Partnerships, S Corps, Etc: Other Taxation Areas

Question 1

Limit of gifts that can be given w/out being taxed

Answer 1

Currently around $13k, though the figure generally increases over time due to inflation.

Question 2

What is the limitation to the amount that can be deducted from an estate as a charitable bequest?

Answer 2

There is no limitation.

Question 3

What is the limitation to the amount that can be deducted from an estate as a bequest to the spouse?

Answer 3

There is no limitation.

Question 4

What is the limitation to the amount that can be deducted from an estate as a bequest to a relative who is not the spouse?

Answer 4

Bequests to a spouse are deductible but no other personal bequests (even to a son or daughter) can be used as a deduction.

Question 5

Death-related expenses that can deducted in arriving at the estate value

Answer 5

1. funeral expenses,
2. administrative expenses,
3. debts and mortgages at death,
4. casualty losses,
5. charitable bequests,
6. AND a marital deduction.

Question 6

taxability of unrelated business income generated by a nonprofit

Answer 6

1. Unrelated business income over a set limit is normally taxable to a tax-exempt organization.
2. Being tax-exempt does not keep the organization from having to pay income taxes if it generates unrelated business income over a maximum dollar limit ($1,000 in recent years).

Question 7

exceptions to taxability of unrelated business income generated by a nonprofit (when such income is not taxable)

Answer 7

1. Income generated entirely by the work of volunteers,
2. Sales of donated merchandise,
3. Rental of real property, 4. Interest and dividend revenues (unless the result of investments obtained through debt financing),
4. AND, business carried on for the convenience of the organization (e.g.a student bookstore).

Question 8

Must tax-exempt organizations file to gain tax-exempt status?

Answer 8

Unless a church or very small, yes.

Question 9

Must tax-exempt organizations file an annual information return?

Answer 9

1. Unless a church or very small, yes.
2. Such orgs. must file Form 1023 by the end of 15 months from the end of the month of the organization’s inception to gain that status and must then file an annual form (Form 990) to provide ongoing information.

Question 10

Can donations made to tax-exempt orgs. be deducted?

Answer 10

1. If made to a Section 501(c)(3) org, yes.

2. If made to a Section 501(c)(4) org, or other org, no.

Question 11

personal exemption allowed on an estate tax return

Answer 11

1. The federal government allows a set $600 personal exemption on the filing of an estate income tax return.
2. Note that this is not an estate tax (on the value of the estate) but rather a tax on the income earned by the estate.

Question 12

personal exemption allowed on estate taxes

Answer 12

None.

Question 13

Can knowingly or recklessly disclosing or using any tax return information other than to prepare or assist in preparing a tax return lead to the assessment of a monetary penalty?

Answer 13

Yes.

Question 14

What can a Registered Tax Return Preparer do under Treasury Circular 230 (RTRP)?

Answer 14

1. Represent his/her clients before IRS revenue agents during an examination of a prior period for which she signed the return
2. Prepare and sign a claim for refund, then represent her clients before IRS revenue agents in the current year related to this claim.

Question 15

Privileges granted to Enrolled agents (EAs)

Answer 15

1. Enrolled agents (EAs) are granted the same privileges to practice before the IRS as CPAs and attorneys.

Question 16

Are EAs required to register w/IRS and/or obtain a PTIN?

Answer 16

EAs must do both.

Question 17

Are EAs subject to the same restrictions as RTRPs?

Answer 17

N, b/c they are granted the same privileges to practice before the IRS as CPAs and attorneys.

Question 18

Responsibility of an auditor completing a tax return under Treasury Circular 230

Answer 18

The auditor must immediately turn over any records in her possession to the IRS, whether or not s/he believes in good faith that they contain privileged information -

Question 19

Responsibility of a paid tax preparer- who is not a CPA, attorney, or EA- completing a tax return under Treasury Circular 230?

Answer 19

The tax preparer may sign the return if there is a reasonable basis for the position, but may not advise his client as to how delay or impede any IRS examinations that may occur related to the tax return.

Question 20

Written tax advice falls into how many categories under Circular 230?

Answer 20

Written tax advice falls into two categories under Circular 230: covered opinions and all other advice

Question 21

If tax avoidance is the primary purpose of an arrangement, then…

Answer 21

a practitioner’s related written communication qualifies as a covered opinion under Circular 230.

Question 22

reliance opinion

Answer 22

1. Concludes a greater than 50% probability of a favorable client outcome in tax avoidance.
2. Is considered a covered opinion unless the practitioner clearly states that it should not be used to avoid tax or tax penalties.

Question 23

standard of reasonableness

Answer 23

Practitioners are required to follow a standard of reasonableness for covered opinions, and for all other written tax advice.

Question 24

T/F?: Consideration in one client’s tax return of information obtained in preparation of another client’s return is a violation of the Internal Revenue Code and AICPA standards of ethics

Answer 24

False.

Question 25

IRS-imposed penalties for tax preparers related to an uncertain tax position

Answer 25

Greater of:

1. dollar amounts listed
2. OR, 50% of the preparer’s income obtained from preparation of the return
3. OR, claim for refund in question.

Question 26

An uncertain tax position lacking substantial authority (40% or higher probability of being upheld), but not undertaken with willful or reckless disregard for laws and regulations, may be subject to the lesser penalty listed above unless

Answer 26

1) it is disclosed adequately,
2) has a reasonable basis (20% chance of being upheld),
3) OR, there was a reasonable cause for any understatement of tax liability.

Question 27

The more likely than not (50+% probability of being upheld) threshold applies to…

Answer 27

tax shelters specifically identified by the IRS.

Question 28

‘99 Gramm-Leach Bliley (Financial Modernization) Act provisions

Answer 28

1. Financial institutions which outsource certain functions are NOT exempted from the requirements of the Act
2. Tax return preparers, subject to regulation by the Federal Trade Commission (FTC), are considered financial institutions subject to the Act’s provisions.
3. Under related FTC requirements, financial institutions are responsible for the development and implementation of a program to protect client information, which documents the safeguards in place.
4. The Act prohibits tax return preparers, such as Karina’s firm, from disclosing client information to outside parties.