more than a 33% chance, but less than a 50% chance of succeeding
at least a 20% chance of succeeding
what does a statutory notice of deficiency (90-day letter) explain to the taxpayer?
TP has 90 days to either pay or file a petition with the US Tax Court. TP does not have to pay in order to file a petition.
does a temporary regulation have the same authority as a final regulation?
YES
if the TP and IRS cannot reach an agreement, what is next?
US Tax Court, US Federal Court of Claims, or a US District Court
*Tax Court does not require the TP to first pay, the other two do.
are US District Court cases heard by one judge or a panel?
one
can decisions of the US Tax Court Small Claims Division be relied on as precedent?
NO
what does an accuracy related penalty apply to?
negligence or a disregard of the tax rules or regulations
AND
any substantial understatement of income tax
what are the general requirements for a TP to avoid a tax penalty?
acted in good faith
did not have willful neglect
had REASONABLE CAUSE to support the tax return position
if a CPA commits gross negligence (constructive fraud), who is the CPA liable to?
all plaintiffs, including those who are unknown to the CPA
what constitutes negligence?
when a CPA breaches a duty of care
*CPA’s best defense is to prove that due care was taken
what is the restatement rule?
if a CPA performs an audit negligently, the CPA is liable to the client and any foreseeable persons whom the CPA knows will be relying on the audit
what are the 5 elements of common law (actual) fraud?
misrepresentation of material fact
intent to deceive
actual and justifiable reliance by plaintiff
scienter
damages
ultramares limits the accountant’s liability for negligence to…
parties in privity
AND
intended third party beneficiaries
what are the 4 elements of negligence?
defendant owed a duty of care to the plaintiff
defendant breached that duty by failing to act with due care
breach caused the plaintiff’s injury
damages
what is the difference between constructive fraud (gross negligence) and actual fraud?
constructive does not require intent, only reckless disregard
actual requires intent to deceive
